B (5:59)

Yeah, well, and to that end, I can read a quote from Wang Yi. We have never believed that any country can act as the world's police, nor do we accept that any nation can claim to be the world's judge. He said to a Pakistani counterpart during a meeting in Beijing on Sunday. The sovereignty and security of all countries should be fully protected under international law. He added. And then the Ministry of Foreign affairs said this seriously violates Venezuela's national sovereignty and destabilizes international relations. No country should put its domestic rules above international law. China calls on the US to release President Maduro and his wife at once and ensure their personal safety. And as you said, I mean, close watchers of PRC behavior over the last four or five years will note the irony of some of those claims. Like Czech intelligence reported that the Chinese had plotted to stage a car crash with Taiwan's vice president when she visited Prague in March 2024. And without commenting on the veracity of those claims, there's also like well documented interference in the Philippines, Myanmar, political interference in a variety of European countries, and obviously the support for Russia.

A (7:18)

They haven't gone in and snatched a sitting leader even.

B (7:21)

No, but as far as destabilizing international relations and interfering in other nations sovereignty, China's hands aren't clean. But that won't stop the propaganda push, which frankly has been in full swing for years now. So this doesn't really change that much.

A (7:38)

You know, in this case, the US is making it easy for them, I think, sort of more, you know, when you look at. Okay, so from the perspective of, you know, what does China care about? I think they also do care, you know, what does this mean for, for other countries in Latin America and how they deal with the US Because China has, you know, is the biggest trade partner for many, if not most of those countries in Latin America buying lots of resources, critical minerals, commodities.

B (8:06)

It's been a huge push for about 20 years now.

A (8:08)

You know, will those, you know, will the US pressure other countries in Latin America to sort of curtail some of that trade activity with China? And I think that's something they're certainly concerned about. What does it mean for Cuba? Right, which, which clearly seems to be something that the Trump administration and Secretary of State, National Security Advisor Rubio sort of see as next on the menu. Cuban economy is a basket case. I think China's been quite frustrated with lack of reforms, but they have a big surveillance base that they're building up there. They certainly, I don't think would want to see Cuba have any sort of a regime change. But at the same time there's really not much they can do. I mean, this is the Chinese, There was a cctv, did one of those, they showed in the background the play having sort of a war game around Latin America and the Caribbean. The Chinese are not going to be sending any sort of flotilla to go sort of interdict or get in the way of the US and what the US is doing down in Cuba and Latin America. That, that's not something that I think is on the table. You know, when you look at, you know, a lot of people, a couple of things. One was, so Venezuela had bought a fair amount of Russian and Chinese military kit. They had these Russian Chinese radars that were supposed to be good, although they were a much older model, you know, and sort of the people saying, oh look, they don't work. You know, the US came in and you know, they were, they didn't, Venezuela didn't see them. Way too early to tell or make any judgment on the Chinese kit just because one, you don't know, I mean, where they turned on who was operating them.

B (9:36)

Two, are they designed to detect low level flights? Was another point raised.

A (9:42)

Yeah, the prc, just like the US isn't going to sell their best stuff to other countries. And you know, so again, it doesn't, people like to take.

B (9:50)

I mean that's where you get into a real fog of information in the wake of something like this because there were, there were a number of reports that Chinese air defense systems failed. There was a fun note about Maduro using a Huawei phone that was easily tracked. I have no idea how much stock to put into any one report about Chinese technology, but that has been an aspect of the sort of optics here.

A (10:15)

And then we get to the question that everyone sort of said, oh, this Means, you know, this old, this, you know, folks in Taiwan said, oh, this, you know, Xi will be wary of, more wary of doing something with Taiwan because look how powerful the US military is. And other people said, oh, this just means they can, they'll have even less global international resistance if they move on Taiwan. And you know, the way the US has flouted international law is it sets a precedent for China. One, I misses a couple things. One, you know, from the PRC perspective this is not a international issue. Taiwan has nothing to do with international law. Right. This is an internal affair. They have repeatedly, you know, this is their long standing position. They've been mount, they've mounted a, you know, they've conditioned most countries around the world to accept their definition of the one China principle. Right. So again, if they were to do something with Taiwan, it would have no bearing. International law would have no bearing on it. Two, you know, they've also been mounting this campaign to really misrepresent what the UN General assembly resolution 2758, which gave the Republic of China seat to the PRC in the 70s to state that that also says the UN acknowledges that Taiwan is part of China. It doesn't say that. Right. But they've mounted this campaign and a lot of countries have signed onto it. So I don't think international law was. They certainly want. I think it's helpful to have a. There are no more. The rules based order. Allegedly mythical rules based order is now the mask is fully off. I think that's helpful to them. But I don't think it has any bearing on whether or not they would say if there is a timeline to do something kinetic on Taiwan, this would now lead them to move it up in terms of military operation. There was a bunch of stuff on the Chinese Internet. Why don't we go capture the president of Taiwan, William Lai, go in and do what the US did. But that's not what they want. Just going in and seizing the president and bringing back to Beijing doesn't achieve their goals in terms of bringing Taiwan into the, you know, reunifying as the Chinese say it or seizing it as the time some of the Taiwanese would say it. But, but bringing it into the, into the prc. And so I think from a military perspective it just isn't that relevant. But it certainly does from the perspective of the countries that would be upset and maybe try and intervene or at least look at sanctions on China if they did something on Taiwan. Most of them are US allies. Those countries are in a more difficult position because of, I think the US actions.

