Welcome to Foreign Policy’s China Brief.
The highlights this week: China offers moral support to Iran amid escalating conflict in the Middle East, U.S. defense officials say a new model of Chinese nuclear submarine sank this summer, and China’s stock market rallies on the news of a stimulus package.
With Iran, China Holds the Leverage
On Tuesday, Israeli troops moved into Lebanon, and Iran launched another missile attack toward Israel. Amid escalating tensions last week, Beijing pledged its support for Tehran. In practice, that is unlikely to mean much: Although the two countries are close, China holds almost all the leverage—and Iran has little ability to drag it into a conflict so far from its core interests.
Energy remains the key to the China-Iran relationship. More than 90 percent of Iranian crude oil exports now go to China, purchased mostly by private refineries operating on the black market; however, as of 2019, Iran was only China’s sixth-largest oil supplier. (More recent data is difficult to come by due to relabeling of Iranian oil to avoid sanctions.)
In 2021, the two countries signed a 25-year agreement in which China promised significant investment in Iran, securing that oil supply as well as Tehran’s implicit agreement not to protest the repression of Islam in China or support the persecuted Uyghur minority.
Will the escalating Israel-Iran conflict offer any useful lessons to China? Possibly. The arms trade between China and Iran has flatlined, but firms have cooperated on drone development deals. As a result, Beijing may have looked askance at the failure of Iran’s April attack, which involved the Shahed drones that Chinese firms are potentially using as a model.
Tuesday’s Iranian attack involved only ballistic missiles, but China likely still watched Israel’s seemingly successful interception efforts closely, even though its own missiles are mostly more sophisticated than Iranian technology—itself partly reverse-engineered from equipment from Chinese arms deals in the 1990s.
Although Tehran has little direct leverage with Beijing, it has a strong presence in elite Chinese circles. Official exchange visits are surprisingly common, as are meetings between Iranian and Chinese military personnel—in official exercises, during visits to China, and through groups such as the Shanghai Cooperation Organisation, which Iran joined last year.
So, for China, the main impact of the conflict may be psychological. Chinese officials’ paranoia about U.S. intelligence capabilities—whether somewhat justified or imaginary—is fueled by conversations with their Iranian counterparts. For example, Iranian claims that the 2009 Green Revolution was a CIA plot find eager ears in a country convinced that every so-called color revolution is a conspiracy.
The news that U.S. officials effectively greenlit Israel’s incursions into Lebanon is likely to further China’s conviction that the hand of the United States is behind the world’s troubles. Furthermore, antisemitic conspiratorialism has become part of the Chinese mainstream, linked back to Beijing’s portrayal of Washington as the puppet master of global events.
What is missing from Chinese leadership circles is an understanding of how unpopular the Iranian regime has become within Iran; better-informed Chinese academics who have tried to raise the issue have gotten into political trouble, according to one Western expert and colleague.
Yet China also has a balancing act to manage with Israel. China has had a very fruitful tech relationship with Israel for decades, intensifying with the Israeli boom in the 2000s. U.S. officials have privately complained about the cooperation and sought to shift the Israelis away from Beijing.
China’s support for the Palestinian cause and failure to tamp down antisemitism following the Oct. 7 Hamas attack have endangered its relationship with Israel—but not destroyed it. Chinese-funded projects are still encouraged and visible across the country.
China will undoubtedly continue to support Iran diplomatically—and take every chance to decry U.S. policies and assert its support of “sovereignty.” But it has little appetite for a security role in the Middle East. Much as U.S. officials might worry about a supposed “Axis of Anger,” China’s backing of Iran—as with its de facto support of Russia in Ukraine—is opportunistic and limited.
What We’re Following
Nuclear submarine sinking. U.S. defense officials said last week that China’s newest model of nuclear submarine sank in a Wuhan shipyard in late May or early June. That would be a serious setback for Chinese naval modernization—and one that seems to be entirely covered up inside China.
According to the Pentagon, the Zhou-class submarine seems to have sunk during construction; it is unknown if there were any casualties. Cranes were later brought in to retrieve the vessel. On X, a wave of accounts attempted to claim the U.S. story was false, mirroring the online attacks on researchers who identified a major new Chinese nuclear site in 2021.
Last August, Chinese diaspora social media was abuzz with rumors that a nuclear submarine had sunk near Taiwan, which the Chinese Ministry of National Defense refuted unusually directly. It’s still not likely that claim was true, but the incident reinforces how Chinese officials’ first instincts are always to cover up catastrophes, often to protect themselves.
In the case of the military, the opacity is top-down and deliberate. Likewise, it’s unclear whether there was nuclear fuel on the vessel. When I spoke to a U.S. expert invited to joint safety exercises on nuclear accidents with the Chinese in 2018, they noted that the Chinese team’s first priority was the control of information, with the assumption that the less the public knew, the better.
National Day holiday. The news is slow in China this week as the country settles into its weeklong October holiday, the second of the country’s two big annual vacation weeks. This year, the month marks the 75th anniversary of the foundation of the People’s Republic of China. But the dour mood means that commemorations are low-key compared with the 70th anniversary celebration in 2019.
Unlike China’s Spring Festival, when family visits are customary, the National Day holiday is usually a time for foreign travel, especially to Southeast Asia, and for patriotic events. Travel spending this week will be one indication of the household-level economic mood and whether there is any hope of boosting consumption.
FP’s Most Read This Week
- How Nasrallah Became One More Corrupt Warlord by Thanassis Cambanis
- How Beirut Reacted to Nasrallah’s Death by Stefanie Glinski
- Can Israel Kill Its Way to Victory Over Hezbollah? by Daniel Byman
Tech and Business
Stock market rally. Chinese investors responded enthusiastically to last week’s stimulus package, with stock markets soaring in both Shanghai and Hong Kong to cap the best month in more than a decade. Other economic data was still grim, with manufacturing continuing five months of contraction.
The stimulus measures have brought a rare burst of enthusiasm amid gloomy times—although some observers are skeptical. Still, China’s stock market is relatively marginal and highly subject to government manipulation, so it may not be the best indicator.
Chinese household wealth remains overwhelmingly wrapped up in property. Another round of removing homebuying restrictions has moved some stocks but is unlikely to help the slowly collapsing market recover. One issue is that China’s population is shrinking: Empty apartments, bought only for investment, were already a problem in big cities and may now never find buyers.
Critical EV vote. The European Union is preparing to vote on Friday on whether to follow in the United States’ footsteps and impose serious tariffs on Chinese-made electric vehicles. China has lobbied heavily against the proposed measures, which could be as high as 45 percent, but as has the United States, EU countries have realized that the bloc is falling behind China’s EV market and are looking to create space to catch up.
The EU is likely to continue EV discussions with China on the issue even after the vote. Meanwhile, China’s domestic EV market is in crisis, with production capacity far beyond demand. That is leaving some vehicles unusable or dangerous—especially those made by WM Motor, which filed for bankruptcy last year and stopped offering software support.