James King (3:58)

Well, Alice, I mean, you know, when it rains, it pours. Hey, the New year, starting off like this, there really couldn't be a bigger geopolitical question for China than how it reacts to this. And I think you framed it perfectly. Is it gonna play the long game, or are we going to see some retaliation pretty much straight off, potentially even military retaliation? Now, I'm not gonna d the question. I'm going to go straight in there. Of course, we can't know the answer. Such things are among China's most closely guarded secrets. But I think that we will not see a military retaliation from China on Taiwan or in the South China Sea, at least not in the short term. I think that what you framed as China playing the long game is a much more likely scenario. And the reason I think that is because Taiwan considerations are in the background of China's reaction to this. Venezuela is a long way from China. It's a long way from Taiwan. But just let me try and sketch out why I think Taiwan and China's reaction to Taiwan is crucial in this geopolitical shadow play that we're watching. I think that the way in which the US Framed its move on Venezuela as part of its attempts to shore up its backyard, to concentrate on what both Trump and Marco Rubio described as the Western Hemisphere. I think that that may give China a ray of hope or at least cause to wait and see whether the US Is really serious about concentrating its geopolitical attention onto the Western Hemisphere, which of course, doesn't include Taiwan or China and there move away or shift the focus of its geopolitical reach away from China's sphere of influence. And so I think if that does turn out to be the case, we may well see China taking a longer view on this. And although, yes, some of China's condemnations have been fairly strong, I also think that other statements by the Chinese so far give the sense that China is really waiting to see. The two pieces of reasoning that I advance to support my point of view is that the National Security Strategy, which the US Released in December last year, identifies the Western Hemisphere as the vital interest of the US and it drops language from the Biden presidency that identified China as America's most consequential geopolitical challenge. It also doesn't even mention great power competition at all with China. And it also downgrades the status of Taiwan. In the past, under Biden, it used to say that the US Was opposed to a shift in the status quo of Taiwan. But the new National Security Strategy unveiled in December last year in the US says that it, quote, does not support a change in the status quo of Taiwan. This is seen as a clear downgrading of the importance and sensitivity of the Taiwan question. So I think that China is hopefully waiting to see the US redefine its geopolitical focus to its own backyard, that is Latin America and in this case Venezuela in particular, and thereby shift away from Taiwan and those contentious areas, the South China Sea and China itself. And if that happens, it will give China breathing space to advance its biggest priority in terms of geopolitics. But this is really hard to call at the moment, Alice, I'm really interested in your take on it. So how do you see it?

Alice Han (8:12)

Well, very quickly, on the geopolitical front, before I talk about some of the economic consequences which are worth delving into as well. It's interesting that we talk a lot about the Trump's approaches, the Roosevelt corollary into the Monroe Doctrine. To borrow another Roosevelt analogy, I think China's approach to this, after seeing what happened in Venezuela, is going to be to speak softly and carry a big stick. And what I mean by that is on one hand, it will continue, I think, to pursue some kind of trade detente, to try to soften some of the edges, the rough edges in the relationship. I think that they were heartened by the National Security Strategy document that you referred to, James, not being a direct attack on China as it had been in previous administrations, but at the same time massively increasing its investments and deployment of its military capabilities. We saw that in full display a couple months ago at the September parade. So I think we'll have a two track approach to this relationship and towards China's geopolitical strategy. But it is worth mentioning, James, that even although Venezuela is not Taiwan in terms of China's core interests, it is an important strategic foothold for China in Latin America. I mean, it was described as an all weather strategic partnership back in 2023. That's sort of the second tier in terms of friendships that China has with the rest of the world. So this was a critical relationship that has, I think, been weakened with the Trump administration's move. And if we think about the economic implications as well, it's not so much about oil because only about 5% of China's seaborne crude imports come from Venezuela. It's more about the debt that's outstanding. So we have still, by some estimates, around $10 billion, if not more of debt outstanding that Venezuela owes to China. And a lot of that traditionally from Chavez onwards to Maduro, was in the form of loan for oil deals. That I think is going to be subject to debate whether or not Chinese creditors are going to get a haircut or they're going to have to miss a lot of the debt that's owed. Because fundamentally, Venezuela, I think, is going to have to listen to the Americans, at least in the short term in terms of some of these debt restructuring and oil developments in the region. So I think from China's vantage point, this is a net loss, certainly. But I agree with you, James, if we broaden it out, I don't think this materially increases China's designs to invade or blockade Taiwan. I think if, if I'm in Beijing watching this, I would tread carefully because the Trump administration has shown that it has a military muscle to fight in areas that it deems to be in its national core interests, which in this administration is about the Western hemisphere. So if I'm Xi Jinping sitting in Beijing, I'm going to sit tight a little bit and see what the Trump administration is going to do in its second half of a lame duck presidency. Because remember, we have the midterms coming up. A lot can change domestically. That can also transform and alter Trump's geopolitical strategy.

