The Prof G Pod with Scott Galloway - China Decode: Ballistic Missile Test, Europe's AC Addiction, and China's AI Coding Challenger

Episode Date: July 7, 2026

Alice Han and James Kynge start with China's latest ballistic missile test into the Pacific and what it means alongside a new Australia-Fiji defense pact. Then: Europe wants to shrink its record trade deficit with China, but its worst heat wave on record has sent demand for Chinese air conditioners soaring. They break down whether the two sides can actually cooperate on AI and renewable energy even as tensions rise. Plus: Z.ai just launched ZCode, a coding agent for its GLM-5.2 model said to rival Claude and ChatGPT. Alice and James discuss how big a threat this is to U.S. AI dominance, as well as the fallout from claims that Anthropic used hidden code to track Chinese users. Finally: China's new "Ethnic Unity" law took effect July 1. What does it mean for Tibetans, Uyghurs, and Taiwan… and how is Beijing defending it internationally? 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

One day, with the help of science, you might be able to live forever. Forever. Your body will just need a couple tune-ups. Injecting bone marrow in your 40s, your kidney in your 50s, your heart in your 60s, and so on, and then potentially a whole body transplant by the time that you were 90. This week on Explain It to Me, The Quest for Longevity. Find new episodes, Sundays, wherever you get your podcasts. My concern is that because the Chinese models are open source,

it will not be Chinese models used in China and US models used in the US. It'll be Chinese models used in China and everywhere else in the world and US models used in the US. It's possible the US may try to corral European countries into using only US models, but that would be a big heavy lifting operation if the US was to try to do that. Well, welcome to China Decode. I'm Alice Han. And I'm James King. In today's episode of China Decode, we're discussing China test firing a ballistic missile with a dummy warhead into the Pacific, a Chinese AI model that rivals anthropic, and a new ethnic unity law drawing criticism.

That's all coming up, but first, let's do a quick check-in with how the markets in China are starting the week. On Monday, the C-Sy. S.I. 300 was mostly flat, while the Shanghai composite was down slightly 0.06%. The Shenzhen component, however, fell 1.16% to a three-week low. Bank stocks saw gains, with the Industrial and Commercial Bank of China up 1.14% and the Agricultural Bank of China up 1.19%. Notable falls were with Eoptalink technology down 3.6%, and Victory Giant technology down nearly 5%. All right, let's get into it. On Monday, China testified a ballistic missile with a dummy warhead into the Pacific Ocean,

only the second time it has done so in two years. The launch coincides with Australia and Fiji announcing a new mutual defense treaty, showing how China's growing missile capabilities are accelerating a broader regional defense buildup. Meanwhile, in China-Europe relations, the EU's ongoing attempts to balance the trade deficit with China have hit a new hurdle, soaring temperatures. The block's worst-ever heat wave is driving unprecedented demand for imports of Chinese-made air-conditioners, which was making serious in roads at undercutting the deficit reduction push. Cooling demand has been pushed to its highest level in at least 45 years.

James, I'm in Spain at the moment, which is quite sweltering. It's in the sort of 35 region, but the UK, a few weeks back, you know, we were both based there. I was so close to 40, was seeing record temperatures, across Europe. And I was just looking at some of the figures of Chinese air conditioners being imported by the Europeans. So in the first five months, we saw a 10% rise in household air conditioners imported from China to Western Europe. And apparently 70% year-on-year rise on that same period of portable fans, a portable air conditioners from China to Europe. And I see a lot of those on the trains in the UK, I have to say, on the London trains where they're very much needed. But

the reason this image is so startling is that on the one hand, you have Europe, you know, undergoing blistering heat, but also undergoing record trade deficit with China. We just saw the Chinese Commerce Minister Wang Wintel in Brussels, a bit of a nothing burger in terms of what came out of it, but they're apparently engaging in strategic dialogue for a framework that will probably be unveiled in October. But it seems like the Europeans haven't really been on the offensive. in terms of trying to seriously address these deficit concerns. James will go to the Europe and heat dimension in just a bit. I want to start firstly in terms of this ballistic missile launch

