How the US-Israel Conflict with Iran Impacts China's Economy and Global Standing

Is China the real winner from the war in Iran? As the war in Iran grinds on, one big idea that we keep hearing is that in some sense, the real winner here is a country that technically isn't even involved in the fight, China. There's been a growing sense that the US's main rival appears to be boosting its diplomatic and military standing, while America is bogged down in yet another Middle East war. But is that really the full story? Or is China also paying a price in this war? From the BBC, I'm Asma Khaled and welcome to the global story on YouTube. Gives you the real effect that we're like talking down the line to China. You know, back in the day when people like say Beijing, Beijing, this is London.

Good evening. Good evening, Beijing. Laura, I mean, we're so happy to have you here today. Uh this is you are the right person at the right moment to tell us about this because uh one of our listeners Sonia um got in touch with us and she asked us she said I'm curious to know how the Iran war is impacting China and how China's role in the world might change as a result of it. Um, and in the global story team, you know, we've been kind of we've been thinking about this question of how all of this is affecting China, and we haven't had a chance to actually uh make an episode about it yet. So, for many of us in the West at least, China is kind of seen as an ally of Iran. Is that right? And is it as

simple as that? Where does it all start for you? Ah, Tristan, it's really not that simple. So there's this idea that China and Iran are really close and they are. They have been good friends and allies for many years. Back in 2016, for instance, President Xi visited and then deepened the relationship. They've signed this so-called 25 years strategic partnership. uh China has uh really promised $400 billion dollars of investment in Iran and in return asked for the oil to keep flowing towards China. In reality, it's really not sure how much of that money's made it to Iran. Uh however, the oil has obviously kept flowing and that's the relationship

China has with Iran. It does need Iranian oil. So it gets about 13 to 14% of h its oil from Iran. Now that's about 89 80 to 90% of Iran's total uh oil exports. So really it does need Iran in that way but it gets much more from other areas of the Gulf. For instance 14 to 15% from Saudi Arabia in total it gets about 40% from the Middle East region and most of that goes through as we all know now the Strait of Hormuz. So Laura, I remember back in September, there was this grand military parade in Beijing. Uh, and there was this family photo of Xi Jinping uh, in the center. I think on his right was the Russian leader Vladimir Putin. Uh, to his left you saw the North Koreer, North

Korean leader Kim Jong-un. And behind him, looking over his shoulder, which I will confess at the time didn't really register to me as a big deal. Um, is Iran's president. uh and notably, you know, you didn't have people like my American president, Donald Trump was not there. You didn't see many other Western leaders were not there. I would love to understand what that parade tells us about the Chinese Iran relationship pre-war, but in that moment, it looked like China was displaying its military power, its military strength, and Iran was there. So I think they're called frennemies or the axis of upheaval or there are so many names for this gripping of Iran, North Korea, Russia and China. Now the

truth is the one thing that they really all have in common is that they don't want the US to be the center of a world order. And what you were seeing on display there with those huge missiles being paraded through the center of Beijing, you're seeing a display from President Xi to say, "Look, I do have this support around me, not just the military in front of me. I do have these countries who are my allies around me." The truth of the matter is when it comes to alliances, China's alliances that doesn't have the same kind of mutual defense treaty doesn't have the same we've got your back treaty as the likes of US alliances. So for instance,

let's just take the US and in Japan. If something happens militarily to Japan, the US is duty bound to defend it. That doesn't happen with China and its alliances. China's alliances are transactional. They'll do a business deal, but they're not going to rush to your aid anytime soon. When the war first broke out at the end of February, it didn't seem like we heard a whole lot from China about this all. And in fact, to that point, our listener Sonia again asked, "Is this a crisis or an opportunity for the CCP? I mean, if your um your longtime, let's say not archeneemy, but rival in the United States is out there spending money, uh political capital, fighting a war. Why interrupt the United States?