James King (11:16)

Absolutely. I think one of the first indicators that we're gonna get of the trajectory of China, US Relations after this move in Venezuela is whether or not Trump's meeting with Xi Jinping, which is supposed to take place in April, actually goes ahead. If we start seeing that that meeting is called off or people are talking about rescheduling a meeting, then I think it will be a sign that things are going badly wrong in the US China relationship, perhaps partly because of these tensions and losses that China's going to suffer over Venezuela. But if China gets a sense that there is something to play for on its crucial priority of Taiwan that is a softening of the US Position on Taiwan, then I would expect China to be pushing full steam ahead for that meeting to go ahead.

Alice Han (12:08)

Yeah, I agree. I think that will be the next litmus test in April if the two presidents meet and whether or not Taiwan is on the table, so to speak. And I'm sure that the Chinese will be testing the Americans to see to what extent the Trump administration is willing to sacrifice blood and treasure for a Taiwan campaign, which, at least to my mind, when I think about the Trump clan and the people around Trump, I mean, including, frankly, Rubio as Secretary of State, it doesn't seem to be a top priority. I think that the focus in this administration is very much on Latin America, on defending the Western Hemisphere as opposed to being embroiled in conflicts overseas. But I wanted to talk a little bit about some of the economic implications for some of the players in China, because we've heard on Monday that the nfra, the National Financial Regulatory Administration, is telling the banks that it needs to release its exposure to Venezuela. It's still unclear when I was digging into the data to the extent to which the policy banks and banks in China are exposed to Venezuelan debt. But when I look at the numbers, since 2007, you have over $100 billion in loans that were lent to Venezuela to help with infrastructure, to help with oil. What's your take on this? Have you been following this, James?

James King (13:27)

Yeah, I mean, I used to write a lot about China, Venezuela, because Venezuela was the, the poster child of the Belt and Road Initiative launched by China around 2012 in Latin America. It was the number one borrower among Latin American countries from China. And China was building all kinds of infrastructure in Venezuela. There were factories, railways, roads. It really was a showcase of what China could do. And China wanted to show the whole region. And I remember back in the days of former President Hugo Chavez in Venezuela talking about the alliances between China and Venezuela as like a great Wall of friendship that obviously we were supposed to read in would sort of keep the Americans out. And so, as you rightly say, Alice, Venezuela has been really crucial for China, but less so recently. And as you've already sketched out I think if we boil it down to brass tax, I think China stands to lose about US$10 billion in loans that are not repaid if the deal doesn't go to its advantage. And also there's a potential that it could lose around 2 billion in terms of investment that was intended by Chinese companies in the Venezuelan oil sector that may now not go ahead. Those are big numbers, but they're not catastrophic. China has lent more than 2 trillion USD as part of its Belt and Road initiative, according to aid data, a US consultancy over the last 10 or more years. So 10 billion, it's a large number, but it's not catastrophic in terms of the general reach of China's development lending around the world.

Alice Han (15:19)

Yeah, I mean, I agree with that. I think that the bigger implication is the geostrategic one for China and Latin America and only broadened out to China's allies or partners. You know, I feel very much that the axis of ill will has been weakened. Iran has been weakened substantially by Israel over the last few years. This is yet another, I think, ally and partner for China that has been weakened under this administration. So we'll have to see what happens in 2026 with the rest of the players. Okay, we'll be back with more after a quick break. And stay with us.

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Alice Han (17:06)

Welcome back. Tesla has just lost its crown. The company's sales fell 16% at the end of 2025, hit hard by the rollback of US EV tax credits. And for the first time, China's BYD has overtaken Tesla as the world's top Electric carmaker. It's a sharp turn for a company that once aimed to dominate global auto sales and is now betting its future on self driving tech and robots. James, let's go right into it. I have a lot of opinions, but I want to get your take on why BYD has finally overtaken Elon Musk's Tesla. It's not been a good year for Elon Musk 2025, I have to say.

