In this week’s episode of China Insider, Miles Yu comments on the latest developments in the Israel-Iran conflict after the United States’ direct involvement, and what impact this may have on China’s strategic objectives for Iran and the Middle East. Next, Miles unpacks the latest developments in Taiwan’s Legislative Yuan recall movement as 24 Kuomintang lawmakers face recall votes in late July. Lastly, Miles analyzes China’s continued economic struggles concerning increased youth unemployment and declining rates of foreign direct investment.
China Insider is a weekly podcast project from , hosted by China Center Director and Senior Fellow, Dr. , who provides weekly news that mainstream American outlets often miss, as well as in-depth commentary and analysis on the China challenge and the free world’s future.
Episode Transcript
This transcription is automatically generated and edited lightly for accuracy. Please excuse any errors.
Miles Yu:
Welcome to China Insider, a podcast from the 华体会’s China Center. I am Miles Yu, Senior Fellow and Director of the China Center. Join me each week for our analysis of the major events concerning China, China threats, and their implications to the US and beyond.
Colin Tessier-Kay:
It’s Tuesday, June 24th and we have three topics this week. First, we discussed the latest news from the Israel-Iran conflict after US strikes over the weekend took out further key nuclear sites and strategic targets, and what is at stake for China as the conflict continues. Second, we revisit Taiwan’s great recall movement and unpack the latest developments as the movement reaches a critical stage. Lastly, we discuss China’s ongoing economic struggles as youth unemployment continues to rise and foreign direct investment declines. Miles, great to be with you again this week.
Miles Yu:
Nice to see you again, Colin.
Colin Tessier-Kay:
First up this week, we continue our conversations from last week on China Insider, as over the weekend, US B-2 stealth bombers struck three major nuclear sites in Fordow, Natanz and Isfahan as part of a strategic bombing operation dubbed “Midnight Hammer.” The operation has resulted in direct US involvement with the developing conflict, per the latest statements from President Trump Sunday evening. Of issue here, however, like you mentioned last week, is China’s involvement in both Iran and the Middle East region overall. So, Miles since we last talked, what do these new strikes against Iran mean now for China especially considering their stakes in Iran?
Miles Yu:
Well, I think China’s stake in Iran is huge and if you use a presidential equation, which is losers and winners, I think obviously the biggest winner is the United States. We kept our promise to get rid of Iran’s nuclear capabilities, and that has been very clearly executed. And I think the initial bombing damage obviously is very optimistic. The biggest loser is China. China has built Iran as its proxy, and China has an enormous stake in Iran, and Iran is also pretty much dependent on China. Iran is a cash flow mostly from illicit oil sale. Almost all of Iran’s oil goes to one customer, and that’s China, through what we know as the shadow fleet. That is the Chinese basically organize this shadow fleet of oil tankers and then turn off the radio signal identifiers and just operate subversively and buy over 90% of the Iranians’ oil. So that is gone.
I think also, China imports a lot of oil and gas each day globally, but half of China’s oil imports have to pass through the Strait of Hormuz. Iran is right now threatening to freeze the strait, and the biggest victim of course will be China itself. That’s why China has to own this crisis. That’s why the US government is urging China, to urge Iran, not to freeze the strait. China has put itself [between] a rock and hard place, and I think they have to really swallow. On the other hand, China’s one-sided reaction after the bombing is also striking as a losing cause as well, because China strenuously condemned the US bombing of Iranian’s nuclear facilities in the aftermath of near global cheering of such disruptive action taken by the United States. So, I think China, reputationally, materially and geopolitically is always on the losing side.
Colin Tessier-Kay:
And I’m curious how China may look to respond here in addition to what they’ve already issued as part of their statements. So, statements were made from Beijing shortly prior to the latest US strikes of the potential for China to play a role as mediator in negotiating a ceasefire. Since the strikes, China’s foreign ministry has condemned the attacks and reaffirmed its interest in acting as a mediator to bring an end to the current conflict. But Miles, what can we make of China’s response to both the latest US strikes this weekend as well as to the overall conflict, I guess going on now almost two weeks?
