China Decode: What Trump’s War With Iran Means for China and Global Oil

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23:53James Kynge:Welcome back. This week, China is preparing to formally adopt its 15th five-year plan during the 2026 two-sessions, the country's most important annual political gathering, setting the blueprint for the next half-decade of economic and technological strategy. After navigating COVID disruptions and a renewed trade standoff with Washington, Beijing is now signaling a sharper focus on resilience, supply chain security, and an aggressive push into artificial intelligence and advanced technologies. James, let's get right into it. This five-year plan is going to be huge, and I think that's not an understatement.

24:31James Kynge:AI is going to be a cornerstone of it for sure. Do you think that this five-year plan will really set up China to reduce dependence on the U.S.? Because certainly when I look to the last five-year plan, there was some talk about choke point industries, which I think will come up again, leveraging those industries. But also the last five-year plan was very much focused on what was then called the three news, so electric vehicles, batteries, solar panels. What do you think will be the key technological points of focus and strategic areas of interest in this next five-year plan?

25:05Alice Han:Yeah, I mean, I think it's quite fitting in a way that we're talking about the new five-year plan for China after the U.S. attack on Iran, because that will have convinced the Chinese leadership yet again that economic self-reliance and self-reliance in every other way is absolutely the policy that China should be pursuing. And so I expect that when Xi Jinping stands up and gives his speech at the National People's Congress later on this week, there will be loud applause when he mentions the word self-reliance. You know, let's see if I'm right about that. So I think that the main focus of this National People's Congress and the 15th five-year plan, which will be adopted at it, will be achieving breakthroughs in core technologies to reduce dependence on Western technology, specifically in areas such as AI, as you've mentioned, Alice, also semiconductors, also quantum computing, 6G telecoms, aerospace, biomanufacturing, new materials, robotics, the list goes on and on and on.

26:22Alice Han:But it's crucial to recognize that the whole impetus behind this now, not maybe the whole, but largely the big impetus behind this is China's race for self-reliance. And I think when we talk about AI, it's going to be a truly amazing National People's Congress. There's going to be so many details that come out, if you're interested, that will be really quite amazing. And I think when people talk about AI, Often they're less than specific. They sort of talk about it in the abstract. But I've just been doing a little bit of research on various AI products in China. And I just want to mention one of them to give people a sense of where China is.

27:07Alice Han:Because China's approach to AI, and we'll see this in the 15th five-year plan, is what's called AI+. That means diffusing AI into so many different uses and apps within the economy in order to effectively animate the economy and to generate revenues for companies that use them. So I've got an example here. There's something called the Alibaba Quark AI glasses. And you put them on, they're called a living eye. and as you've got them on, if you walk through your surroundings, they will alert you to the fact that there's a coffee shop over here with maybe a special offer on matcha or the road is blocked off over there, so you'd better go the other way around or it'll tell you something about footfall traffic and all the time, if you need it, it'll translate for you in real time.

28:02Alice Han:So there will be a voice in your ear translating what a sign means. Let's say if you're looking at it in English, it'll translate it into Chinese or vice versa. And if you're looking at items in shops, these glasses can give you immediate comparisons with prices of the same product on Taobao, which is one of Alibaba's online marketplaces. And these glasses, I mean, I'm not on commission, by the way. I'm not selling these glasses. Alibaba, I have no commercial relationship with Alibaba, but they sell for about 356 US dollars. And they're all animated by Alibaba's key AI program, which is called QEN or Q-WEN.

28:45Alice Han:So I just wanted to be a little bit specific on that. The big headline number that'll come out during the National People's Congress when they mention AI and the 15th five-year plan is that China intends by 2030 for AI and AI devices to have a usage rate of over 90 % in the Chinese economy, essentially, you know, creating an AI infrastructure for the first time. And then by 2035, the aim is for the Chinese economy to be completely transformed by AI. I think it's going to be really, really interesting. Alice, what have you been focused on in that regard?

