China Decode: China’s Long Game in the Middle East

As the war with Iran escalates, the United States is shifting military assets back to the Middle East — raising new questions about whether Washington can stay focused on the Indo-Pacific and China. Alice Han and James Kynge speak with Gulf Research Center chief economist Dr. John Sfakianakis about how the conflict could reshape global power dynamics and whether Beijing may gain strategic breathing room while U. S. attention is divided. Then, a new set of university rankings is fueling debate over the future of global research. Chinese universities are climbing rapidly, backed by massive state investment and a surge in scientific output. Finally, China’s electric vehicle giant BYD is reportedly exploring a dramatic new move to boost its global brand: entering Formula One. We look at what it would mean for the sport — and for China’s ambitions in the global auto industry. Subscribe on Substack for ad-free episodes and much more! chinadecode.profgmedia.com/ Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:30Speaker 04

  The Chinese are playing a long game in the Middle East, but also a long game around the world. So, the China of today is far deeper in the Middle East, including the Gulf, including Iran, including Iraq. When Western companies are not so forthcoming to build things, the Chinese are always there to build things. So, that tells a lot about China's presence in the Middle East. I think what is clear is that when this war is over, it's going to be a very different Middle East.

• 2:09Alice Han?

  Welcome to China Decode. I'm Alice Han.

• 2:11James Kynge?

  And I'm James Kynge.

• 2:12Alice Han?

  In today's episode of China Decode, we're discussing how the Iran war is helping China, why Chinese universities are rising in global rankings, and why China's EV giant wants to join Formula One. That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting off the week. On Monday, the Shanghai A-share index closed down 0.3%. The Hang Seng H-share index ended the day up 1.5%. The Hang Seng Tech Index surged almost 3% after famed investor Michael Burry suggested that it may be undervalued. BYD jumped 8%, its biggest gain in over a year on news of significant demand coming out of Latin America.

• 2:56Alice Han?

  And China National Offshore Oil Corporation declined over 1% amid escalating tensions in the Middle East. All right, let's get into it. The war with Iran is starting to ripple far beyond the Middle East, all the way to Asia. Now, for years, US officials have said the Indo-Pacific is America's top strategic priority because of China. But now, as the conflict with Iran escalates, the Pentagon is pulling missile defenses, warships, and other military assets out of Asia to reinforce the Middle East. Now, joining us to talk about the broader implications is John Sfakianakis, chief economist at the Gulf Research Center with decades of experience in the Gulf and Middle East region. John, thanks so much for being here.

• 3:39Speaker 04

  Thank you.

• 3:40James Kynge?

  This is a very fast-moving situation. We're seeing a lot happening in the Straits of Hormuz. Would you say that this war risks pulling the US back into the Middle East, just as it was trying to pivot towards Asia?

• 3:55Speaker 04

  Absolutely. I think they're back into the region. And this is not going to be a short-term event. It's going to be far longer than what they anticipated, or what they portrayed to the rest of the world. One, because regime change hasn't happened. It will take much longer. And two, for regime change to happen, you need to have more of a firepower, greater firepower, because Iran is a true enemy, a force to reckon with. And they have gone through the decades of experienced war with Iraq.

• 4:36Speaker 04

  And they don't care of sparing people to fight this war. So the Iranians are notoriously capable in wrecking havoc in the Middle East and in the Gulf in particular.

• 4:50Alice Han?

  John, a couple of years ago, China was involved in, it seemed, diplomatic discussions between the Iranians and the Saudis to revive their diplomatic relations. And at the time, there was a feeling that China had a diplomatic presence and an interest to bear in the region. When you look at China today, it's been, I think, remarkably quiet on this issue. How do you think the Chinese regarding what's happening in the Middle East, are there opportunities or are there real risks to China's position in the Middle East and its oil interests, which remain the paramount concern?