B (12:41)

Interesting. Yeah, I disagree. I mean, like Tong Zhao from the Carnegie Endowment said, watching the international community accept recent U.S. actions will almost certainly convince Beijing that a military move against Taiwan would be far easier for the world to swallow. And I saw similar ideas expressed in a number of places over the last several days. And I just think Beijing would be crazy to think that the rest of the world would accept a military move against Taiwan along the lines of what we've seen this past week. I can't totally discount the possibility that the CCP does in fact read the reactions as encouraging. I just think that's a really questionable leap to make. Based on what we've seen over the past week and based on how Europe has talked about Taiwan in the past 10 years and how Japan obviously has talked about Taiwan, I don't think anybody is just going to say, oh, well, it is an internal affair. This is great power relationships at work.

A (13:46)

And I think maybe I was not clear. I mean, I agree, you know, there will be a certain set of countries that will oppose it, you know.

B (13:54)

Yeah.

A (13:54)

Most rhetorically with sanctions. And it's the usual sort of the U.S. traditional, some of the traditional U.S. allies.

B (14:01)

It would play out like Russia's invasion of Ukraine more than the American operation in Venezuela.

A (14:08)

Right. Without the ability to actually resupply Taiwan. And so, so what, what I was going to say is, you know, one of the things I think is more important around Taiwan and the PRC than the US arrest or seizure of Maduro, the Venezuelan president is the Chinese launched again, this was why it wasn't particularly quiet. Right. The Chinese launched another round of another operation exercise, sorry, around Taiwan right after Christmas. And you know, it was a two day exercise. It was Justice Mission 2025 and it was practicing basically blockading and interdicting resupplies and doing it from the eastern side of Taiwan, so things that would be moving in from the Pacific.

B (14:55)

Right, right.

A (14:57)

And you know, some of the, some of the propaganda, you know, is quite sort of lurid, pretty, pretty aggressive propaganda imagery. You know, sort of going after ships that had high Mars deliveries on them or, you know, black blocking submarines, you know, obviously looking at the US and, but the point is, is that they ran this exercise and then you had the countries that you would assume would be the ones who would be upset, Australia, Japan, the eu, uk, I'm leaving some off, issued statements and then the Taiwan government put out a statement thanking the countries that had issued statements of support. Glaringly absent from that was the U.S. and several days later, the U.S. i think was the principal deputy secretary of the State Department issued a, frankly, a kind of a mealy mouth statement about the exercises around Taiwan that is a much more, I think, meaningful signal to Beijing than what happened in Venezuela. And now you'll hear some people say, well, you know, one of the alleged proximate causes of this latest set of exercises was the US decision to sell. I think it was like $11 billion worth of various types of weapons systems.

B (16:18)

I was going to say, I mean, the US did just sell $11 billion.

A (16:21)

But you know, that stuff's not going to arrive for years. And so. Okay, so, so theoretically, you know, on a substantive basis, the US Is giving this support, but again, that doesn't. What was what was announced as part of that sale in December doesn't move the needle for Taiwan for, for several years in terms of defense. And now the US is on the one hand, you look at the national security strategy, which again, had a. China was featured pretty large in that strategy, but in a different way than the previous ones. But it was a lot about the Western Hemisphere. That's what this action is about. And so on the one hand, the US Is saying we really are focusing on the Western Hemisphere. On the other hand, normally they would have had a much stronger statement about what the Chinese did. The exercise around Taiwan. I think that is a signal that to Beijing is like, okay, you know, not a green light, but certainly makes them wonder like, is this really moving towards more of a. Okay, their focus really is more the Western Hemisphere and they're going to be a little less focused on what we do here. Yeah, I don't know, but I think that is something that, that is something that is being considered and that's worth.

B (17:30)

Considering more than the idea that what happened in Venezuela is moving the needle one way or another from, for the dnc.

A (17:38)

I think so. And the other piece, the other piece of that is the relative lack of support from the US from the Trump administration to Japan since the reaction from Beijing over Prime Minister Takeshi's remarks in early November about retirement.

B (17:55)

I think it's tricky because the US Is clearly invested in the stability of the bilateral relationship with the PRC now and invested in the durability of the trade truce. But if China is intent on, let's say, declaring economic war on Japan and cutting off rare earth access for Japan, I wonder how long the US Neutrality can last in that scenario. And with the Taiwan exercises, I understand, not saber rattling over those exercises. Trump was asked about it and he said they've been doing exercises like that for 20 years, which is true. And for the last couple of years the exercises have intensified. But if you're invested in stability, then not rocking the boat purely for superficial purposes is a reasonable course of action.

A (18:54)

And that's why. That's why again, it's hard to say. I think, you know, it's more of a trying to guess what Beijing may take away from it. And my point is just that I think the reaction around the exercise in Taiwan are probably more meaningful in terms of looking at the sort of Taiwan situation than what the US and how.

B (19:11)

They alter their calculus. Yeah.

A (19:12)

And one of the things too that I would say is I think if the US were to get more involved, actually invade Venezuela and get stuck in a quagmire, I think that would be something that Beijing would probably be okay with and see it as opportunity because again, it would just.

B (19:29)

The Middle east, that's a dream scenario.

A (19:31)

The Middle east is, you know, still getting a lot of attention from D.C. and then you have. So. So that would again, I think, potentially open up more space for them. It looks like so far the US is not, is very specifically not going to do that. They're just going to take the oil and put it in US banks, collect the interest and then, sorry, maybe give it back to Venezuela if things get better. But, well, the oil.

B (19:53)

The one thing on oil that I thought was interesting, you surfaced a pretty compelling post on substack, a substack called Collapse Intellig Agency. And the post, it outlined the specific characteristics of Venezuelan oil and why it's critical to the PRC economy, particularly asphalt. It's a type of oil called Miri.

A (20:14)

It's important. I think, I think it was a little. I don't would over. I get overstated a bit how critical it is, but it's useful.

B (20:20)

Yeah, well, and removing PRC access to that particular oil could be a problem for China.

A (20:26)

Right, but Trump. But President Trump has already said he'll sell the oil to China.

