Podcast | Trendreport 8: Chinese Foreign Policy in 2026: Exploiting the ‘America crisis’

00:00:00: Welcome to another episode of our podcast series on the OEP trend report, twenty-twenty six.

00:00:08: My name is Genghis Guna and I'm director at The Institute And i am very happy to welcome today Thomas Eira researcher with The Institute and China expert.

00:00:19: Hi Thomas!

00:00:21: Thank you Gengis

00:00:22: It's great to have you.

00:00:24: Let me start with a general question.

00:00:27: We mainly see how China is portrayed in Western media and western discourses.

00:00:34: I'd be interested, how it's the other way around?

00:00:36: How does China see current developments of the world... ...and how has this been interpreted?

00:00:41: It

00:00:42: seems a very important insight for listeners that China sees the West as decline,... ...the US as decline which has been institutionalised by the Chinese system.

00:00:54: When it talks about great changes unseen in the century, that is exactly what it means.

00:01:01: The decline of the leading Great Power and the decline you know, convinced of this since two thousand eight.

00:01:10: Since the great economic crisis and much more so since twenty sixteen when in Chinese eyes The West's globalization failed.

00:01:20: We saw Brexit When we saw the first election of Donald Trump And now with a second Trump administration China sees the US and the west an even greater decline.

00:01:33: You know worrying about or thinking Will this United States even have the state institutional capacity to go on, its domestic stability?

00:01:46: How much will it fray.

00:01:47: Its alliance network is breaking down.

00:01:50: of course.

00:01:51: that's an opportunity for China also to have a more forward-leaning offensive in his foreign policy and this confidence.

00:02:00: So, is the Chinese analysis based

00:02:04: on... I mean do they think it's a moral decay or the system?

00:02:15: The political system of democracy in crisis.

00:02:18: What has triggered this discourse of a Western Crisis In China?

00:02:24: Or is it economic based on economic analysis?

00:02:34: moral superiority of any previous multi-party electoral democratic systems in the West.

00:02:42: The People's Republic of China has very much put its own system as democracy.

00:02:49: that works, is a whole process people's democracy according to China and what it.

00:03:03: It's certainly not about elections in that open elections.

00:03:06: How they define democracy as such?

00:03:09: Sure, the definition is of course different.

00:03:12: you would have had elections inside the Chinese Communist Party an entirely different system.

00:03:21: but what I'm trying to say it isn't more a superiority for one side or another as may have existed and falling away.

00:03:31: When China talks about the US being declined, Western decline is about power.

00:03:36: It's about western power and U.S.

00:03:38: power being in decline because of obviously when I say this starts on a two-thousand day economic weakness but also now more recent years because of the West divided by US alliance systems fraying which we see today as well.

00:03:59: And what kind of scope does the Western crisis open for Chinese foreign policy in the eyes of Chinese foreign policymakers?

00:04:13: Right.

00:04:13: So this is, I think it's worth tracking also this year with some key factors to describe this trend.

00:04:25: The first factor is this confidence, how confident China really is.

00:04:30: And the second factor is China's own economic resilience.

00:04:35: because the more confident China in the West decline and forward-leaning its foreign policy may be but on the other hand... ...the bigger China's economic problems are limited to its forward leaning foreign policies may be.

00:04:53: And then you can look at specific signals that might tell us something about how confident China is and how resilient its economy is, with the resilience of the economy you can be more traditional and look at official statistics.

00:05:10: You could look at Chinese economic growth Not only your official numbers but also external studies to try and have something solid grasp of how well the Chinese economy is doing.

00:05:24: You can look at domestic demand, you could look at export statistics strength here on a Chinese side unemployment numbers that even the birth rate to think about confidence in the future among Chinese consumers and Chinese citizens.

00:05:46: With confidence in the West's decline, we can look at things like how broad and deep is the economic coercion toolbox that China will use vis-à-vis US.

00:06:00: In the U.S.-China trade war?

00:06:03: should it escalate again?

00:06:05: How comfortable would China feel putting screws on the U S.?

00:06:12: And a second factor second signal that we can look at is what China's military and Coast Guard activity in the region going to be?

00:06:22: How forward-leaning is it going to vis-à-vis Japan, for example.

00:06:27: The Philippines two allies of

00:06:29: U.S.,

00:06:30: how forward leaning are they going to see the Republic of China break its Taiwan?

00:06:38: So China could, for example use water cannons against other side ships.

00:06:45: It could ram those ships with its own vessels.

00:06:49: it could also board detain and inspect ships of the respective other side.

00:06:58: maybe these are tourist vessels fishing vessels off all those other polities.

00:07:07: May I intervene here and ask you a question.

00:07:09: so how?

00:07:11: because he said it depends on Chinese economy in how well Chinese economy is doing.

00:07:18: And currently, its not doing that role.

00:07:21: So the growth rates are way below what was calculated previously or as hoped for this just And this was already the case before the outbreak of the war.

00:07:33: So it added to that, the effects of the Iran War.

00:07:38: Chinese economy might be damaged even more so how would you see China's role under these circumstances throughout this year?

00:07:50: Thank You very much!

00:07:51: That gets me also what I think is most likely scenario.

00:07:57: but perhaps What could change that still for, for twenty-twenty six?

00:08:02: Because I do not fully agree with your premise.

00:08:05: And i would say it's a rather balanced picture of the Chinese economy.

00:08:09: Of course The hopes might have been higher in the past as to how quickly How fast uh...the.

00:08:19: the chinese economy might be growing at this point and time.

00:08:23: But the Chinese Communist Party wanted to have a five percent GDP growth last year and it announced that it also achieved.

