In this week’s episode of China Insider, Miles Yu covers ongoing recovery efforts following the recent landslide and flash flooding along the Nepal-Tibet border, and the implications for China going forward. Next, he reviews the investigation of cabbages treated with formaldehyde in rural China and the regional backlash Beijing now faces from its trading partners. Finally, Miles covers the latest news from China’s auto industry, as the domestic market heads for its worst year since 2021 amid continued sales decline.
China Insider is a weekly podcast project from Hudson Institute’s China Center, hosted by China Center Director and Senior Fellow, Dr. Miles Yu, 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 Hudson Institute'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 threat, and their implications to the US and beyond.
Colin Tessier-Kay:
It's Tuesday, September 1st, and we have three topics this week. First, we cover ongoing recovery efforts following the recent landslide and flash flooding along the Nepal-Tibet border and the implications for China going forward. Next, we look into reports of cabbages treated with formaldehyde in rural China and the regional backlash they now face from its regional trading partners. Finally, we cover the latest news from China's auto industry as the domestic market heads for its worst year since 2021, it may continue sales decline. Miles, great to see you again. How you doing this week?
Miles Yu:
This week is good and I'm glad that we're now into September.
Colin Tessier-Kay:
You and me both. Yeah, back into the swing of things. So up first today, I'm sure many of our listeners have seen the news of the landslides and flash flooding that swept the Nepal Tibet border, killing more than 900 people with nearly 5,000 reportedly still missing. The videos of walls of water barreling down valleys and through towns are truly harrowing and recovery efforts for the affected areas are expected to continue well into next year and beyond. The disaster was caused by the glacier collapse on Nepal's Langtang Mountain Range causing mudslides and mass flooding through the affected area. Officials estimate it will cost roughly 10% of Nepal's annual economic output to fully recover from the disaster. And officials further say the event has created the priority for Nepal to deepen its cooperation with China. So Miles, where are we at now in the course of the recovery efforts and what are the larger implications here for China?
Miles Yu:
Well, this is indeed a great catastrophe with the enormous damage both to human lives and properties. So the world is basically glued to the rescue effort and assessment. And of course, used to have several thousand people missing. So obviously most of them are foreigners, as a matter of fact. The rescue efforts is also being monumental. I think both on the Nepal side and the China side, that is not a problem. However, the major story of the week has not been the degree to which the damage is assessed, but this is a very glaring difference of response to the disaster by Nepal and China. And that is really telling. So this is probably one of the reasons why we're going to talk about this. Nepal is a democracy, is not a sort of a very rich country. It's a small country, but it is an open information system.
So, the first response of Nepalese government is to be transparent about what's going on. And they keep telling the world that this disaster is monumental, is really huge. And here's what we know, here's what we don't know. And I'm constantly updating about the recovery rescue efforts and how many bodies have been identified and how many people have been rescued. So the nation mobilized something like over 20,000 troops and secured personnel and dozens of helicopters and it's very open. There's no restriction on journalists reporting, foreign or domestic, and even citizen journalists are allowed to do so. So, we have a pretty big picture about what's going on in the Nepalese side. On the other hand, on the Chinese side, the Chinese response, I think materially is pretty substantial, I should say. However, the information control is absolutely telling because it is already dark. You don't see much.
For the first several days, the Chinese government say there's like five people die. It's really unbelievable. And then they don't really come out to brief the public routinely. I mean, I think right now there's three or four government, a very vague announcement and that's it. And all you have to see on Chinese TV and propaganda machines and one way or another is how greatly concerned the Chinese communist leadership has been. Xi Jinping issued some instructions and Premier Li Qiang show some concerns. And of course, one of the vice premiers went to the spot and that's it. It's all about how great the leaders are. How many people die? How many people remain missing? We don't know. So instead, the Chinese foreign ministry spokesperson keep emphasizing the fact that the first occurrence of this flood and the debris flow occur on the Nepalese glacier side. So it sounds like it's all Nepalese to blame.
That's not really helpful. So you see this a very sharp difference in terms of information control. So, if we have to really summarize one thing, you can basically say Nepal responds like a responsible democratic government with an open transparency and genuine plea for help from international community. China, on the other hand, the first instinct of government is to control the information, to keep people from knowing exactly what happened. And so this is very, very telling to me. I think this is a disaster of a greater concern, but if you go deeper, you see what the Chinese model actually will cause a lot more problem for years to come.