Miles Yu:
Well, I think China has a very hard left to play. We say this is really about the US versus Iran or US-Israel versus Iran. That’s not entirely accurate. I mean the ultimate contest between the United States and Iran is actually an echo reflection of the much larger game play between the United States and China. You notice that, because China is Iran’s master in many aspects. So, when we say, hey, listen, we have made the decoy by flowing a bunch of B2 bombers to Guam, why Guam? People say this is a decoy, yes, that’s the official version of that. We have to say it’s a decoy to maintain operational secrecy. On the other hand, you might also say this is actually serving as a deterrent against China. So basically, telling China the message either subliminal or explicit [message] that if you mess with the United States in this operation, we’re going to use the B-2 bombers in Guam maybe to threaten you, to deter you, from doing that.
So that’s one thing. But I think the ultimate deterrence comes to this kind of doctrinal change in the US government because President Trump for the first time in recent memory is advocating for something that China fears most. That is regime change in Iran. Regime change is the ultimate fear of China, because [in] China, the government lacks legitimacy like the Iranian government and is most afraid of people being inspired by the United States and to basically change the regime inside China. So, that’s one reason why China has not really responded very well to this because they cannot. Because once you respond to the American president’s call for regime change inside Iran, inside any oppressed country, then you might basically let people capture their imagination. So that’s why this is very sensitive. China’s ultimate red line, their ultimate fear, is this aspect [of potential regime change] as an aftermath of the bombing in Iran.
And to be honest with you, the Chinese people from what I’ve seen are very excited about the bombing of Iran. Finally, the president has the guts to do something, not just talk. Diplomacy has been tried and has been exhausted. Therefore, an ultimate way to solve the problem is through a kinetic approach. And I think you can see from the Chinese internet, even though it’s kind of muffled, the palpable excitement, and inspiration by this bombing is very, very evident there. If you read the Chinese media, if you read Chinese internet postings, you can see that. That’s very obvious to me.
Colin Tessier-Kay:
Last time we talked about this last week, we mentioned how Iran plays a pivotal role in China’s foreign policy goals within the Middle East. I think more broadly as it relates to China’s Belt-and-Road, they see Iran, as well as others, several Middle Eastern states, to be an advantageous avenue for alternative supply chains among other economic vehicles, similar in the way that Pakistan is viewed by Beijing in terms of their foreign policy agenda. So, I’m curious in terms of the long-term impact here on China. If the conflict continues with US involvement supporting Israel, how might Beijing look to negotiate a highly complex geopolitical challenge in the Middle East as it continues to try to be that key actor in the region seemingly trying to replace the US in that role?
Miles Yu:
I think China has been giddy for a number of years because it perceived the United States as weak, [and] as unpopular in the Middle East, particularly among Gulf states. But that basically was done during the last four years by the Biden administration. So, you might say the United States “lost” the Middle East to China in a certain way, but now it’s coming back. I think China has lost the Middle East once again. And basically, it has something to do with the nature of these regimes. Iran and China, they’re all dictatorships. I mean this guy Khamenei has been in power for over 36 years. He’s 86 years old and never will give up his theocratic monopoly of power. And I think China has great sympathy and empathy with that kind of regime. So now people inside Iran, and the people outside of Iran, are both calling for the change of the regime in Iran and to get rid of Iranians through blackmail through the nuclear weapons programs against the world and against peace.
So, that’s why I think China ultimately realized it has to really make a retreat. And this retreat is going to be a long lasting one because I can guarantee you after this president said by the president of the United States, and I think the following president of the United States and the people in Israel, we’re going to continue this path toward ultimate peace, and that is [that] any development in nuclear programs will not be tolerated. And this is very clear, and I think President Trump has been saying it for 20 something years and now he finally took the ultimate decision to knock it out, once and for all. If we don’t do this, imagine this. If Iranians become nuclear, and you’re going to have other countries [that are] going to go do their nuclear program themselves, it’s going to have a cascading effect of the worst kind. Saudi Arabia and Turkey, they all want to develop their own nuclear programs, and that would add a tremendously unstable scenario to the Middle East, and even beyond.