with a dummy Warhoa that China's just made. And it's obviously riled a lot of the Asia-Pacific countries, Australia and my own country being one of them. What was your read of that? Because the Chinese readout was, hey, this is a very bog standard military exercise. that we do in the region, nothing to worry about. But it certainly has caused a lot of consternation amongst some of the surrounding countries. Yeah, absolutely, Alice. I mean, I think, you know, the world is getting hotter, geopolitically, climactically, and in terms of trade tensions.

And, yeah, as you say, I mean, it is pretty tough in the UK at the moment without air conditioning. But we'll come to that in a minute. I think this issue of this long-range ballistic missile that was fired by China with a dummy warhead. In other words, it wasn't armed, of course. And it landed somewhere in the Pacific Ocean. We don't exactly know where. But this happened, as you mentioned, just hours after Australia had signed a defense pact with Fiji. I think it definitely shows assertive behavior by China. And that assertive behavior we can see in so many other domains right now. I think that's, to me, the theme that binds together what we're seeing in European trade, what we're seeing in China's military assertiveness.

And I also think that this is particularly relevant to the United States, because if you look at the detail of this missile, it does appear, at least to me, that this was also a veiled warning to the United States. And that's because, according to the official Chinese media, the missile that was fired from a submarine was likely to have been the JL3. Now, that is, as I said, a submarine launched missile, and the point is that this missile could reach the continental United States from Chinese coastal waters, according to the Pentagon. So, although we're talking about a missile that was a missile that was launched into the Pacific and it had a dummy warhead, not a real warhead, we can see that in terms of

signaling, this is basically saying to the West, to the United States and certainly to Australia, Fiji, and anyone else who cares to watch, it's saying, don't mess with us. We are a growing and increasingly assertive military power. And for that reason, I think the cost of the cost of context around this is also key. China has been launching many, many more combined military exercises with different countries, in fact, more than 45 partner countries in the decade that ended in 2025. It's conducted more than 154 of these combined exercises, and mostly with Russia, and the scope of the exercises has also increased. It's done exercises in the Pacific, Indian Ocean, and around Africa, and it's had extensive voyages,

naval voyages this is, around Australia. So to me, this is part of the same picture, this missile test into the sea somewhere in the Pacific. Obviously, it's part of another big picture, which is China's very rapid expansion of its missile arsenal. China is supposed to have, we think, estimates say, around 500 ballistic missiles currently, but by 2035, it is projected to have about 1,500 nuclear warheads which could be delivered on ballistic missiles by that time. So this is part of a much bigger picture. It's part of the rise of an assertive China. And, you know, to flip that to the trade domain, we've got another side

of an assertive China emerging. And it's showing in China's trade surplus with Europe that is really hitting the big time this year. Last year, it was 360 billion euro. And this year, the estimate is that it will top 400 billion euro. So I don't know what you. You know, you think of it of the trade side of things, or maybe if you want to talk about ballistic missiles, Alice, but on the trade side of things, you came in talking about these air conditioners. This is just one example of the way that Europe seems to be ineluctibly drawn to importing Chinese stuff. And I suppose that's because Chinese stuff is so much cheaper. It's often better in terms of technology than what the Europeans can produce. But structurally, it seems to me,

sitting here in Europe that Europe is really very weak when it comes to industrial production and producing things that Europeans can buy. And that's simply why, whether it's a heat wave causing us to import air conditioners or in the middle of winter, if there's a cold snap, we'll be importing Chinese heat pumps, I'm sure of it. It just seems that these days we turn to China for all of our needs. What do you make of it, Alice? Yeah, I know that on the surface, these two stories don't look too interlinked, but hopefully we can convince people that they somewhat are, right? Because on the one hand, you see China that is worried about the geopolitical situation. I think that that exercise is more of a deterrent strategy than an offensive, you know,