Colin Tessier-Kay:
Yeah. I don't know if you tracked it, but there was a report out of The Guardian about censorship in China's publicized figures surrounding the disaster. And I think the report specifically dealt with the groups in Tibet. There's a Tibetan advocacy group claiming that China security officials have been penalizing several individuals for sharing false disaster information that conflicted with Chinese reports, which indicate only at that point in time of the report, 16 people dead and 546 missing, including 261 foreign tourists and citizens. But given the scale of the disaster and the total number of homes destroyed and the hundreds of homes destroyed, many feel like what is being reported on in Nepal is being covered up in China, like you mentioned. So Miles, what do we know about the affected areas in Tibet specifically? And how exactly does the CCP expect to cover up the extent of the damage in reports? What purpose does that serve?
Miles Yu:
Well, I think it's very interesting because Tibet is one of the most controlled and repressed regions in the world. It's really, really difficult for any foreigner to even go to Nepal, let alone journalists. So I think the government is very sensitive and really scared of journalists going to Nepal to cover this disaster along the way to have a physical contact with the Tibetans. So that's the problem. And I think everything in China is super sensitive, very political and security related. And I think China basically treated this Tibetan disaster as a security concern for the regime. And this is very unfortunate. On the other hand, you can see with this extraordinary national effort of search and rescue in Nepal, the effort yields tremendous result. I think something like 8,000 people were rescued and there were about over 1,000 bodies recovered, but there's close to 5,000 people still missing.
So, Nepal asked the world to send the DNA expert, the lighter experts and to identify the possible debris. And there's some very moving and touching pictures of kids being rescued, emerged from the mud by the rescuers. And it is very telling. China, of course, we don't know specifically how many people were recovered, how many people have been found alive. All we saw on Chinese TV and the propaganda machine is those rescuers, leaders, and they're so tired. And if you look at the rescuers show up on Chinese TV, I mean, their clothes are very clean. Their body, their face to hand, there are no mud. Clearly they staged the photos. So this actually caused quite an outrage inside China, I might say. And one interesting thing is I look at the list of foreigners who are missing or killed on the Nepalese side. Curiously, the huge portion of the foreigners are Ukrainians.
A Ukrainian’s country consumed by the war for their own nation's survival. Why the heck are there so many Ukrainian tourists in this very remote spot of the world, Nepal? So I think there's something like more than 500 of them in this incident are Ukrainians. They're either missing or killed.
Colin Tessier-Kay:
There's another concerning aspect to this regarding also in terms of how China chooses to share its information and data. Interestingly enough, three months prior to the disaster, experts and officials from both Nepal and China met in Kathmandu to discuss the risks of such disasters. I think back in late May, 10 officials from Nepal and about a dozen from China, including the Tibet region where the disaster struck, discussed strengthening cooperation to monitor and respond to floods, weather, and glacier related hazards according to the agenda prepared by the Nepalese officials. But two of those officials reportedly did not receive as much information as they wanted from their Chinese partners on glacier risks and water levels after the meeting. And they feared insufficient data sharing could hamper their ability to anticipate and prepare for major disasters. Fast forward three months to where we are now, and to be clear, no side is blaming the other by any means for being at fault here, but there is certainly an issue in terms of the efficacy of the data sharing.
So, Miles, what do we know about China's data on the condition of glaciers in the area in general and more broadly, their capacity for disaster forecasting and relief response that might have been more impactful here?
Miles Yu:
Well, you said there is no mutual blaming. I mean, I think on the Nepalese side, not the government, but definitely the public clearly were outraged by China as a total regard for lives downstream. Now, the glacier fail, collapse, did occur in Nepalese territory, but the first area that were hit by this flood debris and flood were actually the Chinese upstream. So they travel about 60 miles downstream. It will take about half an hour to 45 minutes to reach the Nepalese side again. But the China after it's very elaborated, by the way, very observation system over there, a lot of people were staying in these areas on the Chinese side that didn't tell the Nepalese side at all so that they could really evacuate effectively. And I think a lot of the Nepalese are blaming China for this blatant disregard of human suffering downstream. So I think after the disaster effort is over, I think the government is going to have some kind of blame war.
I hope two governments will establish some kind of a future mutual warning system in this area because this is Himalaya mountains.
