Why the US-Israel war with Iran has been bad news for China too — The Global Story

[0:00] Is China the real winner from the war in Iran? [0:03] As the war in Iran grinds on, one big idea that we keep hearing is that in some sense, [0:09] the real winner here is a country that technically isn't even involved in the fight — China. [0:14] There's been a growing sense that the U.S.'s main rival appears to be boosting its diplomatic [0:19] and military standing, while America is bogged down in yet another Middle East war. [0:25] But is that really the full story? Or is China also paying a price in this war? [0:31] From the BBC, I'm Asma Khalid, and welcome to The Global Story on YouTube. [0:36] It gives you the real effect that we're like talking down the line to China, [0:43] you know, back in the day when people were shouting at each other. [0:45] Beijing, Beijing, this is London. [0:47] Hi! Good evening. [0:48] Good evening. Good evening, Beijing. [0:51] Laura, I mean, we're so happy to have you here today. [0:54] You are the right person at the right moment to tell us about this, [0:57] because one of our listeners, Sonia, got in touch with us and she asked us, [1:03] she said, I'm curious to know how the Iran war is impacting China [1:08] and how China's role in the world might change as a result of it. [1:14] In the Global Story team, we've been thinking about this question of how all of this is affecting [1:20] China, and we haven't had a chance to actually make an episode about it yet. [1:25] So for many of us in the West, at least, China is kind of seen as an ally of Iran. [1:34] Is that right? And is it as simple as that? Where does it all start for you? [1:39] Ah, Tristan, it's really not that simple. So there's this idea that China and Iran are really close, [1:45] and they are. They have been good friends and allies for many years. Back in 2016, for instance, [1:51] President Xi visited and then deepened the relationship. They've signed this so-called [1:57] 25-year strategic partnership. China has really promised $400 billion of investment in Iran and, [2:09] in return, asked for the oil to keep flowing towards China. In reality, it's really not sure [2:16] how much of that money has made it to Iran. However, the oil has obviously kept flowing, [2:23] and that's the relationship China has with Iran. It does need Iranian oil. So it gets about 13-14% [2:31] of its oil from Iran. Now, that's about 80-90% of Iran's total oil exports. So really, it does need [2:41] Iran in that way. But it gets much more from other areas of the Gulf. For instance, 14-15% from Saudi [2:47] Arabia. In total, it gets about 40% from the Middle East region. And most of that goes through, [2:55] as we all know now, the Strait of Hormuz. Laura, I remember back in September, there was this grand [3:02] military parade in Beijing. And there was this family photo of Xi Jinping in the center. I think [3:09] on his right was the Russian leader, Vladimir Putin. To his left, you saw the North Korean leader, [3:15] Kim Jong-un. And behind him, looking over his shoulder, which I will confess at the time didn't [3:20] really register to me as a big deal, is Iran's president. And notably, you didn't have people [3:27] like my American president, Donald Trump, was not there. You didn't see many other Western leaders [3:31] were not there. I would love to understand what that parade tells us about the Chinese-Iran relationship [3:39] pre-war. But in that moment, it looked like China was displaying its military power, its military strength, [3:45] and Iran was there. So I think they're called frenemies or the axis of upheaval. There are [3:52] so many names for this grouping of Iran, North Korea, Russia, and China. Now, the truth is, [3:57] the one thing that they really all have in common is that they don't want the US to be at the center [4:03] of a world order. And what you were seeing on display there with those huge missiles being [4:09] paraded through the center of Beijing, you're seeing a display from President Xi to say, [4:14] look, I do have this support around me, not just the military in front of me. I do have [4:21] these countries who are my allies around me. The truth of the matter is, when it comes to alliances, [4:27] China's alliances, that doesn't have the same kind of mutual defense treaty, doesn't have the same [4:34] we've got your back treaty as the likes of US alliances. So for instance, let's just take the US [4:39] and in Japan. If something happens militarily to Japan, the US is duty bound to defend it. [4:45] That doesn't happen with China and its alliances. China's alliances are transactional. They'll do a [4:51] business deal, but they're not going to rush to your aid anytime soon. [4:55] When the war first broke out at the end of February, it didn't seem like we heard a whole lot [4:59] from China about this