China Decode: Apple's China Chip Play, DeepSeek Seeking Billions, and the Californication of Chinese Food

Alice Han and James Kynge dig into why Apple is lobbying the Trump administration for permission to buy memory chips from a Chinese company on the Pentagon's military blacklist. With DRAM prices up nearly 100% in a single quarter — analysts are calling it "RAMageddon" — Apple already raised MacBook and iPad prices by up to 20%, and iPhones could be next. How far will Apple go to secure its supply chain, and what does it mean if Washington says yes? They also break down DeepSeek's landmark $7.4 billion funding round, which is the first time the Chinese AI startup has ever taken outside money. Tencent, CATL, and China's state-backed National AI Investment Fund are among the backers, and the valuation has jumped six-fold in six weeks to nearly $59 billion. DeepSeek built its reputation on doing more with less — so why does it need the money now? And finally: a new sign that China's middle class is changing what it puts on the table. The Economist calls it the "Californication" of Chinese diets: a growing appetite for organic, health-conscious food. Subscribe to China Decode on Substack for weekly analysis, livestreams, and deep dives into the biggest story shaping the global economy: chinadecode.profgmedia.com. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:29James Kynge?

  We have to recognize how enormous a trend this is. The South Korean government, along with Samsung Electronics and SK Hynix, have allocated $520 billion US dollars to keep South Korea in the AI race. Can we see any kind of a pledge like that in Europe? Nothing so far comes close to that.

• 1:58Alice Han?

  Welcome to China Decode. I'm Alice Han.

• 2:01James Kynge?

  And I'm James Kynge.

• 2:02Alice Han?

  In today's episode of China Decode, we're discussing big money moves in the AI arms race, China's latest strategy to increase its global influence, and the Californication of Chinese diets. That's all coming up, but first, let's do a quick check-in with how the markets are starting the week in China. On Monday, markets finished mostly higher after sentiment improved on easing geopolitical tensions and renewed risk appetite. The Shanghai Composite was up 1.16%, the CSI 300 rose 1.21%, and the Shenzhen component added 0.19%. Financial stocks led the way, with Industrial and Commercial Bank of China up 0.98%, and the Agricultural Bank of China up 0.81%.

• 2:47Alice Han?

  All right, let's get into it. A lot of news this week in the AI world, starting with Apple, who raised prices on the MacBook and the iPad, in some cases by around 20%. AI is to blame, but not because of new features. It's because of the growing chip shortage as chipmakers prioritize orders for companies like Nvidia. Now, Apple is reportedly lobbying the Trump administration for permission to buy chips from blacklisted Chinese DRAM company CXMT. Meanwhile, Chinese AI company DeepSeek has just announced plans to double its headcount in some departments and is preparing to take outside investment for the first time ever. James, a lot of exciting things happening in the world of AI, not just in the US, clearly in China too.

• 3:31Alice Han?

  And the first one really is this Apple story. You know, not only will consumers have to confront price rises globally of Apple products, but now Apple is really stretched in terms of capacity for memory as well as chips. And this speaks to a broader supply shortage that we're seeing. It explains why DRAM prices from the Korean companies have basically doubled in the last few months. And this is, I think, a perfect entry point for some of these Chinese players like CXMT. Uh, which is China's big chipmaker in the space to enter and potentially cater to the apples of the world. But I think the bigger political question is whether or not

• 4:13Alice Han?

  the Trump administration, you know, is going to ultimately clear CXMT for sales to Apple or to American companies. Because right now, as you know, it's technically on a list banned by the Pentagon because it's blacklisted as a, as a company that's aiding the People's Liberation Army of China. Now, this is not a ban that creates legal penalties for an Apple or a company trying to buy six empty chips, but it does carry a lot of reputational risk. So the big question is, A, will there be a change of tune from the Trump administration? And B, will Apple try to risk it to, in order to get, you know, more DRAM?

• 4:49James Kynge?