From the Nepalese main point of impact to the beginning of things, they're about something like 20,000 feet of difference. It's very steep. So that really accounts for the fast moving debris and flood. And I think this is probably the lesson we should learn. But fundamentally, before we finish this segment, I will say it's not like China did nothing about this disaster. The issue is really that China definitely has a fiscal capability to deal with disaster like this, but the emphasis is different. Nepal focused on minimizing human suffering in human lives. China focus on information control. They try focus on how to spin the narrative. So that's basically tells you the fundamental difference between the democracy and the dictatorship.
Colin Tessier-Kay:
Moving to our next topic today, Chinese authorities launched an emergency nationwide investigation after Napa cabbages were found dipped in toxic formaldehyde to keep them looking fresh during transport. This started when a social media Vlogger, Yulia Chica, filmed farm workers dipping Napa cabbages into clear liquid in Kangbao County in Hebei province. Tests confirmed the liquid was in fact formaldehyde, a colorless toxic chemical and a group one human carcinogen typically used in industrial manufacturing and embalming. Following this, the state council's food safety commission and other regulatory bodies ordered immediate nationwide inspections of wholesale vegetable markets. So Miles, what do we know about this development? This is kind of an alarming story. How has the CCP responded to the issue so far?
Miles Yu:
Well, before we move to the response part, let me just say what the formaldehyde is all about. Formaldehyde is usually used to preserve bodies. The communist dictators, they all like to preserve their bodies for eternity. So Vladmir Lenin's body was preserved by formaldehyde and Ho Chi Minh's body is still in Hanoi is preserved by formaldehyde. Mao Ze Dong's body is still preserved in Tiananmen Square in China with formaldehyde. So this is basically a very highly toxic chemical to slow decomposition. So, the Chinese farmers on the industrial scale have been using formaldehyde to preserve vegetables for consumption in the market. And this is totally illegal. And of course, China is a very regulated regimented society. It has enormous food safety bureaucracy. So that's basically one of the ironies of that. They couldn't catch this. What really triggered this is not this huge food safety regulators and bureaucracy but is by a citizen journalist, a blogger who basically shot this iPhone video and broadcast in Chinese version of TikTok-it's called Douyin and that caused the national outrage and touch another sensitive nerve of the public. And this should not be really that surprising to anybody who live in China because this is almost like a daily routine that is a poisoned, toxic food found in commerce market is usually done by people who the producers on a massive industrial scale. And they have not been sort of effectively eradicated despite Chinese government's claim otherwise.
Colin Tessier-Kay:
So regional markets outside of Hebei, such as in Guangdong and Beijing began rapid local sampling with some areas reporting negative tests for incoming produce but will continue tests on cabbage and other produce of course. Even so the damage here has likely been done as South Korea has now issued a nationwide alert for imported produce. And this likely extends even to partners like Vietnam and Russia as well, even though they haven't issued any statements or alerts, at least as far as we know. So, Miles, a localized event, rural China and Hebei province obviously now has globalized implications. What is the extent of the backlash been like for China both domestically and internationally?
Miles Yu:
Interesting you mentioned this because Chinese cabbage is very famous, very well known. It's very important to a lot of people. In the US, you go to the supermarket, you buy something called Napa cabbage. That's what it is. In Northern China, it's called Da baicai. It's probably the only fresh vegetable you can find for the entire winter season in places like Beijing, Tianjin, and the Manchuria area, Northeast. So people stockpile this Chinese cabbage as they stockpile wood or fuel for the winter. So, it is a very important staple for people. Now why South Korea is really sensitive about this because cabbage is the main ingredient of kimchi, which is a Korean national dish. So a lot of South Koreans imported the Chinese cabbage to make kimchi. So this is why it's internationally concerned. And so domestically Northern China, this is the remain stable for the winter and integral vegetable.
And then of course you have international countries like Japan also, they use Chinese cabbage too. So they has international. China right now is part of the international free trading system. This is the problem. And by the way, I have to say this, China has endured extraordinary succession of food safety scandals for decades now. If you live in China, you can have a long list of cases of enormous outrage and basically it's a national shame. The Chinese infant formula, the dry powder milk is probably the best known case because virtually all of China's infant formula were sort of contaminated with melamine, this chemical that kill infants and sickened a lot of people. We're not talking about a few people who are sickened. We're talking about hundreds of thousands of people all across China. That's one of the reasons young mothers, they for a number of years, they suddenly just rush to places like New Zealand and Japan to buy as much baby formula as possible because this Chinese system is totally lousy and contaminated.