• 5:24Speaker 04

  The Chinese are playing a long game in the Middle East, but also a long game around the world. I don't see any interest, any true gains, that the Chinese can have by getting involved in the Middle East. Besides the commercial interests, besides safeguarding the freedom of passage and vessels that provide and cater for the energy needs of China. But for the Chinese to get involved militarily, beyond their commercial interests, I find a lot of dangers

• 6:05Speaker 04

  and very few gains for the Chinese, especially as the US tries to get involved, as the US is getting involved with Israel in restructuring the Middle East. Remember, this is not just a game to change Iran. It's a bigger game, or so to speak, but a bigger play to restructure the way the Middle East map has been formulated. So this is a game changer for the US, and China doesn't want to get involved. Likewise, Israel won't get involved in whatever China wants to do in.

• 6:48Speaker 04

  Southeast Asia, in Taiwan and so forth. China sees the same way in a similar vein in the Middle East.

• 6:56James Kynge?

  And John, just zeroing in a little bit on the Straits of Hormuz, which seems to be the focal point at the moment. President Trump has said that he wants several countries, and he also mentioned China among them, to help with the shipping situation to get some of the tankers through the straits. As you've mentioned, it doesn't look like China is responding too warmly to that. But could you ever see a non-military role for China in helping to either de-escalate the situation or maybe help some of the shipping get through the Straits of Hormuz?

• 7:33Speaker 04

  I'm very circumspect. Because, one, the Chinese are able to get their vessels or Iranian oil. As we know, most of the Iranian oil goes to China. As long as that oil finds passage through the straits, which the Iranians can safeguard, I don't think the Chinese will gain by getting involved, even on a commercial basis, even on issues like safeguarding free passage of other vessels. Or if we get into the issue of mines, getting the Chinese to de-mines the Gulf.

• 8:16Speaker 04

  And remember, there is a commercial relationship that binds Iran with China far longer than anything else. So I think the Chinese are observing, watching. They're staying away from being criticized, providing military hardware to the Iranians. They want to be watchful because this crisis is going to be much longer and deeper than we initially envisaged or we were told by the US.

• 8:51Alice Han?

  So, John, on top of being a Middle East expert, you're also a bit of an oil whisperer. So I really want to get your take on what's actually happening in oil markets, you know, where we're going to be in a couple of weeks from now. And more importantly, for the China perspective. What is actually happening in the Strait? We get these conflicting stories about tankers passing through. There's a narrative that China gets precedence because of the strategic relationship with the Iranians and the Ayatollahs are abiding by that relationship. Walk us through what's happening in the Strait right now. And is it true that China is getting preferential treatment in terms of still accessing the Strait moving forward?

• 9:29Speaker 04

  So far, the Chinese are getting preferential treatment. Yet what we don't know is the exact amount of vessels going through, oil tankers going through. One, because there isn't a lot of transparency. Two, the logistical aspect requires that they go silent for a while. And three, we don't have enough data points. But it's not just the Chinese. It's also the Indians that can get some vessels and some shipments of crude oil through the straits.

• 10:06Speaker 04

  But what seems to be going on is that the market last week and the week before was spooked. Hence, we saw the spike. Now, the market is beginning to take notice of what exactly is happening to the war. Is this a long war, a short war? And I think this week will be very crucial because we will go into the market thinking that this is going to be a longer war. And as a result, prices could be spiking a bit more than we witnessed before. Having seen this and having said this, if we had this crisis 20 or 30 years ago,

• 10:51Speaker 04

  clearly, oil would not have been at $100.

• 10:56Speaker 04

  I believe that from day one, twenty years ago, oil would have spiked to one hundred fifty, if not two hundred dollars. And I think the geopolitical premium that we've all discussed in the past has, in a way, been priced in, but also the importance of geopolitics has shifted. The US today exports a lot of oil, itself reliant on oil, and really Gulf oil goes to Asia. And on top of this, China today has stockpiled a lot of oil. Remember, given what we know, China today has about three months, maybe four, worth of crude oil.

• 11:39Speaker 04

  And also in terms of natural gas, China is able to shift from natural gas to coal, and that makes it a little bit more versatile. And also, the war is happening at a time when we go into the spring and summer months, so the demand for heating fuel, transportation fuel evolves and changes. But China is a little bit more independent than we could have said twenty or thirty years ago. And also, there is storage and the strategic reserve unfolding that will help the market.

• 12:18Speaker 04

  But this week is very crucial, because if the straits remain closed, and if the Iranians actually do mine the straits, that becomes very difficult to solve, because it's going to be a long campaign, and that could really shift the way markets appreciate the supply of oil, and that could spike oil prices up.

