'Deep Financial Crisis' In U.S. Could Make China The World's Largest Economy | Shaun Rein

There's a feeling in China that Trump

is the best thing ever to happen to China

because he's pissed off the Canadians.

I'm actually really worried about a deep financial crisis

in the United States, depression like worse in 2008.

When you have 39, 40 trillion US dollars of debt,

China started to realize that the rhetoric from Trump

and the rhetoric emerging from Western Europe

may then realize that hats become more independent.

China is an important trading partner if you ran

with some reports indicating that 70% of Iran's oil experts

go to China.

So how will China respond to ongoing conflict

in the Middle East?

What is China's next move?

Join us to discuss China's economy

and trade is Sean Rein, founding manager,

founder and manager director of the China Market Research Group.

Welcome to the show, Sean.

Welcome back.

Good to see you again.

Happy Chinese New Year, David.

I hope the god of money sends you lots of good wealth

and good prosperity in 2026.

It's been a slightly tough year, as you said,

for China starting off, you had a lot of their oil

has been disappeared, essentially, by the Americans.

So first, by taking Maduro and Venezuela,

China lost two to three percent of its oil imports,

which is where they get from Venezuela.

Now, with Japan, it's a bigger hit.

In Iran, 20% of China's oil needs

are imported from Iran through the Straits of Hormones.

But here's the thing, David.

There's definitely hit on the consumer here,

definitely hit on manufacturing here,

because China needs imports of oil.

But China, over the last 10, 15 years,

has been trying to lower its dependence

and improve its energy security by not buying

international oil, because they've been investing billions

and billions of dollars into solar panel and wind.

So for example, a China increased about 380 gigahertz

of solar technology last year,

which is more than the rest of the world combined.

China also added, for the 15th straight year in a row,

more solar power in the form of wind turbines

and the rest of the world with about 280 gigahertz.

So yes, China is gonna be hit by the devastation

and the tension in the Middle East,

but it is gonna be a lot less than the rest of the world.

And one final point on this, David,

is that in the United States, especially,

gas prices move very quickly at the pumps.

So they went up 10%, 20%, maybe even more,

as the price of oil crossed $100 a barrel.

China tends to raise prices one to two weeks slower

than the rest of the world, and it's more incremental.

So they only increase prices by 3%.

The first week of the tension,

and then they only increase it against several percentage points.

So while eventually prices will hit consumers,

it's not hitting consumers at the pump as fast here,

as it is in the rest of the world,

because as Chinese government forces the state

on enterprises to absorb the profit hit in the short term.

And yeah, that leads to my next question,

which is let's talk about the everyday person in China

before we get into more of the details

between the trade details between Iran and China.

How is the average Joe in China reacting

to this Iranian conflict?

Because on the one hand, like you said,

maybe gas prices haven't gone up as much

in China as they have in the West.

And on the other hand, a big portion

of Chinese major cities are now dominated by EVs, right?

So how is the average person reacting?

So that's a great point.

So the first thing is the price

that the pump hadn't gone up as much.

Second, over 50% of new auto sales in 2025 were EVs.

That's why investors should be looking at Neo,

just posted their first profitable quarter of all time.

Companies like BYD or Xiaomi, which have been hit hard

by big sales over the last couple of months,

but we actually think, especially in the case of BYD,

that sales are gonna go up

because they just launched some new models.

And last Friday, they just launched new battery technology

where they can charge a full car up in about 10 minutes.

So I think the tension in the Middle East

is gonna push the Chinese consumer

to adopt any of these even more.

So it's gonna be even worse for the Toyota's,

the Nissan's, the General Motors of the world,

who've been really slow at adopting any V technology.

And China, it's really, cars are kind of seen

as mobile phones on wheels.

They're not really seen as great German

or American fine engineering.

And so Chinese are saying with the weak economy,

with low income, especially now with the Middle East,

let's just buy more NEVs.

Now when it comes to politics, David, it's slightly different.

They're actually more optimistic

about what's happening in the Middle East.

There's a feeling in China that Trump

is the best thing ever to happen to China

because he's pissed off the Canadians.

He's pissed off the British, the French, the Germans.

Everybody in the world has gotten angry at Trump.

So in the last three months, since we last spoke,

you've seen Kierstarmer, Mark Karney,

Macron, the Mertz from Germany.

They've all come almost like beggars in a way to China

and saying, you know, we've been bad to you

for the last 10 years.

We've been part and parcel of Biden and Trump's

mechanizations to contain China's growth.

