How Venezuela Shifts China’s Calculus

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1:02Bloomberg Audio Studios, podcasts, radio, news. I remain deeply concerned that rules of international law have not been respected. President Donald Trump has been teasing military action in Venezuela for months now. But the capture of Venezuelan President Nicolas Maduro and his wife, and the White House assertion that the U.S. would run Venezuela for now, shocked the world. Don't ask me who's in charge because I'll give you an answer and it'll be very controversial. What does that mean? We're in charge. And leaders at the United Nations. The principles of sovereignty, political independence and territorial integrity must be respected.

1:46Among the most vocal critics of the attack, the Chinese government. The Chinese government is to protect the United States and to make the decision. They are very careful. I think China was stunned. It came out and said it's strongly condemned. And it did it within hours of the news breaking that, you know, Donald Trump had got into Venezuela and essentially sort of kidnapped the sitting leader. China decried the U.S.'s blatant use of force against a sovereign state and called Maduro's seizure and attack on Venezuela hegemonic acts that threaten the peace and security of Latin America. There's a reason why China's response was so strong.

2:26Beijing has been one of the most significant supporters of Maduro's government amid sanctions and condemnation from the West. These two are all-weather friends, which is China's second highest tier of friendship. So it's a strong sort of political friendship. That's Bloomberg's Jenny Marsh, who oversees our coverage of greater China's economy and politics. China underpins sort of the development and infrastructure and industry in Venezuela. And today, China's the biggest buyer of Venezuelan oil, which is its main export. So really, Beijing has been sort of keeping Maduro's government afloat. China is Venezuela's second largest trading partner after the U.S.

3:06and its biggest creditor. Chinese companies like Sinopec and China National Petroleum Corporation have been significant investors in the country, which has the world's largest crude reserves. Latin America is of growing importance to China, as a market for companies like electric car maker BYD, e-commerce giant Xi 'an, and gaming and tech company Tencent. There's also China's strategic interests in ports, perhaps most notably at the Panama Canal. That focus on Latin America, says Jenny, is why the U.S.'s intervention in Venezuela is such a setback for China. It's clear from the remarks that Trump and Marco Rubio have made over the recent days This doesn't end with Venezuela as just the beginning of a much larger plan they have for reasserting American influence in Latin America, which they see is, you know, is their part of the hemisphere, is their part of the world.

3:59And so what does that mean for Chinese influence in Latin America? The U.S. strike in Venezuela could also influence China's strategy closer to home. In the aftermath of the attack, some on Chinese social media were quick to suggest it could provide a blueprint for how Beijing handles Taiwan. I think that's the first question a lot of people have when they saw this. Well, if Trump can go into Venezuela, what's stopping Xi Jinping from going into Taipei and snatching President Lei Qingzhi from Taiwan?

4:35This is The Big Tick Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever-shifting region. The U.S. strike on Venezuela and capture of its president sent shockwaves across the globe. On today's show, what the intervention means for China's strategy in Latin America and why a military action 9 ,000 miles from Beijing could change the calculus in its own backyard.

5:10Jenny, China's foreign ministry issued one of the strongest statements against the U.S. attack on Venezuela. It was quite strongly worded. Can you take us through China's reaction and what you found surprising about it? For Beijing, normally the playbook here, and you saw this after Russia's invasion of Ukraine, they released something very sort of vanilla and boilerplate. They let the news settle, they get a lay of the land, and then they react. And this time it was swift. You saw a lot of throat clearing from the likes of the UK, France, Canada. But China was unequivocal, and I think they were caught off guard.

5:43And that was evidenced by the fact that just hours before Maduro was caught, his last public meeting was with a Chinese delegation of diplomats. which I think was just sheer coincidence. But the optics of that, it just made Beijing look like they had been caught off the back foot. Yeah, definitely not a good look because it means in some ways that their intelligence perhaps also failed as well. Yeah, they obviously didn't quite have their finger on the pulse. And particularly now, you know, the Trump has been more open about how that unfolded. We know that the U.S. had planned this for months and he was waiting over Christmas for the weather conditions to improve.

6:16So had the Chinese had good intelligence, they should really have known that this was going to happen. But obviously, you know, it would have been kept very closely within sort of Trump's inner circle. Now, China is Venezuela's biggest oil customer. I wonder if you can tell us about that oil and why it's important for China. China, on this side of this century, extended about$60 billion in credit lines to Venezuela. Venezuela was supplying China with oil and using the proceeds of those in sort of service of paying down this debt. This oil, I mean, by volume, is not particularly important to China.

