TKL Exclusive: Ten Questions with Gordon Chang
by James Na ~ July 17th, 2006. Filed under: America, China, China-Korea Relations, Democracy, Diplomacy, Engagement, Geopolitics, Japan, Japan-Korea Relations, North Korea, Nuclear Proliferation, Taiwan, U.S.-Korea Relations, Washington Views. 
Gordon G. Chang is the author of The Coming Collapse of China, which generated much controversy about the state and direction of the Chinese government, economy and society. When the “China Rising” theme was in vogue among Asia watchers and the mainstream media five years ago, his was one of few public voices expressing dissent and explaining the fundamental structural and endemic problems with the modern Chinese state under the communist rule despite impressive economic reforms.
The book was based on his nearly twenty years of living and working in Hong Kong and China. He was a partner at Baker & McKenzie in Hong Kong, and subsequently served as Counsel for the American law firm Paul Weiss in Shanghai.
His second book, Nuclear Showdown: North Korea Takes On the World, was published early this year.
During the interview, Chang was approachable and personable. Despite the perception among some critics that he gives an alarmist or hysterical account of East Asia, about China in particular, I found him to be a calm, thoughtful and reflective individual, and in no way bombastic or strident. The one thing that struck me the most in the course of the interview was the very profound and personal sense of gratitude Chang exuded about being an American. The story of his father’s arrival in the United States and how that affected his own life resonated with me deeply.
The interview took place on Monday, July 10th, 2006.
Mr. Chang, first of all, thank you for taking the time to speak to The Korea Liberator.
TKL: 1. Let’s jump straight into the issue of North Korea’s intercontinental ballistic missile test, which is dominating the headlines of late. You wrote on June 10th in your website that “We should not try to prevent North Korean testing… An actual test, therefore, can help us as much as it helps them.” Could you elaborate further on this prescription?
Chang: There are two components to this. First of all, we monitor their tests, just as others monitor our own. The July Fourth tests gave us the opportunity to gain information about North Korea’s missile capability, which we otherwise would not have.
The tests also brought focus to the North Korean problem. When you look at North Korea, it is a weak state. Yet it has bedeviled us for 50 years. North Korea has been able to do this, because we have always ignored the Korean Peninsula except during isolated moments like the Korean War. What we need to do is to pay attention to North Korea. It is maybe unfortunate, but the tests got us to look at what is happening.
TKL: 2. Regarding the latest North Korean “crisis,” there is an almost exclusive focus in the Western media on China? Why is that the case? Why is China deemed so influential in this matter?
Chang: China supplies something like 90% of North Korea’s oil and perhaps 40 to 45% of its food, and sustains North Korea with diplomatic and economic support. Without China’s help, there would be no North Korean nuclear program, no North Korean ballistic missile program, perhaps no North Korea.
TKL: 3. Japan’s Chief Cabinet Secretary Shinzo Abe recently said “If we accept that there is no other option to prevent an attack … there is the view that attacking the launch base of the guided missiles is within the constitutional right of self-defense. We need to deepen discussion.” Does this potentially signal an escalation of the situation?
Chang: It signals a potential escalation. Japan does not really have much capability to hit North Korea preemptively now, which is what Abe was talking about. But this is a signal that the situation could get worse, much sooner than anticipated before.
TKL: 4. What leverage does the U.S. have in affecting North Korea’s policy? What should be “the endgame” regarding North Korea from the U.S. perspective?
Chang: The endgame from our perspective is the complete elimination of nuclear weapons from the North Korean arsenal. It is absolutely critical. A slightly less important element is the elimination of the North Korean missile program. Then there are other issues such as human rights, counterfeiting, trafficking in narcotics, endangered species and so on. The common denominator of all these issues, however, is the North Korean regime itself. We are unlikely to settle the first two issues without settling all of these other problems.
TKL: 5. Switching the gears, let’s talk about your first book, “The Coming Collapse of China.” It was very controversial to say the least. What prompted you to write this book?