B (20:29)

No, but it creates leverage. If China needs that oil, oil, Chinese companies have been importing that oil at a steep discount. So even paying market prices will strain the economy further. But then also the PRC doesn't have alternatives to replace. Well, they have heavy crude from Venezuela. Yeah, well, and Iran. Then there's sort of a single point of failure in terms of PRC oil imports, all of which is strategically beneficial to the United States and potentially a real setback to China. In the midst of all this, if the US can successfully manage the transit position and not have Venezuela turn into an out and out disaster which is still on the table.

A (21:11)

So and you know, and the other bit about Venezuela and China is last night there was reporting from ABC News that, you know, that and I'm just going to quote from the report. The Trump administration has told the interim President Rodriguez the regime must meet the White House demands before being allowed to pump more oil, according to three people. First, the country must kick out China, Russia and China, Russia, Iran and Cuba. And Cuba and sever economic ties. So again, that's a pretty aggressive move. That's saying this is in part about China.

B (21:41)

Right.

A (21:41)

Which is I think the administration is saying. And so one of the questions is going back to the discussion of what does it mean for Taiwan and the US China relationship is this Trump administration, if they decided they just can't go head to head with China right now, they've got to stabilize, they stabilize the economic relations with the sign deal. But now they're just on the one hand they're going to hope that that stability stays for that part of the relationship, but then they're just going to go more systematically in other places around the world and try and rework China's role in certain countries.

B (22:11)

Right.

A (22:11)

And so instead of going like directly head to head with China, they're kind of going at it around the periphery. I don't know. I mean, I'm hesitant to, I think.

B (22:19)

That'S one way to read it.

A (22:20)

I'm hesitant to describe strategic genius, but I'm also hesitant to, you know, again, there's, there are a lot of moving parts that seem contradictory and conflic. One of the common threads, though, is that certainly there are, you know, Greenland, too, is potentially about China in part. And so there's a lot of, there's a lot of in the nss, the national security strategy was not soft on China.

B (22:42)

Right.

A (22:43)

Right. And so, so anyway, I think that.

B (22:46)

And I don't have the Rubio quote here, but you highlighted it in your Monday newsletter. He talked about not allowing foreign adversaries to establish bases of operations in the Western hemisphere. And let's say China did invade Taiwan and did have deeply enmeshed operations in Venezuela where they could occupy US Forces and disrupt the US Economy in Venezuela or let's say the Panama Canal, which is going to be a contested issue in the months to come here as China continues to junk up that deal and the planned sale. That's why it's all a priority.

A (23:24)

So and that's, and that's the other thing I wrote about on Monday is I think, you know, don't forget about the Panama Canal and how the Xi Jinping has effectively blown up the deal. Trump thought he had to get control of the two facilities on either side of the canal out of the hands of a company that could be controlled from Beijing. And so the US has a large naval flotility, a lot of military assets very close to Panama. Not saying anything's going to happen, but Trump, in his last year's State of the Union speech talked about how he'd gotten a deal for those facilities in Panama Canal and that has been blown up in his face by the Chinese side. And so I don't think he's going to forget that. So that's a possibility. Cuba, again, is an area where extensive espionage. Rush Doshi, who served in the Biden administration, you know, he posted that he was told, I think one of these, you know, the track one and a half, track two sort of conversations he has with PRC and interlocutors. He said that he was told by quote, unquote, prominent PRC figures that the Chinese wanted to establish military. Like a naval base in Venezuela, huh?

B (24:28)

Yeah, exactly. And they have one in Argentina.

A (24:30)

Well, they have a, they have a space like, I think it's a sort of intelligence and space tracking base in Argentina.

B (24:36)

Yeah, well, and I mean that's, they've had a very good relationship with the Venezuelan government. And I do think that was an animating force that justified the US's intervention in Venezuela is the threat of Iran, Russia and then China deepening those ties and expanding their operations in Venezuela and posing a threat to US national security. So I would say it's a setback for the, the efforts that China has made in Latin America and in Venezuela specifically. They are, there's also extensive critical minerals resources in Venezuela that China has the ability to control. And I think that's part of what you're seeing with the Trump directive to just expel.

A (25:26)

But I think, I think the Chinese also realized, you know, they had a lot of loans into Venezuela, they've got a bunch paid back. I think they realize what a mess the country is. And so the relationship has not been nearly as good as it was over the last few years. It was as it was, say, during the Hu Jintao era, because I think the Chinese realize it's really just a mess and they're not able to access a lot of the things that people, oh, you know, Venezuela has all this gold and silver and critical minerals and yeah, maybe. But just because they have it underground doesn't mean anyone can get it and get it out of the country.

B (25:57)

No. And I think the US concern was that the US wants access to those critical minerals and as long as China is potentially interfering, that poses a security risk. What do you make of the rhetoric surrounding the PRC's relationship with Venezuela? Because it was described as an all weather strategic partnership.

A (26:20)

That's China uses that with a lot of countries. And you know, I think, you know, when you look at the reality is when things get tough, none of these leaders should expect that there's any sort of support from the Chinese side to actually maintain their political security.

B (26:33)

Yeah.

A (26:33)

I mean you look at what happens in Syria.

B (26:35)

She was Syria, Iran, what she told Maduro that China would firmly support Venezuela in safeguarding state sovereignty, national dignity and social stability. That was a meeting in Moscow last year.

A (26:49)

Talk is cheap. Iran, Iran is the big one. Right. Because you know, and we're not around experts and we don't play well on podcasts, but clearly there's a lot of discontent in that country, a lot of protests. There seems to be another round of potential military build up, talk of other types of action. If the government were to fall, that potentially would be a much more meaningful problem or blow to Beijing than what.

B (27:15)

Happened in Venezuela because of the reliance.