• 12:41James Kynge?

  You say it's going to be a long war, and some say that it could also become a more regional war. I'd like to get your take on that. Do you think that there is a very significant risk in that regard? And if that was to happen, maybe that draws China in to some extent. I've been looking at some of the numbers. In addition to the fact that China gets thirty-eight percent of its It's imported oil through the Straits of Hormuz. China's also invested huge amounts of money in the major countries of the region. About three hundred billion US dollars over the last twenty years or so.

• 13:21James Kynge?

  In Saudi Arabia, UAE, Iraq, Egypt, Turkey, Israel and other countries, including Iran. If it becomes a regional war, John, do you feel that this basically China cannot resist? But it, you know, to try to protect its interests, these very significant interests that it has.

• 13:41Speaker 04

  I completely agree that commercially China is big in the Middle East. And it has been doing exactly the same thing as it has been doing in Africa. Providing credit, facilities, construction companies and so forth. So the China of today is far deeper in the Middle East, including the Gulf, including Iran, including Iraq. When Western companies are not so forthcoming to build things, the Chinese are always there to build things. So that tells a lot about China's presence in the Middle East. Having said this, if we go into a regional war, which I don't expect.

• 14:24Speaker 04

  Because the Gulf states will not retaliate. And if they do retaliate, it'll be measured, it'll be more guided by the US. This is a US-Israel war, and it's becoming more of a US war, a Trump war than anything else. And I don't think the Gulf states, unless they're heavily attacked, more so than what we've witnessed over the last two weeks. The Gulf states will not get involved because they're just twenty miles across the Gulf. Which the Iranians call the Persian Gulf and the Gulf Arabs call the Gulf. So I don't think we're going to see a regional war. If we do, however, see a regional war, then the Chinese could take a different position.

• 15:08Speaker 04

  But again, I do caution and I do believe that the Chinese will stay out of it. And they will prefer to be observers, commercial participants through vessels, through the commercial routes they have established. Negotiators, remember, it was the Chinese who offered their good offices to mediate between Saudi Arabia and Iran, to the surprise of the US. So in a way, China is there, but they don't want to be really at the forefront, especially when the US is taking the lead on this war.

• 15:50Alice Han?

  Really interesting. Well, I look back to last year and how markets were very much disturbed by the April Liberation Day tariffs. And then, you know, fast forward a month, the markets digested it. Some of the tariffs were walked back or done in Swiss cheese style, so we did see carve-outs. How do you feel about what's happening now in the Middle East, John? And where do you think we'll be at the end of 2026? Is this going to be something that blows over? Or as to your point, if it is a longer conflict, is it going to have ongoing ramifications for US, for China, for oil, for commodities at large?

• 16:27Speaker 04

  I think what is clear is that when this war is over, it's going to be a very different Middle East. The Middle East geopolitically is moving towards a Middle East that is led and thought by what Jerusalem decides. And that is on the geopolitical side, on the military side, on the political side. On the economic side, of course, the importance of the Middle East stems from the fact that you have a Gulf region which still produces a lot of assets, it still produces wealth, it still invests in different parts of the world.

• 17:12Speaker 04

  They have invested upwards of $5 trillion throughout the world. Um. As a result of the petrol money that they have collected, amassed over the decades. But this will be a very different Middle East. It will be more unstable. It will be fragmented. It will be smaller states. It'll be decided on the basis of Israel having the military upper hand with the US providing additional security measures, but also a fragmented Middle East because the Gulf, remember, although it is six nations, they also have seven different opinions.

• 17:52Speaker 04

  They're not all friends and they're more kind of frenemies trying to to vie for power, not just within the Gulf, but beyond the Gulf in the Middle East. And that changes a lot the situation after the war. More specifically, with regards to Iran, if you do have regime change, the big question is what happens to Iran? Do you have one Iran? Do you have three Iran's? Do you have four Iran's? What is the role of Turkey? Because it has a Turkic minority. What happens to the Kurds? What happens to the majority who are Persians or so 65% of them?