But now we realize we're sorry.

We need to have good economic relations with you.

So even with the Middle East, the Chinese are saying,

you know what, politically things are looking better now

than any time since 2015.

So there's, I don't want to say that there's a pocket piece

that boom of optimism, but there's a slow increase

of animal spirits and happiness in the Chinese

consumer population because Trump is clearly

hurting the United States right now.

Okay, well, let's jump back to geopolitics for a minute.

How do you think Iran is asking China

if they've already to intervene in the war,

given that, yes, 20% of China's oil is coming from Iran,

but 70% or more of Iran's oil is going to China.

So Iran needs China more than China needs Iran.

So is Iran asking China for help?

And if so, in what form?

So I think when it comes to China,

they still take that sovereignty issue

and not interference really importantly.

And I think that's key.

So people in the United States have criticized China

because they didn't come with military aid to Venezuela.

They didn't come with military aid to Iran.

I think what China wants to do right now

is just keep on the economic trade with Iran.

They've been a good actor when it comes to militancy

by not selling dual use purpose items

and raw weapons to Iran or coming into invade

or to help support in defense systems.

So I think what their Chinese are going to do is say,

look, we would just want to buy oil.

And already seen that Iran has said

that Chinese ships can go through the straits of hormones

unmolested by their weapons.

So I don't think you're going to see

that China wants to ratchet up its military defense spending

or support of Iran just like they did

and do with the Venezuelans.

And here's a thing I think I want to cut through

some of the misinformation that comes in the US,

two parts of this with that.

One is I don't think Iran and China is close

as a lot of Americans think.

I don't think there's this access of power

that the Bush administration first raised up.

I think China basically gets closer to Venezuela Iran

and especially Russia as matter of survival.

When you wake up and you see the United States

putting export restrictions, export controls,

when you see Mark Ruta, the Secretary General of NATO,

saying that China is obviously going to force Russia

to become NATO countries and China is their biggest threat.

And when you see people like Lindsey Graham

saying all of the support in Ukraine or support in Iran

is aimed at deterring China.

China says we don't have friends,

so they're being forced to get closer to Iran,

forced to get closer to Russia,

not out of an access of power,

but out of a matter of survivability.

When you look at it, David,

China's leadership over the last 40 years,

none of them sent their kids or grandparents to Russia

or the Soviet Union to study.

They all went to the United States.

Don't shout, Ping's grandkids went to Duke.

Who young bombs grandkids went to Yale?

Xi Jinping's daughter went to Harvard.

This is a country that loves the United States, David.

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While speaking of this viewpoint

that Iran matters a lot for China,

here's an article from the diplomat

and I'll just read to you this paragraph.

It's titled the decapitation of Iran,

what Tehran's chaos means for China.

Let's evaluate this particular paragraph together, Sean.

For Beijing, this is a catastrophic

Geo economic earthquake.

China's entire Middle Eastern architecture

has just suffered a fatal blow

as a shock wave's radiating from Tehran.

Beijing faces the immediate fracturing

of its energy security,

the collapse of its defense exports

and the rupture of its belt and road initiative.

Can you just evaluate that statement?

Yeah, I think that's exaggeration from the diplomat,

which I don't typically take too seriously

as a magazine for really understanding China.

So obviously Iran hits the energy security

as we've talked about.

It obviously hits some belt and road,

but actually China's doing a lot more business

with Saudi Arabia right now

in non-oil-related fields.

When you go to Saudi Arabia, I was just there.

You see huge Huawei, Alibaba,

signs and investments all over the place.

You're actually seeing it all over the Middle East

in Africa in the last few months,

you know, I've been all over Africa

and you see that China is moving quickly

with tech investments, acquisitions of minds like Chrome

or in South Africa, you know, copper in the DNC.

So I think the diplomat is right to say

that there's some tension and that there's issues,

but I think they're exaggerating the real hit to China.

China's focus now more on increasing its energy independence

by wrapping up nuclear solar and wind turbines.

And this partnership with Saudi Arabia,

you're talking about this falls into the large room

of the umbrella of China diversifying its business ties

away from just one source to many places around the world,

which you spoke about earlier in the year.

Do you tell us about this grander diversification effort

that started years ago?

What's China's grand vision here?

Well, I think, you know,

China was really trying to get close to the hip

of the United States.

And I remember when Obama won the presidency,

there was this huge euphoria amongst the seat

of your leadership in China.

