Gordon Chang was a bit early when he wrote the book “The Coming Collapse of China” in 2001.

He predicted the collapse of the Chinese economy and the downfall of the communist party within ten years and his prediction is four years overdue.

However, the core arguments he made in the book are more valid than ever as Chang continues to provide us with an uncensored behind-the-scenes view of the Chinese political economy.  

Epoch Times spoke to Chang about a superficially stable China in 2017 and what is causing the real friction under the surface. 

Epoch Times: China managed to stabilize its economy in 2016, will the regime be able to continue in 2017?

Gordon Chang: China looks strong but it’s actually weak. It has passed the point of no return.

They put in an enormous amount of debt, and they did stabilize the economy. The manufacturing sector is a beneficiary; we are starting to see some inflation. But the cost of this is enormous. It’s the old tactics of using debt to generate growth. It shows desperation more than anything.

There are some things that China should do regarding reform in 2017, but they won’t get it done because of the political imperative. This year we have a half a decade event, the party congress in the fall of this year, where they will either announce a new leader or Xi Jinping remains in control. That is a critical one.

I think they will be successful holding the line through the party congress. After that, they are going to fail.

So they are going to try and hold the line. Xi Jinping has relentlessly taken the economics portfolio from Li Keqiang. He gets the credit, but he also gets the blame. He is not going to want to see a major disruptive event between now and the party congress. It should be obvious, but a lot of people take this into account.

I think they will be successful holding the line through the party congress. After that, they are going to fail. They are going to prevent adjustments for as long as they have the ability to do so. Their ability to create jobs, holding the GDP growth close to 7, all of this stuff they are going to try and do.

Even if it was growing at the official rate, China is creating debt 5x faster than incremental GDP. Beijing can grow the economy with ghost cities and high-speed railways to nowhere but that’s not free, it’s not sustainable. 

After the party congress, China is going to go into free fall.

The only thing that can change the Chinese economy is fundamental economic reform. But they are moving in a regressive manner, Beijing is stimulating again. It’s taking China away from a consumption economy, toward the state, away from private companies.

China is not going to have another 2008, it’s going to be a Chinese 1929.

The Chinese dream wants a strong state, and it’s not compatible with market reform. Even if Xi were up for liberalize and change, it would be too little too late. Stimulus is going to increase the underlying imbalances. That’s going to make it more difficult to adjust.

Epoch Times: What is happening beneath the superficial stability?

Mr. Chang: Look at what happened last year, capital outflows were probably higher than 2015. And 2015 was unprecedented, somewhere between $900 billion and a $1 trillion dollars.

The Chinese people see what other people have seen and it doesn’t make sense anymore. They see the economy is not growing. People are concerned about the political direction of the country, and people see the end is not that far away, so they move their money out.

People are also leaving. Young Chinese used to come to America to get an education; then they went back. Now Chinese kids get an education, they try to work for an investment bank, and they try to stay. Things are not as good at home as Beijing maintains.

To stop the capital outflows and maintain stability, they put in draconian capital controls starting in October, November 2016.

They put some real limitations on outbound investment for corporates and multinationals. They can do this, but how much longer? They are disincentivizing people to put money into China because they don’t know they can take it out again. In spite of the controls, they had record outflows. Capital outflows in the second half, when the controls started, were higher than in the first half. 

They are going to continue to smooth things out after the Congress, but they won’t have the ability to continue the game. The whole thing is about confidence, and there is a failure of confidence in China.

Epoch Times: They are also using their foreign exchange reserves to manage the decline of the currency. The International Monetary Fund (IMF) for example says the $3 trillion they have is enough to run the economy.

Gordon Chang: They can just give you any number, and you don’t know whether it’s the right one, just like GDP. You cannot go to the State Administration of Foreign Exchange (SAFE) and look through their books. They can report anything, and you don’t’ know. They have a high incentive to fake that number.

We also know they have a synthetic short position because they are selling derivatives through the state banks. If you look at the estimates of foreign exchange reserves each month, they always outperform the surveys. China always outperforms, it doesn’t take a genius to figure out that the FX number can’t be right. Misreporting their FX reserve declines minimizes the problems, so people keep believing in the currency.

They can report anything, and you don’t’ know. They have a high incentive to fake that number.

So I think they don’t have the $3 trillion. They have done the trick Brazil pulled in 2014 of selling derivatives instead of actual dollars. According to my sources, there’s $500 billion dollars still to be accounted for.

Then there are illiquid investments in the Chinese foreign exchange reserves, around $1 trillion. According to my estimates, you are then down to $1.5 trillion in usable money to defend the currency. The FX reserves aren’t as big and as liquid as Beijing wants them to be.

Epoch Times: So they will have to devalue sooner or later.