• 18:36Speaker 04

  How do they decide their future? And then if there is a spillover effect into other parts of the Gulf, but for sure, what you see out of all of this is long term instability, which makes Beijing acutely concerned because they have commercial interests and they do want to continue and further these commercial interests. But eventually, they don't want to see their construction companies being unpaid. They don't want to see construction workers returning back home and they don't want to have a negative ROI on the balance sheet of many of these Chinese firms.

• 19:15James Kynge?

  This might be a little bit on the nose, but you know, could it possibly be that as the US attention is diverted to Iran and the Middle East, that China sees its moment to make a move on Taiwan? We all know that China's got longstanding strategic interests and it says very clearly it wants to recover Taiwan. Do you see this as a danger that, you know, the US is preoccupied over here and China seizes its time?

• 19:45Speaker 04

  It could be. They're moving a lot of hardware. Although I'm not a military expert on Asian geopolitics, they are moving a lot of hardware. As you know, they're moving another aircraft carrier group from Asia into the Middle East. And they're moving a lot of assets, military assets, which eventually have to be replenished. The US defense sector will need time to replenish those military hardware goods. And so that could give an opportunity. But if I may forecast into the realms of the unknown, into Asia, I would say that the Chinese take their time. China will take their time.

• 20:30Speaker 04

  And eventually China would come out more of a winner than a loser from all of this.

• 20:38Alice Han?

  Really interesting. Thank you so much for joining us, Dr. John. We'll be back after a quick break. Stay with us.

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• 24:06Alice Han?

  Welcome back. For decades, American universities dominated global research, but new rankings suggest that this might be changing. Chinese universities are rapidly climbing the list. In one major index, eight of the top 10 schools are now in China, while Harvard University has slipped to number three. US schools are still producing huge amounts of research, but China has dramatically scaled up its scientific output with massive state investment. Some experts say this signals a real shift in global research power. Others argue that the rankings reward the quantity of papers and not necessarily the quality of discoveries. James, as a Harvard alum, I have to say, actually Harvard and Stanford alum,

• 24:49Alice Han?

  I'm pretty shocked at what's been happening. And it seems to reinforce this view that the locus of science and technology research, the locus of high education, is shifting eastwards towards Asia. What was your quick take on these rankings?

• 25:07James Kynge?

  You're still OK for now, Alice. I see in the QS World University Rankings 2026, Stanford is number three and Harvard is number five. So don't worry about it. You're OK. I was at Edinburgh University. I think we're something like 34th. So you're doing all right. But the point you make is a very valid one, which is that Chinese universities really are leaping up these tables. And a lot of the time, it depends on which table you look at. The QS World University Rankings, the one I just cited, is generally seen as the most rounded measure.

• 25:48James Kynge?

  But there are some really eye-catching rankings that have just come out. The CWTS Leiden ranking, that comes from Leiden University in the Netherlands, shows that 19 of the top 25 universities ranked as being Chinese. Harvard is the only US university that gets a

• 26:13James Kynge?

  Look in in the top ten and it's ranked number three. There's no Yale, no MIT, no Stanford. The only other university in the top ten is the University of Toronto and that comes in at number ten. These rankings are, you know, are rather different. The one that I've just mentioned, the CWTS Leiden ranking, that looks very much at what's called bibliometrics. That's looking at how many papers are published, how many times those those papers are cited. Whereas the QS rankings, the one that we mentioned at the top there, is a much more comprehensive, reputation-heavy ranking.

• 26:53James Kynge?

  And it looks at things like teaching, employability, research, and also internationalization. And internationalization is one area in which Chinese universities really stumble because there aren't that many international students there. I also went to a Chinese university. We were really like a rare breed, foreigners in the Chinese university campus that I was in. So you do have to take these rankings one by one, I would say. But my final point is that this is very much a strategy of the Chinese Communist Party. Although these universities are independent institutions, the Communist Party, of course, lies behind them and orders them

• 27:37James Kynge?

  and informs their policies and strategies. And so this is a big national push to push Chinese universities to the top rank. And then to gain the kudos, I suppose, that that brings with them. But what's your sense, Alice? Did you go to a Chinese university as well?

• 27:58Alice Han?