  That's a great question, Alice. Um, just to take one step back, um, I, I think what we're in now is Ramadan. Um, and obviously this is because, as you've described, the frenzy for AI is causing this chip shortage and the shortage focuses on memory chips, hence the RAM in Ramadan, because RAM stands for Random Access Memory. Um, and the reason that AI is causing the shortage is because data centers that are needed to train the large language models use a lot of these memory chips. And so that's the situation

• 5:30James Kynge?

  that we're in. I think it'll take a long time to build new capacity here because it takes a long time to build, uh, new chip factories. Uh, and that's what needs to happen to increase the supply of these memory chips to ease this Ramadan situation that we've got at the moment. We have to recognize how enormous a trend this is. And I think that was, uh, thrown into sharp relief today by the incredible announcement from South Korea. The South Korean government, along with Samsung Electronics and SK Hynix, have allocated 520 billion US

• 6:13James Kynge?

  US dollars to to keep South Korea in the AI race. This money is going to be spent in in lots of different areas, including building new chip factories. But also building AI data centers, robotics and all of that. So this just shows how huge the trend that we are trying to describe really is. I don't think this is the biggest industrial policy move in history. It's not as big as the Belt and Road Initiative by China, and it's not as big as the American New Deal as a percentage of GDP, that is. But five hundred and twenty billion US dollars being spent by a single country and a couple of companies

• 6:58James Kynge?

  just shows how crucially important the AI race is. And also being able to get enough memory chips to power the large language models that train AI really is. So to come to CXMT, is the US going to approve Apple to use chips that are made by CXMT in China or not? It's a really big call for the White House, isn't it? Because all along, the US has been saying, we want to deny China a leg up in the tech race. And allowing America's most impressive tech company, or certainly one of them perhaps, after Nvidia perhaps,

• 7:43James Kynge?

  level pegging with Nvidia, allowing one of America's most impressive tech companies to buy Chinese chips made by this CXMT company, which is a very proficient maker of memory chips and does so at a pretty low price, will be a huge leg up to China. And therefore, it will be countering America's broad strategy of trying to keep Chinese tech contained, trying to keep its advance contained. I really wouldn't like to call it, to be honest. It's so hard to call this White House. They seem to flip flop on these policies all the time.

• 8:23James Kynge?

  So all I think we can say is that the pressure is going to be intense and that pressure will grow because I said at the beginning, this is a structural trend. The world is not going to be able to supply masses and masses more memory chips in short order. It's going to take a long time to build the factories that are going to have to make these memory chips to ease the supply bottleneck. So, you know, the pressure is only going to intensify.

• 8:54Alice Han?

  And do you think that with the midterms and potentially a blue wave or a democratic sweep through the House at the very least, that it'll make it even harder for CXMT in the same way that, say, four years ago in 2022, Apple said that it wanted to buy from Chinese chipmaker YMTC that was, I wouldn't say legally blocked, but it still was not allowed because it was blacklisted by the US administration and Apple didn't move further on it. There seem to be parallels between YMTC back in 2022 and CXMT today. But am I wrong to overindex on the congressional part of things?

• 9:33Alice Han?

  Because I do think that if you take out Trump, the congressional committees and House representatives tend to have a very anti-China view. And this extends to the technology race, where you saw, obviously, the passing of the Legislative Build a Match Act, which has affected ASML. But am I right to be thinking about the midterms as really another key data point in terms of worsening relations between US and China and affecting technology?

• 10:01James Kynge?

  I think you're absolutely right, Alice. There's no question that in general, Congress is more, as you put it, anti-China or, you know, that they're more competitive when it comes to the US-China tech race. You know, the mood is definitely that this is a crucial battle that America needs to win and therefore they need to disadvantage China whenever they can. However, having said that, we need to look at the economic effects of this as well. And you've just mentioned. The way in which the Apple, various different Apple products are rising in price.

• 10:39James Kynge?

  So the MacBook Air jumped in price from one thousand and ninety nine US dollars to one thousand two hundred and ninety nine US dollars. The entry level iPad Air also rose by a similar magnitude. And so what we've got here is clear inflationary pressure moving through not just Apple products, but the whole gamut of electronic products. When you add that to the inflationary pressures that we're already getting in terms of oil prices from the Middle East and the fact that US inflation is is rising and is at fairly

• 11:17James Kynge?

  high levels, a trend that we see across Europe, by the way, then the question is, if inflation in the US really starts to bite in in in coming months, then will Congress remain so adamant on its anti-China policy or on its policies to disadvantage China in the tech race? Or will they think, you know what, guys? We need to just let in the cheapest products as quickly as possible to keep inflation under control. So what we've got, I think, is a dynamic picture. I don't I don't really think we can call it, but I I do think that the the will of

• 12:00James Kynge?