Gordon Chang: I don’t think they are going to devalue before the 19th party congress later this year.

Then they are going to devalue, but not as far north of eight [current rate is 6.9 per dollar] as it needs to be. The insufficient devaluation will shake confidence; people think it’s not enough, it has to be more. Eventually, someone is going to figure out that their reserve numbers are wrong. But the one thing they need to defend their currency is foreign currency.

Xi Jinping says the Chinese dream is a strong China. So he is responsible for everything and depreciation never benefits the Chinese consumers. They continue to make stupid decisions. It’s the political system; the political imperative is too strong. It would be too embarrassing to do wholesale reform. He wants to appear strong. They have always tried to prevent natural economic adjustments—by doing that they have made the underlying imbalances bigger.

So in the end, China is not going to have another 2008, it’s going to be a Chinese 1929.

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1.6 million people in China die every year because of air pollution, so many people protect themselves using face masks. (AOL Screenshot)1.6 million people in China die every year because of air pollution, so many people protect themselves using face masks. (AOL Screenshot)

Beijing-based designer Zhijun Wang makes antipollution masks by re-purposing running shoes. So, smog masks just got more fashionable. 

The evolution of smog masks can seem dystopian, but they’re an important safety precaution in China. 1.6 million people in China die every year because of air pollution.

“Every day I have to think about it. I have to wear a face mask to go outside. Is tomorrow going to be so horrifying that I won’t be able to run outside? So I thought, ‘Can I use my own approach to express how I feel about this?’” Wang said.

Runners in Beijing are particularly affected by pollution. It’s recommended that they check the Air Quality Index for smog levels, wear masks during their workout, and even skip days with unsafe pollution levels.

So as pollution gets worse and smog masks get more elaborate, it seems pretty fitting to see designer masks made from running shoes. 

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Chinese girls check out the iPhone 6 in an Apple store in Shanghai. AFP PHOTO / JOHANNES EISELE (Photo credit should read JOHANNES EISELE/AFP/Getty Images)Chinese girls check out the iPhone 6 in an Apple store in Shanghai. AFP PHOTO / JOHANNES EISELE (Photo credit should read JOHANNES EISELE/AFP/Getty Images)

Apple is involved in a legal dispute in China that is threatening to prevent it from selling one of its most popular products in the capital.

On May 19, the Beijing Intellectual Property Bureau ruled that Apple’s iPhone 6 and iPhone 6 Plus had a similar design to Shenzhen Baili Marketing Services’s 100C smartphone, and ordered Apple to stop selling the two phones in the city.

The order to halt sales of the iPhones has been suspended after Apple made an appeal.

“iPhone 6 and iPhone 6 Plus as well as iPhone 6s, iPhone 6S Plus and iPhone SE models are all available for sale today in China. We appealed an administrative order from a regional patent tribunal in Beijing last month and as a result the order has been stayed pending review by the Beijing IP Court,” Apple spokesperson Rachel Tulley wrote in an email to Epoch Times.

Apple shares fell about 2 percent to $95.84 at 12:19 p.m. E.T. on June 17 following reports of the Apple case in the media. In the first quarter of this year in Greater China, which includes Hong Kong and Taiwan, Apple’s sales fell 26 percent to S$12.5 billion, according to the company.

Apple's shares. (Yahoo Finance)

Apple’s shares. (Yahoo Finance)

Shenzhen Baili Marketing Services, the Chinese smartphone company that holds the patent Apple is accused of infringing, barely has a web presence.

Visiting the website listed on the back of a 100C phone brings up an error message. CNBC couldn’t connect to Shenzhen Baili’s listed number, and an inquiry email bounced.

According to the Wall Street Journal, the company’s listed founder is Xu Guoxiang, a former marketing director for Chinese telecommunications equipment giant Huawei. Incidentally, Xu is also the founder of Digione, another little-known Chinese smartphone manufacturer that claimed that Apple violated a patent it held in December 2014. The nature of the relationship between Digione and Shenzhen Baili is unclear.

Shenzhen Baili’s 100C, or 100+ Android smartphone does bear a vague resemblance to the iPhone 6 or iPhone 6 Plus. But it also resembles the iPhone look-alikes by other Chinese companies, according to tech website Digital Trends.

If the Beijing intellectual property bureau rules in favor of Shenzhen Baili, it could inspire a wave of lawsuits from Apple’s Chinese competitors across the country, according to Bloomberg.

In the long run, this doesn’t bode well for the United States.

An earlier Epoch Times investigative report reveals that the Chinese regime is stealing and processing intellectual property from American companies and universities, and selling the innovations back to the U.S. at a greatly reduced price. This phenomenon costs U.S. companies trillions each year in economic value, according to industry estimates.

