In this week’s episode of China Insider, Miles Yu comments on the ongoing Donald Trump–Elon Musk dispute, and what impact this may have on future United States–China dialogue and high-level trade talks between Beijing and Washington. Next, Miles examines China’s electric vehicle industry as comments from Great Wall Motor CEO Wei Jianjun raise concerns over a potential emerging BYD debt crisis and draw parallels to the Evergrande real estate crisis. Lastly, we discuss the outcome of South Korea’s presidential election, and highlight the key points of interest in President-elect Lee Jae-myung’s foreign policy goals for both the US and China.
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 June 10th, and we have three topics this week. First, we comment on the current Trump-Musk row and what impact this dispute might have on future China policy. Secondly, we visit China’s EV market and the recent clash between BYD and Great Wall Motor, as the latter’s chairman made alarmist comments regarding the health of China’s EV industry. Lastly, we discuss the latest from South Korean presidential election and highlight key points of interest to both the United States and China. Miles, great to be with you again.
Miles Yu:
Thank you, Colin. Glad to be with you again as well.
Colin Tessier-Kay:
So up first this week, after concluding his efforts with the Department of Government Efficiency, Elon Musk departed Washington announcing that he would step away from politics and government. After his departure, Musk made several public comments in interviews and on X about his displeasure with the current spending bill. In response, President Trump took to social media and what has followed since can best be described as a falling out between the two individuals as several comments and accusations have been made in the subsequent social media exchanges, and seemingly now involves Musk’s father in the dispute as well. Miles, what exactly is the issue here and how did it escalate to where things stand now?
Miles Yu:
Well, this is no small matter because it is not just like the breakup of the bromance. This is the world’s most powerful man breaking up with the world’s richest person. Each of them commands an enormous sphere of influence, if we will, in their own unique domain. Let’s just start with how they get together in the first place because they do share a lot of stuff in common. Don’t forget that. On policy issues, for example, on immigration, on free speech, on wokeness - they share a tremendous amount of common ground. What really gets this relationship to go south - and I think it is something that I personally believe - these two people are very, very different. I mean, they’re sort of a union on many philosophical grounds, but would not last very, very long for a number of reasons.
Number one, Elon Musk has enormous investment in China. I mean, he has a gigafactory in Shanghai that produces a lot of cars to be sold somewhere else as well as in China. So, in a sense he’s kind of conflicted in the China policy realm. President Trump took him in and understood that. Therefore, President Trump tried to keep Elon Musk away from the core of the China team, which obviously displeased Elon Musk. Now, from the perspective of China, there is also another fundamental disagreement, that is tariffs. The hallmark of Trump’s six-month presidency is marked by his insistence on tariffs. Because of Elon Musk’s economic interest in China and a lot of philosophical differences as well - but I think primarily driven by his economic interest in China - he disagrees with the tariff policy. President Trump obviously put China at the center of his tariff policy. For Elon Musk, [the] tariff is a matter of profit. For the President, of course, it’s a matter of national security.
But I think also, fundamentally, these two people are very different kind of animals. I mean, Elon Musk, for all his practical purposes, is an idealist. He’s kind of a nerdy engineer that thinks big. And for the President, I mean, President Trump is known for being a pragmatist. Now let me just illustrate how this works. For example, Elon Musk says, “oh, let’s just populate the Mars”, and this is his hallmark project and his dream. That’s ideal. That’s the idea. I mean, people cheer because it’s very inspirational. Go to Mars and conquer the outer space. Conquer the universe. Now, if you’re a pragmatist, if you’re President Trump, you would have to ask the following questions. Yes, it sounds nice to go to Mars, but there is no oxygen on Mars. The oxygen level is less than 1% of the level on earth, which humans depend on. There’s no water on Mars, and the average temperature on Mars is minus 81 degrees. How are you going to survive? So, this basically illustrates the fundamental difference between idealists and pragmatists on population and on demographic decline.
Yes, Elon Musk is a father of close to 20 kids, but then most of them were with women of no marriage connection with him. So, out of wedlock. If you are the president, you cannot really factor that kind of stuff into policy because the president has to take care about tradition, family institutions and, basically, the conservative base. So, there you have some kind of governance philosophy difference over there. On deficit, obviously, they share a lot of stuff in common: they want to cut deficit. For Elon Musk, his approach is cut, cut, cut. For the President, basically, you have to cut, definitely, but also you have to grow. So, it’s “cut and grow” versus “cut, cut, cut”. Those are kind of very different kind of approaches to governance.