Chang: When my wife and I moved to Shanghai in 1996, we thought China was no longer communist. After we arrived there, my wife got on the phone with her mother and said “China is not communist anymore.” But after living there, we realized that China was still very communist. It looked different from the inside than it did from the outside.
While practicing law in China, I saw many Westerners buzz into Shanghai, stay at the Shanghai Grand Hyatt Hotel, which is a wonderful location, and talk about how China had changed. Having lived there, talked to people and looked at reform from the inside, I saw a very different China that was not discussed often in the West. So I felt compelled to write the book.
TKL: 6. North Korea also proliferates counterfeit currency, the so-called Supernotes. The U.S. law enforcement agencies tracked this problem to a Macau-based bank named Banco Delta Asia through its “Operation Smoking Dragon.” Subsequently, the U.S. Treasury Department imposed sanctions on Banco Delta Asia, calling it “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau.”
The next question is from The Korea Liberator’s Joshua. He asks: what would be the possible effects of U.S. money laundering sanctions on the Bank of China, vis a vis North Korea? Are we talking “The Collapse,” potentially?
Chang: There has been North Korean money being laundered through the Chinese banking system. The next step for the U.S. is to talk to the Chinese government about the Big Four banks. This is an extraordinarily sensitive issue. But simply imposing sanctions on one little bank in Macau is not enough. If we can show, as I think we can, that major Chinese banks are involved in laundering money for North Korea, they should be sanctioned. I think it is a pretty good idea. For example, we know that there are North Korean money transfers through Zhuhai, near Macau.
But this issue is not enormously relevant to the potential Chinese banking collapse. China is mired in bad loans, perhaps about a trillion dollars on the books of the Chinese state banks and the Chinese central government. This is an enormous burden for the Chinese government and its economy. This will affect the stability of the Chinese state, but sanctions of the banks will not lead to the collapse of the state.
TKL: 7. You worked in Shanghai and Hong Kong as an international attorney. How has the life in Hong Kong changed since the Chinese takeover? Does Hong Kong pose a viable, reassuring model for Taiwan in its future dealings with China?
Chang: To the contrary. When the Taiwanese look at Hong Kong, they are very concerned. Beijing has not been able to leave Hong Kong alone. It is more “one country” than “two systems,” to borrow Deng Xiaoping’s phrase. As time goes by, there will be more and more interference in Hong Kong’s political affairs and economy from Beijing.
TKL: 8. Let’s talk about more personal matters. Could you talk a little bit about your ethnic and family background?
Chang: My father came to the U.S. at the end of World War II from Jiangsu Province, close to Shanghai. He went to school in Shanghai. Then the Japanese invasion pushed perhaps tens of millions of people into the interior of China. My father received a scholarship from Cornell and went there to study in February of 1945. He arrived aboard a U.S. troop transport.
My mother was an American of Scottish descent. I am an American, half Chinese and half Scottish, with a little French and Italian on my mother’s side. I grew up in the U.S. My mother died when I was 8, and my father had a very difficult time.
But I was very fortunate. When I went to China for the first time in 1986, we went to see people we knew. I thought that I could have been there like them if my father had not left China. It must have been very difficult for him to leave China. How fortunate it is for me that he was able to go. Those who stayed behind suffered through the tenure of the People’s Republic.
I have a very visible and deeply personal understanding of how fortunate it is to be an American.
TKL: 9. What advice do you have for young Americans who are interested in working and living in China?
Chang: China provides an amazing opportunity to see what is happening. China is moving at a great speed, propelled by the social forces that were unleashed by three decades of economic reform and social engineering. It is one of the most interesting and dynamic societies today.
One certainly has to be prepared that China is very different than America. As I mentioned before, you really start to understand how lucky you are to be an American at this particular time.
TKL: 10. Lastly, let’s have another prediction on where China will be in, say, 10-20 years? A decentralized capitalist, democracy? An aggressive mercantile oligopoly? Or perhaps even fragmentation?
