China This Week | China’s messaging on Iran-Israel, Taiwan restricts Chinese firms, and Labubu dolls

China has called for de-escalation while condemning Israel’s actions. It has said it supports “Iran in safeguarding its national sovereignty, defending its legitimate rights and interests, and ensuring the safety of its people”. This is in line with China’s reactions to events unfolding in the Middle East since Hamas launched attacks on Israel on October 7, 2023.

In last week’s tracker, we wrote about discussions on a China-US trade deal. However, this week, the geopolitical rivalry between the countries touched on AI and semiconductors. Taiwan, the island on which China lays territorial claims, restricted dealings with Chinese tech companies.

Finally, a Chinese-origin company’s toy has taken social media by storm in recent days, and Chinese state media have published several stories on it.

Here is a closer look at these developments:

1. China on the Israel-Iran conflict

At a press briefing on Thursday (June 19), a Foreign Affairs Ministry spokesperson said, “The conflict continues to escalate, not only wreaking havoc on the people in both countries, but also gravely hurting peace and stability in the region and beyond. China is deeply concerned.”

He said China called on the parties to the conflict, “especially Israel”, to act in the larger interest of the region, stop the conflict immediately, and de-escalate the situation.

UPSHOT: China has important economic and strategic interests in the region. It buys 90% of Iranian oil exports, and is Israel’s second-largest trade partner. In 2023, it helped broker a detente between two regional rivals — Sunni-majority Saudi Arabia and the Shia-majority Iran.

The following year, China hosted 14 Palestinian groups, including Hamas, in Beijing for the signing of a declaration on “pledging to end division and strengthen unity” among them. These developments led to an expectation of China emerging as a major actor in the region, a role that has traditionally been played by the US.

Post-October 7, China reportedly engaged in discussions with the Houthis of Yemen after they attacked Western ships passing through the Red Sea.

On the whole, however, Beijing has acted with cautious restraint. Several reasons have been cited for this, including its varied economic interests in the region, which would benefit from peace, and a general lack of interest in engaging in military interventions. As a new entrant in the geopolitics of the Middle East, what weight it carries with regional actors remains to be seen.

That said, it has taken positions on certain issues. Shortly after the Hamas attacks, a spokesperson described China “as a friend to both Israel and Palestine,” while stressing support for a “two-state solution and establishment of an independent State of Palestine”. China’s historical support for the Palestinian cause and the unflinching American support for Israel have shaped this stance.

2. Taiwan blacklists Huawei, chipmaker SMIC

Taiwan has added China’s Huawei Technologies Co. and the chipmaker Semiconductor Manufacturing International Corp. (SMIC) to its entity list, barring the island’s firms from doing business with them without a licence. This list also includes other proscribed organisations like the Taliban and al-Qaeda, and companies from Iran and Pakistan, Reuters reported.

SMIC is China’s largest chipmaker and has “ramped up investment to expand production capacity and strengthen China’s domestic semiconductor capability in the face of sweeping U.S. export controls,” the report added.

UPSHOT:  While some have begun to express scepticism about the actual disruptive potential of Artificial Intelligence (AI), what is clear is that this new technology will remain a flashpoint in US-China relations.

Taiwan, which is another flashpoint given China’s territorial claims and the US’s historical support for the island, is the world’s largest manufacturer of advanced chips. The recent move was its first public action on semiconductors since President Lai Ching-te said in April he would address concerns from Washington about export controls, Bloomberg reported.

Whether it stems directly from discussions with the US is unclear. China has criticised the decision as “maliciously blocking and suppressing China.”

In the past, the US has restricted Huawei over security concerns. Since then, the company has launched new smartphones and AI chips elsewhere, with success. One such phone, released in August 2023, is the Mate 60 Pro. The SMIC is believed to have manufactured an advanced chip that powers the phone.

Concerned over its capabilities despite US restrictions, the Commerce Department sent dozens of letters to US suppliers of SMIC, suspending permission to sell to its most advanced plant, Reuters had reported last year.

3. State media gushes about ‘sensation toy’ Labubu

In the last few weeks, popular celebrities, including singer Rihanna, K-pop star Lisa and the Indian actor Ananya Panday, posting photos of somewhat strange-looking, small figurines on social media.

Beijing-based toy brand Pop Mart launched these “Labubu” dolls in collaboration with Hong Kong artist Kasing Lung. He created “The Monsters” series for the brand, featuring elf-like dolls with a vinyl head and furry bodies, often with a mischievous smile.

Kasing Lung has said he was inspired by Dutch fairytale characters, having moved to the Netherlands at a young age. In 2015, he illustrated a series on them and the dolls were launched soon after. The collaboration with Pop Mart in 2019 sparked the craze domestically, which spread to Southeast Asian countries, and then the rest of the world. They are also sold as bag accessories.

UPSHOT: Chinese state media websites often indicate the Communist Party government’s perspectives on issues. China Daily published at least four stories on its website just this week about the dolls. One described people queuing at stores in Australia and the UAE.

Another People’s Daily article said, “It is rare for a comic or toy IP to break the culture wall and be embraced by both Asian cultures as well as mainstream Western pop stars and sports stars, according to Jessie Xu, an analyst at Deutsche Bank, which significantly raised its target price for Pop Mart shares on the strength of Labubu’s performance.”

The Financial Times reported that Pop Mart’s market capitalisation stands at around $40 trillion today, more than that of Hasbro (with games like Monopoly and Play-Doh) and Mattel (Barbie and Hot Wheels) combined. Its shares have “soared almost sixfold in the past year on the back of Labubu fever.”

The dolls’ appeal also lies in how they are sold in blind boxes – the buyer doesn’t know which exact item they’ve purchased until the box has been opened. However, at least one state media report raised concerns about promoting overconsumption through such sales methods. Soon after, CNBC reported that Pop Mart’s Hong Kong-listed shares fell more than 5%.

Overall, state media framed the Labubu sales as a positive sign, touting it as a reflection of “China’s pro-consumption policies” and that “Greater openness is also fueling the cultural exchange crucial to IP growth”.