It is both. It is both a crisis and an opportunity for the Chinese Communist Party. Let's look at the opportunity first. I mean, earlier I talked about this parade of world leaders making their way to Beijing. It stands in such a huge juxtiposition when it comes to China's view and what China's doing compared to Donald Trump. And that's where it comes to the point where President Xi is trying to portray this kind of image on stage where he's looking at the world stage and saying look here we are able to do business. We are a stable economic partner. We are a stable power in the world and we're offering you an alternative. But I think when it comes to the criticism that has come from the foreign ministry here and from President

Xi has been very cautious right from the outset, the foreign ministry have criticized slowly, carefully, you know, built up to it. The real kind of pivotal point for China came when the Pakistani foreign minister arrived in Beijing and there were these talks between the two and we wondered what was going on until eventually China uh announced that it was backing Pakistan's peace plan. Now that put some weight behind it because it meant that Iran could see look China's on board here. One of our main allies wants us to get to the negotiating table. So that changed things considerably. And then after that, I think after the US uh and Donald Trump announced the blockade, they stepped it up a notch and described uh

US actions as dangerous. So that was the highest they've gone. Now there's a reason for this. There's a reason they're not provoking Washington, and that is because even though they want the Strait of Hermuse open, they don't want to poke or provoke Donald Trump. And that is because Donald Trump is expected to come here next month. They want a trade deal with the United States. And that's really in the minds of Beijing leaders right now. Can I propose an alternative theory, Laura? Um, and it I've actually slightly stolen this because The Economist ran a very striking front cover a little bit earlier in April. Um, it was a picture of Xi Jinping. Um, and it the headline on this front cover was

taken from um a thing which is attributed to Napoleon. Now, I'm a bit of a Napoleon geek, and this is one of my favorite things which is attributed to him. Never interrupt your enemy when he is making a mistake. Uh, and the suggestion was that this might be what Xi Jinping was doing in the case of the United States uh intervention in Iran. What do you make of that? I think it's quite right in many ways. It's one way to look at it in the sense of you know China doesn't really have to do anything right now in ter it just has to kind of make sure that it's uh talking about a ceasefire that it hopes for peace in the Middle East but there is an there is another side to this because when it comes to

the reopening of the street of Hormuz it's something China really needs why because of the global economy China's entire economy really is heavily dependent on exports and if you are exporting right across the world it's not just about the straight of hormuz they will be worried that this war will cause a global recession now that would reduce count's capacity to buy and that's something that China really doesn't want to see and that is where President Xi although he's standing there and as you say don't interrupt your enemy when they're making a mistake perhaps that's where he will feel he's strong But where this country will feel it's weak is when it comes to its economy. It needs a stable world. That's fascinating because the conventional wisdom has largely been

that China would seem to gain politically from this war. But you're describing a situation in which the picture is a lot more complicated if we incorporate the economics of this all and how much China relies on exports for its economy. And then that makes me wonder if ultimately the strongest words we've seen from China's leadership is when we saw, you know, the blocking of the straight of hormones, not just from Iran, but also then from the United States saying that they're going to block Iranian ports. Was that the impetus for when we started to see China be more vocal in its criticism of the United States? That's exactly right. I think there's another reason. I mean I think I've spoken to several an analysts on this

over the last few weeks and I think the prevailing thought obviously is oh look stable a beacon of uh you know a beacon of stability when it comes to the world stage but I think if you look deeper if for instance the United States is embroiled in a war in the Middle East if it's moved all its assets there if it's using up all its tomahawk missiles that may look good but it's also taking away assets from this region. Now you've got the missile defense system THAAD in South Korea. Part of that is being used and taken away to the Middle East. Now China does not want a US that's at the center of the international world order. But does it really want a US that is that unstable? Because what will happen

now and is already happening is you're going to get the likes of South Korea and Japan looking at one another and go, "Well, can we really rely on the United States anymore? If they're taking assets away from us, if they're concentrating in the Middle East, should we now look at building up our own nuclear arms, our own weaponry?" And you're already seeing that with the likes of South Korea looking into nuclear submarines. Japan is also spending a lot more money um on weaponry and on defense systems. So I think when it comes to you know what China wants, it doesn't want a US the center of the world order, but it may not want this US that is so unpredictable that it might struggle to deal with it.