A (27:18)

On oil imports, oil commercial relationships, but also just another autocratic regime that, where.

B (27:27)

The people was purportedly backstopped by the prc.

A (27:31)

But, but it's also again from a. There's the geopolitical impact, but there's also the domestic political impact, which is that a large country, the people are able to rise up and overthrow the leadership. Right. And that's always going to be what they're always, what they're going to be most focused on is the concerns about what kind of ideas that might give their own citizens. Whether or not there has any bearing on what Chinese people might do. And I don't think it would. It's more the, the paranoid concern that this is, you know, like what they saw in 1989. You know, this is a bad example for, of what's happening in an undemocratic country. Yep. So, but we'll see. Again, we're not, I'm not going to speculate, but the, but Iran, Iran is I think a big wild card for a lot of reasons, not just about China, but certainly for China too.

B (28:22)

Right. Well. And when you look at the geopolitical landscape, the conditions have not trended in the right direction for what China wants to do on the international stage. And so I, looking at what happened in Venezuela, I think you were right. The best case scenario for the PRC is that Venezuela turns into a years long quagmire that occupies a ton of US time, resources, attention, and that would be a dream for China and further.

A (28:55)

Delegitimizes the US in the eyes of the rest of the world.

B (28:58)

Yeah, and I'm not sure whether that, that actually matters as much, but if the quagmire scenario doesn't happen and the US can manage something like a peaceful transition and establish an allied government, then I would say at best this is a pretty significant embarrassment for China and at worst it becomes a strategic setback that is pretty meaningful and gives the US more leverage over the PRC industrial economy and sort of creates a little bit of a counterpart to the rare earth leverage that China has.

A (29:33)

I would, I would, I'm more on the would be embarrassing camp. I I. But anyway, we'll find out, right?

B (29:40)

Indeed, the year is young and we started off with a flurry of news here. So we'll see what emerges in Iran, Venezuela, who can say? We also had news in Japan though. And so I will read. The Ministry of Commerce on Tuesday released announcement number one of 2026 on strengthening export controls on dual use items to Japan. A very short announcement with no details. You write that states the export of all dual use items to Japanese military users for military purposes and to all other end users and end uses that contribute to enhancing Japan's military capabilities is prohibited. And then the Ministry of Commerce elaborated and said recently Japanese leaders have openly made erroneous remarks concerning Taiwan, hinting at the possibility of military intervention in the Taiwan Strait, grossly interfering in China's internal affairs and seriously violating the One China principle. The nature and impact of these actions are extremely vile. In order to safeguard national security and fulfill international obligations such as non proliferation and in accordance with the relevant provisions of laws and regulations, China has decided to prohibit the export of all dual use items to Japanese military users.

A (31:04)

So wait, wait, wait, wait, wait, wait. There's, there's another bit that's actually important. So it's to, to, to Japanese military users for military purposes and to all other end users and end uses that contribute to enhancing Japan's military capabilities. Which is wide open.

B (31:22)

Exactly. The scope of this is at this point pretty vague.

A (31:27)

You know what you're, you're a military officer and your wife has a car and she drives you to work or buys groceries with a car that's contributing to military uses. So therefore anything that goes into your car from China can't be, I mean I'm sort of joking, but I'm not this is right this is how the Chinese write it so that it is wide open and they can decide what that means means at any time and they can change the definition whenever they feel like it.

B (31:49)

And so we don't know exactly how onerous these export controls will be.

A (31:55)

And the Japanese side I think was pretty clear like they're trying to figure out what it actually means. It potentially it's I think several hundred potential items maybe. But again I think, I think that's underestimated because the way it's written I think makes it much, potentially much broader if the Chinese want to interpret it that way.

B (32:12)

So how do you think this could end? At this point I'm not even 100% sure what China wants from Japan. This is a months long saga.

A (32:21)

The other thing and as I wrote about yesterday, which is actually I think more potentially more problematic for Japan is that there was also one of those planted stories in China Daily in the Chinese version where sources China studying tightening export licenses to Japan. Right. So that is again I think more meaningful and more problematic both for Japan's economy but also potentially for the U.S. china and U.S. japan relationship. Because in the White House fact sheet from the Busan deal it very specifically says this about rare earths. It says that China will suspend the global implementation of the expansive new export controls on rare earths and related measures that announced on October 9, 2025. China will issue general licenses valid for exports of rare earths, gallium, germanium, antimony and graphite for the benefit of US End users and their suppliers around the world. US end users have a lot of Japanese suppliers. So if there is and you know the way the Chinese talked about the leak to the China Daily was for the export license reviews for medium and heavy rare earth related items that were listed for control on April 4th. So not so before the October 9th controls. But again if the Chinese do anything that then screws up the US supply chain, theoretically the US side could say you're breaking the Busan deal. One of the things I think that would be again but so far silence from the US side, no expression of support for Japan from President Trump on True social from the White House I think from the State Department at this point. We're recording on Wednesday right now it's almost noon D.C. time. And then today coincidentally right, because it's never sort of political, the Chinese announced an anti dumping investigation into certain kind of chemicals that are used in chip manufacturing. And so it's into imports of dichlorosilane originating from Japan and It's a chemical critical to the manufacture of semiconductor chips. It just so happens that China has some producers that can replace the Japanese suppliers in part of the semiconductor chain. And then at the higher end where the Japanese chemicals are needed and better, South Korea now has companies that can replace Japan. And coincidentally, the Japanese, the South Korean president has been in China talking about with a delegation of several hundred deepening relationships. Yes, several hundred business leaders. And so, you know, I think that the Chinese are, you know, they're doing this because they know that they have replacements. They're confident that on part of the sort of market the Chinese suppliers can step up and then the rest of the market, the South Koreans can take it away from the Japanese. And so again, nothing yet from the US Side. This just, this was announced overnight. To your question though, what can the Japanese do? I mean, this is the real issue, right, because China continues to insist that Japan, you know, the Japanese Prime Minister has to retract her comments, right, and then do a whole bunch of other things around the, you know, not increase the defense budget, you know, pulling back from sort of how they're trying to expand what the Japanese defense forces can do politically impossible, right?