  Congress will start being fairly in favor of containing China. But then inflation inflationary pressures, if they really begin to take off, could undermine that stance.

• 12:13Alice Han?

  Yeah, it definitely undermines the affordability issue or set of concerns that the Trump administration clearly was worried about even before Iran hit people's baskets and the gas pump prices. I want to take this back to Apple itself. And how it fares in this real, I would say, pecking order for chips. This is a competition for chips in a time where capacity that you've referenced, James, is already constrained. And I almost feel that the right way to think about it is that the hyperscalers that are creating the frontier models, you know, your Claude's and your chat GPTs will get first preference. You know, we've got 700, north of $700 billion of CapEx going into data center rollout throughout America.

• 12:57Alice Han?

  It seems to be basically, I would say, a frenzy to get as much, as many chips as possible. And because they can pay for it, the real, I think, preferences for the, you know, SK Hynixes and Samsungs of the world to be selling to these hyperscalers as opposed to Apple. And meanwhile, prices rise across the board. I think the markets have reflected this somehow in the sense that Apple's stock has already fallen more than 6% on the news of the price hikes last week. And that's a single, that's a steeper single day drop since Liberation Day tariffs last April that Trump launched. I almost feel as though the market is expecting that Apple is going to have to eat the cost

• 13:41Alice Han?

  and that the final bearer of the cost will have to be everyday consumers in China, in America, globally, because we're going to have to deal with more expensive electronic goods because of the shortage of chips.

• 13:53James Kynge?

  Yeah, completely. I mean, I think, I think we're in this for, for a good, long time, actually. The DRAM prices surged nearly 100% in the first quarter of this year. There's another 60% jump expected this quarter. This is not going to go away. You know, we, we, we are in a structural shortage of DRAM and RAM chips. So Ramageddon, I think, is going to last for quite some time. We're just at the beginning of the trend. We don't know all of the permutations, but I would say an inflationary spike, you know, which broadens through various tech products is highly likely. And, you know, we've already seen the inflation that's coming from oil prices.

• 14:38James Kynge?

  So we could be in for a rough few months ahead.

• 14:43Alice Han?

  Yeah, very, very interesting. So quickly on DeepSeek, you know, it's been in the news again. And in general, China has been in the news. There's the new XAI model that says that it is as good as Mythos. This is the new model that's come out of China in the cybersecurity space. DeepSeek has just said that it wants to double its workforce and that it's now open to external investors. It's it's close apparently to finalizing a $7.4 billion funding round, largely driven by Tencent, CATL, the battery maker, as well as China's state-backed National AI Investment Fund, which is a consortium of both private and public companies in the technology space.

• 15:28Alice Han?

  So, you know, it's it's clear to me that DeepSeek is still a darling, even although we've seen in the last year or so that sometimes ByteDance comes ahead, sometimes ZhiPoo comes ahead. You know, it's still, I think, very unclear who is going to be the leader in the AI model race. But it seems clear that DeepSeek isn't off the list. There's a lot of, what I'm hearing from my China friends is that there's a lot of enthusiasm about getting involved in this round and still a lot of positivity about DeepSeek. But I I thought this was interesting because of one of two things. One is that, you know, it's these models in China are super competitive.

• 16:07Alice Han?

  And I've been hearing that their use cases and adoption are rising outside of China quite exponentially. And the number two issue that I want to raise is the fact that these funding rounds, and this is just $7.4 billion, are tiny compared to the amounts that are being raised by, you know, Anthropics and OpenAI is in America. Again, I want to bring this home because you see this both in the valuation of Chinese tech companies and publicly listed. But you also see this in the size of the funding rounds is that they tend to be much smaller. I mean, I would say maybe even less than half of what you see in Silicon Valley, which I think is interesting. And I haven't yet figured out why the ticket sizes are much smaller.

• 16:49Alice Han?

  Suffice to say that my friends who are knowledgeable in the investment space just say that this is normal, given the profitability, the scale and the capital market depths in mainland China compared to Silicon Valley.