00:08:34: It wants to now land somewhere in a band between four point five and five percent GDP growth, then it might very well announce at the end of year that achieved there as well.

00:08:47: Not the old seven point five percent or even double digit numbers anymore but still robust.

00:08:52: so you're right The Chinese economy has a lot problems.

00:08:55: domestic demand is nowhere near where Chinese leadership would like to see it now.

00:09:02: So quite a bit after the end of strict COVID- nineteen measures, The debt especially local debt level is way too high.

00:09:12: unemployment Especially youth unemployment this way too High also particularly unemployment off you know academically qualified young chinese But at the same time and China's economy Stounding strengths.

00:09:29: And now in January, February twenty-twenty six exports have again grown strongly compared to last year and that is even you know.

00:09:41: despite Chinese exports to the US declining marketly with China's exports through European Union I've risen more than twenty percent.

00:09:50: an export to Southeast Asia The ASEAN states of growing them on twenty percent.

00:09:55: exports to African states grow more than thirty percent.

00:09:58: So China has made up for this decline in growth and exports to the US, and this export engine still makes up for lack of domestic demand.

00:10:10: so I would say it's a balanced picture.

00:10:12: that is also why i get most likely scenario.

00:10:19: China has confidence in gradual U.S.-western decline retains its confidence But the resilience of its economy is still somewhat in question.

00:10:29: There's a mixed picture and that's why I would expect policy continuity, so what do i mean?

00:10:38: With

00:10:38: U.S.,

00:10:38: because it was talking about how forward-leaning will be in the US-China trade war... ...I think there'll be similar pictures to last year.

00:10:48: So China will rather patient, cautious.

00:10:53: But if the US punches China will punch back hard and it will seek though these series of fragile agreements with the U S to continue.

00:11:04: Trump is scheduled to meet Xi Jinping in China May fourteen fifteenth I think we can expect another fragile agreement on military and Coast Guard activity gradually pressure other countries into accepting the inevitability of fulfilling China's demands?

00:11:31: I have two more questions.

00:11:34: The first one is, does the war on Iran has a direct effect on China?

00:11:41: because we know that China imported energy from Iran so does it affect China heavily?

00:11:51: Of course it affects China because you know, China is the biggest customer for energy from the Persian Gulf.

00:11:59: Particularly on oil but also in LNG.

00:12:03: Qatar's a very important partner on liquefied natural gas especially Saudi Arabia and oil.

00:12:12: things that are important, exports from the Persian Gulf to those affected by the semiconductor industry.

00:12:18: We now already see rising energy prices and also Chinese people complain when they fill up their gas tank how prices have risen still.

00:12:30: China has a very diversified energy mix in an undiversified picture.

00:12:35: it comes domestic production imports supplier countries, also a diversified picture.

00:12:44: It built up huge stockpiles and reserves for exactly this kind of crisis situation.

00:12:53: so there's buffers insofar the impact is not as drastic perhaps elsewhere.

00:13:00: but I think you know to Question here to this trend that I'm pointing our listeners, China being confident about Western decline and this indicating a move forward leaning on China's foreign policy.

00:13:17: What does the US-Israeli war against Iran mean?

00:13:21: what is its impact?

00:13:23: I think it fits into broader picture where China sees the U.S spreading itself thin spreading its forces to multiple crises in and around Caribbean, you know the Persian Gulf.

00:13:41: The broader Middle East And perhaps even Greenland Even confrontations with it's own allies In Europe.

00:13:52: So this gets me at a point that I still wanted make about what could change most likely scenario if China were to perceive the decline of the West, to be sudden and drastic.

00:14:09: This could change the picture because you can then see a window of opportunity if there's, for example deep institutional crisis in NATO.

00:14:18: If U.S should get back to this Greenland issue and apply economic coercion against Europe it would perhaps even engage in military attack which had even mooted discussed with European allies.

00:14:38: And if Europe would then, for example respond with the EU's anti-corrosion instrument applying tariffs and other coercive economic measures against the US perhaps European countries leave in NATO's integrated command.

00:14:56: Then China could really see an opening for more forward-leading action in its region.

00:15:05: That

00:15:05: brings me to the last question, do you see growing appetite among Chinese elites?

00:15:16: To solve once and all the Taiwan questions is that has that appetite become bigger now with the United States overstretch, if you like.

00:15:30: Is that opening a new window?

00:15:33: I think the preference continues to be for non-military resolution in favor of Beijing's ideas of unification.

00:15:45: The date that party put is twenty forty nine so it still some time off.

00:15:51: The General Secretary Xi Jinping might want to see an earlier unification, but I think for the moment that the preferred means are still non-kinetic.

00:16:07: So China would like a rather convinced population on Taiwan.

00:16:13: with economic pressure military exercises that threaten and make the population on Taiwan afraid, it would be better to just resign themselves.

00:16:32: quite a bit of confidence now in China, perhaps via social media.

00:16:36: There can be new influence also on young people on Taiwan that they can turn the population around.

00:16:43: what could change?

00:16:44: Now with What I indicated US wearing itself thin but the war In Middle East Perhaps at the appetite could grow to accelerate the process if there's a new window of opportunity, put even more pressure on Taiwan.

00:17:04: If the US is distracted and cannot act in the Pacific because its forces are elsewhere maybe China can act against vessels from the Republic of China.

00:17:20: or could even decide to quarantine, or in an extreme case seize some outlying small islands controlled from Taiwan and demonstrate the inevitability of this process.

00:17:33: Thank you so much Thomas.

00:17:35: it was great listening to you!

00:17:39: To our listeners I can just say stay tuned there is more to come.

00:17:45: thank you very.