B (35:49)

I mean, just like mechanically speaking, if you cave now, then it creates a precedent that becomes really dangerous for the future of Japan's security.

A (35:58)

And the other thing is too, you know, people like to talk about, you talk about China, right? You got to worry about face, right? You deal with Chinese, you got to worry about, you know, make sure they don't lose face. True. And the Chinese get that same in Japan. And the Chinese are giving the Japanese zero face and they're giving Takaichi no possibility of saving face here. They want a full on humiliation, groveling come down, right? That is what they are effectively demanding and that is not politically possible. And so how does this end? You know, if the US I think were to say, be more supportive of Japan, that would be helpful to Japan. The U.S. you know, the South Koreans I think are going to be happy to take the Japanese business, right. It's putting Japan in a really difficult spot. And you know, whether.

B (36:45)

No kidding. Well, and what I wonder to what extent is this a test of the US in the midst of all this? I don't want to be too solipsistic and make it all about America.

A (36:56)

I mean, it goes back to the earlier discussions around sort of Taiwan and the lack of a real meaningful statement from the US around the recent exercises we talked about on the last podcast, which, gosh, was like three weeks ago. Right. Was how the Japanese were not feeling like they got the support from the US they wanted around the prc. Reactions to the Prime Minister Takechi's comments in early November. And so I think again, so far, at least publicly, the US has not given them support. And I think that also is a signal, or seen as a signal, as a sign in Beijing that they can even push even harder.

B (37:36)

Right. Emboldening the PRC response here. Well, I guess we have to wait and see how extensive the export controls actually are and how much damage the PRC is going to do to the Japanese economy in the midst of all this. Because I do think if it gets much worse, then the US would be forced to step in and try to intervene in one way or another. And then at that point, I mean, I think China is also invested in the trade truce that emerged in early November. And so it's unclear how exactly that process would play out. But for the time being, Japan doesn't really have many options except they could intensify export controls of some of the high end semiconductor inputs that they have.

A (38:26)

Right. Japan has, has things they could do. But again, it is a, I don't.

B (38:32)

Think they want to escalate.

A (38:34)

No. But I think, you know, ultimately, you know, Japanese are also very nationalist. They're also very proud. The Prime Minister's approval seems to be going up as the Chinese continue to increase the pressure. So I don't, I mean, I don't know how this ends. I don't know where, you know, the Chinese are not giving the Japanese an offering.

B (38:53)

Right.

A (38:53)

And I just don't at this point I just don't see how it's politically tenable for the Japanese side and the current Prime Minister to just end up with a, with a, you know, retracting a humiliating retraction and effectively sort of a groveling comedown.

B (39:08)

I know. Well, and it's funny because a couple days ago in the midst of the Venezuela reactions, I found myself thinking, I wonder whether the standoff with Japan will just sort of peter out and it'll be similar to the Fukushima freak out that the PRC had a year ago where they, we look up a month or two from now and they just try to act like nothing ever happened. Doesn't seem like that's the direction this is going. So we'll see what sort of response Japan has and how it all evolves. This is a question I should know the answer to. But 15 years ago, with the initial rare earth standoff between the PRC and Japan, how did it get resolved themselves with the Controversy around the Ryoko Islands.

A (39:55)

Oh, it was around. That was around a fishing boat. I mean that was basically. It was never an announced policy. There's still some debate about whether it was a specific ban or, you know, the New York Times reported over the holidays that it was, there was a meeting where the big companies were told orally to stop selling to China.

B (40:16)

That's right, yeah.

A (40:17)

In the cynicism chat a few days ago, a former reporter in China who at the time was covering rears for Reuters said, well, it wasn't. There was actually a set of quotas in place anyway and they'd ever hit the quotas. And so it wasn't actually a ban. Unclear. But ultimately the next year, you know, the Chinese didn't make a big deal out of it and then it sort of slowly kind of unwound and then it spurred the Japanese to, to do a lot more to try and get self sufficient, diverse diversification from Chinese supply chains around Earth. And so they've done a lot more than the US has or the EU, but they're still, you know, somewhere in the high 60% and for certain key things still still close to like 90, 100%. And so they're still, the Chinese have a ton of leverage here still.

B (41:02)

Well, we shall see. For now, I mentioned high end semiconductor inputs earlier, but let's talk about high end semiconductors themselves. I'll read from Reuters. This was a story that generated a lot of reaction right before the new year. Nvidia is scrambling to meet strong demand for its H200 artificial intelligence chips from Chinese technology companies and has approached contract manufacturer TSMC to ramp up production. Sources said Chinese technology companies have placed orders for more than 2 million H200 chips for 2026. While Nvidia currently holds just 700,000 units in stock, two of the people said the bulk of the orders of over 2 million chips for 2026 has come from major Chinese Internet companies, which view the H200 as a significant upgrade over chips currently available to them. So we know for sure that Chinese companies want these chips, which is not a huge surprise.

A (42:03)

And we know some of the, some of them, like ByteDance, Tencent, already have access to the best Nvidia chips and all the offshore data centers via clouds.

B (42:11)

Right, Exactly. But. But that Reuters story ended with a note that said Chinese officials are still deciding whether to allow H200 imports amid concerns that access to foreign chips could slow development of the domestic AI semiconductor industry. Then, right before we came on to record, there was a report in the information that China has suspended Nvidia chip purchases and asked companies to halt H200 chip orders. China is reportedly reviewing chip import conditions. So the plot thickens here, Bill. What do you make of where we are? I mean, we've been wondering, playing this parlor game for months now as to whether China would allow these purchases. And it looks like the answer is not an emphatic yes and maybe closer to no in 2020.