• 17:02James Kynge?

  I think those are really interesting points. I just think that this DeepSeek move is yet again evidence of how vibrant the whole large language model AI sector is in China. And we see several companies, Chinese companies battling for primacy. There's the Alibaba, Qwen, there's Drupe that you've already mentioned, and there are several others. We don't know which one is going to come out on top. We don't know how many leaders the market can take, you know, that's another thing. Are we, are we looking at a mature market where there are one or two big providers at some point in the future?

• 17:45James Kynge?

  Or are we looking at a cluster of different LLMs that do different things? My sense of it is we may well be looking at a small number. And so, you know, time is of the essence. Maybe that's the reason, one of the reasons why DeepSeek is keen to raise money and to kick on. But anyway, I just think the battle between US and China on AI is as vibrant and competitive as ever. And now we've seen, as I mentioned at the outset, South Korea, the South Korean government and two big South Korean companies ready to put up 520 billion US dollars to up their challenge in the race to, you know, this is going to get bloody.

• 18:30James Kynge?

  The margins are going to vanish or turn negative, in my view. It's going to be highly competitive, highly bruising, I would say.

• 18:39Alice Han?

  Okay, very interesting. Okay, we'll be back with more after a quick break. Stay with us.

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• 22:12Alice Han?

  Welcome back. Chinese Commerce Minister Wang Wutao is in Brussels early this week for a meeting with EU Trade Commissioner Mauro Sevkovac, which comes as fears of an EU-China trade war continue to bubble up and European leaders express more concern for China's trade surplus. The effort to maintain good relations with the EU comes in a year where Chinese President Xi Jinping has already hosted more than a dozen world leaders and made particular inroads with so-called "middle power" countries, especially as an alternative to an increasingly volatile US. So, James, we still haven't, at the point of this recording, figured out what is being negotiated or announced between the Chinese and European counterparts in Brussels this week.

• 22:57Alice Han?

  Two main points that I would flag that I think are worth considering. Number one is the fact that, you know, the EU is in a really dire position. China's goods trade surplus with the EU hit $360 billion in 2025, a 15% increase on 2024. And it's very likely, in fact, I think it's inevitable, that it's going to expand in 2026 based on the first half of 2026 already. And so we're up for probably a record Trade surplus in 2026, even though last year was already a record at 1.19 trillion dollars in terms of China's full trade surplus with the EU.

• 23:39Alice Han?

  So there's that hanging, like a sort of Damocles over the relationship. And the second point that I would, I would raise is that there has been some wiggle room in the sense that Europe has entertained conversations with Chinese counterparts as a way to balance against what it sees as a, as a non-committal, volatile Washington administration, and especially because there was no love lost over the Iran issue and the ensuing energy crisis that it produced, particularly for the Brits and the Europeans. And the reason I raise this issue is that I, I was pleasantly surprised that they had agreed finally in January to price floors, so export price floors for Chinese EVs going into Europe.

• 24:24Alice Han?

  And that would be a way to obviate the tariffs, you know, close to 40% that had been put on Chinese EVs by Brussels. But now it seems that there's a threat to something that hasn't yet been targeted, which is the hybrid market, so PHEVs, hybrid plug-in cars, with Brussels potentially entertaining tariffs on hybrid vehicles because of just the influx, you know, the surge in Chinese hybrid exports to Europe. So it seems like on the one hand, Europe is screwed economically because of an ever imbalanced relationship. At the same time, it wants to, you know, continue to, to, to, to talk to China, to use China to balance against America, to try to fight, in a way, maybe this is uncharitable

• 25:09Alice Han?

  for relevance, by engaging with the Chinese.

• 25:11James Kynge?

  No, I'm afraid it isn't too uncharitable. Alice, I think you've put your, your finger on it. My sense of this is potentially even more stark. You know, the trade numbers that you mentioned, shocking as they are, the fact that this year, the trade deficit that the Eurozone has with China will reach almost 400 billion euro. Although those numbers are shocking, they don't even. Describe the importance of what's going on here. What is happening here is that this inflow of Chinese imports, most of them high-tech these days, and priced at at levels that European companies simply can't compete with,

• 25:55James Kynge?

  is wiping out Europe's industrial base. And I I say that very bluntly. I believe it's true. I believe that within five or maybe 10 years, Europe's industrial base will have been wiped out by Chinese competition. Unless there is a significant move, either in terms of self-restraint by the Chinese that you've already alluded to, or in terms of major trade barriers erected by Europe. My current sense is that Europe at the moment simply lacks the unity for a for a, you know, genuine trade barriers with China.