all. And in fact, to that point, our listener Sonia again asked, [5:04] is this a crisis or an opportunity for the CCP? I mean, if your long time, let's say not arch enemy, [5:13] but rival in the United States is out there spending money, political capital fighting a war, [5:21] why interrupt the United States? It is both. It is both a crisis and an opportunity for the Chinese [5:28] Communist Party. Let's look at the opportunity first. I mean, earlier I talked about this parade [5:33] of world leaders making their way to Beijing. It stands in such a huge juxtaposition when it comes [5:40] to China's view and what China's doing compared to Donald Trump. And that's where it comes to the [5:48] point where President Xi is trying to portray this kind of image on stage, where he's looking at the [5:53] world stage and saying, look, here we are able to do business. We are a stable economic partner. [6:00] We are a stable power in the world and we're offering you an alternative. But I think when it [6:07] comes to the criticism that has come from the foreign ministry here and from President Xi has been very [6:14] cautious. Right from the outset, the foreign ministry have criticised slowly, carefully, [6:21] you know, built up to it. The real kind of pivotal point for China came when the Pakistani foreign [6:25] minister arrived in Beijing and there were these talks between the two. And we wondered what was going [6:33] on until eventually China announced that it was backing Pakistan's peace plan. Now that put some weight [6:40] behind it because it meant that Iran could say, look, China's on board here. One of our main allies [6:47] wants us to get to the negotiating table. So that changed things considerably. And then after that, [6:54] I think after the US and Donald Trump announced the blockade, they stepped it up a notch and described [7:02] US actions as dangerous. So that was the highest they've gone. Now there's a reason for this. There's a [7:09] reason they're not provoking Washington. And that is because even though they want the Strait of Hormuz [7:15] open, they don't want to poke or provoke Donald Trump. And that is because Donald Trump is expected [7:22] to come here next month. They want a trade deal with the United States. And that's really in the minds [7:29] of Beijing leaders right now. Can I propose an alternative theory, Laura? And I've actually [7:37] slightly stolen this because The Economist ran a very striking front cover a little bit earlier in [7:44] April. It was a picture of Xi Jinping. And the headline on this front cover was taken from a thing [7:52] which is attributed to Napoleon. Now I'm a bit of a Napoleon geek, and this is one of my favourite things, [7:57] which is attributed to him. Never interrupt your enemy when he is making a mistake. [8:04] And the suggestion was that this might be what Xi Jinping was doing in the case of the United [8:08] States intervention in Iran. What do you make of that? I think it's quite right in many ways. [8:17] It's one way to look at it in the sense of, you know, China doesn't really have to do anything [8:22] right now. It just has to kind of make sure that it's talking about a ceasefire, that it hopes for [8:28] peace in the Middle East. But there is another side to this because when it comes to the reopening [8:35] of the Strait of Hormuz, it's something China really needs. Why? Because of the global economy. [8:41] China's entire economy really is heavily dependent on exports. And if you are exporting right across [8:50] the world, it's not just about the Strait of Hormuz. They will be worried that this war will cause a [8:57] global recession. Now, that would reduce countries' capacity to buy. And that's something that China [9:03] really doesn't want to see. And that is where President Xi, although he's standing there, [9:08] and as you say, don't interrupt your enemy when they're making a mistake, perhaps that's where [9:14] he will feel he's strong. But where this country will feel it's weak is when it comes to its economy. [9:20] It needs a stable world. That's fascinating because the conventional wisdom has largely been that [9:26] China would seem to gain politically from this war. But you're describing a situation in which [9:31] the picture is a lot more complicated if we incorporate the economics of this all and how [9:36] much China relies on exports for its economy. And then that makes me wonder if ultimately the strongest [9:43] words we've seen from China's leadership is when we saw, you know, the blocking of the Strait of [9:49] Hormuz, not just from Iran, but also then from the United States saying that they're going to block [9:54] Iranian ports. Was that the impetus for when we started to see China be more vocal in its [9:58] criticism of the United States? That's exactly right. I think there's another reason. I