29:29James Kynge:Well, I think that for viewers listening to understand the importance of five-year plans, this is really, if you think about it, the government's key set of KPIs and company goals for the next five years. and oftentimes they tend to actually outpace the targets. But it really helps the central government and local governments figure out what are the areas of strategic priority and pour a ton of resources through subsidies, through financing, through cheap loans via banks and policy banks to those sectors. So as we mentioned previously, James, in the past, wind turbines, solar panels, EVs, batteries, really benefited from that kind of whole-of-government approach embedded in five-year plans.

30:18James Kynge:So it can't be understated how important this next five-year plan is. I will also add to this that the things we need to be watching for this week when both the government work report and news of the five-year plan come out is to what extent is the government putting its money where its mouth is in terms of supporting consumption and the services sector. We've gotten a lot of talk in the run-up to the Central Economic Work Conference in December and since then about the need to boost consumption and provide more support for the services sector. I'll be watching and reading closely to see what's actually in the minutiae of the Government Work Report to do that.

30:56James Kynge:There's talk about subsidies, consumer subsidies for the services sector, maybe potentially even further price reductions in certain sectors like healthcare and elderly care, again, to support services consumption. So I'll be watching that really closely. And then related to Taiwan and the military dimension, I'll be watching to see what is going to be the target in terms of military spending and the priorities for the PLA, because we've just got an announcement last week that more officials in the PLA, top level of officials, have been ousted from the PLA. So it really feels like a hollowed out military right now within the party.

31:35James Kynge:So any indication, both in the government work report and elsewhere, about what is going to be the strategic direction and financing of the military will also be really interesting for the Taiwan and US-China military dimensions. So those are the other things that I'm watching. Certainly these breakthrough technologies that we're mentioning, AI, quantum, which is going to be huge as well, both in terms of data encryption and decryption, but also in terms of communication and sensing. These are going to be key areas where a lot of R &D, I think, is going to be geared towards. And as we've talked previously, biotech and pharma, where China has a known domestic advantage in terms of the clinical trials pipeline, the research pipelines, the drug discovery pipelines as well, that I think will also be a key focus.

32:23James Kynge:And then last but not least, I would say that any indication from Xi Jinping about the economic direction will be interesting. Certainly when we saw the draft of the five-year plan late last year, what was clear was that even although the government understands it needs to rebalance, it is doubling down on being a high-tech manufacturing superpower. So we'll probably see, I think, more direction in the five-year plan about what that actually means and whether or not Germans should be even more worried than they currently are, because clearly the Chinese of overtaking them in autos and EVs, maybe in the cutting edge in AVs as we come down close to that innovation breakthrough as well.

33:06James Kynge:So those are the things that I'll be watching very, very closely. But to your point, and this is maybe a discussion for another time, I've been reflecting a lot about the AI stack, so to speak, and this element of self-dependence or self-reliance that you talked about, James, which really dates back to Chairman Mao, that she is resurrecting as a terminology. It's the AI stack starting from the application level, so the thing that is closest to the consumer, to the model, to the infrastructure slash data center, to the semiconductors or chips, and then to the energy and rare earths or commodities aspect.

33:43James Kynge:And to my mind, really, China has a lot of vulnerabilities in those middle layers. When I'm thinking about the frontier models, you're thinking about the chips, you're thinking about the data centers where the CapEx is only a fraction of the 600 billion plus that we're seeing in the U.S. coming down the pipeline for compute CapEx and data centers. really the only advantage has been China's industrial policy in rare earths, as well as energy, where the output in electricity is twice that in America, even more now. So I actually think that there will be some focus in the five-year plan on really trying to improve China's competitiveness in those middle tiers, where really they still remain behind the Americans.

34:27James Kynge:And so that's going to be, I think, an interesting thing to watch, because I think you and I agree that AI Plus is going to be, I think, the biggest takeaway from this next five-year plan. All right, let's take one last quick break. Stay with us.

