In this episode, we discuss the Chinese Communist Party’s strategy of drug warfare, the military buildup on the India–China border, the likelihood of an invasion of Taiwan, and what the Chinese regime’s crackdown on Didi tells us about the inner workings of the regime.
Jan Jekielek: Gordon Chang, it’s such a pleasure to have you back on American Thought Leaders.
Gordon Chang: Well thank you so much, Jan.
Mr. Jekielek: There is a lot to talk about today. Last week there has been a lot of new information coming to the fore around China, for example, DiDi. Basically the Chinese regime decided to initiate delisting a giant, giant company from the U.S. exchanges. Now that seems counter-intuitive. Why would they be doing this?
Mr. Chang: The most important thing to Xi Jinping, the Chinese ruler, is control. He believes in a state-dominated economy. He doesn’t believe that foreigners should have much of a role in China, if any—except of course to bring money and technology and then to leave.
So the problem here is that they’re making some pretty short term decisions. You’ve got to remember the chronology of DiDi listing on a Wednesday. Then two days later, China’s cyberspace administration stops the download of the ride hailing app that DiDi is so famous for.
It just shows you that they really are thieves. This is thievery because they could have done this before the IPO. It really basically shows that China doesn’t really care about money like people think. What it really cares about is absolute control, not only over state enterprises, but also over private companies. So this is an indication of where Xi Jinping is taking China.
Mr. Jekielek: It’s interesting that you say thievery. It may be obvious to you and I what exactly happened, but there was an IPO. What exactly is the significance of doing this two days later? How does the money part play out here?
Mr. Chang: The significance is that the DiDi stock price dropped significantly when it became clear that China was going after the company. It was not only taking down the app downloads, it was also saying, “Look, we’re going to investigate these companies. We’re going to investigate DiDi and we’re going to investigate other ones.”
Remember what’s at stake here. A lot of these Chinese companies listed on American exchanges with these variable interest entity structures—these are structures that clearly evade what are the Chinese mandates.
Companies like Alibaba have used these. There’s a lot of legal precedent in China that these VIE structures are not legal. But China has allowed companies to use them to list on foreign exchanges.
Now, China would, in a sense, be in its rights to start confiscating the foreign ownership interests, these shares in these Chinese companies. And they actually did that in the 1990s with a company called UNICOM.
UNICOM didn’t have a variable interest entity structure. It had something very similar, a China foreign structure. Beijing said, “No, this is a clear evasion of Chinese law. We’re not going to permit it. We’re tossing out the foreign shareholders.” They could do that for Alibaba and many of these other companies that have gone public.
Mr. Jekielek: What is Wall Street thinking right now, because, of course, a lot of the investment that went into that company on the IPO came from Wall Street?
Mr. Chang: A lot of people are cheesed right now, as one Wall Street insider told me a little while ago, because people lost a lot of money. People just thought this would be another Chinese IPO, initial public offering, where everyone would make a lot of cash and everyone would go home happy.
But in this particular case, those who bought into DiDi Global, many of them suffered losses because of what China did. Now, whether this will trigger a rethink among Wall Street, who knows? God knows what those guys think. But the point is it should, and they should have never been in Chinese companies in the first place, because they’ve seen this corporate raider mentality before on the part of the Chinese.
Mr. Jekielek: This whole situation highlights how much inherent risk there is for any of these Western companies that are investing in China.
Mr. Chang: Just think about what happened to the Ant Group IPO. This was pulled 36 hours before they were going to start trading. This was last November. This is important because this was going to be the world’s largest initial public offering, with something like $39.5 billion that they were slated to raise.
However, because Jack Ma made a speech in October in Shanghai at a high profile financial forum that criticized regulators, they decided to stop this, even after the money had been taken in from investors.
This just shows you that for these guys in Beijing, control is what’s more important to them, the continuation of the communist party, not normal operation of the financial markets.