They thought, wow, we now have a man who is not a warmonger,

somebody who is not white,

who might be willing to do more business deals

and more political deals with yellow people.

And so they were really happy when Obama came up,

but they found that he wasn't warm enough.

And so by the end of eight years,

they were a little disappointed.

They didn't think he was evil,

but they had hoped that China would get closer

to the United States at the time.

So in Trump and Merge in 2016 and launched the trade war,

which was, remember, not was about repressor, sorry,

repressority, it was about intellectual property rights.

It was not about the national security

that it started to emerge under the lekticon

and talking points of Joe Biden.

It was more about fair access to market,

which I actually agree with.

But here's the thing, David, in 2016,

China started to realize that the rhetoric from Trump

and the rhetoric emerging from Western Europe

made them realize that it had to become more independent.

So they spent hundreds of billions of dollars

over the last decade focused not just on energy independence,

which we've talked about, but they also looked at technology,

which is why China has spent a lot on indigenous innovation

and semi-conductors in AI, which is why we're very bullish

on the Chinese semi-conductor companies.

And this is why the Chinese aren't buying and videos

H-200 chips because they don't need it.

They already have great chips from Huawei and Manus

and some of these other Chinese companies.

But also third, which people don't realize,

is China went independent on food security.

So now instead of needing to buy as much beef

as much blueberries from Australia or Brazil,

there have huge cattle farms in Shandong province,

and coffee and fruits and Yunnan province.

So across the board, David, China is saying,

we're getting a Cold War 2.0.

We need to focus on independent

for literally every single sector,

which is why as an investor,

I'm bullish on Chinese companies

less optimistic on the ability for foreign companies

to actually sell to Chinese because the Chinese

are not gonna buy the beef or the blueberries

like they might have 10 years ago

because it's all now being grown or raised in China.

Speaking of oil sources,

is China still the largest buyer of Russian oil?

And if so, how do you think the flow of Russian oil

is going to change now that Iran has cut off as a supplier?

So China is probably the biggest buyer of Russian oil

because they have ignored the sanctions from Trump

and they're willing to buy Russian oil.

But I think David, what's more interesting

is what's happening with India, right?

India was the largest buyer of Russian oil six months ago.

You know, India, I think actually has a closer friendship

with Russia over 50 years than the Chinese have.

And then all of a sudden,

the Americans put, you know, 48%, 50% terraform Russian imports,

sorry, Indian imports,

they've also really pressed Modi

and so Modi gave in and backed down and said,

fine, we're not gonna buy any more Russian oil.

And then now they've gotten a 30-day exemption

and they're able to buy Russian oil again,

but the Russians, to their credit are selling,

but they're angry at India.

So they're actually selling it at a global premium

and there's nothing that India can do.

I think Modi is showing himself to be an extremely weak power

if he wants India to be a major superpower,

which I think it should and will become the next East.

I think the problem with Modi is showing

a vessel to the United States.

He's not a close friend with the Russians

who've been close to them for 50 years,

even longer actually,

and he's not particularly close to the Chinese.

So people talk about China isolating themselves.

I don't see that.

I don't, I see India starting to isolate themselves

from the big powers and it's Modi

and I think poor political decision making

that could stop India from becoming a superpower

that it should become.

So let's look farther ahead now.

China's economy to overtake the USA by 2030.

This is a prediction marking on Kowshi 22.5% chance.

That seems a bit low.

What do you think?

What do you place the odds?

Well, I think it's higher right now,

but I mean things change fast.

I'm actually really worried about a deep financial crisis

in the United States, depression like worse in 2008.

When you have 39, 40 trillion US dollars of debt,

when you have a country that has destroyed its relationships

with even such a close ally as Canada.

I mean, what did Canada ever do to the United States

except for being a best friend?

When you have a person, and I don't say this to joke,

I don't say this to be mean

because I am not anti-Trump historically,

but I think he's gone mentally ill over the last six months.

I think dementia has started to overtake

some of his thinking processes,

so he's not thinking clearly

and smartly or pragmatically about international relations.

So when you have debt, when you have angering of allies,

and you have a president who's not thinking clearly,

that's when you get the situation

that could be devastating for the American economy.

I'm quite concerned what you're seeing

in the private credit markets.

I'm quite concerned what you're seeing in the labor markets

that if there is a drop of 10, 20% in the equity markets,

I'm not sure that we have the leadership

or the ability to get out of it unscathed.

So I'm really concerned in 2026, 2027

about a deep financial crisis.