saber-rattling one. It's to show, hey, we have long-range missiles with capabilities to reach Australia, to reach the US, and, you know, don't mess with us in a period where we've seen a lot of geopolitical uncertainty and uncertainty that's increasing. And I don't think it's a coincidence that Fiji and Australia signed that mutual defense treaty. China has been engaged in an influence campaign with the Pacific Island countries. And my counterparts in Australia have been worried about that, the amount of Chinese investment that's gone into, say, a Fiji, which was the first Pacific Island country to diplomatically recognize China, by the way. But also the telecommunications and infrastructure development that is almost completely Chinese at this point in a lot of these countries, including Fiji.

So I think that there is one side, which is from Chinese vantage point, we want to maintain influence in the Pacific. We also want to deter any kind of coalition building or, you know, offensive coming from the quad or coming from the U.S. by showing that we have these ballistic missile technologies and capabilities. On the one hand, it's trying to strategically deter. On the other hand, it is showing that it is still very much embedded in the multilateral trade system. The numbers that you just cited in terms of the trade deficit that Europe is running with China, now almost close to 400. It could be this year, a billion euros of trade deficit between EU and China.

The EU is 15% of Chinese exports in terms of market destination. It's a huge market for Chinese manufacturers. So China is still heavily dependent. We've spoken previously on this export engine, net exports of 30% of total GDP growth. You know, in a way, I think they're kind of playing this balancing act of being tough on the geopolitical issues, but really still, I would argue somewhat vulnerable on the trade issues. But the big question here is why isn't Europe doing more? Because I think that they have some leverage to bear,

given what I've just noted, China's trade dependencies in its total macro machine, but it's also a dependency on Europe as a huge market. So all I can point to is this structural fragmentation in Europe as this supranational body to try to get its act together and put in legislation that is smart in terms of, you know, maybe price minimums on Chinese exports, limitations on the amount of exports that come into certain markets, getting smart about IP development being based in Europe and not just assembled in Europe.

But the big question, and here I defer to you, James, as the expert, is why isn't Europe doing more because I think it could have a lot of leverage. That is absolutely the key question, Alice. I do note that the EU and China recently released a rare joint statement that aims at balancing trade and addressing market access issues. And the two sides said that they would set up a bilateral working group to monitor trade flows. Beijing offered reassurances that existing rare earths and permanent magnet export

controls will not disrupt EU supply chains. So that's the official sort of picture. But to be honest with you, I sort of, my feelings on this are similar to what you just described, Alice. I feel that Europe is fatally disunited on this issue. They cannot get consensus among the member states of the European Union to actually impose stiff tariffs or other forms of restrictions on Chinese imports, and they don't seem to have the political clout to push European exports to China either. And so the reason why this is important is that we're not just talking about trade balances here. We are talking about the end game for European industry. Europe stands to lose its industrial base. don't make any apology for speaking in such blatant and blunt terms. It really is that simple.

The reason is that China has overtaken Europe when it comes to technological advancement, and the technology products that China's producing are way cheaper than the nearest competitors in Europe. That's why we've seen this flood of high-tech products. Everybody knows about the EVs that the Europeans are buying from China, but it's happening in almost every sector. And this is why we are in a very important moment. It seems to me that Europe has not yet imbibed the necessary sense of crisis that attends this situation. And while it doesn't, while it remains fairly flabby, sort of talking around the issues like Europe always seems to do, without coming out with strong, staunch action, it is presiding over the, well, I won't say extinction,

of its industrial base, but certainly the weakening and erosion of its industrial base, which is going to take decades to build up again if it loses it. So this is vitally important, and as I said at the top, it's a geopolitical question. Therefore, I think it does belong with the story about the ballistic missile landing in the middle of the Pacific. Yeah, because in the question which we've discussed in previous episodes of the Taiwan crisis risk and what will be the corollaries or outcomes or responses from some of these other countries, whether it's the U.S. We've talked about Japan and Korea, Australia in the past. But another question is, what is the EU going to do, right? Because China is a huge, obviously,