  I didn't, James. So I'm gonna have to ask you a lot of questions about that. I only went to universities in the States. So I don't have a clear sense, but, you know, what you've just said to me, James, gels with, you know, my own understanding of some of the metrics used to assess China's AI publications. You know, there's an argument that China is vastly overproducing or rather producing way more in terms of AI-related research than any other country. But then this begs the question, what is the quality of this research? You know, and there's a figure, for instance, in 2024, China produced over 870,000 journal articles and reviews in journals, while the US produced roughly 500,000 China's AI research publication output.

• 28:42Alice Han?

  Is the combined output of the US, UK and EU. And now is about forty percent of the global citation attention. And and just in terms of also the STEM graduate students, Chinese STEM graduates make up about fifty percent of the world's total. You've got twelve thousand PhDs coming out of China every year. That's three times coming out of the US. So numbers aside, the big question is, what is the, you know, real productivity or innovation that's coming out of this research and out of these graduate students and PhD students? And it's hard to really find a metric that captures that. And I think this story that you've cited, James, about the conflicting rankings is at

• 29:24Alice Han?

  the heart of how we in the West struggle to really understand the degree of innovation coming out of China, because we don't trust the volume of research alone. And it's still very much a black box in terms of really figuring out what is actually happening on the ground in terms of innovation. But James, you're the only one of us here who's actually been to a Chinese university. So please tell me what that was like and and whether or not it can, you know, reveal things about China's education system at the tertiary level.

• 29:54James Kynge?

  My sense is that there is absolutely no doubt that Chinese universities have really sharpened up their act. And, you know, the level of teaching, the the level of determination among the students is really very close to, you know, the gl- the global standard right now. The difficulty comes because there are stories that are true and appear to go against what I've just said. The Financial Times wrote an article about Chinese universities and they quote Ivan Oransky, who's co-founder of a of of institution called Retraction Watch. And what this researcher has found is that there are huge numbers of papers issued by

• 30:40James Kynge?

  university academics that are then retracted later on. In, according to his statistics, in twenty twenty four, about three thousand retractions of Chinese Authored papers from journals took place and that compared with just one hundred and seventy seven retractions from US authors. So there's no question that faking of papers in China is is a big deal. And actually, there's there's a whole business model, you'll be surprised to hear. So called paper mills are companies that are paid to create fake academic studies. So some people focus on that and they go, oh, well, you know, everything in China is fake.

• 31:23James Kynge?

  You can't trust this. They appear to be leaping up the rankings, but it's not real. But my sense of it is absolutely, very, very clearly, it is real. China is leaping up the rankings. The academic output of Chinese academics is going through the roof. And the other side light that I think we can shine on this is to look at how many Chinese academics from abroad, particularly the US, are going back to China. There has been a a study done by Princeton, Princeton University's Paul Marsha Wise Center on Contemporary China.

• 32:00James Kynge?

  And they found out that eighty to ninety professors are returning annually from the US to China in recent years. And these include some really big names. We've mentioned before on the podcast, Song Chun, Zhu, Kon Suba, scientist at UCLA, who went back to Peking University. He is top of the tree in his area. There's another one called Niang Yan, who is a biologist who left Princeton. And then there are also some famous name foreign intellectuals who are going as well. There's a Fields Medal winning mathematician who joined Tsinghua University, et cetera, et cetera. So I would like to say that this is a very real theme.

• 32:46James Kynge?

  My own time at a Chinese university was a long time ago. It's not really relevant to the current day. Aside, as a point of comparison, I would say, when Chinese universities were really nowhere on the global rankings. And yeah, as I said, foreigners were seen as a kind of rare species around campus.

• 33:05Alice Han?

  That's fascinating. I have a friend of mine is actually a professor at NYU Shanghai. And I'm actually going to be there doing an event in a couple of weeks' time. And what he said to me, I think, chimes with the concern that you raised, James, about the lack of international students in Chinese universities. Now, this is supposed to be more of an international program that invites people from around the world, but they heavily rely on Chinese students who want an NYU brand name, going to university in Shanghai. Another key market for them is actually Central Asia, where they're seeing a lot of growth, and some, you know, mix of students from Europe, Africa, Latin America.

• 33:44Alice Han?