A (43:04)

I mean, again, I think, you know, it, you know, who matters, who are the decision makers. Right. And normally the companies, of course, they want the best chips. Right? Yeah. They're not the decision makers. At least when it comes to buying and deploying for inside China and the party, the top of the leadership has made very clear that they want to go faster towards indigenization. And I think they believe that they're in certain areas, they're getting a lot closer than, than maybe people expected. And so why slow that my momentum by having people be distracted foreign. Right. But then I think the companies say, well, actually we need, we have a big gap in training, not inference, and these H200 are do things that our chips can't yet do. So I don't know how this gets resolved. I think, you know, Jensen Huang was at cas, I think yesterday was. Or CFO was talking up the demand from China. And you know, I think Nvidia, I don't know what's happening. You know, maybe they won't then have TSMC make a whole bunch of new ones yet. Right. Because they're waiting for orders.

B (44:09)

Well, that's the thing. Reuters actually outlined what would have been a pretty substantial risk for Nvidia to place those orders and manufacture 2 million chips without a guarantee that those companies are going to be allowed to actually buy those chips. So it looks like maybe the CCP is doing Nvidia a favor here by answering that question earlier than maybe.

A (44:35)

But it would be interesting too, because one of the, you know, last year we're approaching the, you know, the first anniversary of the quote, unquote, Deep Seek moment and.

B (44:43)

Oh, that's right.

A (44:44)

You know, everyone's waiting for Deep Seek's next model to come out. Now, I think the expectation is sometimes on or just before Lunar New Year, which is in February. You know, there was that report, I think it was from Information or from Finnish Times that they're actually training it on thousands of Blackwells.

B (45:03)

Ah, I missed that.

A (45:05)

Yeah. So again, Nvidia is still clearly far and away the best and far and away the most preferred by the actual developers. Right. The actual the people who are making these things. But the top of the government has a broader vision and a broader plan. And so ultimately, you know, again, the companies are not the deciders. And anyone who thinks they are when it comes to China, I think is, has not studied their history.

B (45:35)

Yeah, well, we shall see. There was other tech news over the break that I wanted to read and this, actually, this ran this week. But over the break, Meta announced plans to acquire Chinese platform AI platform Manus for $2 billion. And then I'll read this from the Financial Times. Chinese officials are reviewing Meta's 2 billion dollar purchase of artificial intelligence platform Manus for possible technology export control violations in a move that potentially gives Beijing leverage over the high profile tech transaction. The deal announced last week is a rare case of a US group acquiring a cutting edge AI startup with Chinese roots at a time when Beijing and Washington are locked in an increasingly fraught competition over a range of advanced technologies. Two people familiar with the matter said officials in the Commerce Ministry had begun assessing whether the relocation of Manus staff and technology to Singapore and the subsequent sale to Meta required an export license under Chinese law. And I misspoke earlier when I said it was a Chinese company. Manus did relocate to Singapore and I believe closed any offices they had in China. And that is part of the argument that this deal should not attract any scrutiny. Meta's argument that this deal should not attract any CFIUS type scrutiny.

A (47:01)

The Manus founders, they started the company in China, they had a bunch of employees in China and then when they, you know, they raised money from, they had some, some foreign investors, including Benchmark, and they realized if they wanted to actually be able to be a global company, they had to rip out their Chinese roots. And so they shut down their Chinese offices. I guess they moved some may, I'm not sure they moved all their Chinese employees to Singapore and so they de China their operations and, and, and honestly.

B (47:27)

If you go back to the deep seat moment, Manus followed shortly thereafter and it was a big deal and a big success as a example of Chinese tech prowess. And so it would be kind of a meaningful symbolic loss for them to end up in the United States.

A (47:45)

No, it's smart. One of the investors is subscribed to cynicism and sent me early on there are people actually selling the access codes right to be able to get into the beta. And they were really smart about how they generated buzz around the launch. But from the Beijing's perspective, some people have hailed this deal as, oh, it's a model of how Sort of the US capital and Chinese entrepreneurs and Chinese technologists can work together. The problem is, I think again, back to the discussion around the government, the leadership and the view of Nvidia Beijing. The leaders don't want their top AI talent leaving the country.

B (48:27)

Of course not. I mean they've been emphasizing the startup ecosystem for years now.

A (48:31)

This is a horrible precedent. This deal is a, both the structure and the fact that they want overseas to begin with, but then becoming part of Meta. It's a horrible precedent from, I think from the policymakers perspective. And so they will do a lot to make sure that whether or not they can undo this deal, that other entrepreneurs don't get the same kind of idea.

B (48:52)

I think, yeah, yeah, I mean it would make sense to fight this sort of pipeline as far as they possibly can.

A (48:59)

And the problem, the problem is then other companies that do this, that are allowed to do it, it's going to raise questions about, well, why is Beijing, why, why are the, is the government okay with that company doing it? And other than what, what else is going on there?

B (49:12)

Yeah, right.

A (49:14)

It's a, it's a really, I mean China has some of the, some, you know, that we know, they have massive AI talent pool, some unbelievable talent. Best technologists in the world, some of the best entrepreneurs in the world. It's a real blow, I think, to them because, you know, for them, look, there's a couple AI companies that are going public in, I think in Hong Kong this week. Valuations are going to be high, but they're nothing like the valuations that AI companies are getting in the West. In the us their products are primarily limited to Chinese use, although there are some of them with the open sourcing, they're getting some traction in the rest of the world. But these are great entrepreneurs who want to bother, I think, be able to play on the global stage, but then also make the kind of riches that you can make if you're in Silicon Valley and the set it does, it's not happening inside China.