6:51It's worth about 4 % of Chinese oil imports. And obviously, since it was sanctioned by the US, it's not coming in through official channels. But it's a unique type of oil. It's sort of high sulfur crude. And this is very important for sort of construction and road building. But it is very, very steeply discounted. So it's very popular with China's independent refiners. So it's helping keep costs lower in China at a time when margins are already very squeezed. Trump has said that the oil is no longer flowing out of Venezuela. And they've been very clear that this is sort of a form of economic coercion.

7:26You know, Rubio was saying that they're not going to let the oil flow because this is a way of sort of forcing the new leader to do, you know, to align Venezuela's policies with that of the US. For China, you know, analysts have said that isn't an immediate problem because there is so much Venezuelan oil already shipped out and sort of in vessels in Asia that are sort of in the waters that can still kind of come to port. So there won't be an immediate shock to the Chinese market. And maybe in a month's time, there's a deal struck between the US administration and the Venezuelan leadership and that oil begins to flow again.

8:02And so I think we have to sort of wait and see what the long term impact would be. Now, Trump is also talking about U.S. investments into the country's oil infrastructure. But we know that Chinese oil firms have also claims to some of Venezuela's reserves. How is that going to play out? Yeah, it's a fascinating question. And Trump has offered no answers to it. You know, he has claimed they're going to run the country and the U.S. companies are going to come in and like, you know, get this oil flowing in the way that they want it to. And they haven't given a roadmap for how any of that will work illegally.

8:36But again, you know, if U.S. companies come in and sort of steal assets and steal rights that Chinese companies have paid to acquire, then obviously there's going to be political blowback there. Or he's at least risking sort of destabilizing this relationship, which they've spent so long trying to sort of get to an equilibrium. Beyond Venezuela, China has poured billions into Latin American countries as part of Beijing's Belt and Road Initiative that kicked off in 2013. That saw the country invest in infrastructure projects from Bogota's metro system to ports in Peru and Chile. The Belt and Road has evolved a lot since then.

9:13They have this phrase now, small but beautiful projects. And China's overall investment into Latin America has declined in recent years, but become no less important. It's now sort of channeled into much more strategic sectors for China, things that align with its priorities. So mineral extraction of things like lithium, which are key to its green energy. And last year, South America became even more important as a trade destination, you know, as China tried to find new destinations. And these are markets that are open to things like Chinese EVs, like BYD has a big presence in Brazil. So these are very buoyant economies with very large populations.

9:53And so for Xi, this is an important part of the world that he certainly doesn't want Trump sort of denying him access to. And with the U.S. now effectively reclaiming Latin America as its own backyard, what do you think that signals for China's ability to still be able to project power and influence in the region? I think it's a direct challenge to it, and we have to see how it plays out. And I think now the question is, you know, how far does Trump go in sort of pursuing this objective to sort of reclaim, you know, South America and to be the chief influence there, if you like? Because he's just struck this very sort of fragile trade truth with China as well, which everybody seems sort of committed to keeping in place.

10:37Now, zooming out a bit, many people are saying the Trump administration is steering the world to a new organization of global power, where you have spheres of influence for the U.S., for Russia, China. Where does China fit into this and how could it use the shift to advance its own goals potentially? If you're thinking about spheres of influence, America has its own sphere it doesn't want China in, but it certainly doesn't see China as having its own separate sphere that America won't be in. It also made clear that America is not prepared to sort of stand back from projecting power around the world.

11:12And there was very slight language about building a military that can protect the first island chain in Asia. So there's a lot of sort of contradictions there that I think China will be very aware of. I think the lesson they're probably learning from the last few days is that might is right. And it's very important to build up their own military power and to make sure they are projecting power as strongly as they can. And then the other side of that, I think, is the way that Xi is trying to contrast China as sort of a beacon of stability compared to Trump. You know, it was quite striking yesterday.

11:43He had his first public engagement since Maduro was captured with the Irish prime minister in Beijing. And he was talking about, you know, Beijing as a peace loving country, you know, really very dovish comments about respecting the international world order. on the other side of the world, you've got Trump talking about, well, you know, the leader of Colombia could be next, you know, making threats against the leaders in Cuba as well. So I think for Xi, there's going to be a lot of posturing that China is sort of a peace-loving, rule-abiding power that you can really trust.

12:17China portrays itself as a force for peace, but the reaction at home to what happened in Venezuela was starkly different. Some of its own citizens have argued on China's highly controlled social media platforms that Washington just handed Beijing a template for attacking Taiwan. That's after the break.

12:43The U.S. strike on Venezuela has stirred a lot of speculation about Taiwan. China's President Xi Jinping has said unification with Taiwan, an island the country claims as its own is unstoppable. And after the weekend's ouster of Maduro, Bloomberg's Jenny Marsh says that some people have suggested the U.S. may have inadvertently shown Beijing how it might use the same playbook on Taiwan. When this first happened, you know, Chinese social media was abuzz with this. It was full of comments of people saying, you know, I suggest the same method to reclaim Taiwan in the future. Since the U.S. doesn't take international law seriously, why should we care about it?