• 26:37James Kynge?

  And that's because, you know, you can have these European representatives who go to China, such as we have right now, but they have their hands tied behind their backs. Because several member countries of the EU, often Spain, which is benefiting from an inflow of Chinese investment, or countries like Hungary, which have longstanding warm relations with China, are not prepared to back very strong European trade barriers against China. And Germany, which is of course the most powerful country in the Eurozone, flows one way and then the other. We're never very clear which way the wind is blowing in Berlin.

• 27:20James Kynge?

  And so I think that this visit will be the same as all the other visits. The Europe Europeans will talk up a storm, but deliver very little in concrete terms in terms of of genuine barriers or genuine protective measures to protect European industry against what I believe is the extinction or close to the extinction of Europe's industrial base. The reason I say that, I mean, this is the topic that I spend most of my time researching. The reason I say that is because I see sector by sector how cheap and how good the Chinese products are in terms of their technology content.

• 28:02James Kynge?

  And then I compare that to what the Europeans are able to do, and the gap is huge. I don't want to undersell the Europeans too much. There is news today that the European Commission will put a small new tariff on small parcels that come into Europe. It's going to put three euros onto packages that come from China if they have a value of over a hundred and fifty euro. So this is aimed to reverse or to stop what is being called by the European Commission

• 28:45James Kynge?

  the desertification of Europe's high streets. Basically, a whole load of shops in Europe's high streets are going to the wall or going out of business because people can just order online super cheap products that come from China. And so this additional charge of three euros is intended to stop that. The number of low-value parcels coming into Europe has more than quadrupled. In 2022, it was valued at 1.3 billion euro. And this, sorry, last year, it was valued at 5.9 billion, so virtually 6 billion euros.

• 29:28James Kynge?

  So you can see there's been a huge increase in this type of small package.

• 29:32Alice Han?

  It's funny that you raise this, James, that the Europeans have finally gotten on to the de minimis requirements the Trump administration, if you recall, put into place last year. And there's just a Nicky piece that came out showing how Chinese merchants on Temu and Shein.

• 29:51Alice Han?

  You know, these are the ones doing these low-cost goods have actually found loopholes through logistic networks and through false import declarations in order to even avoid the de minimis requirements in the US, which are, I think, around 800 US dollars. Anything above 800 dollars needs to be subject to tariffs. So I look at that bit of regulation that you just cited, James, and I go, well, not only is that too little, too late, but, you know, will, as we know, is often the case with Chinese merchants, will they find loopholes because they're pretty canny and smart? And I think I'd probably take that scenario, which is that they will find loopholes to avoid even these requirements.

• 30:34Alice Han?

  But I want to bring it home to one sector in particular, because we've talked about chips just now. We discussed ASML last week, and we mentioned that Washington was putting more pressure on the Dutch chipmaker. This is a bit of a left field question, but what I've learnt from the South Korea example, and we see this reflected in per capita GDP now overtaking the UK, the market cap of Taiwan and South Korea both overtaking the market cap of the London Stock Exchange, primarily driven by TSMC, Samsung, SK Hynix. What we learned from the East Asian Tiger example is that maybe you shouldn't try to compete with China on autos, because China will always be able to price compete you

• 31:19Alice Han?

  now that it has the scale. And maybe you should be competing on the more value-added industries in chipmaking, right? Chip equipment, chipmaking. And here, ASML really is the leader and prime, maybe even the sole example. But I try to figure out why, in particular, Europe, the Germans, the French, haven't really gone into that. And maybe you don't have a view, but it seems puzzling to me at a time where they're still desperately trying to compete with the Chinese on autos, increasingly on chemicals, where China is becoming even more competitive. But whereas they should really be shifting their attention to defence tech, to chip making, to some of the more higher value-added industrial technological products. It seems a little bit of a, I think, fruitless attempt.

