The Prof G Pod with Scott Galloway - China Decode: Why China Keeps Selling U.S. Treasuries

Episode Date: May 26, 2026

Alice Han and James Kynge break down why Russia is pushing hard for China to approve the Power of Siberia 2 pipeline, what China’s accelerating selloff of U.S. Treasuries could mean for the American economy, and how China became the first country to commercially approve a brain-computer implant — moving ahead of the U.S. and Elon Musk’s Neuralink. They also explore the deepening China-Russia alliance, mounting pressure on the U.S. dollar, and whether China is beginning to pull ahead in the global race for technological dominance. 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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That's the Guardian.com slash stateside. The Madamy Holmes bike for brain health supporting Baycrest returns on May 31 for its fifth anniversary with a new start and finish at the Aga Khan Museum. Join thousands of cyclists as we take over the DVP and Gardner Expressway in support of dementia research and brain health. Riders of all abilities are welcome, and both regular bikes and e-bikes can participate. Bring your friends, family or corporate team, and make an impact. Register today at fight for brainhealth.ca. I just think that it's super interesting at a macro level that these two countries,

because of trade and strategic alignment, have come closer and it's sort of Kissinger's nightmare, right? We're living in a kind of reverse 1970s where Russia and China getting closer together rather than the U.S. getting closer to both Russia and China individually. Welcome to China Decode. I'm Alice Han. And I'm James King. In today's episode of China Decode, we're discussing the future of a gas pipeline between Russia and China, China's massive sell-off of U.S. treasuries, and the world's first commercially approved brain chip. All right, let's get right into it.

Russian leader Vladimir Putin visited China just days after President Trump left his own bilateral summit in the country. A centerpiece of the agenda was the long-stalled power of. of Siberia 2 pipeline, a proposed 1,615 mile pipeline that would carry up to 40 billion cubic meters of natural gas annually from Russia into the industrial heartlands of China. So far, no deal has been announced post-summit, but a spokesperson says a general understanding between the two leaders was reached. James, this obviously happened right after Trump's own trip to China. We knew this from the get-go. Obviously, the two leaders, Putin and she, have a very strong relationship that dates back decades.

This is Putin's 25th visit, which is hard to believe, to the country. No other leader at the world stage has met with Xi Jinping as many times as Putin and vice versa. What was your readout on the meeting between these two leaders? And why, more importantly, has this gas pipeline, which should be strategic to both sides, been stalling? Yeah, I'll come to the gas pipeline in a minute. It's a monster. It's a huge deal. I think, you know, the big picture here is that what we're seeing is the axis of authoritarianism

in action. This kind of bromance between Putin and C is really striking. And I've been looking at the fact that since Russia's invasion of Ukraine, we've seen these two big powers draw together much, much more closely. That includes diplomatically, economically, but also militarily. And that's why it really matters for the world. I would say, actually, that there's sort of closeness that we've seen between Russia and China since the Russian invasion of Ukraine is probably the most consequential geopolitical shift that we've seen in the world over the last decade. I mean, I know there are several competitors for that title, but this one is really big. On the one hand, we have a superpower, China, on the other, a big power, Russia. Their combined population is about 1.55 billion people,

vast territories. It's the second and the ninth largest economy, and both of these countries are nuclear weapons powers. So, you know, this is really important. For the U.S., I think it's particularly key, because China used to be a rival, perhaps an adversary of the U.S., but now China and Russia together makes a much bigger adversary to the US. And China and Russia have not attempted to hide their opposition to the US. As you mentioned, just a few days after President Trump left, C and Putin were warning that a global return to, quote, the law of the jungle would be a risk for the world. And this is a clear reference to the US attack on Iran. Iran and Venezuela. So this is an axis of authoritarianism in my view, and it's clearly

oppositional to the United States. For Europe, obviously, this has been a major problem. I mean, Russia is such, casts such a long shadow over Europe in terms of its economic politics, as well as its military threat, that China and Russia together creates a much more formidable player for Europe to conjure with. And now I get back to the power of Siberia 2 pipeline, because the key glue in the Russia-China relationship is effectively hydrocarbons. And among hydrocarbons, natural gas is probably the most important. We've seen Russia and China build the power of Siberia 1 pipeline. That's taking natural gas from Russia to China. But this power of Siberia 2 pipeline, if it is built, would be 2,600 kilometers long, cost up to $34 billion