James King (17:45)

Yeah, I mean this is one of the great corporate rivalries of our time. I mean it's rather like The Coca Cola versus Pepsi, Apple versus Microsoft, McDonald's versus Burger King. But this time it has an extra twist because this is an American high tech champion versus a Chinese high tech champion. And the bare facts are that Tesla has lost its global sales crown to to byd, the Chinese carmaker, after almost a decade as the world's best selling EV brand. And this is because both BYD's numbers were up very sharply in 2025. They got a 28% increase in global sales and Tesla sales were down 8.6% for the year. Of course, Tesla's sales are down partly because of tax changes in the us which removed an incentive for American consumers to Tesla cars. But more generally, and this is where I think the main story is, BYD is steamrolling into markets all over the world, here in Europe, in Southeast Asia, where you are, I think at the moment, Alice, in Australia. And I've actually driven one of the BYD cars as it came off the first shipment to Australia. There was a massive ship transporter and about 5,000 BYD cars came off the ship. And I drove one in 2024 in Bremen. And I have to say it took me a while to understand how to use it. There were so many kind of gadgets and dials and the car was talking to me in German, which I speak very poorly. But after I got going, I have to say it was a very smooth ride. So it's a piece of high technology. But I think the crucial point is the BYD car that I was driving, which was the Dolphin surf, cost about 23,000 dol. That's almost half the cost of the Tesla Model 3. And I have to say the cars are, you know, comparable in terms of their technology and their look. And I think that fact lies behind why BYD has managed to record a million sales of vehicles outside China last year. That's up an incredible 150% from 2024. So I think effectively Tesla is being beaten up, beaten by a cheaper car that looks kind of almost as good and is technologically either on a par with Tesla or even slightly better. What's your opinion, Alice?

Alice Han (20:33)

Well, at the risk of being contrarian, James, I'm going to take the other side of it and say that BYD may have peaked and some of these EV players may have peaked, at least domestically in China. Just to give people a sense of the numbers. BYD sold 2.26 million electric vehicles this year, Tesla sold 1.63 million. So that's quite a big delta between the two players. But a lot of it, James, I mean to your point, still is a domestic driven story. I think the majority of EVs sold by BYD still consumed by Chinese consumers. That trend that in the last few years has shifted. We're seeing more that are going out. But we can also discuss whether or not that is going to be an ongoing trajectory given some of the trade barriers that countries like the EU for instance, are putting on China. But when I look at the domestic outlook, what's interesting to me is that the government just in the last week or so has announced that it's going to get rid of some of the tax waiver for the purchase tax on EVs. So originally there should be a 10% purchase tax. There was a full 100% exemption of that for a couple of years. As of this year it's going to be a 50% exemption. So effectively a 5% purchase tax on all EVs. That could have a material impact on whether or not you as a Chinese consumer are going to buy a new vehicle. But on the flip side, they've announced at the end of December that they're going to put in $8.9 billion ultra long special treasury bond issuance program to fund trade in of EVs and subsidies. So it could be that we could see after March at the NPC meeting that there is some more support for existing EV consumers trading in their old vehicles and buying new ones. But you know, we're sort of seeing an economy that's still trapped in some kind of deflation. Consumers are not spending as much as the government wants them to. So I'm still a little bit skeptical about the growth trajectory domestically in terms of demand for EVs. And then when we factor in some of the headwinds globally to Chinese EV providers, I'm a little bit worried. Yes, BYD has a superior product. I was just in a BYD vehicle a couple days ago in Sydney, Australia. I'm seeing more of them on the streets for sure. But I worry a little bit about how this will be perceived by foreign governments as an influx of cheap Chinese EVs. So I'm a bit skeptical. I'm holding my breath to see if we're going to see major legislation from countries around the world to try to limit the amount of Chinese electric vehicles. Because, remember, autos is a huge political issue, not just an economic issue for a lot of countries around the world. So I think this will be an interesting thing to track, obviously, when we think about the broader Chinese overcapacity issue and China's export engine. But one last thing that I wanted to add, which I thought was super interesting, again tied to Elon Musk, is that he tweeted a couple days ago that China's silver export controls are not good because silver is needed in many industrial processes. And I think people forget that, given that silver is a precious metal. But it is used in cars, for instance, in electric vehicles, in solar panels, in AI data centers. And, you know, we've seen the creation of these export controls to restrict a global supply more recently of rare earths. Silver's been added to that list. I think this is important and worth tracking because this also could have a material impact on Tesla, for instance, on other automakers, because silver is still an important input into some of these processes. And when I think about some of the levers that China will use in 2026 when it is unhappy with, say, the Venezuela policy, with Trump's tariff policy, I think people should expect more of these precious metals, critical minerals, intermediate inputs, being added to some kind of export control list and weaponized by China.

