(Interviewer: Mayuko Kataoka)

 
As US overall inflation has long affected President Biden’s approval ratings, it has been said that the Biden administration may lift tariffs on Chinese goods. China, however, poses the biggest national security threat to the US. The Liberty asked Asia analyst, Gordon Chang, who continues to give warnings against China’s unbridled ambition and shows the path to regime change (as of July 11th), his thoughts.

Mr. Chang: First of all, my wife and I would like to send our condolences to the Japanese people because you have lost a giant in Shinzo Abe and the free world has lost a great friend.

Interviewer: We highly appreciate your condolences. And thank you again for this precious opportunity for us to have you in our publication. As our interview begins, let me ask you about tariffs on Chinese imports. President Joe Biden is still considering the roadblock of Chinese tariffs to fight inflation. Actually, some business leaders insist on getting rid of tariffs as well. Regarding this situation, you pointed out that removing tariffs doesn’t affect US inflation. Could you give us greater details on this point?

Mr. Chang: The dropping of tariffs or the waving of tariffs is not going to have an effect on inflation in the United States.

First of all, we know that China absorbed about 80% of the cost of these tariffs when they were first put in place in 2018. Beijing did that by subsidizing export factories. Also, it started to play with its currency. So, when Biden starts to remove tariffs, what he’ll be doing is effectively giving a check to the Chinese central government treasury.

But there’s something else, and that is sellers don’t drop their prices when their costs go down.

Sellers drop their prices when the demand for their products goes down. And Biden’s action is not going to affect demand for products. So I don’t think that there’s going to be any effect at all on inflation.

Interviewer: US Secretary of State Anthony Blinken met with the Chinese foreign minister during the G20 summit on July 9th. Now, we are wondering whether Blinken will maintain a tough stance on China. Could you share your view with us on this point?

Mr. Chang: I think that the United States shouldn’t be talking to China at this point. So I don’t think that Secretary of State Blinken should have met with Foreign Minister Wang Yi in Indonesia. We have made it very clear what our positions are. So has the international community. China has made it very clear that it is going to do what it wants to do. It’s time for the United States to impose costs on China. And if the Chinese want to talk, they should come to us and ask.

I don’t think that we should be talking to China. For instance, Secretary Blinken talked about China’s assistance to Russia. Well, he’s been doing that for quite some time now. And the Chinese continue to support the Russian war effort with elevated commodity purchases, with making its financial system available to Russian institutions that have been sanctioned, by having Chinese diplomats amplify these ludicrous Russian notions about the war. And, also, China has been supplying military information to Russia. There’s open-source reporting that China has been supplying location data to Russia so that it can target Ukrainian drone operators because the drone operators in Ukraine were using Chinese drones. So it’s well past time to talk to China about Ukraine. It’s now time to be as good as our word and start imposing costs on Beijing for helping Russia.

Interviewer: Let me ask you about Sri Lanka. If China can transform Sri Lanka into their military base completely, China can make a significant step forward for their India strategy. Could you give us your outlook on this point?

Mr. Chang: China took over the port of Hambantota in 2017 because the port operators owed money to China and they couldn’t pay. That project was uneconomic from the start. What has happened in Sri Lanka generally though, is that China financed not only port operations but also construction projects that did not make economic sense.

And that is the primary reason for this debt crisis and general economic crisis in Sri Lanka. I think that China is going to end up losing not only its friends in the government in Sri Lanka, but it’s also going to end up with unpaid loans because Sri Lanka, no matter what debt relief it receives, will not be able to retire its obligations to Beijing. So it will be a debacle for Beijing as the crisis in Sri Lanka continues.

Interviewer: As you pointed out, not only Sri Lanka, but China is facing an overseas debt crisis. How do you see the present situation?

Mr. Chang: China has debt trapped a lot of countries around the world. Those crises are not as mature as the one in Sri Lanka, but there will be crises in these other countries for the same reasons that there is now a crisis in Sri Lanka.

China, by the way, is overextended, which is the reason why Chinese officials have not been talking about their Belt and Road initiative in the last couple of years as much as they did in the past. And I think it’s a real indication that Chinese officials understand that the Belt and Road is not going to accomplish what Beijing had hoped for. This is going to be a hallmark of Chinese foreign policy going forward. They’re going to have to pull back. They are overstretched. This is what Paul Kennedy of Yale talked about when he coined the term “imperial overstretch.” China is now overstretched.