Mr. Jekielek: There is this idea that money that has been invested into China is very hard to get back, even though on the balance sheets it is listed as billions, if not trillions of dollars. So can you explain that to me?
Mr. Chang: China’s renminbi is not convertible on the capital account, and people have known this forever. So people obviously thought, “They don’t really mean it,” But yes, they do mean it.
This shows you a weakness in the Chinese financial system, because since about the mid-1990s, Beijing has been promising to make the renminbi fully convertible. In other words, convertible not only on the current account, but also on the capital account.
They missed their 2000 deadline. They had promised to make it fully convertible by 2000. Then they’ve missed another two deadlines after that. China can say all it wants to about attacking the dollar as the world’s reserve currency, but nobody is going to hold renminbi in any substantial amounts for any period until it becomes fully convertible.
Until Beijing has been able to convince the global financial community that they will administer their currency in a fair manner, that’s the problem. China can do all it wants, but what we’ve seen so far is that global usage of the Chinese currency has gone down, not up. It’s actually in the low single digits right now.
Mr. Jekielek: What if a company decided that it wanted to pull all its assets from China? What would that look like? Let’s say JP Morgan decides, “Wow, this is way too much of a risk for us.”
Mr. Chang: They can’t do it on their own. They have to get approval from the Chinese authorities to do this because the currency is not convertible on the capital account. They should know this.
I guess what they’re thinking is they’re in for China for the long haul, and they’re not going to take their money out. They’re going to reinvest proceeds. Who knows what they’re thinking, but the point is companies are trapped.
Mr. Jekielek: So with this recent situation with DiDi, you were alluding to it a bit earlier. Some people have been saying, “Okay, maybe this decoupling that’s been discussed, and has been brandished about, is something that might begin happening in earnest.”
Mr. Chang: It should happen in earnest, and should have happened a long time ago. Part of it is because there’s always this hope that China is going to produce profits. This is a hope on the part of the business community that goes back 200 to 300 years.
Really what we have seen recently, though, is that Xi Jinping moving the country in the wrong direction, because he believes that it should be state-dominated. He’s a communist. He tells us he’s a communist. We just don’t believe him.
But of course we should believe him because he is serious about this. We’ve seen what he’s done, not only in the financial markets, but elsewhere as well. For him, the communist party must be in absolute control of society and he must be in absolute control of the party. How many times do we have to hear him say it before we actually start to believe the guy?
Mr. Jekielek: To your point, on the 100th anniversary of the Chinese communist party, he had some choice words to say along this vein.
Mr. Chang: There’s two things that he said. One of them got a lot of attention, and one of them did not. The one that got attention was when he said he was willing to crack skulls and spill blood if someone stood in the way of China’s ambitions. Because, as a practical matter, China believes that it has the right to territory controlled by others. What he was really saying is, “I’m going to kill you if you don’t let me take your territory.”
The second thing that he said didn’t get attention. He said, “The Chinese people, with the assistance and under the direction of the communist party, are good at taking down the old world and building a new one.”
Now you’ve got to read the Chinese version of it because the English translation is benign. But the point here is that they’re referring back to this notion held by two millennia of Chinese rulers, that they are the world’s only sovereigns. Everybody else owes subservience and obedience to the grand celestial Chinese court. They’re really referring to this notion of mandate of heaven—over Tianxia (天下), or all under heaven.
So Xi Jinping has been very clear. That speech was crystal clear. It’s just that we foreigners say, “Oh, no. He can’t mean it.” And as a matter of fact, U.S. Commerce Secretary Gina Raimondo said, “Oh, that was just bluster.” Well, no, it’s not bluster. They were telling us what their plan is. This is just Americans being oblivious.
Mr. Jekielek: Gordon, this makes me think of, and a lot of people think of—war. We’re talking about the communist version. Actually, communism has always been all about internationalizing everything.
Mr. Chang: That’s communism. Communism is supposed to rule the world. It’s supposed to be the withering away of the state, the dictatorship of the proletariat, the end of capitalism. You can’t be any clearer than that.