Colin Tessier-Kay:
Moving to our next topic this week, and another one that we’ve been tracking as of late, Taiwan is set to hold recall elections for 24 opposition lawmakers next month on July 26th, roughly a quarter of the Legislative Yuan lawmakers. From our last conversations on this, as we recall, the magic number here for the DPP is currently 57, as they now hold 51 seats in the parliament, seeking that majority with the opposing coalition comprising the current 62 seats. Miles, what are the latest developments of importance here since we last spoke about the great recall movement in Taiwan?
Miles Yu:
Well, the great recall movement has passed the initial two stages and angry voters have gathered enough signatures to recall about 34 Taiwanese KMT Nationalist party legislators. The KMT Party tried to recall some of the DPP members, and none of them have passed. And what happened is that the Central Election Commission in Taiwan has finally certified and confirmed 24 of the 34 legislators that have enough signatures and will be officially on the ballot for recall. They are all KMT legislators. Now there is also a 25 number, because one of them who is also going to be recalled is a KMT mayor of Hsinchu, Kao Hung-an (高虹安). She will also be on the recall list, which is scheduled to take place on July 26th. So, this is a tremendous victory for the voters of Taiwan. And, so, the question really is why is there such a one-sided list, there’s an avalanche of a voter anger toward the KMT party alone.
Well, the reasons were very, very profound. On the surface, obviously people were upset earlier this year when the KMT and its junior partner, the Taiwan People’s Party, were united to form a coalitional majority in the Taiwanese parliament, and they abused the power of that majority in the eyes of many Taiwanese voters. So that was the trigger. So once the great “movement” started and people began to sort of dig deeper and to find out this actually is another way to address an institutional defect of Taiwanese election laws. Taiwanese elections are nearly perfect, but if there’s any one major problem that is: in the Taiwanese system, unlike the American system, there is no midterm election. Each legislator is elected for a four-year term. Once you hold the majority, you have four years to do whatever you want to do. And that has created enormous fear among Taiwanese voters.
And so, they see that this is a good time to recall them. So, the reform movement really is kind of a de facto midterm election equivalent to the United States midterm election, two years checking on them so they will not become abusive. The most eloquent speaker of a representative of this movement is a Taiwanese billionaire Robert Tsao, who’s a friend of Hudson institution. And he has been sort of held as a national hero in Taiwan, and I think he’s done his duty very, very hydraulically and eloquently. But, I think there is also a much deeper reason for this. This is something not philosophical, but even more than that is also metaphysical if you will. It is about Taiwanese identity and Taiwan as a nation, as a free country, which is different from China by the way. So, people were really, really uncertain about Taiwanese politicians’ attempt to sort of still play the game of unification with China.
KMT started out as an anti-communist party, but they don’t do that anymore. They could not really catch up with the major trend, if you will, of Taiwanese economic and political development of the last 30 some years. What happened in the last 30 some years is that Taiwanese people, particularly [the] Taiwan government, have given up this epic fight for who should represent China. Is it the People’s Republic of China, or the Republic of China in Taiwan? So, they said, okay, China, you can represent China in the international spaces, but Taiwan we want to represent ourselves. So, this is basically what the fundamental ideological difference between the KMT party, which is still driven by representing China, but [has] never had the guts to tell the Chinese party to say we are the legitimate China. And also, the DPP basically says, we don’t want to represent China, we want to represent Taiwan. So this is a major, major difference between the two parties. And I think the Taiwanese people are more and more with the DPP, that is Taiwan is Taiwan, China is China, and the KMT could not really follow that trend and they’re almost tone deaf to the voters’ voices right now. And I think there is a tendency, there is a danger, of ideological bankruptcy of the KMT in Taiwan unless they really change course. The KMT itself is also divided on this issue by the way.