• 32:04Alice Han?

  Some of the European analysts are recommending a quote-unquote reverse Deng effect. And if you recall, in the eighties, Deng Xiaoping, who was the leader at the time, was mandating foreign companies to do tech transfers in exchange for access to the Chinese market. And now the Europeans are saying the same to Chinese companies like CATL and BYD. We have seen some increase in greenfield investment in Europe in the last year or so. But I'm hearing from the Chinese is that they don't want to have all their eggs in one basket and export their IP and tech to Europe. They want to have some of the more critical IP staying at home in China.

• 32:44James Kynge?

  Yeah, this is such a big topic, Alice. We could do a whole episode on this. I think you're absolutely right. What we have at the moment is the result of, I'm afraid to say, a couple of decades of complacency in Europe, complacency at many different levels. I'm not just talking about the Eurozone. We definitely have complacency here in the UK, especially with regard to industrial policy. Look at what's just happened in South Korea. Five hundred and twenty billion US dollars being pledged to go into the AI race. Can we see any kind of a pledge like that in Europe? Nothing so far comes close to that.

• 33:29James Kynge?

  Now, there are all kinds of reasons for this. It would really take a long time to go into them. But where is European industrial policy? Where is the clarity of European bureaucrats in the Eurozone, in the national countries, saying, "We need to prioritise this sector or that sector. We need to recognise that this particular sector is all, you know, the game is already over. China's already won, so let's not put resources into that." There is very little clarity. At the moment, I think Europe has just woken up to the fact that China is a peer competitor in technology with the US and has left Europe far, far behind.

• 34:13James Kynge?

  This is in spite of the fact that many of us have been writing this for many years. Why has Europe been so slow to wake up to this crisis? I really don't know, but that's the situation we have at the moment. Just to answer your question on reverse dung, in other words, getting Chinese investors to invest in in factories in Europe and as part of the price for the entrance into the eurozone market, having to form a joint venture to maybe hand over technology to a joint venture partner. I completely agree with your take. I think although Europe may want this, and I don't think it's a bad objective for Europe to have. I think it's a good objective.

• 34:58James Kynge?

  There are so many complications with it right now, one of which is you'll see a flood of Chinese investment going into countries like Morocco. Morocco has a trade agreement with Europe, so they can manufacture in Morocco and export into Europe without extra duties. So why would they, why wouldn't they do that and keep their technology rather than invest in Europe with a joint venture partner under conditions that force them to hand over technology? So, you know, we're, we're, we're into a, a very complicated period in EU-China relations. At the moment, I would say the cards are mostly with China.

• 35:40James Kynge?

  And this is largely because European member states do not have unity over what trade policy they should adopt with regard to China. This is a structural European problem. And for as long as there's no unity, there will be no clear policies.

• 35:58Alice Han?

  Okay, let's take one last quick break and stay with us.

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• 38:16Alice Han?

  Welcome back. There's a new sign that the middle class in China is growing and changing. The Economist reports that there's a "Californication" of food happening in this segment of the population. I've been shocked, and I mean, this is completely an observational statement as opposed to being backed by data, but the amount of overweight people that I see in China, you know, in the last couple of years compared to a decade ago. And, you know, you could look at it in terms of GDP outcomes, you could look at it in terms of, you know, food, access to food. You could look at it in terms of people's work habits and sedentary lifestyles. But it is interesting that as we've seen the prevalence of obesity rise,

• 39:01Alice Han?

  we're also seeing this pivot towards organic food, towards eating better, knowing where your food comes from. I've never, you know, it really has happened since COVID. I've never, ever been in a Chinese supermarket prior to 2020 where I've seen, you know, and these are not necessarily the best high-grade, you know, Beijing, Shanghai supermarkets. They're pretty run-of-the-mill, but you will get organic fruits, you know, that packaged really nicely. As you know, people really care about how their fruits and food products look. But people are getting educated about the provenance of food, the importance of organic. And you see a lot of these live-streaming organic farmers in China who are on Quai Shou, for instance,

• 39:43Alice Han?

  you know, live-streaming about their produce. They sell direct to the consumers via the platform. You have this real dichotomy between a population that is increasingly obese, although not to the level of the US's. I think it's around half in terms of the share of population relative to the US, which is around 40%. Uh but at the same time, you're seeing a real supply side and a demand side push for organic, um you know, products.