James King (24:31)

I think that's really interesting. Alice, I just want to mention one thing. You raised the issue of protectionism. You know, countries here in Europe or elsewhere in the world may see these Chinese EVs steamrolling into their markets and displacing sales of, you know, valued domestic brands. And so I definitely think that protectionist pressures will rise. But I don't know whether here in Europe, anyway, the Europeans will actually get it together to have the unity to push forward, you know, greater tariffs or other forms of protectionism against the influx of these Chinese cars. And just one other really fascinating aspect that lies in the future, that is that BYD is planning on bringing its so called flash charging batteries to Europe sometime this year. Now, these flash chargers can charge a car within five minutes. That means that they will significantly reduce the amount of time it takes to charge your ev. Uh, the one I drove. I almost missed my plane on the way back to the UK because the charger was so slow that, you know, we were standing there literally biting our nails, looking at the clock, wondering if we had the charge to get us to the airport. That will be a thing of the past when you can just draw up alongside a flash charger that will charge your car within five minutes. Now, Tesla does not have that technology. It is bringing out technology, but it will be slower than the five minute charge. What I've been able to read online says that the next Tesla supercharger will charge a battery to within a range of 200 miles within 15 minutes. So China is ahead yet again in this crucial aspect of the whole EV market.

Alice Han (26:28)

Yeah, very interesting. All right, let's take one last quick break and stay with us.

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Alice Han (27:24)

Welcome back. China is now exporting more than electronics and EVs, it is exporting luxury food. From caviar to foie gras truffles to macadamia nuts. China has quietly become a global heavyweight in high end agriculture, supplying its growing domestic appetite and increasingly reshaping markets overseas. Now backed by provincial governments and years of investment, China now dominates global caviar production. A shift that's turning what were once niche European delicacies into another front in China's expanding trade power. I mean, this is a topic close to my heart, given that I do love food, James, but.

James King (28:05)

Well, you're a tremendous cook as well, which is credentials that I definitely don't have. But I would just start by saying how wrong I have been in my thinking on this topic. I never imagined that China would leap to the global forefront of luxury food. I just thought that markets such as caviar, foie gras, macadamia nuts, black truffles, matcha tea would remain the domain largely of premium foreign brands in China. They have a kind of a cachet let's say the brand is French or Australian or Japanese or Russian or Iranian when it comes to caviar. But nope, in this area too, it seems that China has risen to the forefront and is now dominating not only the market inside China, but globally too. I just never imagined that that would happen. The Financial Times has got a really good piece on this phenomenon. And it turns out that the caviar example goes right back to the late 1990s when some aquaculture scientists decided that you could use sturgeon to breed and it would take about seven to 10 years for a to sturgeon to mature, produce eggs and then you would take those eggs to a breeding center and then the young sturgeon would grow. And that's how this market has developed. And so since that time when China produced almost no Sturgeon To 2024, China produced 43% of the global total. I just find that extraordinary. But tell me Alice, how are you seeing this whole topic?

Alice Han (29:50)

Well, firstly, I have to preface this with the fact that I love European food and I think there's something special about Parmesan coming from the region of Italy, Hamona Burca coming from Spain. There's something that is unique about those flavors and the artisanal nature of how that developed. And when I mentioned this topic to a couple of European friends of mine, I think they were very upset by this because their immediate reaction was well, it's never gonna tast as good as what we produce here in Europe, but I think that that defeats the purpose. And I think that that is not seeing this for what it is, which is that China is trying to create more agricultural products. It is trying to develop more high technology and agricultural development aspects, I think, which will both appear in the five Year Plan in March. And this is all part of Xi's broader strategy to have on the one hand agricultural self sufficiency, but also develop agricultural critical technologies that can be developed domestically but also potentially exported around the rest of the world. I'm thinking particularly of global south countries like Africa, where it would be particularly germane and of use. So when I think about this, I think about it more in the context of China using its export engine and manufacturing engine to the food realm. And I think that there will be a degree of nationalism whereby Chinese people will think, well, I don't need to get caviar from Eastern Europe or Russia, I don't need to get truffles from Italy. These truffles domestically have a good enough terroir to borrow wine term and we want to support domestic producers, So I can see that as a trend domestically in China. I'm not so sure if this is going to be an attractive proposition for foreigners, but if you're cost conscious and you're looking to get something that is half the price, say, of a European premium, good, maybe you go for the Chinese one. But I think it'll be harder sell globally. I do think this will do very well domestically for all the reasons I mentioned and just to drive home a personal story, so I was traveling in Yunnan last year, and Yunnan, some people may know, has the most biodiverse range of mushrooms in the world. Most of the world, actually. Porcini mushrooms come from China, have come from Yunnan specifically, and China accounts for a third of the world's truffles. And Exports went up 60% since last year. I actually went to an Italian's factory in Yunnan and he was producing porcini mushrooms, portobello mushrooms, truffles, which he was selling in powdered form or dried form to the European market. And. And apparently Europe does not have enough porcini mushrooms to make all those risotto sachets. So in some ways, China is part of this global industry because it has the ability to produce en masse and at scale. And so I think that there will be areas like this dried mushroom powder that I'm talking about, where China is already being globally accepted. And I don't think people actually even realize that. And one last fun fact that I have about this is that apparently people in China don't like the taste of truffles. So it's a very easy sell to cultivate that domestically in Yunnan and then sell it to the rest of the world because it's not seen as delicacy in China, which I thought was quite interesting comparative advantage at play, but super interesting story, and I'm glad FT covered it because I think it shows so many aspects of what's happening in China in terms of tastes changing, in terms of domestic alternatives to foreign products, and in terms of China trying to compete at a global scale with some of these premium goods.