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37:57James Kynge:Welcome back. A fatal crash involving the Xiaomi Su7 is putting China's EV industry under fresh scrutiny after investigators found electronic doors failed during a power loss, trapping the driver inside. Now, regulators in China are mandating mechanical backup handles, a change that could ripple across China's massive EV market at an extremely critical moment for its global expansion. James, you alerted me to this story, and it's actually quite shocking. It's not the first time that we've seen some of these malfunctions. I remember a couple of years ago, there was something similar that happened with Tesla vehicles in China.

38:37James Kynge:at least one or two Chinese consumers were trapped inside and died in a Tesla vehicle. This is obviously not a first, but in this case, it's involving a Chinese manufacturer of cars. Does this, do you think, diminish the way Chinese consumers feel about the safety and security of Chinese EV companies and potentially how foreign consumers think about Chinese EVs?

39:01Alice Han:I think it might well, you know. I mean, I looked at the footage and I found it really tragic. I mean, there's this video online of the fire in the car in Chengdu City in China. Some brave bystanders come over and you can see them trying to break the glass on the windows to get the driver out. One man is using his fist against the side windscreen, and then he tries to use his forearm. And all the time, another man is trying to open the door handle, but it's obviously really hot, so he can't hold it that long. And then the driver dies inside the car engulfed by flames. And, you know, it really is a tragic scene.

39:45Alice Han:I think that, you know, obviously the investigators have now made a determination on this. And they've said that the doors could not be open from the outside because the collision caused the low voltage system within the car to lose power, and that disabled the door handle release function. You know, obviously, I mean, that is something that should have been thought about long before they launched a car like this. And to me, it will give people pause, whether they're inside China or outside China. But as you say, there are new safety regulations. But I do think this is a blow to China's incredible EV phenomenon, both inside the country and outside.

40:31Alice Han:I assume that Xiaomi will fix this and China's move into overseas market will continue. But what's your sense, Alice? How are you seeing it?

40:43James Kynge:I mean, this is definitely bad PR for Xiaomi itself. But it's coming at a time where I still think that Chinese EVs have such a competitive advantage compared to their European and American peers. We've seen Chinese EV sales grow an average rate of 50 % from 2021 to 2024. Just last year, this was a big story of last year in the EV world, BYD from China overtook Tesla in just global sales, aggregately of EVs, and that trend is likely to continue and increase going into 2026. And now BYD is apparently in 119 countries around the world. That number will grow. And I just heard recently from people close to this that BYD is actually launching more of its luxury line of cars under different names.

41:31James Kynge:So there's one called Dancer that's coming down the pipeline. It's priced at above 100 ,000 USD. That, I think, will help reduce some of the potentially bad PR surrounding Chinese cars if you just enter the market with a different name and really try to China wash. We've seen that actually happen a lot with Chinese companies in the tech space and more noticeably with AI companies like Manus. But certainly what we're seeing, at least from the BYD instance, is that they find ways to try to desinicize or reduce the association with the core Chinese brand in order to cater to a foreign market. That I think will be the trend for a lot of these brands that are rather launching these more luxury high-end versions.

42:16James Kynge:But certainly, you know, when I look at the future, what is going to be interesting to link this back to AI is the safety aspect of autonomous vehicles, which we haven't even gotten into. And regulators haven't even caught up to because really the technology hasn't really been scaled out en masse. Certainly, if you go to, you know, major cities in America like San Francisco, L.A., Austin, you're seeing Waymo and other AVs already on the road. And if you go to certain cities in China, that is the case too. but we're not seeing it en masse yet in either countries. And that, I think, might open a new can of worms in terms of regulations.

42:53James Kynge:Maybe that is coming in the next couple years as well, because I sense that the technology is moving quite rapidly in China and adoption could move quite rapidly, potentially even faster in China for AVs than in the US. So the next time we talk about this, there may be some security challenge that some of these AVs face, which we haven't gotten into. That worries me quite a bit because certainly that takes a whole other level of control away potentially from the driver itself. And then we haven't even gotten to the data security aspect if you're thinking about it from the perspective of a foreign consumer.