Also, to be very, very honest, I think personality wise, these two really, really are profoundly incompatible. If you look at Donald Trump, Donald Trump is a famous for being square. He never drinks alcohol. He never drinks or uses drugs. Elon Musk is the exactly opposite. Also, Elon Musk is very awkward in terms of being social, and Donald Trump is a people person. He’s got along with people very famously. I saw this months ago: this kind of bromance has some problems even though their common ground was pretty solid on immigration and on particularly free speech in this area. It’s an unfortunate turn, but it is a functional turn of events. I think in the end, precisely because those kinds of conflicts policy wise, personality wide, I think it’s probably good for the country and good for both enormously powerful man.
Colin Tessier-Kay:
And building on some of that, last Thursday, President Trump floated the idea of cutting government subsidies to Musk’s companies, which would invariably impact at least Tesla’s manufacturing facilities in China and other Musk-owned companies with current business ties to China. Similarly, as the president now heads to China for the next round of trade talks, Musk continues to push back publicly. So, Miles, let me just ask: beyond how China fits into all of this, what impact could this dispute have on the future of US-China dialogue, or at least within the context of the current trade talks?
Miles Yu:
Because of the breakup, which I think is probably a good thing because both men will be a little bit unhinged in pursuing their own goals. I think they will have influence impact on US policy toward China, particularly on technology and trade sectors. I think the biggest challenge will be that Elon Musk may align himself more with Democratic policies, so it’s more domestic. It may lead to a shift in how tech industries engage with China. Conversely, Trump’s administration might adopt more stringent measures against companies perceived as too close to China. This dynamic adds complexity to the already tense US-China relationship.
Colin Tessier-Kay:
Moving to our next topic this week, and kind of sticking with the theme of disputes, tensions have risen between two of China’s largest EV automakers, BYD and Great Wall Motor, as the latter’s chairman, Wei Jianjun (魏建军), issued statements worrying about China’s deepening price war in the industry, and are now affecting car companies and supply chain manufacturers alike. In his comments, Wei even mentioned similarities to the Evergrande crisis from the real estate industry, noting that the Chinese EV industry has already had automakers liquidated after major debt crises last year, but did not provide any more specifics. BYD’s GM, Li Yunfei (李雲飛), responded saying that there was no debt crisis and outrightly dismissed Wei’s remarks. Miles, let’s start from the top here. Who exactly are BYD and Great Wall Motor, and what are the alleged concerns right now within the Chinese EV industry?
Miles Yu:
BYD, also known as Build Your Dream is China’s multinational company headquartered in Shenzhen, China. It’s the world’s largest electrical vehicle maker, surpassing Tesla last year. BYD sold more electric cars globally, twice as [many as] Tesla has sold. Great Wall Motors is China’s largest internal combustion engine car makers. That’s the I-C-E cars. So, these two types of brands obviously have clashed. It’s a clash of industry, obviously. What happened is that the Great Wall Motor CEO said something on TV that BYD may be the next Evergrande of China, that is, the infamous real estate giant that collapsed under the enormous weight of debt. This statement caused a panic all over the industry not only in China but also globally. That forced BYD to come out with its own balance sheet statement.
The balance sheet statement raised more questions than answers. It says BYD has no debt, very little debt, and it’s insignificant compared to other automakers in the world. Now, there is a financial research firm in Hong Kong called the GMT (GMT Research). The GMT is no regular research firm. That is the firm that predicted long before Evergrande collapsed- the inevitable demise of Evergrande, because they analyzed the debt ratio. The GMT came up with the astonishing report repudiating BYD’s own financial statement. As it turns out, according to the GMT report, BYD’s debt, mostly hidden debt, is close to twelve times bigger than what it admitted. This basically put BYD in a very awkward situation. So, the talk about BYD becoming the next Evergrande, that it is going to be imminent to its collapse, is all over China. That’s basically what it’s all about.