Colin Tessier-Kay:
Looking ahead, there’s still several additional stages that must be completed before recalls are considered successful. So, as part of this legal procedure, the number of votes approved on the recall measure must be more than those opposing it and exceed one quarter of the number of registered voters in the constituency. So, this places a heavy, heavy emphasis on voter turnout, which traditionally in Taiwanese elections is consistently very high. So, Miles, looking ahead to the next steps in the process here, what needs to happen for these recall elections to continue along I guess in these procedures? And, how likely is the movement to succeed overall at this point and land a DPP majority?
Miles Yu:
Oh, that’s a very good question. It’s an excellent question. Here’s something that we have to really look into the political psychology here. When the great recall movement started because the threshold is so high and also so many stages, people were not really that encouraged. They would agree with the recall motive and the reasoning, but they think it’s impossible mathematically. So, the first stage requires 1% of legislative voters’ signatures. That is a struggle, not because there’s a lack of sympathy, but because a lack of confidence in winning. Once that is done, once that first threshold is finished, voters see the hope, see the possibility of winning. So, the next stage is 10 times more difficult than the first stage, which requires a 10% signature. But that is passed easily too because more and more people are seeing the possibility of winning. So, voter participation quadrupled, even more than that. So, [the] 10% threshold was easily passed.
So, you say yes, in the end, on the day of the vote, RICO vote [is] on July 26th. For a RICO to proceed, to succeed, you must have 25% of voters voting yes. And also, the yes vote must be bigger than the no vote. So those threshold[s], if you follow the trend, the first two stages are not really that impossible. I think it’s highly likely. Keep in mind this is why the KMT camp is actually in panic mode right now. It’s been a while since the end of the second stage. That is because the margin of majority in the parliament is a very [easy]thing. All you need is about five or six votes, and you become [the] majority. So that’s why it’s not really that difficult. You got 24 legislative six, all of them are in Taipei, Taichung and some of the KMT strongholds.
There are all KMT members, either five, six or even 10 of them prevail, and then you get a majority. And then the goal of the great recall movement is accomplished. So, I remain cautiously optimistic, of course I’m an outsider, I have to maintain neutrality. But I think if you follow the rhetoric on both sides, you can see the recall campaign is actually gaining momentum. That momentum seems unstoppable. And I think this is really the voice [of the] population, it’s people’s voice. And most importantly, this recall movement was not engineered, or even planned by the incumbent DPP party, because [in the] DPP party also some of the legislators there are also worried about being recalled. So gradually, [it] was the genuinely grassroots great recall movement gaining momentum and then the DPP incumbent party began to support [the movement]. So, you can see this is a genuine move of the people, it is democracy in action as we are witnessing on a daily basis.
So, Taiwan is a very fascinating country. And there’s also one final aspect of this I want to point out that is: the respect for the will of the majority. Their respect for procedure in Taiwan is actually very moving. Now the Central Election Commission is a very small office, but nobody is challenging the fairness and the legitimacy of that office. And so, once the office makes a decision, people follow. And the same thing is with Taiwan’s judiciary. The Taiwanese judiciary has been very active recently, catching the KMT cheating scandals in Singer County. And also, there are also some irregularities on both parties but overwhelmingly committed by the KMT side. So, I think Taiwan really is a model democracy.
Colin Tessier-Kay:
We’re going to continue to track some of these developments too and especially following July 26th as if things continue to proceed and if votes are successful there will be by-elections later this year to select the new members of the Legislative Yuan [Parliament}. So certainly, something that we’ll keep track of here on China Insider. But, moving to our final topic today, the latest economic analysis and reporting from the National Bureau of Statistics has shown the jobless rate for 16 to 24 year olds in China has dropped to an 11-month low of 14.9% and indicated the unemployment rate for 25 to 29 year olds is also trending in the wrong direction and is now at 7.1%. We’ll dig into the larger economic impact of these concerning trends in a minute. But Miles, what is the background behind why the bureau has started to report on these unemployment rates in China?