The Chinese communist party continues to call itself the communist party of China in English and in Chinese, but a literal translation is “The Party of Public Assets”. How can that not be more clear?
Mr. Jekielek: We’ve discussed on the show a number of times how the Chinese regime uses all tools to wage war, the unrestricted warfare doctrine, as they call it.
One of the things that you talked about here at CPAC today is fentanyl and the use of fentanyl in that way. It’s something that I’m very concerned about lately. But tell me about where things stand with the fentanyl flows.
Mr. Chang: China is intentionally killing tens of thousands of Americans each year with fentanyl. Fentanyl is a synthetic drug. It is manufactured in Chinese labs. Sometimes it’s sent here directly. Sometimes precursor drugs are sent to other countries like Mexico, and then smuggled across our border.
Also, the Chinese fentanyl gangs are setting up shop in Vancouver. They’ve been there for some time and they’re smuggling across our northern border as well.
The reason why we talked about fentanyl at CPAC is because we have a border crisis. And because of that border, our US customs and border protection agents are just being overwhelmed. They are being overwhelmed by people coming across our border and they don’t have the resources to catch the fentanyl.
So fentanyl is now coming into the U.S. in record volumes across our southern border. Now, these fentanyl gangs are large, they’re international. In China’s nearly total surveillance state, Beijing obviously knows what’s going on and obviously approves of what’s going on.
So we have to assume that China deliberately wants Americans dead from this drug. If they wanted to stop fentanyl drugs, they could do it tomorrow. They could do it today, but they don’t. That shows the maliciousness of the Chinese regime.
We live in a democracy. We have a hard time understanding the concept of evil. The Chinese communist party is evil, and we can see this from what it’s doing. It wants to be the world’s number one country. It’s got this notion of comprehensive national power, which they actually borrowed from the Soviets, which is a series of metrics to rank the strength of countries.
There’s two ways to become number one, you can strengthen yourself, which is fine, or you can weaken everybody else. What China is doing with fentanyl is weakening the United States.
Mr. Jekielek: How has the flow of fentanyl changed in recent times? This is what I’m trying to get at.
Mr. Chang: From what we can tell, the flow of fentanyl has certainly increased in recent months. Because of what I mentioned—the border protection agents are no longer able to deal with the Mexican cartels that mix the precursor drugs from China and make fentanyl.
We don’t know the exact number of deaths from fentanyl each year in the U.S. I’ve heard the number 53,000 for last year, but I don’t know if it’s true or not. It’s a hard thing actually to put our finger on because it’s not only deaths directly from fentanyl.
Increasingly, it’s deaths from cocaine, methamphetamines, and marijuana, that have been mixed with fentanyl. So this is a drug epidemic, which is becoming worse year by year.
Mr. Jekielek: You did a session today, world war three was in the title. You recently have a piece that I was looking at talking about various indicators, like for example, the Indian border, that China is readying for conflict.
There’s talk of these gray zone operations with respect to Taiwan, a lot of saber rattling, and a lot more over flights. So where are we overall in terms of the very real prospect of Chinese aggression?
Mr. Chang: There’s a growing awareness in Washington of the aggressiveness of China and the danger. But I don’t think that we are as aware as we should be, largely because China is making the moves, which at least on their face are exceedingly dangerous and we’re not taking the appropriate steps.
So I’m afraid that although there’s more and more awareness of the China threat, that awareness has not caught up with the reality of what Beijing is actually doing.
Mr. Jekielek: Tell me about the realities on the Indian border and with respect to the countries that border China. What’s happening there? What are the areas of concern?
Mr. Chang: At the moment, right now, China is building up its troops on the northern side of the line of actual control, which is the de-facto border separating China and India in the Himalayas.