What originally triggered the Great Wall Motor CEO’s world-shattering statement was BYD’s decision last month to cut the prices of EV cars made by BYD by a third. That is incredibly brutal, cutthroat approach. The purpose of all that is not to make a profit but to destroy the competitors, which is a primary method of Chinese-owned companies globally. They just drive the prices low to kill the competition. The reason why BYD could do so is because it received massive, massive state subsidies from the central government of China. So, ultimately, you can see the ultimate culprit of all these anti-market practices in Chinese auto industry is the Chinese government.
Colin Tessier-Kay:
Yeah, you mentioned these massive subsidies- I mean, China has made substantial investments in its EV industry from all points along the supply chain, from rare earth mineral sourcing and refinement for batteries to component in vehicle production and global shipping. As such, the EV market in China is among the fastest growing with obvious competition from AI and other dual-purpose industries. But, Miles, what sticks out to you here about BYD’s and perhaps other automakers’ as well, [and] their rapid ascension in the EV market in China? And what has caused the current levels of doubt and, honestly, the accusations from Great Wall Motors?
Miles Yu:
So, the trick is a fuzzy financial report, though there is a total lack of financial transparency in China. The debt that BYD reported to the public was on paper correct because it only reported the interest-bearing debt, which is very small. But, the interest-free debt, the BYD’s liabilities to the suppliers, was huge, has been huge. That’s what the GMT financial firm report found out. The debt is hidden, liability is big, but it’s not really revealed. Here’s how it works. It has something to do with something called supply chain financing. This is a gimmick. BYD makes cars, but it has hundreds, if not thousands, of suppliers. BYD of course with all those people for their services and parts -- but, normally, worldwide, the period between the invoicing and the payment will be somewhere between 30 days to 90 days.
Tesla, for example, pays its suppliers definitely within 90 days. BYD, however, is so dominating, so big, it basically gives the promissory notes to the suppliers and says, I’m going to pay you what we owe you in nine months. That is 275 days. That is very long. In the end, all the suppliers, they could not really run a file with BYD. So, they have to deal with the cash flow problem. They would go to the bank and ask for a loan using their promissory note, the IOUs issued by BYD as a collateral. As a result, the debt, the loans, interest bearing loans, floated by those suppliers, ballooned. In the end, at any moment, if any of the suppliers in the supply chain for BYD could not sustain this weight of debt anymore, and then the whole BYD empire would collapse. That’s exactly what happened to Evergrande. That’s exactly what happened to Evergrande. So, here is the problem. That’s why the real debt, as reported by the world famous, reliable financial firm, is close to twelve times bigger than BYD is willing to admit. That is the danger of this whole BYD enterprise, which according to many financial analysts, is built on a house of cards.
Colin Tessier-Kay:
Yeah, it’s hard to not see the parallels between this and the Evergrande crisis like you mentioned. And I guess just before we transition to our final topic, briefly ask what would a potential BYD collapse mean to both, not just China’s economy, but to the global economy for that matter?
Miles Yu:
Well, BYD is China’s pride. I mean, they keep talking about it. It’s very cheap. You spend like $8,000, $9,000, and you can buy a very good BYD-made car. But then if BYD collapsed, it could disrupt the global EV supply chain, affecting battery production and vehicle availability as well. Also, it has more impact on China itself because BYD’s failure could mirror the Evergrande crisis, leading to broader concerns about corporate debt and financial practice in China. And for international market, of course BYD’s collapse will be good news for Tesla because Tesla, to be honest, they make more expensive but much better cars, and technology-wise it’s also dominating. So, I think it might face shortages and impact in the green transition goals. Overall, the BYD’s collapse in my view seems to be inevitable because of the particular economic model that is being practiced widely in China. The ultimate culprit, in my view, is really the role of the Chinese government in providing enormous subsidy to its favorite companies like BYD. That basically eliminated the forces of market.
Colin Tessier-Kay:
Moving to our final topic for today, following the elections last week on June 3rd, South Korea elected Lee Jae-myung of the Democratic Party of Korea as the next president, following the impeachment of President Yoon. After declaring martial law back in December of 2024, South Korea has had three interim presidents during a period of political turmoil. Given the high levels of political division, president-elect Lee now faces challenges to restore public confidence in Korea’s executive as well as stabilize the economy amidst ongoing global trade tensions from US tariffs and economic coercion from nearby China. Miles, what should we know about President-elect Lee and the outcomes from South Korea’s presidential election?