  But really, what I've noticed is a decline in American students going to China. You know, there's an example of the Schwartzman program that I think has been suffering in the last couple of years, and it's relying more on non-American students. But there's a bigger, broader question at play, which is, to what extent can China be truly international? You know, putting aside how cutting-edge and innovative the research can be, can it ever become, you know, the US or European level of international university, or even the British level of international university with international standing? For cultural reasons, I'm deeply suspicious of that. But I think, James, you raise an interesting

• 34:26Alice Han?

  point about ethnically Chinese people, Chinese passport holders, coming back from potentially being educated or working in the States to the mainland. And I often hear anecdotally that it's not just because of the financial or patriotic rewards, it's oftentimes a decision to come home and take care of their parents, who are getting older as well. I see that a lot amongst my peer group, for instance, who have lived and worked in the States, coming back to China. James, do you feel that there is a change in the way that Chinese universities are being regarded in the West? Is that something that you're, you know, plugged into?

• 35:04James Kynge?

  Kind of. But as it happens, I met the son of an old friend the other day here in London. I knew him when he was a kid in China. He grew up entirely in China and speaks Chinese like a native. He went to university in China, but he was put into the foreigners' And this to me shows the real problem with the internationalisation of Chinese universities. His Chinese is definitely good enough to sit alongside the Chinese students in the Chinese stream. But he wasn't allowed to do that because in general foreigners are not given that kind of access. They're shunted off into foreigner only streams.

• 35:45James Kynge?

  And that isn't real internationalisation, that is fake internationalisation. And quite honestly, very few foreigners speak native level Chinese. So it is a problem for them to sit alongside Chinese students. But even those who do are not allowed that opportunity or very rarely allow that opportunity in Chinese universities. So I think Chinese universities really do have a long way to go to genuinely internationalise and give foreign students the same kind of treatment that a Chinese student would have at a university in the US or in the UK, where they sit alongside, you know,

• 36:26James Kynge?

  students from everywhere in the mainstream course, not in some adjunct course for foreigners.

• 36:31Alice Han?

  It's interesting that you raise that, the language aspect, James, because it's coming at a time where in the last week or so, we've seen announcements that the government really wants to reinforce the use of Mandarin, Mandarin Chinese in the schools. And this is especially targeted to minority groups and minority schools around the country. And the idea is that all courses need to be taught in mandatory fashion with Mandarin Chinese. I don't know if you've been following this, but certainly I think in the West, there is a bit of consternation anytime anyone raises this issue, especially as it pertains to minority rights. But as you were saying, this definitely came to mind. Okay, let's take one last quick break and stay with us.

• 37:16Speaker 01

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• 37:25Speaker 02

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• 39:23Alice Han?

  Welcome back. Chinese EV giant BYD is reportedly considering a big new way to boost its global brand, entering motorsports. The company is exploring options ranging from the Formula One championship to the FIA World Endurance Championship, which includes the famous 24 Hours of Le Mans. It would be a major move for a Chinese automaker in a sport long dominated by European and American teams. It also comes as BYD is expanding globally after recently surpassing Tesla in global EV sales and pushing into higher-end vehicles. But getting into F1 isn't cheap. Building and running a competitive

• 40:02Alice Han?

  team can cost up to $500 million a season and can take years to pull off. James, are you a car enthusiast? I have to confess that I love Drive to Survive. It really got me into F1 driving.

• 40:15James Kynge?

  Oh, really? Okay. Well, I'm gonna, I'm gonna come straight back to you on this. Just a couple of things. I'm not a massive fan, but I do follow it a little bit. And I must say, Alice, when, when we were thinking about this segment, I just thought, a few episodes ago, we did a piece on how C-Dance, a video generation technology which has been created by ByteDance, is disrupting Hollywood. And I can't help but think that what we're really talking about today in this segment is the next potential Chinese tech disruption story, and that is Formula One. I had a quick look at some of the speeds involved. Now, I guess as a bit of essential background, Formula One cars are almost all

• 40:59James Kynge?

  conventional combustion engines. They do have batteries, but that's not what they're mainly about. And BYD, which, as you said, wants to break into Formula One, is a pure battery car. And yet, if you look at their fastest car, the Yangwang U9 Extreme, it's purely battery, and it set a world production car speed record of 308 miles per hour. That's 496 kilometers per hour.

• 41:31James Kynge?

