What did Biden mean by the word "it"?

Biden said:  “The reason why Xi Jingping got very upset, in terms of when I shot that balloon down with two box cars full of spy equipment in it, was he didn't know it* was there." （BBC）

What does the word "it" mean here?

Some of the Chinese press translated it as the balloon, but how can the balloon be  embarrassing? 

If the word "it" means the "two box cars full of spy equipment", then the situation will be different. 

How can Xi not knowing the spy equipment was there? 

If Xi really did not know the equipment was there, then someone must had been lying to Xi.

And it would be more than  embarassing. 

The other situation is that Biden was lying. There was actually NO spy equipment in the balloon. This is a possibility cannot be ruled out. The United States leaders do have a record of lying in history. 

Important is to check whether the "two box cars full of spy equipment" is true or a lie. 

And the next problem is some of the Chinese press.  How can they not know the meaning of the word "it" here ?  if the meaning is only the balloon, then the problem about the spy equipment would be neglected. 

The above is  a serious matter. 

Next is  funny. 

When MR. Biden said: "When I shot down that balloon....."

Why did he use the word "I"? 

Does it mean he is not a robot ?  

Does it mean there is no secret power behind a puppet president?

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