Well, Laura, this is all, you know, very macro. These are the machinations of great powers and world leaders. But you've also been doing the micro reporting. You've been out there looking a at the economic impact of the conflict um at the trade fair. Can you tell us more about what you've found? We've been to the world's largest international trade fair. Now, you can't comprehend the size of this. It's over football fields in size. It could take days to walk through it all. And each exhibition hall has on sale everything from, you know, your daily household appliances, brand new air fryers, gadgets, vacuum cleaners that can suck up oil in seconds. H they had things to make your hair curl beautifully. In one

hall there were a whole bunch set and I think you'd love this asthma singing and dancing robots. This is normally a place where people are talking about the future in a hopeful sense. Looking for the best negotiation, looking for the best bargain. I was there last year and the big conversation was around Donald Trump's tariffs. This year it was the war in Iran and the impact on prices and many of those traders were telling us that their prices their costs have gone up in some cases around 20%. And then you had those we met one buyer who yes he was from a man and he says business is going well and he was doing a deal behind the scenes with a trades woman Melissa Alyssa who was really keen

to make sure she was getting a deal and she was telling us actually our shipments can't really get through to the Middle East right now and we heard that from many people selling especially electric cars but away from the bright spotlights of the Canton fair and just outside h in the textile area. Now, this is where you get the world's largest textile traders. It goes the these fabrics are used to make clothes that go to the likes of Zara, Shien, Timu, all major fashion houses. And they I mean it's such an incredible place to be because it's these streets are like arteries where you've got trucks moving these multicolored uh rolls of fabric. Some of them are piled on motorbikes. You have no idea

how they balance. And sometimes it looks like wings on the motorbikes as they're flying around corners. And we went in and out and in and out of each of the stores just to talk to some of these traders. And every single one told us the same story. And that is they are struggling with price increases again around 20%. 20% price and that is because they're already operating on really slim margins. And that's not because of the tariffs because I know that the tariffs that the Trump administration has put on China have been an ongoing economic issue. You're saying this 20% is new that they're seeing because of the war in Iran. That's totally right. I mean, China has managed to diversify its trade with the

tariffs it's managed to sell elsewhere to parts of South uh South Asia, right across to Africa, South America. It's found other markets, but there's no getting away from the fact that the price of oil has gone up. You have to pay that to get your material made. I just want to make sure I understand and can connect the dots between how uh an increase in the price of oil is affecting trade and exports in China. Because it sounds like you're saying this isn't just about shipping the exports out of China, this is about actually making the products themselves in China. There are three main ways this is affecting China. Oil is needed in the form of petrochemicals to make the likes of plastic and to make textiles. Now,

China is the factory of the world. Everything you know we buy, there's usually a component or perhaps a Chinese link. If you kind of look in your shop, there's usually some hair dryer or air fryer or piece of clothing in the shop that's made in China. Now, if you are the factory of the world, you need costs to be stable because you've made all these deals. And if, for instance, you're now going to get your textiles or your plastic and it's 20% more. You're either going to have to turn to your buyer and go, "By the way, you have to pay that or you're stuck with your product." So, that's where it's affecting the tradesmen on the ground.

Okay. So, the second reason is obviously about getting shipping to the Middle East. and if they have to go the long way, shipping costs have doubled and tripled and those we spoke to at the fair said that was the case. And then there are those who just cannot get their product like electric vehicles to the Middle East at all. Then there's a third and more bigger kind of bigger picture reason and that is the global economy. China's economy is heavily reliant on exports. It's really struggling domestically with kind of low house prices, unemployment.

Uh there are various issues, economic challenges within the country. So it's heavily relying on those exports to prop up a stuttering economy. And so far it's been doing quite well even through all the tariffs that we've seen. But if you're looking at a world that's looking around and going, should we really be buying anything because we've got this recession and prices are going up. I can't afford to run my car today. Are you going to go and buy an extra air fryer or are you We're talking a lot about air fryers in this episode. It's very interesting. I've been hearing a lot about them. So, they are the kitchen appliance you need.

My producer and I are obsessed. I need to try one. My mother-in-law has Yeah. I mean, there were some really fancy ones there and they're all brightly colored, but I think uh are you going to go or are you going to make do? Are you going to buy a fancy Hoover? Are you going to go and buy, you know, so that's part of the problem. If prices are going up around the world, if you're seeing the cost of petrol going up, then you're looking at the possibility of a global recession and we're hearing economists already talking about that. That's a nightmare scenario for China because it needs to sell all of these goods abroad and that is why. So those are the main three reasons why this crisis in the Gulf would affect China's economy.