We talk about Digou you, this gutter oil, that's basically enter Chinese restaurant on a routine basis. That's a scandal. Pork is contaminated. Cadmium contaminated rice is all over present in China. And fake meat in China is so prevalent. Sometimes you cannot tell the fake from the real. Beef in particular, this is really scary. You got tons of short videos on Douyin available in China. And the pesticides, Chinese use pesticides as they breathe oxygen. Chinese made pet foods, dog food and cat food and for a number of years they were exported overseas to the US market, and they killed dogs in the USA. So right now I think they don't have any market over there, but it's still very prevalent in China. They use a lot of preservatives and dyes in anything in the supermarket. So last year we talked about this scandal of a Chinese shipping company.
They have these tanker trucks. The fleet of tanker trucks, they transport petroleum, gasoline during daytime. And then in the evening they transport the same tank without any washing decontamination to transport cooking oil and soybean oil. This is just absolutely crazy. And now all of this was done by citizen journalists, not by the Chinese state sponsored government regulators. And this is a scandal. I think this is one of the reasons why Chinese customers have lost confidence in the safety and standard of Chinese grocery stores. Several episodes ago, we mentioned about the extraordinary success of one American store, retail store. I don't know if you remember that. It's Sam's Club. Sam's Club is the subsidiary of Walmart. It has been enormously successful in China. Sam's Club is a membership business. You have to spend pretty substantial membership fee for the Chinese family to join to shop there.
Chinese families are willing to pay very high membership fees in China in order to buy food and groceries from Sam's Club because Sam's Club has a reputation of its strict standards and safety records when it comes to procuring foods and its own items. So this is not necessarily a sort of irrational mass psychology. It's actually very real. And so I hope that any American executives listening to this program would find this commercial opportunity to do something very profitable in China and for the good of Chinese people as well.
Colin Tessier-Kay:
Yeah, certainly a concerning development and I would think that it wouldn't be isolated even to this instance and certainly going into the winter season, something to keep mind of.
But we turn to our final topic today where China's car market appears to be headed for its worst year since 2021 as consumer demand for passenger vehicles is declining following record high sales in 2025. After passenger vehicles sales fell by 20.2% in the first half of this year, the China Passenger Car Association lowered its 2026 full year retail sales projection to a decline of 14% from an earlier forecast of flat year-on-year sales. It's forecasting a final delivery volume of 20.4 million units by the end of 2026, which is down from a record 23.7 million last year and cumulative sales for the first half of this year currently stand at 8.7 million. So, Miles, China's car market continues to slide here. What's the reason for the decline in China's domestic auto industry and how concerned are government officials that this might develop into a bit of an economic crisis?
Miles Yu:
Oh, it's a big crisis. I mean, I think of course the sales plunge plummeting mostly caused by Chinese consumers' unwillingness to buy. There are several reasons, right? First of all, a lot of Chinese consumers were just broke. I mean, after the property sector collapsed and most Chinese families who have invested anywhere, I mean, they invested heavily in the property sector, and they are broke right now and they have no money to pay. And then on top of that, Xi Jinping has conducted a very erratic and terrible economic tightening up. And so there is an enormous economic uncertainty. If you have money, you are not sure about where the country's economy is going. Of course, you are very cautious that you will be very, very circumspect when it comes to spending, particularly spending on durable goods like cars. So you buy a car, you can get a car today, tomorrow or next year.
So, it's not really that first thing that you have to do on spending. You can wait. Secondly, customers in China are not willing to buy cars right now because there is enormous competition in China when it comes to cars and particularly EVs. You got hundreds of EV manufacturers in China. You got all kinds of things competing. So, what happened is a price war. So all the major car manufacturers were cutting prices. They're ridiculously cheap. So, if you are a customer, you see this price war going on and the people who are winning the price war are hoping, "I cut my prices low so more customers will come to buy." They were wrong because the psychology works the opposite way. People are waiting for the price to go further lower and lower and lower, and then they're waiting, so they're not spending. And that's why the price award is a very silly and self-defeating practice.