mean, [10:05] I think I've spoken to several analysts on this over the last few weeks. And I think the prevailing [10:10] thought obviously is, oh, look, stable, a beacon of, you know, a beacon of stability when it comes [10:17] to the world stage. But I think if you look deeper, if, for instance, the United States is embroiled in [10:24] a war in the Middle East, if it's moved all its assets there, if it's using up all its Tomahawk missiles, [10:31] that may look good. But it's also taking away assets from this region. Now, you've got the missile [10:38] defence system THAAD in South Korea. Part of that has been used and taken away to the Middle East. [10:44] Now, China does not want a US that's at the centre of the international world order. But does it really [10:52] want a US that is that unstable? Because what will happen now and is already happening is you're going [11:00] to get the likes of South Korea and Japan looking at one another and go, well, can we really rely on [11:05] the United States anymore? If they're taking assets away from us, if they're concentrating in the [11:10] Middle East, should we now look at building up our own nuclear arms, our own weaponry? And you're [11:16] already seeing that with the likes of South Korea looking into nuclear submarines. Japan is also [11:22] spending a lot more money on weaponry and on defence systems. So I think when it comes to what China [11:30] wants, it doesn't want a US at the centre of the world order, but it may not want this US that is [11:37] so unpredictable that it might struggle to deal with it. Well, Laura, this is all very macro. These [11:43] are the machinations of great powers and world leaders. But you've also been doing the micro reporting. [11:51] You've been out there looking at the economic impact of the conflict at the trade fair. Can you tell us [12:00] more about what you've found? We've been to the world's largest international trade fair. Now, [12:06] you can't comprehend the size of this. It's over 217 football fields in size. It could take days to [12:15] walk through it all. And each exhibition hall has on sale everything from, you know, your daily household [12:22] appliances, brand new air fryers, gadgets, vacuum cleaners that can suck up oil in seconds. They had [12:30] things to make your hair curl beautifully. In one hall, there were a whole set, and I think you'd love [12:36] this asthma, singing and dancing robots. This is normally a place where people are talking about [12:45] the future in a hopeful sense, looking for the best negotiation, looking for the best bargain. [12:51] I was there last year and the big conversation was around Donald Trump's tariffs. This year, [12:57] it was the war in Iran and the impact on prices. And many of those traders were telling us that their [13:03] prices, their costs have gone up, in some cases, around 20%. And then you had those, when we met one [13:11] buyer who, yes, he was from Oman and he says business is going well. And he was doing a deal behind [13:17] the scenes with a tradeswoman, Melissa, who was really keen to make sure she was getting a deal. [13:23] And she was telling us, actually, our shipments can't really get through to the Middle East right [13:28] now. And we heard that from many people selling, especially electric cars, but away from the bright [13:33] spotlights of the Canton Fair and just outside in the textile area. Now, this is where you get the [13:41] world's largest textile traders. These fabrics are used to make clothes that go to the likes of Zara, [13:48] Sheehan, Timu, all major fashion houses. And there, I mean, it's such an incredible place to be, [13:54] because these streets are like arteries, where you've got trucks moving, these multi-coloured [14:02] rolls of fabric. Some of them are piled on motorbikes. You've no idea how they balance. And sometimes it [14:08] looks like wings on the motorbikes as they're flying around corners. And we went in and out and [14:14] in and out of each of the stores just to talk to some of these traders. And every single one told us [14:19] the same story. And that is, they are struggling with price increases, again, around 20%. [14:27] 20% price increases. [14:28] And that is because they're already operating on really slim margins. [14:31] And that's not because of the tariffs, because I know that the tariffs that the Trump administration [14:35] has put on China have been an ongoing economic issue. You're saying this 20% is new, [14:40] that they're saying because of the war in Iran. [14:45] That's totally right. I mean, China has managed to diversify its trade with the tariffs it's managed [14:49] to sell elsewhere, to parts of South Asia, right across to Africa, South America. It's found other [14:57] markets. But there's no getting away from the fact that the price of oil has gone up. You have to pay [15:03] that