• 40:13James Kynge?

  Yeah, I mean, uh the Chinese middle class, uh at five hundred million people, uh obviously, um if those people wanting to eat healthier and to prioritize their health, as you said, uh then this theme of the Californication of uh the Chinese food market um is going to run and run and run. And already, I'm absolutely amazed by some of the numbers that we're seeing emerge, particularly in terms of uh the amount of money that some people are willing to pay for premium um products in this regard. There's a caviar company in China, and of course, China is these days the world's leading producer of

• 40:58James Kynge?

  caviar. Uh it's uh it's making organic uh caviar. It's called Kaluga Queen. Um and um uh it's uh it's it's supplying Michelin star restaurants all over the world. And the caviar prices from companies such as this range from about three uh thousand to nine thousand euro or uh three thousand one hundred and fifty US dollars to nine thousand four hundred and fifty US dollars per kilogram. So that's an uh an enormous amount of money, uh it seems to me, but there's a ready market for that in China. Going even more extreme,

• 41:40James Kynge?

  we've got something called the caterpillar fungus. Now, this is not on everybody's dinner plate every day. Um but these are hand foraged from the Qinghai Tibetan Plateau. I'm sure you've uh you've heard of this or you've seen these being sold in markets uh in China. They're just little funguses. They look a bit like uh cucumbers, but very small.

• 42:03Alice Han?

  I've actually seen them before. I've tried them in Yunnan.

• 42:06James Kynge?

  Have you? I've never tried them. What are they like? I mean, it it.

• 42:09Alice Han?

  I had them in a big mushroom hot pot in Yunnan in Kunming, and uh the texture was, I couldn't remember the taste, but the texture was really interesting. If you ever, if anyone's a mushroom. Enthusiasts, you should definitely go there. Apparently, half of the world's mushroom breeds are from Xinjiang, just this province in southern China.

• 42:28James Kynge?

  Well, Alice, you were having a very expensive meal there, if they were genuine, because wild premium Chinese caterpillar fungus sells from anywhere, anywhere from 20,000 US dollars to over 110,000 US dollars per kilogram. So, yeah, I mean, it's just incredible. I remember, I remember once meeting some, some guys who go foraging for these fungi, when I was in China as a journalist. And, you know, they would spend days and weeks camping on the Tibetan plateau, trying to find these fairly small fungi, aren't they? I mean, they're not very big. I mean, their size of your thumb, maybe. So, you know, what we're seeing at the

• 43:13James Kynge?

  moment is this trend of middle-class Chinese becoming more health-conscious, as you say, partly in order to avoid what they're seeing in terms of the, the large, you know, increasing number of obese people in China. But, you know, just to live healthy lifestyles. And then at the top end of this trend, to eat healthy, we're seeing incredible premium prices for luxury products. And, you know, given the fact that we're still at the beginning of the Chinese organic trend, I reckon that we're going to see higher prices and more

• 43:56James Kynge?

  interest in buying the very luxury products as time goes on. We've got some numbers saying that Chinese sales of organic food were 16.7 billion US dollars in 2024. That was up about 19% from 2023. Just as a point of comparison, the US organic sales in 2024 were 71.6 billion US dollars. So, obviously, we can see that the US market is still much bigger. But, as we mentioned at the top, 500 million Chinese are now in the middle class. If these guys

• 44:34James Kynge?

  really take this trend to their heart, we're going to see Chinese organic food sales go in one direction only, I'd say.

• 44:44Alice Han?