B (50:02)

Right. You can't do that.

A (50:04)

And so these people, they will be.

B (50:05)

Stifling with, I was going to say, as far as stifling is concerned, you have to deal with a lot more hands on oversight in China and you deserve credit. Because when the deep sea moment happened, you mentioned that deep sea becoming a national champion might be sort of a blessing and a curse as they have to interface with the government more often. And I think of that often. It's now been like six months since we're supposed to get the new model and who knows what exactly is driving the delay with that release. But having to engage with the bureaucracy is certainly antithetical to innovating and moving fast the way a lot of the American tech companies do. So I understand if you're a founder, why that in addition to the unbelievable capital upside would be more attractive than trying to do it in Beijing.

A (51:00)

Maybe the next Deep Seq model will, you know, if it's true that they're training it on thousands of Blackwells, it certainly shouldn't, it certainly shouldn't hit Nvidia like Nvidia hit Nvidia stock last for the first announcement. But maybe it'll take some shine off of OpenAI's pretty high valuation. Right.

B (51:16)

It could be. I mean OpenAI valuation is a story unto itself. But in terms of the like, it's hard to know what's going on with Deep Seek because there was also the report that they were trying to run it on Ascend chips. I hadn't seen the Blackwell news, but yeah, maybe it will be even more performant.

A (51:35)

But back to this. One expects review of the man of Steel. I mean, again, it's certainly possible nothing will come, but I think that's very unlikely. I don't think they'd start the review and then be, oh yeah, it's fine. I think that, you know, and they have, even if all the money's offshore, the people are offshore. They have leverage. Right. They always have leverage.

B (51:49)

Because I was gonna say, like what sort of leverage? I wondered whether the families of some of these employees are still in China.

A (51:55)

That's part, I mean, one, if they're any of them PRC citizens, they actually owe taxes on what they made.

B (52:00)

Okay.

A (52:01)

Two is the yes, if they have family members back in China, that's always a point of leverage. If they want to go back to China, it's all, I mean there's all sorts of ways that are non economic points of leverage. If they really wanted to make an example and say this, this, there are costs to doing this and we don't want anyone else doing it. Yeah. You know, whether or not what they, that whatever code they created in China that they took to Singapore was somehow export controlled. Again, I have no idea. If the government says it was covered by the export control law, it was covered by the export control law, they're not going to sue. And really. Right.

B (52:41)

That can be interpreted as needed is generally the rule of the day.

A (52:45)

But you know, one of the, you know, one of the questions is, is also, I mean you've, you've There've been reports, unconfirmed, but, you know, like Deep Seek employees, their key employees can't leave the country. You know, is there going to be a broader, you know, you're a top AI engineer at all sorts of different labs or companies and guess what? Hand over your passport or don't get a passport, you can't leave.

B (53:05)

Yeah. I mean, they were doing that with rare earth engineers and refining engineers.

A (53:10)

It's not at all outside the realm of possibility given the way the Chinese government views this strategic sector and how they operate.

B (53:19)

Yep. I would say again, using the rare earth industry as an example, it would track pretty closely to their strategy overall.

A (53:27)

I think it also, you know, clearly, like Benchmark and some of the other firms that invested in Manus and got their, you know, a pretty cool, quick and significant payout from Meta. It does, I think, raise some questions about the replicability of that model. Right. Where they say the American or foreign capital, Chinese entrepreneurs move them offshore, clean out the China connection. So therefore they're acceptable in the US and primarily the US but then in other markets is probably going forward. What this means is that they can only fund the Chinese entrepreneurs who are setting up starting when they're already outside of China, as opposed to taking something that's underway in China and, you know, small, promising, getting it out of China or building, building on it outside of China.

B (54:15)

If it's a material risk that it won't be able to be removed from China, then yeah, that definitely impacts the investability of some of those companies. Yeah. And maybe that's the goal of an investigation like this is to chill the investment environment.

A (54:31)

Absolutely. I think it's, it's. They, I would imagine they're going to use this as a example to disabuse other entrepreneurs of the idea that this is an okay thing to do, that they want, you know, to leave China to build out your product.

B (54:46)

Well, we'll see what happens. It was a smart investment for Meta, albeit with some hurdles that need to be cleared in the US and then obviously in China as well.

A (54:57)

I mean, on the China, I don't think, I mean, this is where, going back to early on, I think where the Beijing made a mistake in making it impossible for Meta to actually set up operations in China. Because, yes, Meta makes a lot of advertising revenue from Chinese firms advertising globally, but there are no Meta operations inside China. That the Meta.

B (55:18)

There's no leverage.

A (55:18)

Yeah. That they can actually go after. And if they go after, they say, okay, so, and so company, you can't advertise on Meta platforms. Well, you know, a lot of these businesses need that for foreign trade. Right. Because it turns out it's a very. It's high ROI advertising in the US too.

B (55:32)

Everybody.

A (55:32)

Right. And so, and so. So the Chinese have less leverage than Meta that, you know, than they do with many other foreign companies.

B (55:39)

Yeah.

A (55:40)

Whereas if they just let them, like go in and would set up like a crappy version of Instagram, that got no traction. But they kept trying because they kept handing them crumbs every couple years, like, you know, they do with some foreign companies.

B (55:51)

Absolutely.

A (55:51)

They would have a completely different relationship with Meta, and Meta would be much more, I think, think sensitive to concerns from Beijing.

B (55:58)

Yeah, they would fall in line very, very quickly in that scenario.

A (56:02)

Zuckerberg might be on the volume five of the Governance of China, you know.

B (56:05)

Oh, my gosh, you can have a whole stack.

A (56:07)

Right. What a.