US dollars to build. It's an absolute monster. And what it would mean is that China would be the customer of up to 50% of Russia's exports of natural gas. That's equivalent to what Russia was exporting to Europe before the Ukraine war. but now the exports to Europe have sharply declined. And so we can see in these pipeline politics the real shift in orientation of Russia from a Europe-facing power before the invasion of Ukraine to what is now the case, it is now a China-facing

power. So that's why this power of Siberia pipeline, I think, is so crucial. It shows the fundamental geopolitical shift of one of the most. important European and Asian powers. That's Russia, away from Europe and towards China. But what did you make of it, Alice, what did you make of the big romance between C and Putin in Beijing? Well, it was clear as soon as Putin landed that he's very well-liked in China.

He was greeted by the foreign minister Wang Yi as opposed to the vice president, Han Zheng, and they were very cordial with each other. He had a very confident gait as he came down. Tarmac when he landed. And it's clear that this relationship between Putin and Xi is a personality-driven one. They clearly have, I think, deep affection and respect for each other. But going beyond that is the amount of trade coupling that has happened between Russia and China since the Ukraine war began. So trade between China and Russia has basically doubled from 2020 to 24. That is, to your point, mainly driven by hydrocarbons, oil and gas.

China increased its imports even this year of Russian oil by 35% and total trade is up nearly 20%. And more importantly, Russia is China's largest single source, I mean, countrywise, of crude oil, that's about 20% of its crude oil imports. So in a period in which we've seen China being on the chopping block in terms of derisking and decoupling, it seems like we've seen something in the reverse strain, which is a coupling between Russia and China on the trade front. haven't mentioned on technology as well. You know, we see in the data a lot of Chinese exports of semiconductors, of autos, of trucks, of drones going into Russia or drone components, even though

technically these should not be allowed based on the sanctions regime in place. But right now, I think the thing that is really stalling the pipeline, and I'm curious to get your thoughts on this, is about pricing. It seems like at the strategic level, the leaders, love each other, the relationship is great. But what is holding this pipeline back, which is going to be considerable in terms of the energy flows of gas from Russia to China, is the fact that the two sides can't agree on who's going to foot most of the bill. So according to some reports, China is reportedly looking for pricing that is about half of what the Russians are expecting in terms of the power of Siberia too. And I think this is somewhat stalled because ultimately

the two sides can't really agree on pricing. It remains to be seen if there's enough pressure to get this going because of what's happening in the Middle East. But right now, as someone who looks at the China energy situation, and seems like the Chinese went into the conflict in Iran long in terms of supply of LNG, of gas. Their reserves have not been as depleted as their crude oil reserves. So maybe in the short term there isn't an impetus to really push this pipeline forward. we shall see. I just think that it's super interesting at a macro level that these two countries,

because of trade and strategic alignment, have come closer and closer, and it's sort of Kissinger's nightmare, right? We're living in a kind of reverse 1970s where Russia and China are getting closer together rather than the US getting closer to both Russia and China individually. Yeah, so right, Alyssa, I think Price is one of those things that always tells the true story, isn't it? The truth of this relationship is that although people talk about it as the Chinese government once wrote a no-limits partnership between China and Russia, the truth is that under the surface there is considerable tension. There always has been. There is right now. And in my view, there is likely to be, you know, for the foreseeable future. And the way the Chinese are driving such a hard bargain

over the price of the natural gas that it would import from Russia, it really speaks to the tensions in the relationship. China knows it's got Russia over a barrel because of the way that Europe has slashed its hydrocarbon imports from Russia since Russia invaded Ukraine. China is about the only big market that Russia can export this natural gas too. And that means the Chinese know

that they can afford to tell the Russians to cut the price and cut it really substantially. And I think it's quite interesting that neither side was able to agree a price and therefore the future of the power of Siberia 2, this huge pipeline itself, well, it's not approved yet. I guess we all think that it will get approved.

Somehow the two sides will agree on a price, but we have to keep on watching for that. Okay, we'll be back with more after, a quick break, stay with us. Support for the show comes from ShipStation. AI is only as smart as what you put into it, and the breakthroughs happen when AI is built exactly for what you need. That's why ShipStation's AI isn't a general purpose tool.