James King (33:30)

Yeah. And you mentioned Yunnan there, which I'm really glad because I think that sometimes maybe people outside China, when they think of China, they've seen all the pictures of the factories and the big cities and the smog and the pollution. But a province like Yunnan, which is right on the southwest sort of bottom corner of China on the map bordering Myanmar, is honestly one of the most beautiful places anywhere in the world. And you mentioned terroir. I would have thought that Yunnan terroir is superior to many parts of the world. The biodiversity is absolutely off the charts. And in the Financial Times story that I'm quoting from, there's a quote here from one of the growers there who says there's a joke that whatever expensive fruit exists in the world, Yunnan will import it, research it, cultivate it, and bring down the price. So I think that sort of sums up this trend. We really shouldn't underestimate, you know, some of the natural underpinnings that China has to grow this stuff and to grow really high quality food.

Alice Han (34:39)

Well, I guess we're gonna have to try Chinese caviar next time we're in, Ted. I think you're going to China very soon, James, so you're gonna have to try some for me.

James King (34:46)

I have to admit, I don't like caviar.

Alice Han (34:51)

All right. Do you like truffles, James?

James King (34:54)

Listen, Alice, I come from North Yorkshire, which is a very set to bottom place. I don't think I've ever had a truffle in my life. What about you?

Alice Han (35:02)

I am very partial to truffles. I mean, I was in southwest France a couple months ago, and they have a particular white truffle that's quite unique there. So I am partial to them. But, James, we're gonna have to change that for 2026. We're gonna have to get you eating caviar and tru. Living the high life. All right, James, it is prediction time, and we're going to make our first predictions for 2026. I'm going to do something a bit left field because I think this is going to come up in a couple weeks when we see on January 20, the economic readout in China. I think the economic trajectory of China is still going to be a top line issue for investors and the rest of the world in 2026. But I want to take it to a prediction that I feel fairly strongly about, which is on the currency side. I think we're going to see an appreciation of the CNY, a slight appreciation by at least 10%. I think I feel comfortable about the currency ending at 6.8 to 6.9 by the end of the year, primarily because I think the Trump administration is going to elect a fairly dovish Fed chair. It could well be Kevin Hassett. And in that case, when we factor in the interest rate differentials between the Fed and the PBOC and the fact that China isn't going to intervene, I think strongly to defend the currency. I think we could see the currency go up and strengthen against the dollar to around 6.8 to 6.9 by the end of the year. And that is materially important because it obviously impacts US China trade talks negotiations. Trump isn't a fan of the weak cny. He to wants, wants to see a weak dollar. And I think this could be an era in which there is some degree of compromise between China and the U.S. but, James, what's your prediction for 2026?

James King (36:48)

Well, I'm going to go back to what we were talking about at the top, Alice. I think that China will swallow its pride, swallow its humiliation, suffer its losses with regard to Venezuela, and I think it will play the long game. And I think the Trump Sea meeting in April will go ahead and both sides will try to gain whatever advantage they can in other areas, effectively putting aside what China is currently condemning as this unlawful move by the United States in Venezuela.

Alice Han (37:25)

Okay, so watch the space. We're gonna wait for a Trump Xi meeting in April. That'll be exciting. All right, that's all for this episode. Thank you so much for listening to China Decode. This is a production of Prof. G Media. Our producer is David Toledo. Our associate producer is Eric Janikis. Our video editor is Ness Smith Savadoff. Our research associate is Dan Shalan. Our technical director is Drew Burrows. Our engineer is William Flynn, and our executive producer is Katherine Dylan. Make sure to follow us wherever you get your podcast so you don't miss an episode and talk to you again next week.