to get your material made. I just want to make sure I understand and can connect the dots [15:09] between how an increase in the price of oil is affecting trade and exports in China. Because it [15:17] sounds like you're saying this isn't just about shipping the exports out of China. This is about [15:21] actually making the products themselves in China. There are three main ways this is affecting China. [15:26] Oil is needed in the form of petrochemicals to make the likes of plastic and to make textiles. [15:31] Now, China is the factory of the world. Everything we buy, there's usually a component or perhaps a [15:39] Chinese link. If you kind of look in your shop, there's usually some hairdryer or air fryer or [15:46] piece of clothing in the shop that's made in China. Now, if you are the factory of the world, [15:51] you need costs to be stable because you've made all these deals. And if, for instance, you're now going [15:57] to get your textiles or your plastic and it's 20% more, you're either going to have to turn to your [16:02] buyer and go, by the way, you have to pay that, or you're stuck with your product. So that's where [16:07] it's affecting the tradesmen on the ground. Okay. So the second reason is obviously about getting [16:12] shipping to the Middle East. And if they have to go the long way, shipping costs have doubled and [16:17] tripled. And those we spoke to at the fair said that was the case. And then there are those who just [16:24] cannot get their product like electric vehicles to the Middle East at all. Then there's a third and [16:29] more bigger kind of bigger picture reason. And that is the global economy. China's economy is heavily [16:36] reliant on exports. It's really struggling domestically with kind of low house prices, [16:44] unemployment. There are various issues, economic challenges within the country. So it's heavily [16:50] reliant on those exports to prop up a stuttering economy. And so far, it's been doing quite well, [16:57] even through all the tariffs that we've seen. But if you're looking at a world that's looking around [17:05] and going, should we really be buying anything? Because we've got this recession and prices are [17:09] going up. I can't afford to run my car today. Are you going to go and buy an extra air fryer? [17:15] We're talking a lot about air fries in this episode. It's very interesting to me. [17:19] I've been hearing a lot about them. They are the kitchen appliance you need. [17:22] My producer and I are obsessed. [17:26] I need to try one. My mother-in-law has one. [17:30] I mean, there were some really fancy ones there and they're all brightly coloured. But I think, [17:36] are you going to go or are you going to make do? Are you going to buy a fancy Hoover? Are you going to go [17:40] and buy? You know, so that's part of the problem. If prices are going up around the world, if you're [17:46] seeing the cost of petrol going up, then you're looking at the possibility of a global recession. [17:50] And we're hearing economists already talking about that. That's a nightmare scenario for China [17:55] because it needs to sell all of these goods abroad. And that is why. So those are the main three reasons [18:01] why this crisis in the Gulf would affect China's economy. What do people at the trade fair in China [18:09] tell you about how they perceive Donald Trump? Because as Asma just mentioned, there's been quite [18:14] a lot of upheaval for them in the last 18 months because of him. When it comes to talk of Donald [18:22] Trump, now you've got to remember I'm in China. Nobody likes to talk about politics in China. And [18:29] that's because really it gets you into trouble. You don't really want to openly give your political [18:34] views. But I have spoken to a number of traders in the past when it comes to Donald Trump. And a [18:39] couple of them will just turn around and go, he's crazy. Some of them see him as hilarious because [18:44] they'll mimic his dance. But I think even those who perhaps saw him as hilarious in the past are now [18:51] saying, hang on a second, this is a Donald Trump that we were not prepared for. I think social media is [18:59] a very good place to go and have a look because right now on social media, there's this video [19:03] circulating. And it's an AI video. And it portrays the Americans as this eagle. And then on the other [19:17] side, it's got this Persian cat. And it's a warmongering eagle. And they fight in kung fu style [19:23] in the CGI cartoon. And so that's a not so subtle swipe at Donald Trump. And I think that's where you [19:32] kind of get your view. And that's been circulating. And it actually even went viral in China. [19:39] So Laura, I mean, it feels like the consensus in all this, all the hot takes would suggest that China is [19:47] doing well out of the Iran war. But from what