B (56:09)

What a regrettable chapter that was for him. But final note that I wanted to read. You mentioned a propaganda meeting this week about strengthening the capacity for international communication and telling this story of China in the new era in a true multidimensional, comprehensive manner. One of the emphasis emphases of that meeting was improving, quote, unquote, international communication by recruiting influencers to help push desired narratives. And you surfaced December post from Human Rights in China. And they write. They write about a recording of a phone call that a Chinese language commentator received from a recruiter. And Human Rights in China writes, according to the recording, Jin Leong claimed to be a former intelligence officer with Beijing Public Security and described himself during the call as an intermediary recruiting collaborators for the CCP's external propaganda apparatus. He attempted to recruit XU into the CCP's overseas propaganda network at a rate of €40,000 per month, while taking a 30% commission for himself. In the recording, Jin Long identified himself as a Christian and said he believed in the US Declaration of Independence.

A (57:32)

And he was. And while, I mean, the recording is something, it's only in Chinese, but we can put a link to it. And he as he's making his pitch to this guy, which the guy is recording, even though he keeps saying, you know, you're not gonna. You know, you're not gonna make this public. You're not gonna harm me. Right. We're like, I trust you. Right, of course, you know, great. He says he's in Philadelphia while he's making this pitch. Well, good.

B (57:52)

He's a big fan of the Declaration of Independence.

A (57:55)

I hope he's not an Eagles fan. Definitely don't like him. If he's an Eagles fan.

B (57:59)

Yeah, but anyway.

A (58:00)

Sorry, sorry. Keep going.

B (58:01)

So, well, the final note was, according to his explanation, the CCP no longer seeks overt slogan driven propaganda of the kind associated with figures like Hu Xi Jin or official state media, but instead aims for a strategy of subtle, low visibility influence. They prioritize influencers in overseas Chinese communities who maintain an appearance of objective neutrality and have relatively quote unquote clean backgrounds. So just noting that it confirms a lot of what we've discussed over the past year or two in terms of the evolution of Chinese propaganda operations abroad. $40,000 a month.

A (58:48)

People he allegedly had recruited in Italy and in Philadelphia. He talks about, you know, he's talking primarily about Chinese language influencers, but he also talks about some foreigners. And he specifically says one, this guy Courtier, whose name is Jerry Kowal, who's an American, he explicitly says his recording that he's on, you know, on the payroll. A different, a different group is, you know, manages, you know, manages him. Right.

B (59:14)

Great.

A (59:15)

And this guy, he's got 600 and good for 42,000 subscribers on, on YouTube. Wow. And so, no, the whole audio, the whole, it's an audio recording. It's really interesting. And I think what this Human Rights in China substack post sort of did was they went through, they were looking at him and there was, there was a guy who had exposed, done some videos of camps in Xinjiang and had made quite a wave of those and then had gotten out of China. And then he was actually picked up by ICE and was in the process of potentially being deported from the US and there was a campaign to sort of make sure that the US government didn't deport him. Ultimately, the US government decided not to deport him. But during that campaign there was all sorts of attacks on this Guan hung on Chinese in the Chinese language sort of social media space outside of China. And that is, I think, what ultimately that's where the connection was from. This Human Rights in China substack post went. And they verified who this person was and what they were doing. And it is just a, it's a small glimpse into this, I think really significant global influence operation that is not the CGTN Twitter account or China Daily Twitter account. It is a much more subtle, in many ways more effective, but clearly is part of a broader strategy from the party to quote, unquote, tell China stories.

B (60:42)

Better or improve, enhance international communication globally and increasingly pervasive.

A (60:46)

When you.

B (60:47)

Yeah, I mean it's, it's pretty staggering and it's, it Just is a reminder that it's very difficult to trust whatever you're reading on the Internet these days. And it's a smart strategy on China's part as long as these are open platforms. And it's something that's very difficult to defend against for Western democracies.

A (61:10)

No, especially, you know, especially when the Trump administration came in and dismantled all the infrastructure. Yeah, well, just not just all the infrastructure around groups that would look at disinformation, you know, covert influence, kind of, these kinds of operations. And so it's, again, it's, it's a, the playing field is wide open for the Chinese. It just was an interesting look.

B (61:34)

It's a window into how it actually.

A (61:36)

Exactly. Yeah, it's a really fascinating window. And so, so it's too bad the, the, the original video has yet to be translated English. It's quite a listen. The, the, the guy is a clearly. I mean, it's flashbacks to Beijing. Anyway, it's a fun, It's a fun listen if you, if you understand Chinese. But more importantly, it isn't, as you said, it's a really an interesting window into what some of the tactics the Chinese side are using to push their influence and propaganda across global social media platforms.

B (62:05)

Yeah, well, less sophisticated tactic. Right before we came on to record, I saw the Chinese embassy to the United States posted an AI rap video mocking the US hysteria over China. Shocks. We can link that in the show notes.

A (62:23)

I haven't seen that.

B (62:23)

I got a wonderfully stupid way to start off 2026 for me.

A (62:28)

So this is the U.S. embassy, China.

B (62:30)

Yes.

A (62:32)

Or PRC embassy, U.S. sorry.

B (62:33)

Correct.

A (62:34)

Correct.

B (62:35)

And I don't know how they generated it, but again, got a chuckle out of me. I, I hearted it on Twitter. But Bill, on that note, we will come back next week. Who knows what the world will look like. But it's great to be back on the podcast. I hope Tashi had a great holiday as well and I look forward to a exciting 2026 here on Sharp China.

A (63:02)

Yes, I just found the video. It is great to be back and happy New Year, everyone. And I know we ran a little bit long today, but there's a lot to catch up on. After three weeks, it's just good to be back.

B (63:12)

A lot too much to catch up on if we're being honest. But we'll keep it rolling next week for now. Have a good rest of the week and I will talk to you soon.

A (63:21)

Thanks. Thanks, Andrew.