market, but it's also a big exporter of a lot of goods that the Europeans require. We haven't discussed at rare us yet, but that's another choke point that the Chinese have over the Europeans, that they have not yet weaponized, but they have with the Japanese. The big question for the Europeans will be, what will you do when there is a Taiwan crisis if there's an invasion, a blockade or a quarantine, will you put economic, financial, you know, technological sanctions on China? And then will China react in kind?

And here I think Europe could be quite vulnerable to a China counter response, which is, I'd imagine something in the vein of will cut off, exports of critical technologies and rare earth commodities. I can imagine that that would be hugely disruptive for the Europeans. Oh, and will also import less agricultural products and chemicals products from the Europeans. Again, very, very disruptive for European business. Yep, I fear that you're right there too, Alice. I think China's got so much coercive power that it could use. It is easy to imagine a scenario under which China does something that Europe doesn't like, then China threatens to use these coercive powers and Europe backs off. I think that's also

highly possible. Okay, we'll be back with more after a quick break. Stay with us. Support for the show comes from Framer. If your team wants a website that looks and feels handcrafted but is still fast to ship, Framer is built for that. You design on a visual canvas with responsive layouts hosting and a CMS built in so the work is production ready from day one. Agents work alongside you to draft pages and polish sections, then you review and publish what goes live. Framer is the pro-site builder for creators, teams, and businesses that want a professional site and care enough to get every detail right. Agents solve the gap between AI-generated ideas and production-ready website work. The agent works in the same place where the real site is

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GLM 5.2 from ZAI. It was released in mid-June, but just last week, Z-A-I launched Z-Code, a harness for its model that lets it function as an autonomous coding agent. The model is said to rival chat GPT 5.5 and Claude. So James, a lot of chat on the news about how Anthropic just cut off its latest Claude Fable and Mythos models from non-US users. They were clearly war, about the fact that the Chinese have been distilling a lot of their cutting-edge models. They are so worried about the national security risk and pressure from Washington to make sure that this is indigenous.

This technology is indigenized as possible so that American businesses and the military intelligence community have a step up or a leg up relative to other countries. And they have been forced to comply with the U.S. Department of Commerce's export controls that are now not just applied to chips and equipment, but also to increasingly AI models, right? But the big news that came out of China just recently is there's a couple of models that are purported to be competitive in this space.

There's one, for instance, a cybersecurity firm called 360 security technology has apparently unveiled two AI-powered cybersecurity tools that could rival Anthropics mythos. And then obviously, as I've mentioned, you've got Jeeples, GLM 5.2. This is an open-a-weight model that people can download and use that is supposed to be as competitive as a new cutting-edge, cloud code or even cursor code. So the big question then is, how accurate are these statements? Can we test them out?

And how do we compare them even against the cutting-edge models that may or may not be available to a lot of non-Americans because of the Department of Commerce's shadow on export controls. I find this exceptionally hazy and opaque and would welcome anybody to come and tell me what the best benchmarks or testing mechanisms are to really compare. But this whole world seems to be moving so quickly and yet it's so opaque. Yeah, I couldn't agree more, Alice. This is really hard work to keep up with all of this. As I see it, basically we have a couple of trends going on here. First of all, the AI race between the US and China is kind of diverging. We're getting a separation, certainly in terms of the users of these models. The other thing that's happening is that

China is catching up. It's producing more and more. very impressive pieces of technology. I think this is a very considerable move by China, and as you mentioned, Alice, it takes this Jepu, GLM 5.2, into the arena with some of the best, like the Claude Opus 4.8. Almost all of these Chinese LLMs and agents are open source.