Last May 2020 China essentially invaded India. There was a large-scale incursion below the line of actual control, in other words, into India. On the night of June 15th, in a surprise attack, China killed 20 Indian soldiers. They killed one other Indian soldier after that. And so there’s been a lot of skirmishing.
Now, India has taken back some of the territory it lost in the spring of last year, but now China is building up to where it has about 50,000 troops in the area, up from about 15,000 about a year ago. So China’s preparing for a full-scale invasion of India.
Whether it goes forward or not, we don’t know at this point. But they’re making the preparations to go forward, if in fact they make the decision to do so. And in addition to that, there is a Chinese encroachment on India’s Sikkim. In neighboring countries, there has been Chinese encroachments into Bhutan and Nepal.
Mr. Jekielek: From what I understand, India has put something to the tune of 50,000 soldiers on its side of the border, much, much larger numbers, as you suggested, than anything that’s been there before.
Mr. Chang: India has reinforced its forces on the southern side of the line of actual control. It is building the infrastructure to support them. But China has also done the same thing. China has brought in advanced weapons and also built bases to support a long-term engagement in the region.
So yes, both sides are building up. But remember, it’s the Chinese who are the aggressors and the Indians who are defending their homeland.
Mr. Jekielek: There’s been a profound shift in India’s attitude or approach to China. We had a guest on recently, Cleo Paskal, speaking to this to some extent. Is that what you’re seeing?
Mr. Chang: Certainly Cleo is like Paul Revere when it comes to China and India, as well as China and other areas of the world, especially the South Pacific. What Cleo has been talking about is a profound shift in public opinion in India. And it occurred right after the night of June 15, 2020, when China killed those Indian troopers.
So we have seen, for instance, India banning about 259 or so Chinese apps from India. They have canceled Chinese construction contracts. They’ve made sure that Huawei is not going to provide equipment for India’s 5G backbone. So there’s all sorts of movement.
Now, India has maybe not moved as far as it should have, but clearly the view of Indian policy makers has changed dramatically over the last 15 to 16 months.
Mr. Jekielek: Let’s jump to Taiwan. China has had a long time policy of taking over Taiwan at some point, whatever it takes, essentially. At least that’s how I read that policy. A lot of people are thinking that time is getting closer, quickly. What are your thoughts?
Mr. Chang: Xi Jinping devoted part of his July 1st speech to taking Taiwan. We know that as time goes on, he has less and less room to maneuver because he said, “We cannot pass the question of Taiwan down from generation to generation.” That means each year that passes, each anniversary that passes, he has to do something about it because people are going to hold him to his words.
This is extremely complex because I don’t think that China actually, if it thought about it, would try to initiate a war over Taiwan, for two reasons.
First of all, in order for China to take over Taiwan, Xi Jinping would have to give one officer, one general, one admiral control over all or most of China’s armed forces. That would make that general or admiral the most powerful person in China. I just don’t see Xi Jinping doing it.
Also, even if Xi Jinping thought that he could be successful in taking over Taiwan, the cost would be horrendous. Remember, the number one foreign policy goal of China is not to take Taiwan, but it’s to keep the communist party in power, which means that even if he thinks he can be successful, he might not do it because he thinks the party might fall because of the horrendous cost.
But having said that, let’s remember that a lot of history is littered with wars that everyone knew would never happen. That’s the saying from a famous British left-wing politician.
There are ways that China could bump into a war over Taiwan. And it’s not something that we would contemplate. We have to remember, Jan, that Xi Jinping has a very low threshold of risk. Because he’s taken power from everybody else, he’s also got full accountability. He can’t blame other people credibly.
The other thing is that as he’s been China’s ruler, he’s increased the cost of losing political struggles, which means that if he fails over something, he knows that he could lose, not only power, but he could lose his life.
So Xi Jinping, I believe, can do things that would take us by surprise, because they wouldn’t seem rational for us. But for him, if you’re going to die, you might as well roll the dice and rolling the dice could very well be a full-scale invasion of Taiwan, even though it would make no sense.
