Transcription
As the conflict in Iran drags on, many newspapers around the world run headlines proclaiming the winner, China.
The idea that China's winning, nobody's winning, right? Obviously, I think the narcissism involved in that type of analysis is really quite uh shameful, really. I mean, look at the economic costs, and I'm not just talking about China, but US allies and partners across the Indian Ocean region are about to get slammed. China, I think, has positioned itself a little better on the energy front. Um but just think of all the second-layer effects of, you know, food prices and fertilizer prices and, you know, the cost to small business. To say China's won this, I think, is is really quite a deflection to maybe look at the bigger issue of why was this started in the first place, um and and who's accountable for the economic consequences of it.
The Iran conflict has caused fractures in the NATO alliance. NATO is a paper tiger. Putin's not afraid of NATO. Putin's afraid of us, very afraid of us. And he's explained it to me a lot of times. I got to know him very well. I know him very well. Uh NATO is a paper tiger. NATO is us. And when we needed them, well, we didn't need them, by the way. We didn't need them, obviously, cuz they haven't helped at all. Just the opposite. They've actually gone out of their way not to help. They didn't even want to give us landing strips.
This rupture in the America-European alliance has had profound implications, especially for Europe-China relations.
In January, British Prime Minister Keir Starmer went to Beijing. This visit was the first by British Prime Minister in 8 years and formed part of a wider effort to strengthen UK-China relations. In February, Beijing hosted German Chancellor Friedrich Merz. In a statement, the Chancellor said Germany must seize growth opportunities despite unfair competition such as Chinese state subsidies and market access restrictions. In April, Spanish Prime Minister Pedro Sánchez met President Xi. The meeting between the two leaders is their fourth in 4 years. Spain has strongly opposed the US-Israeli war in Iran, which Mr. Sánchez has described as illegal.
Europe-China ties seem primed for improvement after several difficult years, but two issues continue to be a thorn in the relationship. The first is is Russia, Russia-China relations. Um very strong no-limits partnership, as Xi Jinping set out some years ago. Um and the economic relationship only continues to to deepen. So, there are, of course, concerns, uh particularly um in Eastern Europe, in Germany, and in France, around the strength of that um Moscow-Beijing relationship.
The other thorn, and I think this one is is one that will grow bigger, and perhaps more uh more painful, is the economic relationship. And until quite recently, Europe-China relations were very complementary. China was growing by by investing and and building, and to do that it needed high-end European capital equipment. Now that relationship has shifted from friendly to competitive. China is producing these these high-end equipment, these automotives, advanced manufactured goods, and that relationship is now increasingly difficult. Uh and Germany, for once, is starting to suffer uh something of a a second China shock. Um it's not quite as acute yet for Germany. They still see quite a few BMWs and Audis in in China, but that that pain threshold is is ratcheting higher, and I think Europe will will have to face the reality of of a China that is significantly more competitive than them in a number of core European industries. It has been widely reported that Germany was losing about 10,000 manufacturing jobs a month.
All across the world, as oil prices spike and economic contraction bites, governments are having to think hard about their energy sources and also draw up new plans for the future. In the near term, many countries, including China, are turning back to coal as part of their energy mix. In the longer term, the energy crisis has re-energized calls for clean energy. China produces roughly 80% of the world's solar panels and dominates wind turbine and lithium battery manufacturing. Its EVs now lead sales in the market globally. And through its Belt and Road Initiative, it has built hydroelectric dams in countries across Southeast Asia, Africa, and Latin America.
People want cheap energy, uh to be clean, and also secure and controlled in in their hands. And green energy fulfills all of those factors. China, as by far the leading producer of of clean tech, um both times in volume and in price competitiveness, is starting to gain, I think, quite substantially from this. I expect a big pickup in investment in these areas, both in developed markets and emerging economies.
In 2025, China's total foreign trade surpassed 6.3 trillion US dollars, yielding a record-breaking trade surplus of nearly 1.2 trillion. This export boom was driven in large part by green and high-tech industries. According to China's State Council, exports of EVs, lithium batteries, and solar panels rose by 27.1% while wind turbines skyrocketed by 48.7% last year. Alongside those trade figures is another number that surprised analysts across the world. China's Belt and Road Initiative, or BRI projects, reached a record 213.5 billion in value last year. BRI investments had peaked in 2016, a decade ago, with many thinking that the BRI initiative was starting to taper off. But China's flagship project is back, bigger and more ambitious than before, with many clean energy projects added across the globe, boosting its clean tech exports.
It's now less about infrastructure and more about manufacturing. Whereas with infrastructure, it's quite often top-down government-to-government relations. This time around, it's the corporates that are looking for profits that are they're taking the lead in these activities. Solar panels and factories in Vietnam and Malaysia, BYD and EV companies, you know, basically everywhere. Brazil, Eastern Europe, Morocco. It runs the gamut of the global economy. Primarily in relatively low-cost manufacturing areas, but even in parts of Germany, we're seeing Chinese companies come in and take over disused auto production plants there as well. So, it's quite a significant shift to the previous Belt and Road model where it was infrastructure top-down, less of a profit concern. This time around, it's the corporates driving it, looking for profits.
China is also exporting its nuclear reactors. According to Chinese media, their flagship model, the Hualong One, is currently the most widely adopted reactor design globally. China has 41 of them either operating or under construction, each with the capability of supplying enough electricity for a million people. Countries like Pakistan and Argentina have already signed on.
Limited fiscal capacity after the COVID pandemic has made many countries wary of taking on such a large debt-heavy project. This could soon change. In November 2025, Chinese companies made their sales pitches at the World Nuclear Exhibition in Paris. Participants from over 80 countries attended. The Chinese pavilion was the second largest after France's. The pitch that Chinese reactors are cheaper than alternatives from France, the US, or Japan. They can be paid for in local currencies and built much faster. For countries currently facing an energy crisis, that pitch may now appear more attractive.
China's clean energy exports might be surging, but other exports are coming under stress. The shocking energy and transportation costs from the Iran war weighing on global demand for Chinese exports. Our growth in outbound shipments skidded 2 and 1/2% on year. That's a 5-month low, sharply down from a double-digit gain the first 2 months.
The big headwind facing the China economy is is a lack of domestic demand. Um that's mainly on the consumption side. And there are a number of factors playing into that. You know, the household has been relentlessly hit by COVID, property, the internet crackdown, uh tariffs, and higher oil prices, which hit the consumer as well. It will not help that recovery. Where the real damage comes from is the potential damage to exports. Exports have been the key growth driver the past couple of years. Really extraordinary gains in trade. And if the rest of the world is is suffering, the scope for China to continue to export its way to growth is limited. So, that for me, that is the real crux of the the Iran conflict and the potential backlash onto onto China.