And this means that, they can be downloaded pretty much anywhere in the world and used by anybody who wants to develop their own AI products. And so what we're seeing is vast numbers of people all over the world downloading these very good Chinese LLMs. Alibaba's Quen, for instance, appears to have surpassed one billion downloads worldwide. And this Jupu, GLM 5.2, has climbed to the top of the Western usage charts on third-party development platforms such as open router. So we can see that the Chinese open source approach as opposed to the US approach, which is much more closed, is creating a really big following internationally.

I'm not going to call it. I never call the AI race between the US and China. I think that's a mugs game. Basically, China seems to be ahead in some areas. The US is ahead in other areas. It's basically neck and neck as I see it. But what I would say is that this latest GLM 5.2 is another reminder that China's doing some very impressive stuff. And you see this in Chinese tech companies. They basically subsidize usage, make it a freemium model to try to get subscribers to get onto their platform. They've done this with developers. They increase their data quotas for existing subscribers by 50%. Offered 5 million free tokens to new users.

And at the same time, shout out to my friend Kevin Shrew, who writes the great AI blog interconnected. He's saying that this is a bigger deal than the Deep Seek moment. And if he says that, I'm listening. Apparently, he's noting that according to the arena's agent leader poured, that the Zipur AI's GLM Phi-B.2 is the only open model that is competitive with OpenAI and Topics' latest LLMs. And, you know, reportedly, according to this leaderboard, best at Claude Fable on Design Arena. So there are areas in which they seem to be as competitive, but I think when I broaden it out to this geopolitical question,

and I made this prediction probably a few episodes back. It's only a matter of time before Washington starts cracking down on this. They probably don't like the fact that so openly you've got developers in Silicon Valley and elsewhere that are using Quinn and Zippur and Chinese open source, right? And so on the other side, there seems to be these guardrails that Anthropic is now putting in because they're very worried about distillation. made it very clear compared to Open AI that China is the strategic threat or strategic challenge for the US AI community. And so apparently they're able to covertly track now Chinese users

of their Claude Code platform. They've got this hidden tracking code that is basically able to pick up on Chinese users using it. And the idea is to prevent future distillation efforts. So this space is getting politicized or geopoliticized very, very rapidly. And we're wouldn't surprise me if we end up with some kind of AI iron curtain being pushed by both Beijing and Washington. Absolutely, Alice, that's a very interesting thought-provoking phrase. And I have to say you did predict this several episodes ago. And it does seem that if this trend continues, there will be this divergence between the US models and the Chinese models. My concern is that because the Chinese models are open source, it will not be Chinese models used in China and US models used in the US.

It'll be Chinese models used in China and everywhere else in the world and US models used in the US. This is the big concern because I can't see a country in Europe, let's say, which has none of its own AI, LLMs or very, very few, and none of them nearly as impressive as the Chinese or or the Americans are producing. I can't see countries over here, let's say, saying, okay, you're not allowed to use Chinese LLMs. Because we simply don't have other choices. It's possible the US may try to corral European countries

into using only US models, but that would be a big heavy lifting operation if the US was to try to do that. So I feel that your Iron Curtain analogy actually may come to pass in some shape or form. But don't you think, James, that in a way, Washington under this administration is killing the golden goose, so to speak, because if it's telling anthropic, hey, you're not allowed to release the latest fable

or mythos to foreign nationals. If you're European going back to Europe, what are you going to do? Right? And then there is no real clear argument that, hey, we're going to pick American models because Americans are also national securitizing this AI issue. And Chinese models are cheaper. We do run some kind of a security risk, but what can we do? Because we don't have models that are as competitive as the two countries, right?

On the open source question, which I think we shouldn't take our eyes off of, is Nvidia getting into the mix. Invidia is now offering open source LLMs because it's a big believer in that ecosystem. So maybe it's not fair to say that the bifurcation or breakdown between China versus the U.S. on the AI front is open source versus close source. Maybe it's more an idea of, yes, China has predominantly open source, but there are some important open source players, you know, hugging face in Europe. Nvidia now is a big one in the U.S. And I'd imagine that with the frustrations that people have because of Washington politicizing the closed models like Anthropic, there may be some more entrance into the market like NVIDIA in the open source space where things are harder to control politically. That's a very good point, Alice.