Miles Yu:
Well, the Chinese bureau is not truthful of Xi Jinping’s words. You got to be very careful. So, the Chinese Bureau of Statistics puts out economic statistics on a regular basis, but most of it is questionable. But that’s the only thing that you can get. So, the last time the Chinese Bureau of Statistics reported youth unemployment was in December 2023, almost two years ago. And, at the time they reported the unemployment rate as 19.5%. So almost 20%, that is very high. But that was also not really real because the real unemployment of youth between age 16 and 24, according to economists inside China, many of them believe could go as high as 46% to 45%, 45% to 46%, that half of a huge population. So, this is why after December 2023, the Bureau of Statistics in China stopped reporting the youth unemployment because it’s going to be very ugly. So, it’s literally unbelievable.
So that’s why they stopped doing it. Now they resumed it after such a long hiatus. So, the number it reported last week was 14.9% unemployment rate for ages 16 to 24 years old. But they said it is the 11-month low. And that’s also very fake because it does not include the 12.2 million college graduates that will come to the labor market within a month or so. So, if [you] added that, even the Chinese own low number, it’s going to be very high. So, it’s going to be unprecedentedly high as well. So that’s why I’m saying the Chinese Statistic Bureau statistics are very tricky. It is a play of a numbers game. So, the question is how many of the college graduates will find a job? Well, very few. Economic forecasts by some of the prominent Chinese economists said over 80 to 90% of college graduates will not find a job, or at least they’re not jobs they want.
So, because the Chinese labor market is really miserable because of the recent economic downturn, fairly as a result of Xi Jinping’s stupid, asinine economic policies, zero COVID lockdown for example, and it’s trade policies and which involved the international sanction, and state subsidy, all the things that contribute to China’s economic woes mostly manifest in consumer confidence [which is] historically low. Trade has been curtailed, and foreign investment in China has virtually stopped. So basically, once you have no consumption what happens to the factories? They close down. So, when the factories close and you have more unemployment. So, this is a vicious cycle plus the collapse, the collapse of some major sectors such as real estate. So, you’ve got this major problem on improvement, it’s going to explode at some time. It’s a time bomb. And I think the only way China hopes to get out this economic abyss is to export, export, export.
That’s why China has really tried its best to dramatically increase subsidies to some of the more exportable items, particularly electric vehicles, solar panels, and batteries. The subsidies were enormous. And, those companies, because they receive a lot of state subsidies, they were able to cut prices. China’s leading EV car maker, BYD, as we said last week, cut its prices by a third, and now you spend $8,000, [and] you can buy a very good electric vehicle made by BYD. That is absolutely under marketed. It’s almost criminal because it’ll drive down the global EV prices and kill all these competitors globally. And so, this is why the Chinese economy is not only a non-market is actively anti-market
Colin Tessier-Kay:
In addition to the drastically increasing unemployment rates among the youth in China, there’s a myriad of economic issues that you pointed to. And I’d like to pick one here to kind of round out the topic and point to more of the declining rates of foreign direct investment, which is an equally concerning issue for Beijing, that certainly impacts the conversation around unemployment rates, among other economic health indicators. So, what has China done to inspire confidence among foreign investors? And honestly, what else can they do to bring investors back to China at this point?
Miles Yu:
Well, China has done a lot of talking. I mean particularly its premier, Li Qiang (李强) has been saying that China will continue to open up or continue to reform, but without making any substantial real changes to China’s economic system practice, China’s currency remain internationally unconvertible. China still practices anti-espionage laws, and China still sets the barriers: trade, financial, and China also still holds foreign investment as hostages. In other words, you have to put money in, but it’s almost impossible to get money out without any kind of difficulty. And so that’s why people do not believe in the Chinese words anymore. And that’s China’s ultimate problem, lack of trust. International capitalism, to a large degree, depends on rule of law and trust. And if the government loses trust, then it’s very hard to get back.
Colin Tessier-Kay:
That’s unfortunately all the time we have for this week. Miles as always, thank you again for your expertise and insight on these critical issues. Looking forward to speaking to you again next week.
Miles Yu:
Alright, see you next week.