Interviewer: Since you pointed out that the amount of debt is too large for Beijing to deal with, could you give us greater details on this point?

Mr. Chang: At this moment, there are bank runs all over China. There’s even a bank run against the Bank of China, one of China’s so-called Big Four banks. Beijing has no answer to this. It can’t rescue all the banks.

And the fundamental problem is that the economy is contracting. And we see this, for instance, in the property sector, which accounts for somewhere between 25% to 30% of gross domestic product. In the first half of this year, land sales in China were off 50% from the corresponding period last year. This is a crisis for the local governments because they depend on land sales to fund their operations. We’re now seeing the problem spread to the banks. And China does not have an answer to this because there’s just too much debt in China and the economy is too sick. They cannot produce GDP to service the debts that now exist.

Interviewer: The Solomon Islands had signed a minimum five-year security agreement with Beijing. How do you see this situation?

Mr. Chang: The current Prime Minister of the Solomon Islands, Sogavare, is depending on Beijing to buttress his position. He’s very unpopular right now in many parts of the Solomon Islands and I think that he is hoping that the Chinese will help him postpone elections, which are coming up soon. This is really the first step in the destruction of democracy in the Solomons, which really is, I think, a bigger story than this military assistance agreement that was signed. That can be undone but it’d be very difficult to re-institute democracy if Sogavare is able to postpone the elections indefinitely with China’s help.

Interviewer: Does Solomons’ pro-China policy affects QUAD? Given the present situation, do you think QUAD can fully function as a security alliance?

Mr. Chang: Well, Australia is certainly at risk because a Chinese military base in the Solomons could cut Australia off from the United States. So this is a critical situation for both Australia and New Zealand.

Australia, New Zealand, the United States, and others are going to now devote much more attention to opposing China’s initiatives, not only in the Solomons, but throughout the Pacific. For decades, these countries have had misguided policies or they’ve just completely neglected the region. This has opened the door to China’s influence in the Solomons and elsewhere. Now countries understand the challenge that China poses so we’ll have much more effective policies. Remember, Beijing is going to be facing not just Australia, not just New Zealand, not just the United States, not just France; it is going to be facing a coalition of countries that will oppose what Beijing wants. So in the future, I think that we will have much better policies in the Pacific.

Interviewer: I see. It is reported that Xi Jinping is losing his grip on powers as his COVID policy has been failing. Could you share your view with this on this point?

Mr. Chang: Xi Jinping is considered to be the author of the Zero-COVID policy and clearly, the Zero-COVID policy is not working. We see this, for instance, in its undermining of the Chinese economy, which we just talked about.

But also, it’s just not effective because, at this moment, big cities in China are going back into lockdown. Omicron is very transmissible, and Beijing does not have an answer to it. So I think Xi Jinping is going to be held responsible for it. However, though, we don’t know what’s going to happen. The Communist Party, if the tradition holds, will schedule its 20th National Congress for either October or November of this year. That’s when Xi hopes to get his unprecedented third term as General Secretary. Indications are that he will get that third term, although he may not have as much freedom of movement as he would like because there might be some restrictions placed on his role. But ultimately, we just don’t know. We don’t know because the Chinese political system is not transparent, and it’s becoming less transparent as time goes on.

We can say that there are things that have occurred over the last six months that are indications of political turmoil and intense infighting at the top of the Communist Party. But we don’t know how consequential these events will be. So right now, most people think Xi will get his third term, but we’ll just have to wait and see because there is no way for people on the outside really to accurately assess what’s occurring in Beijing (as of July 11th).

Interviewer: Yeah, right. Regarding the next question, although we already asked you in the previous interview, please let me ask you again. In order to end Chinese hegemony and bring peace into the world, what would you think is the decisive move the Biden administration should take?

Mr. Chang: The most important thing that the Biden administration can do and the most important thing that other countries can do is cut off the flow of funds to China. This is not only investment into Chinese markets, investment into their bond markets, but also trade. Right now, China is running short of money. We can see this in any number of different ways, including the bank runs. But we also know that the Communist Party has been trying to extort money from private entrepreneurs and the big tech companies because they’re just running short of cash. So the most effective thing to do is to cut off the flow of foreign cash into China.

Interviewer: Definitely. Thank you so much for sparing your time at this late night in Washington. We are really honored to have you in a publication again.

Mr. Chang: I’m very honored to be interviewed by you. So thank you very much.