Emel Akan contributed to this report.

 

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Air pollution is bad in China—the thick, greyish miasma that lingers in Beijing for weeks on end has forced schools to cancel classes, and led a famous professor from a prestigious Beijing university to move to southern China. Recently, an environmental organization has released a comical video clip on pollution in hopes that it will inspire people into taking action to combat pollution.
“Hairy Nose,” a 90 second video, depicts a dark future where Chinese people have adapted and survived the “putrid, choking air and the never-ending smog” by growing lengthy nasal hair. In this dystopian future, people and animals live comfortably with their new, bizarre facial feature—a young couple taking out their baby girl out in a baby carriage; hipsters playing pool; the infamous Chinese “dancing grannies”—middle-aged to elderly women who annoy Chinese residents across the country by blaring their square dancing music—flip their nasal hair while dancing; and even a friendly golden retriever with Fu Manchu-esque nose hair.
“To them, this is just the way it is,” said the voice over.
Screenshot of the video “Hairy Nose.” (WildAid)
One man, however, decided not to “blindly submit,” and shaves off his nasal hair so he can “experience breathing.” As he peddles off on a bike, the voiceover announces: “Change air pollution before it changes you.”
The video was made by WildAid, a non-profit group based in San Francisco that counts among its ambassadors Hollywood stars Leonardo DiCaprio, Harrison Ford, and Lupita Nyong’o, as well as NBA stars Carmelo Anthony and Yao Ming.
Screenshot of the video “Hairy Nose.” (WildAid)
Some Chinese netizens on Sina Weibo, China’s popular microblogging service, agreed with the film’s message—Chinese citizens should help to fight air pollution by changing their lifestyle—while others feel that the Chinese regime should too be held responsible for China’s pollution.
“_Evette,” a netizen from Fujian Province, wrote: “To avoid having such long nasal hair, let us all put more effort in environmental protection.”
“The government should increase its effort to combat air pollution,” wrote a Macau netizen with the moniker “Gwyzdl.”
Beijing issued it’s first “red alert” for smog last December as smog reached dangerously high levels. Several polluting industries were forced to cease production, and only half the city’s cars were allowed on the road per day. Only after the measures were taken did air visibility and quality improve.

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Nearly a hundred years ago, there was no choking smog, hardly any automobiles, and definitely no one-party rule in China—but certainly lots and lots of people in the capital. In response to a 14-minute video shared on the Chinese Internet showing what life was like in old Beijing, Chinese Internet users quickly pointed out how things had changed within a century.
The grainy video, which shows footage of Beijing taken between 1920 and 1929, originates from Library and Archives Canada, according to popular Chinese news portal Sina. Comparison with modern-day photos shows that some of the footage were shot at Deshengmen, the ancient city gate that was once part of Beijing’s northern city wall. The video indicates that it was an important gateway as many people on horse carriages passed under its arches. Now, it is a preserved landmark.
(L-R) Deshengmen in 1920s and now. (Sina)
On the discussion section of Sina, some netizens quickly pointed out one stark contrast between now and before. One netizen from Shanghai wrote: “People bowed to each other in the past. They were more polite than people nowadays.”
“Compared to the present, the greatest loss is that people do not have etiquette anymore,” wrote a netizen going by the name “Liu Zhigang 29317” from Heilongjiang.
“It’s barely a hundred years, yet China hasn’t been able to preserve its traditions,” wrote “JKI Yesterday’s Evening Has Passed.”
Deshengmen in 1920s (Sina; Screen shot/chinatravel20.com)
In recent years, Chinese people have grabbed headlines around the world by behaving badly in public—dancing at tourist sites, getting into fights on airplanes, inscribing their names on ancient structures, and getting into shouting matches with airport staff. Part of the reason for the Chinese people’s lack of etiquette, say scholars of Chinese political culture, is decades of political indoctrination by the Chinese Communist Party.
See some key moments from the video below.
Men greet each other the old-fashioned way—a bow

via GIPHY
Chinese badminton? Children play a type of ancient racquet sport

via GIPHY
Men play with a dog who thinks it’s human

via GIPHY
Wait… I am on camera?!?!

via GIPHY
Yup, horse carriages were once in vogue.

via GIPHY

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BEIJING—China’s capital Beijing issued its second smog red alert of the month on Friday, triggering vehicle restrictions and forcing schools to close.