That's a very good point. Yes, of course, NVIDIA is putting out open source models. So it's not as simple as a clear bifurcation between Chinese open source. and US closed source. Things are shifting, things are varying. This is an endlessly complicated and rapidly evolving situation. It's very hard to draw clear conclusions. But one thing is for certain, and that's what you've been describing,

which is that the temperature of the rivalry between the US and China is rising. Yeah. Well, we'll keep coming back to rising temperatures, both in the climate and in geopolitics. Let's take one last quick break. Stay with us. As America reaches its 250th anniversary, how should Americans assess their country's strength relative to the rest of the world? We're moving into a genuinely multipolar world,

and that's a world in which every nation is basically for itself, because nations can no longer rely on the United States to protect them. I'm John Feiner. And I'm Jake Sullivan, and we're the hosts of The Long Game. a weekly national security podcast. This week, we sat down with historian and foreign policy expert Bob Kagan to assess America's role in the world at 250 and the future of American power. The episode's out now. Search for and follow The Long Game, wherever you get your podcasts. Welcome back. A new ethnic unity law in China came into effect on July 1st and is yoring criticism

while the Chinese government works to promote and defend the measure. So James, this ethnic unity and progress promotion law was introduced by the National People's Congress Ethnic Affairs Committee on September 8th, 2025, and it was signed into law and became effective July 1st, 2026. And just for context, I think a lot of people don't understand this about China. There are around 55 recognized ethnic minority groups. They account for about 9% of the population, which is still predominantly Han Chinese. That's about 91% of the people. population. And obviously throughout history, there have been periods of ethnic conflict and division. In, you know, if you go back to the Yuan dynasty, China was taken over by the Mongols,

then you go back to the Qing dynasty, China was also taken over by the Manchurians in the Qing Empire. So it's fair to say that China is a lot more multi-ethnic than people understand it to be, but this has become a political issue under the Chinese Communist Party because a big part of the core tenant of the CCP, since its founding in 1949, as the head of the People's Republic of China, is this idea of ethnic unity. And my own take on this is that it's grounded in a desire for political unity and control and a fear that because China's had periods of, you know, the warring states of warlordism, of great instability. Creating ethnic unity and political unity are important in ensuring political stability. So when I look at this, and I look at some of the language about, you know, trying to avoid and preclude foreign agents who undermine ethnic unity and ethnic stability, I look at that as, you know, and maybe this is

a simplification. So correct me. I look at that as the government saying, hey, we need to make sure that we ensure political stability. We don't have protests and unrest and make sure that there aren't these foreign agents that are trying to undermine our political unity. I think that the first thing is that this new law, the ethnic unity law for short, took effect on July the 1st, and that's why we're talking about it now. The next thing I think that's really significant about this is that it appears to give China extraterritorial powers. In other words, it appears to give China powers to enforce Chinese law in other parts of the world. And in this regard, the critical article of the law is Article 63, which states that organizations and individuals outside

mainland China, who commit acts, quote, aimed at China, close quote, that undermine ethnic unity are, quote, are to be pursued for legal responsibility in accordance with the law. Now, that's a very vague statement. What does that actually mean? How do you define acts aimed at China? That could be virtually anything, I would say. And then the other side of it, the question of being pursued for legal responsibility in accordance with the law. What does that mean? Pursued. Does that mean arrested? Does it mean sent a letter? Does it mean sent an email telling you to stop doing whatever you're doing? Does it mean reported on? Or legal responsibility? What kind of legal responsibility we're talking about. So it is a very vague law. And I have to say that, you know,