If that happens, then yes,

I could see China emerging as the largest economy

over the next five to 10 years.

But that's more if there's not because of China's growth up,

but more because of an implosion economically

and politically in the United States.

There's things aren't right in DC right now.

It just doesn't make any sense

about some of the actions that Trump's doing.

I don't think Trump in 2016 would have gone after Iran

like he did in 2026.

There's something wrong with him,

and there's something wrong with his advisors around him

who are more like psychopaths than long-term thinking.

I mean, you've seen some of the heads of the military

in that region resigned or fired a week

before the acts of aggression by the Americans.

There's clearly something not right.

It doesn't smell right in Denmark, America.

Yeah, I think I've done it.

Yeah, they're trying to do some of a chic spiritual illusion.

Okay.

All right.

Thank you very much.

It's our only morning in Shanghai.

It's 6 a.m. right time, and I believe that.

I'm jet lagged from Africa.

Just got back.

You're still lucid at 6 a.m.

We appreciate that.

But what, but going back to Chinese economy.

Okay, so great depression in, first of all,

if the U.S. economy falls into a great depression

or some sort of economic recession,

maybe not even a depression.

How does China's economy react?

Is there a direct impact?

Obviously China will hurt, but I think they're better able

to handle a depression or a session in the United States.

So some numbers, right?

In 2017, 14.5% of China's exports went to the United States.

That number is down to only around 11%.

Now, again, because China's been de-risking

its export supply chain.

They now export 18% to Southeast Asia.

That's one.

Second, China is making major moves.

The R&D to become a reserve currency.

Now, a lot of people joke about it

and say the R&D is not convertible,

but right now about 40% of cross-border trade,

which China is actually conducted in the R&B.

So a lot of countries to offset the risk

of a plummeting U.S. dollar

are willing to put R&B in their reserves.

And a lot of companies are willing to do the same thing.

So third, and I think this is important

since this is more of an investing show.

I have been talking with mutual funds

and hedge funds in the last six to nine months.

They missed out on the major boom of the equity rise

in 2024.

They missed out largely in 2025.

Some of the biggies are saying, you know what,

with Trump and the geopolitical tension there,

maybe it's time to get exposure to the Hong Kong

and the Chinese equity markets again.

And so I was actually talking with an investment banker

from Hong Kong recently who told me that his commissions

from his bank have doubled in the last three months

in Hong Kong over the previous years

because so many international institutional investors

are moving out of Japan, moving out of Korea,

moving out of the United States

and going back into China.

So if there's a depression in the United States,

obviously China's gonna be hit hard,

but they're gonna be hit less hard

than the rest of the world

because of their de-risking strategy

and the internationalization of the R&B.

I'm actually quite optimistic for the Chinese equity markets

over the next one to two periods.

And speaking of sectors within the Chinese equity markets,

Reuters is reporting that Chinese state banks

are now flooding AI and advance manufacturers

with new loans.

Take a look at this headline.

Chinese banks boost loans to tech sector

as Beijing ramps up AI push.

Chinese landers plan to steer more money

toward technology, innovation, oriental firms,

the credit allocation shift toward tech is well underway.

How do recent developments,

especially this headline change your view

on Chinese tech companies,

especially semiconductors?

Well, I've been bullish as you read in my book, The Split,

which were over a couple years ago.

I said that investors should buy Chinese

semi-conductor and AI companies and I was right.

They're booming right now.

There's a lot of optimism in the space.

And I think importantly, David,

there's optimism because it's not just

the Chinese market that they're selling into.

As I said, when I was in Saudi Arabia,

I saw Alibaba and Huawei signs everywhere.

You go into Cape Town, you go into Jakarta,

all these I've been into recently.

In the airports, it's all Huawei signs.

Now, the reason is because the global south,

I prefer to call it the global majority,

is worried about getting sanctioned too by the Americans.

And so they don't want to be technological vassals

to America where they're forced to buy Nvidia chips,

where they're forced to use Clawd or chat GPT from OpenAI.

They've seen what Biden and Trump have both done to China

when it comes to technology, containment.

And so they're saying, you know what,

for the betterment of our countries,

we also need to buy Chinese technology.

And that's why I think these Chinese technology players

are going to continue to grow over the next 10, 20 years.

I'll give an example.

Malaysia spent billions of dollars.

Think about $5 billion.

They wanted to be a major data house center for AI.