Chang: Or all of the above [laughter].
I don’t believe that the communist party will be ruling China very much longer. I think it will fall from power by the end of this decade. But my crystal ball is not clear enough to provide a specific answer as to what happens next. Over the long term, China will develop representative institutions and a free economy, but perhaps not in the time frame you mention.
I don’t think China will fragment, but I do see Taiwan becoming recognized as the independent state that it actually is today. But apart from that, China won’t fragment. There will be a great period of uncertainty and turbulence in China, but 10 years are not enough to produce a democracy and the free market.
Thank you again, Mr. Chang, we hope that you will speak to us again and that you will continue to write.
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July 17th, 2006 at 11:45 am
BTW, if any reader has a question for Gordon Chang, go ahead and use the comment function to ask.
July 17th, 2006 at 12:37 pm
Gordon, Behind the headlines, there is another debate raging on China’s economic intentions inside North Korea. Some of us were alarmed recently when the Chinese acquired a 50-year lease on port at Rajin and the railroad that links it to mainland China. With the provisio that I’m asking you to speculate to a degree, do you think China is trying to establish economic suzerainty over parts of North Korea? Do you think it will succeed? Do you think it would defend its investments with force?
July 17th, 2006 at 2:02 pm
Thank you very much to TKL and Gordon Chang for sharing Q&A. Gordon is well respected author of often quoted and objective eye opener “The Coming Collpase of China”. Gordon was quoted at Barron’s and of course sister publication FEER (see cut and paste of his recent article).
I’ve been going to China 4 to 5 times per year from 1997 to 2004 on business and it’s amusing to see “guilohs” praising China after visits to glitzy SZ/SH/BJ. Sure Shanghai’s Bund is cool and so is $300/night Shanghai Grand Hyatt with “incredible” shower in the room and view not to mention toney restaurants but this is not real China.
Looming bank crisis is real with hard to figure out bad loan ratios and questionable lending practices whipping high growth at crony companies and local SOEs and lacking lending standards and banks controlled by local cadres.
July 17th, 2006 at 2:05 pm
Credit goes to Gordon Chang on yet another excellent article on FEER:
FEER(6/2)Econ, Social Forces May Spur China’s Regime Change
June 30, 2006 8:02 p.m.
(From THE FAR EASTERN ECONOMIC REVIEW)
By Gordon G. Chang
The coming collapse of China, my book, predicts the fall of the Chinese Communist Party by the end of this decade. We are now at the halfway point between its publication in 2001 and that time. So is China’s leading political organization on schedule for a fall?
It certainly does not look like it is. On the contrary, China’s mighty one-party state is a wonder to behold. It has sponsored torrid economic growth that is transforming, within a single generation, a destitute agrarian society into a prosperous urban one. The change has been so rapid that, at least according to the weight of global opinion, the Chinese will own the century in which we now live.
By ascending the ranks of nations at an accelerated pace, China is altering our notions of political governance. A few years ago Francis Fukuyama told us that “the evolution of human societies through different forms of government had culminated in modern liberal democracy.” China, however, has convinced many analysts that autocracy still has a future. Or as Homer pointed out, “There is strength in the union of very sorry men.”
Yet China remains a fragile nation. As China’s new leaders successively open their great country, all the forces that apply around the world — political, economic, and social — are beginning to apply in China as well. As this process continues, as China becomes less Chinese, the country’s centrally directed political system becomes vulnerable.
So the issue today is not whether the central government is doing the right things or the wrong things. The issue is time. In the next five years, China will face many challenges, some of them unprecedented. We are all familiar with the list of problems: pauperization of the countryside, creation of bad debts in the banking system, accumulation of local government deficits, underfunding of the social-security system, destruction of the environment, corruption of all aspects of society, and erosion of essential social services, to name just the most prominent.