So for us, we have to be absolutely concerned that he would do this, despite what we might think otherwise.
Mr. Jekielek: A number of analysts have suggested that a weak United States that looks like it won’t respond to CCP threatening Taiwan directly, will facilitate that sort of action or make it much more likely.
Mr. Chang: That’s common sense. You don’t need to get a PhD in international relations to understand that. That’s just the way schoolyards work.
For anyone who’s gone to high school, they should understand how this operates. And yes, that’s what we should be doing. We should be making it very crystal clear that we will defend Taiwan.
If President Biden were to say that the United States will, with all means, defend Taiwan, China wouldn’t do it. But because we’ve got this policy of strategic ambiguity where we don’t tell either Taipei or Beijing what we’re going to do, the Chinese think maybe the US doesn’t have political will. Maybe we can do this.
So that increases the risk of a war in the Taiwan Straits. We just need to say, “If Taiwan wants a mutual defense treaty, we will sign one. We will defend Taiwan.” End of story. Unfortunately, a lot of smart people in Washington don’t understand this common sense notion.
Mr. Jekielek: Gordon, what would the cost be to the United States first and perhaps to the free world, of the Chinese regime taking Taiwan?
Mr. Chang: The cost would be horrendous. First of all, we have to remember that Taiwan sits in some very strategic real estate. It’s where the South China Sea and East China Sea meet. This prevents the Chinese Navy and Air Force from flooding into the Western Pacific.
So for us, it is absolutely critical. Remember that since the 1800s, the U.S. has drawn its Western defense perimeter off the coast of east Asia and Taiwan sits at the center of that line.
But there’s something even more important than that, Jan. And that is, China is attacking not only our democracy, it’s attacking the notion of democracy. And Taiwan is a vibrant democracy. We cannot allow China to take over any free society, especially one as important as Taiwan.
Then there’s the issue of American credibility, in general. We don’t have a mutual defense treaty with Taiwan, but we do have the Taiwan Relations Act and people understand that the U.S. is morally bound to defend Taiwan.
So if we don’t do that, then countries with mutual defense treaties with us, our friends and allies and partners, they’re not going to trust America’s word that we will defend them. So this will have effects not just in east Asia, but also in Europe and elsewhere. So this is a test, a supreme test for the United States.
Mr. Jekielek: In your last article in Gatestone you suggest that China might actually consider using nuclear weapons. No one believes or very few people believe that China or anybody would actually use nuclear weapons. So tell me what you’re thinking here.
Mr. Chang: For a very long time, it was believed that China had maybe 300, maybe 400 nuclear warheads. In that situation, they were obviously seeking just a minimal deterrent. They wanted to make sure that no one was going to use nukes against them, that no one would invade them.
But we have seen China’s military substantially increase its production of fissile material. And so we have to presume that they’re also building warheads. What has triggered a lot of concern recently is satellite imagery that has come to light.
China is building 119 silos in the Gansu Desert. We also know that they’re building 26 other missile silos elsewhere in China. That’s 145. Now they’re building this for the DF41, which has a maximum range of 9,300 miles, which means it can hit any part of the continental United States, but a DF41 also carries 10 warheads.
So you take 145, you multiply by 10, you get very close to the number of permitted American warheads under our arms control agreements with Russia.
So it’s apparent that when you add what will be in those silos, even if some of them are just decoys, but when you add what’s in those silos to what is carried on China’s mobile missile launchers, and China’s submarines, and its planes, you’re looking at an arsenal count which is pretty close to ours and maybe even exceeds ours.
What makes this of special importance to the United States is that China and Russia compete with each other. So when you add China’s number of warheads with Russia’s, that substantially outnumbers what we’re permitted to have.
Mr. Jekielek: It’s very difficult to think about these equations. I don’t even know if we have MAD doctrine anymore. I guess the MAD doctrine is still in play here, but could they actually use them? This is the question.