In the last week of Biden's administration,

we're regime, he banned the export of high-end Nvidia chips

to Malaysia, putting a kabab in Malaysia's long-term plans,

dreams about becoming a data center for the world in AI.

So Malaysia got screwed.

So they immediately announced they were going to buy

Huawei chips.

And I think David, America's bullying

and oppression of the global majority

is going to come back to haunt them.

It's shooting themselves in the foot

because now all of these other countries,

and I think including Saudi Arabia and the Middle East,

are going to say, we need Chinese chips.

We need Chinese AI, especially the AI,

because it's open source and free.

So if the site isn't here, around 20x is AI

in some of my conductors sector.

OK, finally, before we go, I want you

to please address these concerns coming out

of the blogosphere about Taiwan now being more of a risk

or at more at risk after the Iranian attacks,

or sort of attack on Iran, rather.

Does Iran make a China attack on Taiwan more likely?

This is from Asia at times.

Time magazine has a different spin on it.

But I'll just read you this paragraph from time.

Will she be tempted to take advantage of US

potentially exhausting smart munitions in attack, Taiwan?

Even the PLA is not fully ready

as Professor Steve Tang director of the SOAS China Institute

of the University of London, possible, he says.

What's your view on this?

So David, for 20 years, every six or 12 months,

I make a lot of money because hedge funds hire me

for a call to ask is China about to invade.

So this is something that we hear all the time.

At the height of COVID, China was going to invade Taiwan

because they needed to distract the Chinese population

from COVID restrictions and from the weak economy.

Now, here's my take on it.

In the short term, no, because seven

of the nine members of the Central Military Commission

have been arrested or detained publicly investigative corruption

or something else.

We don't know what the full allegations are.

So the entire leadership in the military right now

is not ready for a ban invasion of Taiwan.

That's number one.

Number two, as you've seen, America,

even though America has all the firepower, we keep losing.

We lost to the Taliban.

I wouldn't say that we have a win in Iran,

even though America and Trump is saying that,

we still have a close straight promotes.

So it's a lot harder to invade an island

and control it than people think.

And I think the Chinese are smart.

They don't want to do that.

Third, the Chinese are not warmongers.

If they were going to invade,

it would have been smart to invade literally yesterday, right?

Because the United States is spending

all of its focus on the Middle East.

They've removed the Thad Missiles from South Korea

and they're moving it to the Middle East.

So that area doesn't have the Thad Missiles anymore.

China's not going to do that.

They are not militant.

They view the Taiwanese as cousins.

I think you and I have talked about it.

China wants to go slowly.

They definitely want to reunify.

That's a red line under Chinese government policy.

But they want to do it like they did with Hong Kong.

They don't want to have death.

They don't want to have destruction.

China, I think, respects life

a lot more than the United States does, frankly.

America can bomb the Ayatollah

and they say 160 schoolgirls were killed.

That's just collateral damage.

Trump doesn't even apologize.

I don't think Xi Jinping wants to kill Taiwanese.

What you've seen importantly

is in the last few months,

the Vice Chairman of the Guomondong

or the Camti, the opposition party in Taiwan,

his visited China, been treated like a hero.

You and I have talked about this in past,

President Ma, the former president of Taiwan,

who's from the Guomondong.

He has actually visited China

and met with the president Xi

and treated like a hero.

And the new chairwoman of the Camt

has said she would like to come to China soon

and meet with Xi.

So I think you're seeing the long-term planning

of wanting to have peaceful, better relations

and integration if the Camti win

in the next presidential election.

And I think you just have the realistic day-to-day realities

that the leadership of China's military

is in disarray with all of the corruption

or whatever the issues were

that took out the Central Military Commission

and several ministers of defense in the Uro.

I don't think that there's gonna be action

in the next three to six months by any means,

no matter how wrapped up Trump gets in the Middle East.

I think Xi Jinping is gonna say,

sit, do nothing and win.

Okay.

Excellent, thank you very much for your thoughts, Sean.

Tell us where we can find your work and follow you.

Thanks so much for having me, David.

Like always, I'm available on LinkedIn and Twitter,

but the best thing to do is to read my book,

The Split, Finding the Opportunities

and China in the New World Order.

It came out a year ago, but if you look at the mapping,

it's set exactly right where to invest.

So have a great day, everyone.

Thank you.

All right, thank you very much

and we'll put the links down below

so it makes sure to follow Sean there.

Thank you again, Sean, would speak next time

and thank you for watching.

Don't forget to like, subscribe.