43:31James Kynge:I've read some articles and heard some stories about European countries' concerns about autonomous vehicles collecting data, even electric vehicles collecting data from European consumers. And certainly, I think that those concerns will probably only increase both as we see EVs penetrate further into the European Union countries and when we see autonomous vehicles coming as the next frontier of vehicles from China. What's your view on that, James?

44:02Alice Han:Yeah, I mean, I think it's a really good point that you make, Alice. I think that with a lot of Chinese innovations, there is this kind of mentality of move fast and break things, you know, and, you know, China's moving so quickly to unveil all of these technologies. And a lot of these technologies are new or new-ish, you know, so clearly some things are going to go wrong. I think people should be really quite aware of that.

44:28James Kynge:All right, James, you know what time it is. It is prediction time. As you peer into the crystal ball for the next week, what do you see?

44:36Alice Han:Okay, well, I've picked a prediction that does chime, I hope, with what I think will be the big theme of the National People's Congress later on this week, and that is technology. And I'd like to focus a little bit on a technology we perhaps don't think about that much with China, and that is space. China's moves to go boldly into space. And my prediction is that the space race with the US this year will shift into high gear. Part of this will be a focus on the lunar South Pole, which is already shaping up into an area of competition between the US and China. China has a plan to send the Chang 'e 7 mission to the lunar South Pole this year.

45:22Alice Han:It schedules to go late in the year, and the mission will target a search for water ice. It'll include an orbiter, a lander, a rover, and a so-called flying hopper that is supposed to explore permanently shadowed craters up there. And this is all a precursor towards China landing a person on the south pole of the moon by 2030. Of course, the U.S. has got its own plan, but I think that, you know, this is a fascinating race. China wants to plant a flag on the moon when it puts a person onto the South Pole. This is a big part of the China lunar missions, and I think it's going to be fascinating to watch.

46:07James Kynge:Really interesting, James. I think space is a big theme this year. We're going to have SpaceX from Elon Musk IPO-ing at some point. It's going to be the mega IPO of the year. And he's, I mean, I just listened to one of his podcasts, his three-hour podcast recently, and he's talking a lot about, you know, space being the next frontier for data center growth. And that, you know, even though compute may be limited on the energy frontier in the U.S. and the West, you know, the sky's the limit, so to speak, or space is the limit when it comes to launching data centers into space using SpaceX technology.

46:41James Kynge:So it's interesting that this is coming at a time where you've got a lot of discussion in Silicon Valley about space. And again, it takes us back to the Cold War where really you see the crisscrossing of technology, geopolitics, space. It's super interesting. So my prediction is also somewhat left field. I want to bring back North Korea. It seems like we've forgotten a little bit about Kim Jong-un in Pyongyang. and he certainly is probably watching the Iran situation, slightly worried about what Trump may do. But, you know, in the case of North Korea, they have a more advanced nuclear weapons program.

47:20James Kynge:Trump hasn't really made any verbal announcements or really gone out after Rocketman. In fact, he seems to want to have a good relationship with him. I think if we do see a China summit coming soon, even though I expect that to be delayed somewhat, it could well be that North Korea comes back to the attention of Trump and is another area in which he may either want to exert pressure on Kim or have some kind of revival or renewal of negotiations about nuclear containment. Or even although I think Kim watching what's happening in Iran is probably more emboldened to expedite his nuclear weapons program.

48:03James Kynge:I think his takeaway from what's happening Iran is that if only I had nuclear bombs, I would not be in the position that Tehran is in right now. I think North Korea will come back and haunt the US-China relationship as it is wont to do. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Our producers are David Toledo, Eric Janikis, and Ness Smith-Sabadoff. Thank you to Catherine Dillon, Drew Burrows, Billy Bennett, Dan Chalant, William Flynn, Jesse Millwood, and Gil Espinosa for production help every week. Make sure to follow us wherever you get your podcasts so you don't miss an episode and talk to you again next week.

48:44Thank you.

49:14Scott Galloway:Learn more at harvey.ai.