in the interest of balance, Beijing says that this law is intended to protect national minorities, 55 of them in China, and many of them living abroad as well. So the first thing to say about this is that we really don't have a clear sense of what this law means in practice. How, However, one concern of this law is that it could mean something like the following. We all know that the Dalai Lama, who is recognized as the spiritual leader of Tibetan people, some Tibetan people living abroad, some Tibetan people living in China, he is 91 years old. what would it mean if China decides that the Dalai Lama is acting in a way that is aimed at China or inimical to the interests of China? I mean, China regularly calls the Dalai Lama a splitist,

the separatist, trying to split China. So if this is the case, then what would happen there? Would China invoke this law to go after the Dalai Lama? Would they try to, apprehend him and bring him to China to stand trial? I mean, we just don't know. It's really not that clear. But what I would say is significant in this is that it is giving China extraterritorial powers. If China chooses to use them or decides to use them, that could mark a significant shift in the way that China conducts itself around the world. So I think that's really key. Do you find that a lot of, and I look back to say sanctions law in particular in technology, that a lot of the time China will announce, whether it's the unreliable entities listing

or the anti-blocking law, certain legislation, but not necessarily enforce it. They use it as a kind of option, so to speak. If something happens that they don't like, they at some point may weaponize that. But in general, is it fair to say that we shouldn't see this as a kind of tricky, a happy activity where they're going to go out and find different groups, whether they're, you know, Chinese or otherwise, that are undermining this ethnic, political unity. Are they really going to be, I guess, what I'm trying to say, going on the offensive and trying to find these people and stop them and sanction them?

Or is it really going to be a symbolic move when they're upset with certain policies from a particular country or activities from a particular group or individual? It's a really good question. I really don't think it's clear at the moment. One thing I would say as part of the big picture is that, you know, we've seen the way that the U.S. has been invoking extraterritorial laws on China. I mean, all of the U.S. entity lists, the lists of Chinese companies that foreign countries are restricted from dealing with because of U.S. law, right? That's an extraterritorial law. I mean, if you're telling a European country, that it can't deal with a certain Chinese company, then that is extraterritorial. And I would say that this might be, in some senses, an answer to that type of extraterritorial pressure that is coming from the US.

We've seen, I would say, the start of it in some of the laws that China's been coming up with. In May this year, the Ministry of Commerce in China issued an enforcement order blocking U.S. sanctions imposed on five Chinese companies related to Iranian oil transactions. That's just one small example. But basically, I would say that law is going extraterritorial all over the world. This is not just a Chinese thing. And so maybe it's part of that. Maybe it's related to that, but it's got different aims and different antecedents. It's really hard to tell at the most

moment, because as I said, this is a very vague law. Yeah. And it reminds me a little bit, even though it's not in the same category of the extra territorial laws that were unveiled last year for, you recall, for rare earths, James, in which if you actually read the fine print, they were saying as little as, if something was as little as 0.8% comprised of Chinese originated rare earths, then it could be subject to Chinese export restrictions. They haven't yet weaponized that, but that was a pretty, a pretty,

expansive, extraterritorial insert that they put into the new export restrictions on rare earths. But my take and the reason why I lump that in the category of this one is that in a way, it's more about the symbolism that as opposed to being, you know, an offensive legislation that they're going to go out and to really try to find people and stop them. I think it's more like case by case. Are they worried about a particular group or a particular country? Because remember, a lot of other countries have agency. When I look back to some of the sanctions over the Uighur rights issues,

labor rights issues, Chinese issued sanctions on European ministers, European Union, also issued sanctions on Chinese companies and individuals in response. So it becomes a bit of a multipolar trap in the sense that you have escalation on dominance or escalation potential on both sides. And I want to take it a little bit back maybe to, the domestic side of things, which I find interesting because as a historian, a big part of what the CCP under Mao first tried to do is to really nationalize the system. Because if you recall, China is a multi-ethnic, but also multi-dialectical country. You know, my own people are from