  In September last year, that's quicker by quite a long way than any of the modern Formula One cars around. So, you know, if we're just talking about pure speed, I don't know about cornering, going around the car, I don't know about driving technique, but if we're just talking about pure speed on the straight, this BYD car could lick any of the Formula One cars that are currently out there. Tell me your sense of this. Do you welcome this, the battery cars coming in? Do you, are you a traditionalist? Do you like seeing the, hearing the roar of the engines and listening to those combustion cars?

• 42:10Alice Han?

  I have to say, the combustion cars probably went out. There's something very special about, you know, a motor, the sound of a motor and a combustible vehicle. So I'm not sure if an EV would be able to deliver the same kind of satisfaction from a driver's or even a viewer's perspective. But certainly, you know, when I saw the story, I had a couple of thoughts. Number one, what I've seen trending in social media is the virality of F1 driving, especially amongst young females, educated females in China, that seem to be really keen on F1 driving. And over the weekend, we just saw the Shanghai F1 Grand Prix of about, I think, 230,000 spectators. This is a world record, according to Chinese press. This is

• 42:53Alice Han?

  the biggest record in two decades. And a lot of these drivers, in particular, one Chinese one that I have to shout out for, Zhou Guanyu, who's the driver for Cadillac, now this is an American company, is very, very popular in China, is originally from Shanghai. You know, we also have Lewis Hamilton, who's been going around China. He was actually just in Tibet with his mother and posting about the beauty of the Chinese landscape. The reason I raise this story and these anecdotes is that it's clear that the government seems to be in favor. This goes back to previous episodes when we talked about concert tourism. Of these sorts of experience economy related tourism.

• 43:35Alice Han?

  They there was, I think, a statistic from trip.com, which is a big Chinese tourism platform, online tourism platform, that during the F1 weekend, there was a 20% year-on-year increase in inbound tourism bookings and hotel reservations in Shanghai rose 96% year-on-year. So that's just to give you a sense of how much enthusiasm there has been from everyday Chinese towards the F1 Grand Prix. And I get the sense that this could be like what, you know, snow smarts were for China a couple of years ago. If you remember before Guiling, Ilinggu came on the scene, there was a big, I think, government-led push, but also supported by everyday people

• 44:16Alice Han?

  to get more people into skiing, into ski sports, snowboarding and skiing. I could see something similar where the government is super supportive because it sees this as being actually really beneficial for consumption, for tourism. What's your feeling, James, about whether or not this could be popular in China moving forward? Do you sense that the market is ready for an F1, you know, story in China? Is, you know, there's a separate question about whether or not F1 is ready for a Chinese brand, but do you think that the market in China is primed for F1 mania?

• 44:52James Kynge?

  I remember when some of the first F1 cars arrived in China, it was mania at that time. And I think this is exactly what a lot of Chinese people will love to support and do and follow. You know, I mean, we've often spoken about it on here, Alice. Chinese people in general, I would say, are very interested in technology, you know. When you go to China, you find, to an extent that I never find over here in the UK or even in the US, you know, people love to talk about technology. They will kind of interrogate your mobile phone or ask you about whatever technology you're interested in. It will be the font of many conversations. So I think the level

• 45:35James Kynge?

  of interest in this type of thing is is sky-high. And then, of course, there's the glitz and the glamour that goes with F1. There's the sort of howl of these cars going around those tracks. And then there's the winners and the losers. It couldn't be better designed for a Chinese consumer audience.

• 45:53Alice Han?

  Yeah, that's I think that's honestly what is prompting the head of FIA, the Formula One's governing body, to actually be open to having China potentially join. Now, there's a separate discussion of whether or not they would be allowed to with EVs, you know, as we mentioned. But certainly, I think as F1 grows more popular in China, I think economically would make sense for FIA to really start to take BYD seriously. And it seems that BYD is really at the forefront and would be the frontrunner candidate if China is allowed. And currently, I think, insofar as I understand, it's just the it's dominated by the Europeans and the Americans. China doesn't really have any representation, apart from that driver Joel that I mentioned.

• 46:35Alice Han?