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and China was no exception to those joining the off-rap. The sell-off is motivated by the need to liquidate reserves of the U.S. dollar to help defend against the energy shock that began with the Middle East conflict. The yield on the 30-year U.S. Treasury note is now at 5.2 percent the highest level since pre-global financial crisis levels in 2007. James, I know this is a bit of a wonkish topic, but ultimately, you know, telling people out there, the bond market matters more than the stock market, which is why Trump lost. year was motivated by treasury yields soaring rather than stock market tanking and had to move back on his liberation tariffs. And, you know, I think this is such an important piece to note because at the end of the day, the 30-year treasury, and the U.S. is a global reserve currency, so this is an extremely important thing, not just for the U.S., but also for the world. The 30-year is an important

signal of inflation, growth expectations. It's also things that mortgages in the US are pegged at. You know, it can't be understated how important the 30-year yield is and the curve of the US Treasury. Right now, it's crazy that we're north of 5%. We haven't seen these levels since 2007. For some people who are screaming recession, this is yet another indicator that we are fast approaching that,

driven by the energy shock from the Middle East. Alice, are you saying effectively that the US borrowing costs when it issues these long bonds have increased because China is buying fewer of these bonds than it used to in the past? Is that the dynamic here? Well, we can go into the minutia of the data in just a bit, but I think this is a global phenomenon. You know, late last year, we saw gold asset holdings in FX reserves globally amongst central banks surpassed, this is the first time since the 1990s, surpassed U.S. denominated treasury holdings.

So we saw that close to $4 trillion of gold held by not just PBOC but other central banks around the world because people were not so sure about, A, the debt sustainability of the U.S. We've got public debt to GDP in the U.S. now north of 120% and rising. And unclear about the U.S.'s role, as the world number one, the world hegemon.

And so there are recurring questions you get, this at a lot of panels, I'm sure that you and I get invited to about whether or not China will overtake the US in terms of reserve status. But we're starting to really get, I think, consternation amongst central banks around the world about the debt sustainability of the US

and the strength and reserve currency status of the dollar. And certainly, I think, what has happened even more since the conflict in the Middle East erupted, is that you're seeing a lot of central banks now trying to sell down UST bills to get cash to buy as much oil as they can, and at whatever price, because we're so supply constrained. That, I think, is a global phenomenon, but certainly we are starting to see in the last year or so

that China has been selling down some of its treasury holdings, at least what's publicly available in the dataset. Still about 50% of the FX reserves at around $3 trillion are in U.S. bonds. But I've seen noticeably since the Russia-Ukraine war broke out, since we started to see FX sanctions on Russia in 2022, that China has been diversifying on the margin by increasing its currency exposure to other currencies, but also its exposure to gold and commodities. But how do you see this? Very interesting.

Yeah. I mean, China's big problem has always been that it has a huge, trade surplus. Every year, I mean, last year, it was a record in history, I believe, certainly for peacetime, $1.2 trillion US dollars. And it's got to put those dollar earnings somewhere. So it puts them in its foreign currency reserves. They're also held in different packets, in state-owned banks, etc. But just for simplicity's sake, they go into the foreign currency reserves. And then China has the question, how do they invest such an enormous amount of money in dollar-denominated assets somewhere around the world. That's the key problem that they have.

And so in the past, their answer was, well, we'll buy US treasuries because there is enough US treasuries. We can sink, you know, trillions into the US treasury market. But as you say, according to the US government data, it looks like China's been selling down its holdings of treasuries quite substantially over the last few years. And this does tend to raise questions over the sustainability of the dollar's dominance over the financial system. I wouldn't put it any more categorically than that. I would just say that it raises questions. I'm not making any bold predictions here. These are very complicated flows. The other thing I'd like to point to is the possibility that the selling down of U.S.

treasuries by China over the last few years is primarily a data function. It's primarily what the US government data is showing. And it might not fully reflect what's happening in actuality, because I think there's a number of leading scholars out there, including Brad Setser, and he is saying that China buys a lot of US treasury bonds through Belgium. But we just don't know how big that portion is because it's not transparently reported. So I think we have to have a little bit of a caveat on how deep the selldown of U.S. Treasuries by China has been. But I think it's a fascinating topic, Alice. And I really believe that if we look at the Rimini versus the U.S. dollar over the next five years and their relative strength in the global economy, we're going to

see many interesting trends. Yeah. And just to backtrack a little bit, Firstly, I love Brad Setsch's work. He's one of the best when it comes to balance sheets, trade balances, capital account balances. And he mentions that it's not just Europe through Belgium, it's also potentially Canada and Kama Islands. There's some of these shadow holdings in these other custodial banks which hold these T-bills that are not reflected in the public data set. To your point, James, in Chinese PBOC-FX reserves. But I think what is useful to point out about the relevance of FX reserves to currency, to trade, to geopolitics is the fact that, you know, in the past, I would say really before