Shanghai. Shanghai is a very particular dialect. If anyone who's not living in Shanghai speaks to a Shanghaiese person, they can find it very difficult to understand them. And very early on, when the communists came to power, they enforced unified, unified, you know, unified, made sure that schools use Mandarin as their primary language. And this law in effect is trying to re-invigorate, I think, some of those moves, because, you know, it's saying that schools and government agencies must use Mandarin as their primary language and that curricula needs to, quote-unquote, forge a strong sense of the community of the Chinese people. There's also an element of trying to make sure that people speak the same language and think the same way, right? And, you know, we talked

about the extraterritorial dimension, but there's also this kind of internal unity dimension, and it, you know, comes up in the education system, in the political system. But I thought that that was another interesting aspect of this law. It's hearkening back to the legacy of Mao. Absolutely. I think the last thing to say on this from my side would be that it has attracted criticism from abroad outside China. I'll just mention a couple of those. A UN letter from eight former special rapporteurs said earlier on this year that the law could violate at least 12 international human rights treaties that China has ratified. That's the first thing. And then the other piece of reaction has been, from the European Parliament, which adopted a resolution in April this year, condemning this law, we're talking about the ethnic unity law, and warning that it could intensify the systematic suppression of ethnic identities. That's a quotation, and further strain relations between the EU and China.

Of course, China has rejected those criticisms. So, you know, this is yet another point of tension. between the Western China or is evolving into that. Yeah, and the last thing that I will have to say, James, you know, as much as this is a political issue, I have noticed, again, this is more of a cultural observation as a political one based on travel to China, that there is more of an opening up

and I would say from everyday people in appreciation of different dialects and different ethnic minority groups, a celebration of their cultures. You know, I was in Yunnan two years ago, and it's the most dense area for ethnic, minorities in China, you've got the Miao, you've got the Huy, you've got a lot of different ethnic groups there. And everyday people in China are keen to learn about their different cultural practices.

So I just wanted to offer a flip side, which is yes, this seems like a bit of a politically sensitive and potentially controversial issue, but I have detected, at least in everyday Chinese society, that there still is a growing appreciation for the ethnic minority group. and not just the Han Chinese identity. Yeah, I would definitely agree with that. I have personal friends who very much respect certain ethnic minority cultures and religions in China. And I very much hear from them exactly the same trend that you're talking about.

All right, James. You know what time it is. It is prediction time. As you peer into the crystal ball for the future this week, what do you see? Okay, I'm going back to the big topic for me. which is the EU's commercial relationship with China. This is a massive topic.

Let's not forget that the European Union comprises about 450 million consumers. This is one of the biggest markets in the world. And EU exports to China, in my prediction, will continue to fall this year. In 2025, they were about 100,000, 99.6 billion euro. This year, I think they'll fall back to around 180 billion euro. So that's about a 10% contraction. And it contrasts with Chinese exports to Europe, which so far this year have been

rising by around 16%. So you've got a very significant contraction of exports to China from Europe and a very significant increase of Chinese exports to Europe. So that's my prediction. Alice, what have you got for us? So I've been running numbers on the Chinese consumer landscape. And what I find fascinating, just looking at the recent history since COVID, is that Chinese households are actually quite sensitive to what I would call geopolitical risk. So in a way, they attach a risk premier to their consumption based on the uncertainties that they're seeing geopolitically economically. We saw that first with a massive downfall in Chinese consumer confidence during the COVID lockdowns from 2020, really to 2022. And then from 2022 onwards, Russia, Ukraine

had a huge impact on Chinese consumer spending habits as well as confidence. And we're starting to see early signs that the Iran crisis is also starting to weigh on consumer confidence. So my my prediction, it's kind of unfair because I've already run the numbers, would be that we're going to see further weakening in Chinese consumer confidence and therefore spending because everyday Chinese people are worried about not just the geopolitical landscape, but also the economic landscape in terms of hit to external demand. 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 podcast so you don't miss an episode, and we'll talk to you again next week. Like.