One problem looms especially large. The Chinese have prospered partly because the United States and the West have supported the Beijing regime at critical moments. Yet Beijing cannot automatically count on a friendly international environment in the future. After all, there is a growing belief that the Chinese are threatening the manufacturing base of the West. In late March of this year, the European Union and the United States took the step of jointly filing a World Trade Organization complaint against the country’s discriminatory auto-parts tariffs.
Moreover, the consensus to engage China is breaking down as Beijing is increasingly perceived as more assertive than cooperative. China’s proliferation of nuclear-weapons technology, its diplomatic and material support of unsavory regimes, and its pursuit of outlandish territorial claims could bring it into conflict with the very countries that have so far patiently engaged it.
Any one of these problems — the old ones as well as the new one — would be difficult for the Communist Party to take. Add them all together, and we can see why the regime could fail. The point is that Beijing faces many challenges all at once, not one challenge at a time.
Even if it could solve each one of these problems in short order, the Communist Party would still face one insurmountable challenge. Those who are optimistic about the future of the P.R.C. point to the economic growth and progress of the last 25 years, but that is precisely why the country’s one-party state is in such jeopardy.
Change, history tells us, is tough for reforming regimes. Alexis de Tocqueville noted that peasants in prerevolutionary France detested feudalism more than their counterparts in other portions of Europe, where conditions were worse. Discontent was highest in the most modernized parts of France. Moreover, the French Revolution followed “an advance as rapid as it was unprecedented in the prosperity of the nation.” As Tocqueville notes, “steadily increasing prosperity” doesn’t tranquilize citizens. On the contrary, it promotes “a spirit of unrest.”
Chinese leaders should not take comfort from the fact that Tocqueville was writing about 18th century France. We saw these same trends playing out in late 20th century Thailand and, more important, both in Confucian South Korea two decades ago and Chinese Taiwan just a little later.
Senior Beijing officials now face the dilemma of all reforming autocrats: economic success endangers their continued control. As Harvard University’s Samuel Huntington notes, sustained modernization is the enemy of one-party systems. Revolutions occur under many conditions, but especially when political institutions do not keep up with the social forces unleashed by economic change.
So it should come as no surprise that as China has grown more prosperous, it has also become less stable. In fact, there were 58,000 protests in 2003, 74,000 in 2004, and 87,000 last year according to official statistics. These protests are getting larger. Especially in this decade, demonstrators have often numbered in the tens of thousands — a few protests in 2002 in the northeastern part of the country may have even reached the 100,000 mark.
And demonstrations have also become more violent. For example, last December riot police killed at least three villagers in Dongzhou in southern Guangdong Province. Some reports, however, say as many as 20 died protesting the illegal seizure of land to build a power plant. Observers likened this incident to Tiananmen. In 1989, Beijing’s students, workers, and common citizens demonstrated peacefully. Protestors in Dongzhou, however, used pipe bombs to attack police formations.
In short, demonstrators have begun to use deadly force as a tactic against local authorities. The violence is a sign of increasing volatility in China and an indication that the Chinese political system is having difficulty in channeling discontent. And take note: most of the worst incidents are occurring in the more prosperous parts of the country.
We are also beginning to see middle-class Chinese — the beneficiaries of a quarter century of reform — take to the streets. They act like peasants and workers whenever they think their rights are threatened. If there is one unifying theme for unrest today, it is the desire for justice, the demand to be treated fairly. That’s a hopeful sign for society in general.
But not for the nation’s leaders. The Communist Party can do many things, but one of the things it cannot do is to create a society in which everyone has a chance to be heard and to have a day in court. The Party may have abandoned Marxism, but it is trying to develop a new form of Leninism. As a result, it often governs harshly and unfairly.
The Communist Party has become incapable of reinvigorating itself. Once young and vital, it has been eroded by widespread disenchantment, occasional crises, and the enervating effect of the passage of time. The Party may be big, but it is also corrupt, reviled, and often ineffective. It is barely functioning in some areas, having been replaced by clans or gangs. Party leaders have tried to broaden the basis of their organization’s support to include everyone in society. The Soviets tried the identical tactic of abandoning the ideology of class struggle, and we know what eventually happened to them. A government cannot represent everyone without representative governance.