  But aside from BYD, some of the other car brands potentially that we've mentioned, Geely also has participated in international touring car racing through Cian Racing. Neo won the Formula E Electric Championship back in 2015. So there's a lot of other car brands out there that could want to get into this Formula One ecosystem. But it, I think, tells a bigger story, which is my sense that the EV industry and the auto industry in China is starting to evolve and really want to capture the high-end or luxury end of the market. We had more recently in the last few months BYD's Danza model that just came out.

• 47:16Alice Han?

  This is the premium model that's being marketed differently from the other BYD offerings. And you already mentioned, James, the Yangwang high-end model that was tested recently in Germany that had huge and very, very high speeds. But certainly, I get the sense that as this auto industry is maturing, they really are trying to rebrand and create alternatives that are more high-end luxury as opposed to, you know, mass market and cheaper. And I think this F1 story is a good indication of of the ambitions of a lot of these Chinese automakers, not just BYD. All right, James, you know what time it is. It is prediction time. What is your prediction for this week?

• 47:57James Kynge?

  This one might sound a little bit left field, but actually, when you look at the numbers and you think about it, it's pretty mainstream, really. I would say this year's going to be a bumper year for AI emotional companions in China. These are, you know, avatars online. They don't forget your birthday, they don't forget your anniversary, they'll never ghost you. That's a given. Because, you know, the software of these AI companions these days is so good that you can have a proper interaction with them. They're good company, they lend a sympathetic ear, they're witty, they can be humorous, et cetera. So

• 48:36James Kynge?

  I have a prediction, this year, the market for Chinese AI emotional companions will grow to about one billion US dollars. That's up from five hundred and thirty million US dollars in 2025. And by the way, there are predictions out there that see even more aggressive market growth by, let's say, 2028 or beyond that. So this is a huge market, it's really catching on. I have not yet tried an AI emotional companion, but I might give it a go.

• 49:11Alice Han?

  How are they monetizing it, James? Is it through online platforms, online chats?

• 49:16James Kynge?

  I think you have to pay a subscription. So you pay probably a monthly subscription for your AI companion. And I was searching, there are lots of different competing names there. You know, some of them are quite famous. I think Xiao Ice is the most famous. That originally was a Microsoft product. I'm not quite sure what happened to it, whether it still belongs to Microsoft, but it's huge in China. And I saw a number online, I don't know how real this is, that there are six hundred and sixty million people worldwide who look at Xiao Ice or interact with Xiao Ice.

• 49:53Alice Han?

  That's crazy. I mean, it's all feeding into the Silicon Valley fears that people aren't going to have kids because they're all going to be with AI girlfriends and boyfriends. But I think in East Asia, that's going to be a pretty developed market, given where things are heading. Fascinating, James. So mine is a bit less left field. I would say it's very much in the vein of what is happening right now. I get a spidey sense, I don't know why, don't ask me why, that we might have a delay of the Trump visit to China. I was, you know, reading some of the coverage of the He Li Feng and Scott Besant meeting in Paris over the last few days. And even though there were no real bad news or signals coming out of that meeting,

• 50:37Alice Han?

  I just got the sense that there hasn't been anything really substantive, that the Americans are still very much distracted by, you know, as Dr. John mentioned, what is happening in the fractured Middle East and Iran specifically. So I just see an alignment of a lot of stars that point towards Trump potentially delaying. And now he's even said in the last 24 hours that he could delay that trip. So I think we'll see in the next few weeks if that indeed happens. But that certainly changes, I think, the nature of détente, you know, which was very much the base case for a lot of people and investors when thinking about the US-China relationship. Because certainly if we don't have that Trump meeting, which I think was a key sign

• 51:20Alice Han?

  of the continuation of détente, that opens the doors for a lot of challenges and risks in the relationship to my mind.

• 51:26James Kynge?

  That's such an interesting call. Yep, I'm going to be, I'm going to be attuned to that as well, Alice. Thank you.

• 51:31Alice Han?

  Before we go, some very big news. China Decode is now available on Substack. Subscribers will get ad-free episodes, our exclusive newsletter, and a place to engage with James and me and other listeners. Find us at chinadecode.profgmedia.com. That's all for this episode. Thank you for listening to China Decode. Make sure to follow us wherever you get your podcasts so you don't miss an episode. Talk to you again next week.

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