A wave of smog is due to settle over the city of 22.5 million from Saturday to Tuesday. Levels of PM2.5, the smallest and deadliest airborne particles, are set to top 500, according to the official Beijing government website.
That is more than 20 times the level that is considered safe by the World Health Organization.
Half the city’s cars will be forced off the road on any given day, while barbecue grills and other outdoor smoke sources will be banned and factory production restricted. Schools will close and residents advised to avoid outdoor activities.
On Friday afternoon, the air was relatively good, with a PM2.5 reading of about 80 and the sun shining brightly over the city.
However, visibility in some parts of Beijing will fall to less than 500 meters (1,600 feet) on Tuesday when the smog will be at its worst, the city government website said. An almost complete lack of wind would contribute to the smog’s lingering over the city, it said.
Smog red alerts are triggered when levels of PM2.5 above 300 are forecast to last for more than 72 hours.
Although the four-tier smog warning system was launched two years ago, Beijing had not issued a red alert until last week, drawing accusations that it was ignoring serious bouts of smog to avoid the economic costs.
MORE:Beijing Issues First Smog Red AlertPHOTOS: Smog in Parts of China Is so Bad Now That People Can Hardly Take It
Some residents have defied the odd-even license plate number traffic restrictions and complained about the need to stay home from work to accompany housebound children. Others have used the break from school to travel to places where the air is better, while many who stay wear air filtering face masks and run air purifiers in their homes.
Scientific studies attribute 1.4 million premature deaths per year to China’s smog, or almost 4,000 per day.
Most of the pollution is blamed on coal-fired power plants, along with vehicle emissions, building construction and factory work resulting from three decades of headlong economic expansion. While Beijing’s smog gets the most attention, the scourge strikes much of northern China on a regular basis, sometimes forcing the closure of highways because of poor visibility.
MORE:During Paris Climate Talks, Smog Smothers Beijing
The world’s biggest carbon emitter, China plans to reduce hazardous emissions from coal-fired power plants by 50 percent over the next five years, and says its overall emissions will peak by about 2030 before starting to decline.
China still depends on coal for more than 60 percent of its electricity but is in the process of shifting to nuclear, solar and wind power.

 

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BEIJING—Air pollution in Beijing reached hazardous levels on Saturday as smog engulfed large parts of China despite efforts to clean up the foul air.

At noon, the U.S. Embassy in Beijing reported the level of the poisonous, tiny articles of PM2.5 at 391 micrograms per cubic meter. The World Health Organization (WHO) considers the safe level at 25 micrograms per cubic meter of the particulates.
The city has been shroud in gray smog since Friday, reducing visibility to a few hundred meters (yards).
The Ministry of Environmental Protection has forecast severe pollution for the greater Beijing region, the western part of Shandong Province and the northern part of Henan Province until Tuesday, when strong winds from the north are expected to blow away air pollutants.
The ministry has advised people to stay indoors.
Authorities blame coal burning for winter heating as a major culprit for the air pollution. The ministry said it had sent teams to check on illegal emissions by factories in several northern Chinese cities.
In the past, authorities have shut down factories and pulled half of the vehicles off the roads to curb pollution. But such drastic measures are disruptive and are used only when the government feels it needs to present a better image to the world, such as when China hosts major global events or leaders.

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The agency responsible for disciplining wayward Chinese Communist Party cadres is investigating a senior Beijing official, the first from China’s capital to be probed in the three year-long anti-corruption campaign led by Party general secretary Xi Jinping.
Lü Xiwen, 60, was investigated for “serious violations of Party discipline,” a charge that has become synonymous with corruption in recent years. She held the post of deputy Party secretary in Beijing’s municipal committee, and also headed Beijing Administrative College, a branch of the Central Party School. The school imparts ideological indoctrination and professional training to Party cadres.
Lü is the second female Party official at the provincial level to be purged. The first was Bai Yun, a former standing committee member of Shanxi Province’s Party committee and minister of the provincial United Front work department. The United Front and its tactics of political subterfuge and social infiltration and manipulation is a Soviet-era creation, and one that the Chinese Communist Party has developed over its nearly seven decades in power.
MORE:Insider: Factional ‘Death Match’ Dominates China’s PoliticsOnce Untouchable, China’s Ex-Security Chief Sentenced to LifeChina’s Anti-Corruption Campaign Enters Crucial Phase
Hai Tao, a reporter with Voice of America, said that the arrest of Lü Xiwen shows that Xi Jinping’s “anti-corruption campaign will continue; and the depth and the scale of the campaign will be wider and deeper than before.”
Hai continued: “Why is that? If the purging stops that means you take a step back. And once you take a step back, you cannot control the previously purged tigers. And even if you want to maintain the current stalemate, the [anti-corruption campaign] must continue.”
Chinese political commentator Shi Jiutian told Chinese language Epoch Times that it would take time to know whether the arrest of Lü was an indication of a wider purge of a Beijing clique, like the political networks in the coal-rich Shanxi Province and the prosperous coastal region of Jiangsu.

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