13:21There was one particularly sort of colorful comment, you know, the US imperialist lightning raid on Venezuela to capture Maduro and his wife is the perfect blueprint for our military to launch a surprise attack on Taiwan. Just because the public sort of jumps to this doesn't mean that Xi Jinping himself is changing his calculus and is suddenly going to invade. I will say though, you know, the more Trump changes the sort of international norms about what the US will and won't do, the more it sort of waters down its adherence to the rules-based order which America founded, I think the conditions for a Chinese invasion of Taiwan change, right?

13:58And like, I think Xi is now facing a different set of conditions that he was facing five years ago, and then more favorable. People we spoke to within the Taiwanese government were actually pretty bullish. And they said, you know, for them, this showed two things. One, it showed that, you know, Trump isn't taco. Trump doesn't always chicken out. He is willing to sort of use the military when he thinks there's something that needs to be done, which is core to sort of U.S. security interests. And they see that as a good thing for Taiwan. And two, they also noted that, you know, Venezuela buys most of its weapons from China and Russia and that the U.S.

14:37military just, you know, made very quick work of that. There's no evidence that sort of Chinese equipment failed. during this operation because Trump also said, you know, they had a lot of security assets in Venezuela who could have disabled some of these defense systems. But the Taiwanese just said they found this as evidence that the U.S. military equipment is just far superior. And U.S. military equipment is what they have. So for them, they actually looked at it and thought this was pretty good for them. Jenny says China's potential invasion of Taiwan and the U.S. intervention in Venezuela play out two very different scenarios, with a lot of deterrence for a China attack on the island.

15:18There's no other major military power around Venezuela. Venezuela's own military isn't very strong. If China was to go into Taipei, you know, Taiwan for a start has its own military, which is stocked with U.S. weapons, and then it's surrounded by U.S. allies. So Japan, South Korea, and, you know, Prime Minister Sanai Takahichi only last year was saying, you know, if there was an attack on Taiwan and the US became involved, then, you know, so could Japan. So China would be facing a lot more sort of military heft to contend with. And then as well, you know, part of what Trump did, there was the blockade on Venezuelan oil.

15:58while China's the main, nearly only buyer of that. Whereas if the Chinese were to do a blockade of Taiwan's chips, the entire world relies on that, right, for sort of modern manufacturing. So I just think the consequences, they're very different. Now, stepping back, the Trump administration's attack on Venezuela follows a military strike on Iran in June, another country that China has a close relationship with. And that also comes on the heels of a new U.S. arms package for Taipei that if approved would be the biggest ever, you know, record arms package to Taipei. What kind of messaging does that send to Xi and whether this might further stoke tensions between the U.S.

16:40and China? Well, Trump said at the end of last year that him and Xi are now in the G2. So I think Trump knows there are sort of two big players on the world stage and it's him and it's Xi Jinping. I think militarily, Trump is proving that America still has a huge edge. You know, like if it comes to sort of who has the power of the gun, you know, it's America. You can't sort of compare the American military to the PLA right now. I think that probably is sort of the takeaway from all of this. Like Trump has made strikes in Nigeria, Yemen, Iran, Venezuela. He's projecting America's power, I think, in a way that we haven't seen in quite a while.

17:22I mean, that can't sit well in Beijing. I think for Xi, it will only increase the urgency. He was already trying to modernize China's military because they want to be able to match U.S. power, not because they want to invade other countries necessarily, but just because they don't want to be bullied and pushed around. And I think the trade war showed the only way you can stop that is if you are a true equal. And so I think for Xi, then it's just going to expedite the need to sort of make China's military as strong as it can. Now, what could happen in Taiwan is, you know, theoretical at this point, whereas Latin America is looking down the barrel of concrete implications very soon.

18:03And I wonder in light of that, what are you watching most closely? I'm watching how far Trump goes, you know, testing China in South America. It's easy to sort of publish a security strategy and to make sort of big claims. but we've seen in Panama that you know it's not that easy in reality and I think it's a test of how much Trump wants to keep pals with Xi you know I think he sends such mixed signals about China sometimes I think that maybe it's because those around him are more hawkish than he is but how far is he willing to go and I guess it boils down to is he happy to be in the G2 or does he really want to be the G1?

18:45You know, I think we haven't got the answer to that yet, but this is going to be a very interesting year to see. Yeah, the start of a crazy year, isn't it? Yeah. You always think the next year is going to be quieter and it's always busier.

19:07This is The Big Tech Asia from Bloomberg News. I'm Wan Ha. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.