Mr. Chang: I don’t think we can put anything beyond China. However SARS-CoV-2, the pathogen causing COVID-19 started, whether it was a biological weapon or not, China turned it into one. That means that they have deliberately killed 3.9 million people outside China with disease, and that includes 606,000 Americans.
So when we think about the mentality that would do that, when we think about the mentality that would use fentanyl to kill Americans, we shouldn’t put anything beyond these guys.
Remember, Chinese generals and Chinese political leaders have been talking about the use of nuclear weapons under conditions where it appears that they’re thinking a first strike.
Now they have a no first-use policy, but we can’t believe that anymore because of what they tell us. Right now we can make no assumptions about what the Chinese will do, which means we have to assume that they will do everything.
Mr. Jekielek: Gordon. I’m remembering as you’re speaking, some years back a pronouncement from a Chinese general, saying they’re willing to accept massive, massive nuclear casualties in order to win, effectively. I think it was everything east of Xi’an (西安) , some unimaginable land mass and number of people that would die. It was hard for most people to take this seriously, obviously. But do you remember this?
Mr. Chang: Yes. What they’re talking about is essentially the same thing that Mao Zedong talked about, which is that we can accept 300 million casualties. China was a lot smaller then, but this is a clear strain of thinking in Chinese military.
So this is their doctrine, or we have to assume that it is because that’s what they’re talking about. And we also have to remember that every once in a while, a Chinese flag officer will spout out in public about how the United States was not willing to trade Los Angeles for Taiwan, which is basically a threat to use nuclear weapons first.
Also, while we’re on this subject, in October 2013, you had People’s Daily, China Central Television, PLA Daily, and a number of other state and party media run identical stories about how China could unleash Armageddon. They targeted 12 cities, American cities, which they actually named. And this was unprovoked.
This was not like you had the Pentagon saying, “We’re going to rain nukes down on Beijing,” and Beijing responding with these stories. These stories came out of the blue. They were obviously not rogue journalists because they were coordinated. They were almost identical. They were in the main Chinese publications, both party and central government.
So yes, we have to assume that they are willing to use nukes first and kill hundreds of millions of people. Because among other things, they’re willing to accept hundreds of millions of casualties of Chinese people.
Mr. Jekielek: Where we stand today, what is the U.S. to do right now?
Mr. Chang: The first thing the United States needs to do is to recognize the fundamental nature of China’s challenge. At last count, China has killed 606,000 Americans with disease.
We know that they killed tens of thousands of Americans each year with fentanyl. We know that China fomented violence on our streets last year and this year as well.
They are trying to go beyond subversion. They’re trying to overthrow our government. This is an existential challenge and we have to defend ourselves. And that may mean drastic measures. But if we want to keep our country, that’s exactly what we’re going to have to do.
Mr. Jekielek: And these drastic measures, what are they?
Mr. Chang: We need to cut our relations with China thoroughly. We need to end trade. We need to end investment. We need to end technical cooperation agreements. We need to end our universities in China and their Confucius Institutes in our country, as well as the Confucius classrooms. We have to cut all of these ties until we can be sure that we can manage this unrelenting assault.
Right now, we are not managing this. Our FBI is overwhelmed, local law enforcement is overwhelmed. The state and local governments are overwhelmed. If we want to be a sovereign state going forward, we’re going to have to take these drastic steps.
I know these steps are beyond what most people think, but we as a people have been oblivious to what our enemies say. China actually declared a “People’s War on the U.S.” in May of 2019. This was in People’s Daily, the most authoritative publication.
We have a president now who won’t even call China an adversary, much less an enemy. He says that China’s competing with us. No, they’re more than trying to compete with us. So we are at a point of danger because we don’t have a political leadership that is willing to take the steps necessary to defend the American Republic.
Mr. Jekielek: Gordon Chang, thank you for coming on again.
Mr. Chang: Thank you so much, Jan. I really appreciate this opportunity.
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