you're saying, it does sound a bit more like they're [19:55] threading quite a lot of small needles with quite a lot of small threads. Is that a fair assessment? [20:03] If you'd asked me before I headed out to the lakes of Guangzhou and Foshan, I would have told you that [20:11] China was one of the winners in this war for all the reasons we've talked about. Because I've been [20:18] sitting here and watching President Xi shake hands with leaders from all over the world look like this [20:24] stable partner. I mean, we're looking at Sir Keir Starmer. Mark Carney even came here from Canada and [20:31] talked about a new world order. You heard it from Germany. You heard it from others. They're even [20:38] repeating the same words that China have spoken for a long time. China has been saying, you know, [20:45] they need to be part of a multipolar world order. And in many ways, I was thinking, well, hang on a second. [20:52] This is exactly what China is getting. But having been on the ground, having seen what I saw at the [20:58] Canton Fair and then in the streets, there was real tone of resignation. Workers are beginning to grumble [21:04] about wages. Workers are beginning to wonder whether or not they will have jobs. And it's not [21:10] just the war in Iran. The war in Iran is almost like a last straw. And I think that is a real concern [21:16] for China, because it will not want to hear that from the ground workers in its main factory heartland. [21:24] You've alluded a couple of times to Donald Trump's visit to China that is expected to occur in just [21:29] the next few weeks in May. And I am curious how the expectation of that visit is factoring in to [21:40] China's desire to wrap things up here or to not say very much about this war is that, you know, [21:45] you've got the president of the United States coming in a very high profile visit to your country. [21:50] This is a very high profile visit. And it's one that China really wants to happen. And they will put [21:56] on a grand show, even if, you know, and even after this war in Iran. And that is because they want a [22:05] deal. They want this trade war to end and they see their best hope of a deal in Donald Trump. And that [22:12] is why when it comes to Beijing's actions, when it comes to Beijing's words, they are being cautious [22:18] about what they say and what they do. They don't want to provoke Washington in that way. And also, [22:24] I think in terms of getting involved, there's a limit to how much they can get involved. This is [22:30] a country that is not going to send warships to the Strait of Hormuz. [22:34] Why would it not militarily be involved? Because it doesn't have a history of wanting to do that? [22:38] Because it economically doesn't find it prudent to do this? [22:42] It would never get involved for several reasons. The first is that China has a long history of [22:47] non-interference in other countries' affairs. That is what they keep saying. And that's how, [22:52] that's the persistent line. Secondly, the last war that China was involved with was Vietnam. [22:59] So if you're looking at how much experience it has, it really doesn't have that much experience [23:05] on the ground, despite the fact it has these massive military parades and, of course, [23:10] it has more warships. China is often perceived in the United States as this boogeyman and this [23:16] potential military power that could really threaten American supremacy in the world and, [23:22] and in particular, the Asia Pacific. And going into a country that has been at war for most of my life, [23:30] it's really just, it's just mind boggling to think that China hasn't been involved, [23:35] you're saying, in a war during my entire life. [23:37] Now, during your lifetime, China has not been involved in a war. It has been involved in skirmishes [23:43] in the South China Sea, and it has been involved in skirmishes at its border with India. [23:47] But not a full-out war. [23:48] But these are what China would say are its sovereignty issues. The idea that it would send ships all the [23:56] way to the Strait of Hormuz, where they would risk military confrontation with the United States, [24:02] where they could not plan, they could not strategize exactly what would happen. It really doesn't, [24:08] it's not in Beijing's interest. Beijing likes to carefully plan everything ahead. It likes stability. [24:16] And that is China's main interest. China's main interest is securing its own borders. [24:21] It's very much China first, the rest of the world next. [24:25] That's it for The Global Story on YouTube. Thanks as always for tuning in. And if you enjoyed our episode, [24:31] I should mention that our show, The Global Story, is also available as an audio podcast. You can find [24:37] us every weekday on bbc.com or wherever you listen to your favorite shows.