COVID in particular, you saw China really build up an FX war chest, so to speak. You know, they had large holdings, even larger than today, you know, probably closer to $4 trillion at its peak. And the idea was that you would sell CNY to buy more FXX, you know, foreign currency holdings so that you could depreciate or devalue your currency relative to the dollar relative to other currencies. And that's relevant because historically they've weaponized the FX reserves in order to achieve a degree of currency devaluation. Now we're seeing a currency appreciation, which I think is a regime shift that I've noticed in the last year or so. And part of

that, I think, is largely driven by dollar weakening against pretty much all the currencies. And FX reserves are now pretty stabilized in general. They're not as much manipulating in the FX reserve market. But I've seen a willingness to let the C&Y appreciate against the dollar. And I think that that has been an interesting shift. Do you think that that is driven by the geopolitics of the relationship or driven by China's different model when it comes to its currency in the export domain? I think it's driven by both. And I think it's a very important trend. I wouldn't want to overstate it, but I would say the Chinese Remmin B is likely to appreciate gradually over a period of a number of years. I mean, I don't know, three, four, five, six years,

something like that. And I think the reasons for that are, first of all, geopolitical, China is very cognizant to the fact that Europeans, countries, and the U.S. are constantly blaming China for its enormous trade surplus. And it realizes, that it needs to allow its currency to appreciate in order to buy more from abroad and maybe take a little bit of the pressure off in terms of the competitiveness of its export. So I think that's a crucial trend here. Okay, let's take one last quick break. Stay with us. Support for the show comes from The Guardian.

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I'm Prit Bharara. And this week, Evan Osnos of the New Yorker joins me to discuss the Trump-She summit, which he reported on from Beijing. The episode is out now. Search and follow, stay tuned with Prey, wherever you get your podcasts. Welcome back to yet another technological breakthrough that's causing a star in China and around the world. The country just became the first to approve a brain chip for commercial use, an implant embedded into the brain to help people with spinal cord injuries. The brain computer interface is made by the Shanghai-based company Neural Medical Technology, which, for context, has a possible rival to Elon Musk's Neurrelink startup. James, we're already living in the future. The images of this are phenomenal.

What is your take on this? How successful can they be? And should we be worried about Elon Musk's neuralink? Well, I mean, Alice, honestly, every now and again, a story comes along that is truly mind-blowing. And without using hyperbole, I really think this is in that category. This is sci-fi made manifest. I was just looking back at the movies to see how many times this theme has cropped up in the movies, i.e. somebody having their brain wired up to an electric pulse or to have a chip in their brain. There was a 1995 film in which the Keanu Reeves character had an overloaded brain implant that was used to smuggle highly confidential information to mega corporations. But if we go back to 1962, there was a film, a movie in which a mad scientist keeps his wife's

severed head alive by wiring it up to an electric current. I mean, you know, that's rather gruesome, but we're not talking about that here. But we are talking about something truly amazing, which is a coin-sized chip, which is in this case called Neo, that is inserted inside the skull just on top of the brain membrane, and it's used to help people with spinal cord injuries. So basically, it picks up brain impulses, and then it translates them into a way that can be understand by a computer, and then it's used to, for instance, power a robotic glove so that the person with the brain injury or the spinal cord injury is able to grasp objects and manipulate this robotic hand. So effectively, in one sentence, what it does is this chip reads the thoughts

of the patient. So the patient thinks, pick that thing up, that thing that's on, that thing that's the table, pick it up now. And this chip will read that thought and send a signal to the robotic arm that will pick the thing up. I mean, this is just quite extraordinary. And the other thing about this is, which is almost equally extraordinary, I think, is that the Chinese government is taking this very seriously. It's not taking it as some sort of woo-woo technology that might exist at some point in the future. Oh no. This is identified as a national strategic priority, this business of brain computer interface. And it just shows, I think, how forward-looking China's government is on its scientific agenda. The Chinese government has unveiled a 17-step