In a closed system, Beijing’s leaders could move as fast — or as slow — as they pleased. But the real passage of time, previously irrelevant to regime, makes the Communist Party’s cumbersome decision-making look like a fatal condition, especially in light of the critical challenges facing the nation in the next few years. Chinese intellectuals criticize Mikhail Gorbachev for reforming too quickly, but the real lesson for China is that change cannot be planned, ordered, or controlled. Mr. Gorbachev initially believed that reform could be imposed from the top in limited doses. He was wrong, because it exploded from the bottom up.
No one should think that the Chinese people will let the cadres control the pace of transformation. At one time Beijing’s officials were leading change, but now they’re struggling to keep up. Technocrats ponder their five-year plans while everyone else has already entered the future. Deprived for decades, people don’t just want more; they demand everything. Beijing can censor, imprison, and suppress, but the Chinese nonetheless manage to carry on national conversations — both online and off — that grow more lively and provocative by the year.
The country’s leaders are, of course, doing everything to remain fully in control in the run-up to the Beijing Olympics in 2008, yet they will be unable to maintain a high level of vigilance. Squeezing too tight now, the Communist Party will eventually have to relax its grip. The increased repression before the Games will undoubtedly aggravate existing tensions in society. The combination of growing alienation and declining government strength should make the last years of this decade a time of even greater instability.
Many nations suffer post-Olympic economic slumps after building booms end, tourists go home, and sponsorship money is spent. Beijing claims uninterrupted growth in gross domestic product since 1976, the year the Cultural Revolution officially ended. Beijing’s problem is that no government has ever succeeded in eliminating recessions and depressions. China is unlikely to be the first.
Unfortunately for the regime, seemingly uninterrupted economic growth has bred the notion that prosperity is just part of the natural order, especially along the coast. The result is that gratitude is eroding. The government, therefore, has to constantly validate itself since it no longer represents the vanguard of class struggle and does not rest on the consent of the governed.
The stakes, of course, are high. If growth were to slow, there could be unrest comparable to, say, Indonesia in 1998, when Suharto fell. As Mr. Huntington wrote, “Revolutions often occur when a period of sustained economic growth is followed by a sharp economic downturn.” But China’s recent history shows that recession is not a precondition for radical anti-state action. The Tiananmen Square incident, after all, followed a period of growth that was merely mismanaged.
The protests in China today may resemble unrest that has existed for generations. Therefore, some argue they are not necessarily signs of impending regime change. Nonetheless, these disruptive events are occurring at a time of great stress in society. As a result, they have the potential to cause government collapse. Chinese people today may not have revolutionary intentions, yet their acts, occurring at this turbulent time, have revolutionary implications. In sum, too much is happening too fast for any government — no matter how institutionalized — to hold on.
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Mr. Chang is the author of The Coming Collapse of China (Random House, 2001).
July 17th, 2006 at 7:40 pm
Uh bloody knew it. The bloody scots have infiltrated the middle kingdom. Damned kilt swirling heathen folk! But a great interview, nonetheless.
July 17th, 2006 at 10:17 pm
Ask away. Gordon Chang should respond shortly.
July 17th, 2006 at 11:49 pm
Question for Gordon:
What is the key reason for PRC sustaining DPRK? What’s in it for PRC?
Thanks in advance
July 18th, 2006 at 1:18 am
Mr. Chang, once China becomes a member of WTO, what kind of impact will that have? The WTO will force China to have a more free market, to accept more foreign competition internally, and to follow international banking regulations. Do you think the WTO will accelerate the collapse of the CCP?
July 18th, 2006 at 3:09 am
Mi-Hwa, News Flash - China has been a member of WTO since 11 December 2001.