Well, the most important things is why there are so many car manufacturers and that comes the real reason for this, that is over capacity. While cost over capacity, one huge factor is government subsidy. Most of the major Chinese car manufacturer were run by the government, like Chongqing, like Shanghai. So they're all around the government, so they're not really that have to be subsidized by the government. And they're competing with some kind of non-state manufacturers like GLE, and then of course the EV area, there's BYD and Xiaomi. There are serious competitors. So many of the people who are making these cars without the profit margin, some of them negative because in other words, the cost of making cars is bigger than the prices that they're willing to sell for. However, they're not losing money per se because the government subsidizes those companies, BYD, for example. So that's why you have hundreds, hundreds of car manufacturers, also most of them are EVs because government subsidized EV car makers enormously.
So even though you're at the loss, but the government subsidy would make up the difference. So many people producing cars, not just for sale, for getting this subsidy. That's why in China, you have millions and millions of brand new EV cars. They are parked in what we call as the EV graveyard in China, just sitting there to rust. And so this is basically, it's anti-market, is the handiwork of the Chinese communist economic thinking. So that's why the domestic car consumption has dropped July in year to year. By July, it's a drop to somewhere, as you mentioned, close to 21%. That's a huge difference. The cars are ridiculously cheap. I mean, still, most people are not buying the cars. Now, the flip side of the story is this.
While Chinese domestic automobile market is collapsing, China's automobile exports are soaring, and it is domestic malaise. It's sort of extremely low consumption in China. It's being transported by the Chinese government to the globe. And that's where the problem is. Chinese industrial policy, its economic planning has ruined the Chinese domestic market. To save itself from total collapse, Chinese government is exporting its policies overseas. And so China is exporting the consequences of its lousy domestic, industrial and economic policies to the rest of the world. And that's why EV export globally has jumped by a huge margin. I think the number is something like 300% or something. I don't have the exact number, but they are conquering the world and they're very cheap. They're not bad cars because of state subsidy and because of the price wars by different brands of Chinese EV manufacturing, mostly between BYD and Xiaomi. I think Huawei is also in the game.
So, China must export to save itself from total collapse because the domestic economy cannot absorb what the industrial system produces. And that's the fundamental dilemma of the world. And because of this Chinese cheap vehicle marching into global market, that instantly produced trade barriers for self-protection of their own markets. Different countries impose a heavy tariffs on Chinese cars, United States, Canada, EU, Japan, you name it. So this is very unfortunate. That's why the world's major problem today is that we absorbed a non-market or even anti-market economy such as China into our free trading system. And it's a cancer. And that's why we still have not found a cure for it yet. Now, G20 is having its ministerial like Secretary of Treasury Bessent urging every country to solve this problem. And his plan obviously was very grand from the beginning of the second term of Trump administration.
That is, he's going to basically how to make China change his economic orientation from an export dependent country to a domestic consumption-based economy. Well, to that I will say Mr. Bessent, good luck.
Colin Tessier-Kay:
With how important EVs are to the global market right now in China's economic future, frankly, amidst the declines in domestic sales and the sustainability of the EV industry propping up the domestic economic growth margins is going to be something certainly to watch for, for the China watcher community as we get into this later this month.
Miles Yu:
Let me just mention one more thing. Sorry for interrupting. I will say China has built arguably the world's deepest EV supply chain. I mean it's batteries, it's anodes in electronics, motors, rare earth processing components and the final assembly. They're all good on that. However, BYD and Xiaomi also, particularly BYD is really, really repeating what the real estate giant Evergrande traversed on earlier. Evergrande of course has gone totally busted. That is BYD is now having enormous liability problem. On paper, it does not have much of a debt from the bank. However, BYD has not been able to pay its hundreds if not thousands of suppliers on time for their delivery through the supply chain. So which means that BYD is taking on enormous liability. At some point, if that chain of supply to BYD's production is broken and the company goes down, that's exactly what happened to Evergrande.
So BYD looks great, it's cheap, it's globally very competitive. I won't bet on its ultimate triumph because ultimately the ecosystem in China cannot really produce a globally competitive and first rate products without resorting to total market mechanisms. And I don't think BYD or Xiaomi will have that.
Colin Tessier-Kay:
Yeah, it's a pretty telling comparison and it'll be interesting to see which collapses first, whether the continued sales decline domestically outpaces the exports of the EV market right now or vice versa. But that brings us to our time for this week's conversation. Thank you as always to our listeners and thank you Miles for this week's conversation. We'll check back in with you again next week.
Miles Yu:
All right. See you next week.