What do people at the trade fair in China tell you about how they perceive Donald Trump? Because um as just mentioned um there's been quite a lot of upheaval uh for them in the last 18 months because of him. when it comes to talk of Donald Trump. Now, you've got to remember I'm in China. Nobody likes to talk about politics in China. And that's because really it gets you into trouble. You don't really want to openly give your political views. But I have spoken to a number of traders in the past when it comes to Donald Trump. And a couple of them will just turn around and go, he's crazy. H some of them see him as

hilarious because they'll mimic his dance. But I think even those who perhaps saw as hilarious in the past are now saying hang on a second. Uh this is a Donald Trump that uh we were not prepared for. I think social media is a very good place to go and have a look because right now on social media there's this video circulating and it's an AI video and it portrays the Americans as this eagle and then on the other side it's got this Persian cat and it's a wararmongering eagle and they fight in kung fu style in this CGI cartoon and so That's a not so subtle swipe at Donald Trump and I think that's where you kind of get your view. Um, and that's been circulating and it actually even went viral in China. So

Laura, I mean it feels like the consensus in all this, all the hot takes would suggest that China is doing well out of the Iran war, but from what you're saying, it does sound a bit more like they're um threading quite a lot of small needles with quite a lot of small threads. Um is that a fair assessment? If you had asked me before I headed out to the likes of Guangjo and Foschan, I would have told you that China was one of the winners in this war for all the reasons we've talked about because I've been sitting here and watching President Xi shake hands with leaders from all over the world look like this stable partner.

I mean, we're looking at Sir Kir Starmer. Mark Carney even came here from Canada and talked about a new world order. You heard it from Germany. You heard it from others. They're even repeating the same words that China have spoken for a long time. China has been saying, you know, they need to be part of a multi-olar world order. And in many ways, I was thinking, well, hang on a second. This is exactly what China is getting. But having been on the ground, having seen what I saw at the Canton Fair and then in the streets, there was real tone of resignation. Workers are beginning to grumble about wages.

Workers are beginning to wonder whether or not they will have jobs. And it's not just the war in Iran. The war in Iran is almost like a last straw. And I think that is a real concern for China because it will not want to hear that from the ground workers in its main factory heartland. You've alluded a couple of times to Donald Trump's visit to China that is expected to occur in just the next few weeks in May. And I am curious how the expectation of that visit is factoring into to China's desire to wrap things up here or to not say very much about this war is that you know you've got the president of the United States coming in a very high-profile visit to your country. This is a very

high-profile visit and it's one that China really wants to happen and they will put on a grand show even if uh you know and even after uh this war in Iran and that is because they want a deal. They want this trade war to end and they see their best hope at a deal in Donald Trump. And that is why when it comes to Beijing's actions, when it comes to Beijing's words, they are being cautious about what they say and what they do. They don't want to provoke Washington in that way. And also, I think in terms of getting involved, there's a limit to how much they get can get involved. This is a country that is not going to send warships to the Strait of Hermoose.

Why would it not militarily be involved? Because it doesn't have a history of wanting to do that. because it economically doesn't find it prudent to do this. It would never get involved for several reasons. The first is that China has a long history of non-inference in other count's affairs. That is what they keep saying and that's how that's the persistent line. Secondly, the last war that China was involved with was Vietnam. So if you're looking at how much experience it has, it really doesn't have that much experience on the ground despite the fact it has these massive military I was going to say in

the west of course it has more warships. China's often perceived in the United States as this boogeyman and this potential military power that could really threaten American, you know, supremacy in the world and in particular the Asia Pacific and growing in a country that has been at war for most of my life. Uh it's really just it's just mindboggling to think that China hasn't been involved. You're saying in a war during my entire life? No. During your lifetime, China has not been involved in a war. It has been involved in skirmishes in the South China Sea and it has been involved in skirmishes at its border with a full out. But these are what China would say

are its sovereignty issues. the idea that it would send ships all the way to the straight of Hormuz where they would risk military confrontation with the United States where they could not plan. They could not strategize exactly what would happen. It really doesn't it's not in Beijing's interest. Beijing likes to carefully plan everything ahead. It likes stability and that is China's main interest. China's main interest is securing its own borders. It's very much China first, the rest of the world next. That's it for The Global Story on YouTube. Thanks as always for tuning in. And if you enjoyed our episode, I should mention that our show, The Global Story,

is also available as an audio podcast. You can find us every weekday on bbc.com or wherever you listen to your favorite shows.