roadmap to establish a global lead in the brain-computer interface industry by 2030. And added to that, It's allocated $1.7 billion US dollars to an industry fund to help finance breakthroughs in this regard. So one of the applications that is being developed at the moment by a company called neuro excess is something that has successfully turned thoughts into real-time speech in Mandarin Chinese. So in other words, somebody with a brain injury or some kind of other impediment, they can't speak what they're thinking. This new technology will read their thoughts and allow a computer to speak their words or to write their words. I just think we've crossed the matrix here, Alice. We are into totally new territory. What do you think?

That's really fascinating to me is the whole approval process between China versus the U.S. part of the reason that the Chinese have pulled ahead is that they've just got faster approval timings, right? So, you know, Musk's Neurilink is the closest

to commercializing in the U.S., but it's still in clinical trials with around 21 participants as of this January. There are some other companies in the mix as well, but the U.S. FDA, it seems, they've been cautious

about the approval for these brain chip interfaces and they rejected in Neurrelinks application in 2022, but Chinese approval agencies have just been faster to commercialize this because they're really trying to build an ecosystem, a research, talent, data collection ecosystem around this. What are some of the drawbacks do you think of the Chinese methodology of this? And how feasible is it for China to start exporting this to start exporting this to other markets in five, ten years time? Well, that's a great question. I mean, I think, you know, the first point is that it shows, I believe, anyway, that China is much

less squeamish or, you might say, sensitive about approving this type of technology. So this was approved for commercial use in China in March by the National Medical Products Administration. That's a government body. And it's the world's first. It's the world's first commercial approval for brain computer interface. Second thing to say, I think, is that China's doing quite a lot of this real biotech research at the frontier. We've mentioned in, I think, a couple of previous episodes about a small company in Shenzhen that is trying to find ways to increase human longevity by significant amounts. I don't want to sort of throw out hyperbolic statements, but over 100 years as a regular feature.

and this is also not regarded by the Chinese government as in any way eccentric. And we were talking earlier a little bit about Xi Jinping and Vladimir Putin. There was this hot mic moment when Vladimir Putin was last visiting Beijing, in which he and Xi Jinping were having a conversation about how people might one day live to be 150 years old. And at the time everyone thought, wow, you know, this is really really. really out there as a conversation between two of the world's most powerful people. But no, it's not out there. This is, you know, the logical conclusion that one might draw, certainly in a sort of fairly lighthearted conversation from research that is currently underway in China.

So I think to me, this is the big takeaway from this, is that China is pushing back the frontiers and it's putting money and administrative heft behind all of these. very new technologies. I love that point you ended on, James. It's longevity science meets geopolitics. You know, maybe we'll go. The not too distant future will have all these elderly leaders with brainship interfaces. All right, James, you know what time it is.

It's prediction time. As you peer into the future, what do you see? I think I'm just going to stick with this brain computer interface and say that we will see a few more licenses for similar neurotech. That's the general phrase for what we're talking about, neuro tech. In other words, technology linked to the brain.

I think we are going to see several new licenses over the next two or three years. And I imagine that neuro excess, the one that I mentioned is turning thoughts into either speech or written words, will get a license. Maybe this year, maybe next year, but it won't be that.

long? So my prediction is twofold. It's mainly about macro and finance. On the macro front, some of the April data you may have seen at James on industrial output, manufacturing investment even as a subset of fixed asset investment looked pretty weak. I suspect that going into Q2 will see a weak momentum in the economy. We might see quarterly GDP growth closer to 4.5% in the second quarter of this year as China gets hit, not just by the rising costs to inputs, from energy prices, but also in terms of external demand starting to cool as well for Chinese manufactured goods. And then the second part of it is, I don't think this is getting enough attention.

There's trillions of fixed term deposits that were used during the COVID pandemic by Chinese households that basically will start to unwind this year. These are five-year term deposits. Now, everyday Chinese people need to chase higher yields because some of the same. of these deposits now only offer about 2% yield versus the 5% that they offered back in 2020. So I think we'll see a lot of domestic flows into potentially the stock market, into wealth management products as Chinese households try to find more yield in an environment that is really uncertain.

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. Talk to you again next week.