Miles Yu:
So, President Lee Jae-myung is the leader of the Democratic Party in South Korea. He won the election, a special election as a matter of fact with a very thin margin, but he won, nevertheless. It’s a special election because the former President Yung was sort of impeached and gone. President Lee, the newly elected new president of South Korea, is known for his progressive politics. He is a left-wing politician. He basically has some doubt about the Korean-US alliance, but he also realized that Korea’s security must rely on the United States. He wants to keep the American security agreement with the South Korea, but also, he wants to be flexible in terms of economic policy, trade policy. He wants to be closer to China, in other words. This is basically going to very untenable in the end with the United States because you cannot really rely on the United States for your security and also rely on China for your economy.
So, that’s something that the American administration is going to be looking into very carefully. On the other hand, though, what would inhibit President Lee to go too far in either’s direction is the nature of the election because pretty soon he’s going to face a reelection again. This is basically an election of the presidency for the remainder of the term of President Yoon. Basically, it’s going to be less than two years they’re going to have another election. I will say that it’s not a very good prospect for US-Korean relationship, but it’s not really that deadly. There’s still room for improvement.
Colin Tessier-Kay:
Just to kind of build upon that, Conservative analysts in Washington here, seemingly skeptical, I would say, noting president-elect Lee leans a little bit more to the left of center and have frankly assessed him to be more opportunist than pragmatic and could potentially be prone to more progressive voices within the DPK party, particularly if the US security commitment on the peninsula is reduced. Given South Korea’s reliance on China’s supply chain network, it’s also expected that President-elect Lee will take the appeasement route with China, I’m sourcing the latest Brookings report here, having been quoted saying “the relations between South Korea and China became the worst ever” under his predecessor and that he will “stabilize and manage” the relationship. Miles, what’s your impression of President-elect Lee’s statements and potential approach to relations with both the US and China here?
Miles Yu:
President-elect Lee was totally wrong. Yes, the relationship between South Korea and China deteriorated, but that has nothing to do with the United States. It has everything to do with China itself. China put a lot of pressure, basically bullied South Korea into compliance with its own anti-US policy. For example, China has a stronghold on the United States in rare earth material. China banned exporting rare earth material to the United States. But South Korea has a lot of rare earth materials that could be sold to the United States. China bullied South Korea, threatened South Korea to not sell any of the stuff to the United States. This is not really a South Korea’s fault, it’s not American’s fault, it’s China’s fault.
Another thing I should say though, South Korea, if it’s going to turn left, it will also jeopardize South Korea’s crown jewel industry, that is, its semiconductor industry like Samsung and all these major chip making industries. They’re heavily reliant on the United States, on the US market. At this critical juncture, if you basically get too close to China, and then you might jeopardize the prospect of the South Korean semiconductor industry and give competitors enormous edge in this regard. The day President Lee was elected, on June 3rd, the leading chip-making competitor of Samsung, TSMC in Taiwan, its stock went way up because they knew the under left-wind policy Samsung would have to suffer a bunch of setbacks. That’s why TSMC remains very optimistic. It’s going to continue its dominance in semiconductor chip making industry.
Colin Tessier-Kay:
Yeah, and let’s extend that question a little bit to include other regional and global actors here. I’m thinking - are there any other countries that will be watching to see how President-elect Lee approaches Korean foreign policy over the next two years? And I’m thinking mainly Russia, Japan, but certainly other Indo-Pacific nations here as they calculate an ever-aggressive China in the region and certainly with encroaching coercion methods?
Miles Yu:
Yeah, definitely. South Korea is in probably the worst spot in terms of its geopolitics, and South Korea is surrounded by some of the very big powers with their own agenda and security agenda in particular. South Korea is not in a spot to be extreme in any directions. It’s got to be very adroit. For example, China, North Korea, Russia, and Japan, and then in the middle of those, there’s United States. It is really the focal point of global geopolitics, and you got some very destabilizing factors there. Number one, obviously, is North Korea, and number two is China, and number three is Russia. So, if the South Korean president is not going to be very careful to swing to one extreme direction, you might put South Korean national security and national interest in jeopardy.
Colin Tessier-Kay:
That’s unfortunately all the time we have for today. Miles, thank you for joining us this week and lending your perspective to these critical issues. We’ll see you again next week.
Miles Yu:
Alright, looking forward to it.