  I'm really bullish on the organic food market relative to the luxury bag market or luxury goods market because my spidey sense from the culture is that people would rather eat well at this point. I feel like we've had a bit of a pivot in the cultural zeitgeist where people want to live well, you know, be well, eat well, as opposed to buy expensive foreign flashy, you know, logo goods. And so as a result, you know, we have now China is the third largest organic product consumption market in the world. I think it's not unrealistic that that might end up being the, you know, the biggest, just given

• 45:27Alice Han?

  the size of the population, especially the middle class. And we also have a lot of supply-side shifts that are supporting it. So for instance, there's a Norwegian Nordic aqua company that does aquaculture of fish, including salmon, in land-based tanks in Zhejiang, Yunnan, which we just mentioned, which is really has, you know, the amazing, I think, topography and geography to support agriculture is becoming a blueberry and avocado hub. You now have these, you know, fresh hippo Alibaba platforms that just create organic food supply chains that go direct to consumer. In the market, the organic farming

• 46:06Alice Han?

  area itself in 2024 has doubled from a decade before. So it used to be less than 0.4% of the country's total farmer. Now it's 0.7%. That's still not a huge size in the scheme of things. I think there's more room to grow. But it certainly points to the fact that I think on the supply and demand side, we're seeing a lot of positive trends supporting the organic food industry in China. And I think this is just the beginning. There's the, there's a forecast that by 2028, it'll reach about 31 billion US dollars, doubling from 2022 levels. So I'm pretty optimistic about this. And I think that beyond China,

• 46:47Alice Han?

  this has big implications. So I was just in Florida, where I was hearing because of the greening of oranges in Florida, they're importing a lot of oranges from China. And I have this theory that as the agricultural sector gets more developed and the quality of produce gets higher, we'll start to see China being an agricultural power. So another example that I think is super interesting is I was actually in Piedmont a couple, two months ago with a friend, and that's an area that's known for growing some of the kiwis and supply to Italy. But they've been competed out by Chinese kiwis that are much cheaper and more plentiful. And this is also happening in the mushroom market. I was in Yunnan two years ago, and there's an Italian guy there that says the

• 47:29Alice Han?

  majority of the dried porcini sachets and dried porcini mushrooms come from Yunnan, come from China. So I think we're in the first innings of China becoming a really interesting agricultural power. All right, James, you know what time it is. It's prediction time. As you peer into the future this week, what do you see?

• 47:48James Kynge?

  I'm going back to this issue of inflation. I think that some of the issues that we were mentioning at the top will coalesce, and we will see China's export of inflation turn consistently positive for the first time since 2023. There is something in China called the Export Price Index. I reckon that in a few months' time, we'll be seeing China exporting inflation consistently month after month. This is partly because of what we were talking about in terms of AI and chips and those pressures feeding through into

• 48:29James Kynge?

  the electronic supply chain. And it's partly due to what we're seeing in the Middle East in terms of oil prices, which are affecting the inflationary environment all over the world. The reason why I think this is such a crucial topic is that if China starts to export inflation, then I think, you know, we're going to see Europe in particular catching more inflation, and that really starts to hit countries that have high debt service requirements, which is pretty much all of the countries in Europe right now. If they catch inflation, if they import more inflation, they might have to raise interest rates, and

• 49:11James Kynge?

  that will increase the amount of money that they have to pay to service their debts. So I'm afraid it's bad news. I see China exporting more inflation as the year goes on.

• 49:23Alice Han?

  Really interesting, and that also plays into some of the political dynamics for the midterms, right, in November in the US.

• 49:30James Kynge?

  Absolutely.

• 49:31Alice Han?

  Really interesting. All right, so my prediction is in the oil market. I mean, we've since got something like a bit of a shaky MOU between Tehran and Washington.

• 49:44Alice Han?

  Now, the big question is how plausible is it that this peace will hold? And what does it mean for oil markets? But I think one thing that we can be certain of is that in the next couple of years, China's oil demand will peak. The IEA says that it's between 2027, 2030 that we'll start to see peak Chinese oil demand. I would take the bet that it's closer to 2027 to 2028, because I think one of the big takeaways from the Iran crisis, but also the ongoing, I think, stress to oil supply globally, is that China needs to rapidly diversify away from crude oil into, say, natural gas, into coal to chemicals for the petrochemicals,

• 50:25Alice Han?

  feedstock pipelines, into electrification of traditionally diesel-powered trucks. So I would take the bet, and this might ultimately be a bit of a risky bet, but that by 2027, we'll start to see signs that Chinese oil demand is going to peak. And that's about 15% of global demand for oil. So China is still a considerable player. And as China slows down in its oil demand, that's going to have massive implications for oil prices globally. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Make sure to follow us wherever you get your podcasts so you don't miss an episode, and we'll talk to you again next week.

• 51:22Speaker 09

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