China and the WTO
July 18th, 2006 at 7:28 am
I’d like to ask Mr. Chang’s opinion on a couple of items;
a) How significant does the North Korean regime consider protecting itself (the cult) from outside information vis-à-vis the engagement required to receive aid and ‘concessions’? That is, is the price of aid too high in terms of the potential damage to the cult aspect of the regime?
b) Would a guarantee of no USFK above the 38th parallel in the event of a reunified Korea (carrot), and the threat of less access to U.S. markets (stick) be enough to motivate China into using its influence on North Korea in the are of denuclearization?
July 18th, 2006 at 11:29 am
Even though I hate the Daily Show and all-things-Jon Stewart, Mr. Chang handled the interview very well.
July 18th, 2006 at 12:23 pm
Mihwa, you really ought to stick to your adoration for your dear leader Kim and NO, and PIG Uri party. Your ignorant and often quixotic posts on Israeli conflicts and PRC/WTO attest to your myopic leftist commie agenda.
WTO and China… I wonder how PRC is doing on complying with what they agreed to in 2001. There were some controversial arm twisting and “interpretations” even back then and you can bet that PRC will find excuses not to open up the market. At least no one protested violently in the streets opposing it thanks to zero tolerance under communist rule.
Something I learned from attending USC sponsored annual Asia Pacific Business Outlook (APBO) conference is that PRC Chinese see contract as beginning of a relationship and malleable vs. western view that it’s in black and white.
July 18th, 2006 at 10:06 pm
Mi-Hwa, BTW I asked those same questions in International Economics and Global Business courses in the MBA program at UC-Irvine… but that was back in 1998. The information is out there in cyberspace. You gotta do your homework!
(No relation to Mr. Gordon Chang)
July 18th, 2006 at 11:09 pm
Gordon Chang should respond by the weekend at the latest. I will post an update when the responses are available. Thanks y’all.
July 19th, 2006 at 12:05 am
To TChahng: Thanks for correcting me. I thought China wasn’t a member of WTO because Russia hasn’t been accepted yet into the WTO. I guess China is just way ahead of Russia.
However, my question about the WTO’s impact on Chinese communism is more relevant today than it was in 1998, when you were studying it. The reason is that China has to make big economic changes by 2007 in order to fulfill the requirements of the WTO. The end result is that the Chinese market will become more free and more decentralized. This should mean that the Chinese Communist Party’s control of the economy will become weaker.
To Duke: People who insult others are the ones who deserve insults.
July 19th, 2006 at 12:08 am
Play nicely, everyone.
July 19th, 2006 at 12:17 am
Miwoe Mihwa - People like you deserve insults.
You’re filled with ani-american agenda (yet claim to live in US) as proud PIG Uri party member with blind adoration for one of WORST dictator who killed millions of his own “people” not to mention atrocious suffering and horrors in the prison camps. What’s more is your ignorant and moronic views even on Israel all aligned of course with your midget sugar daddy’s idealogy and tip it all off your yet another ignorant question on PRC entry to WTO.
You’re real hypocrite in even bringing up christian crusade by a Saddleback pastor in PY. Why? Are you a christian? Why avoid this question? Say what would Jesus say about any of his followers supporting your dear leader?
July 19th, 2006 at 12:35 am
Please refrain from personal attacks. By all means, argue substance.
Last warning.
July 19th, 2006 at 12:50 am
Mi-Hwa, Yes I agree it is relevant today as it was 8 years ago. Then the question becomes, “Can a free-market economy exist and survive under a communist
governmentdictatorship?” I don’t know what the end result will be. Perhaps, Mr. Chang can share his insight.July 19th, 2006 at 4:02 pm
Hello Mr. Chang,
First of all good job on the Daily Show on Monday. Many of Jon Stewart’s literary guests become distracted by his humor and their message gets lost. You did not have that problem and stayed on point. I have two questions.
My first question refers the TKL’s question #9. I was hoping you could expand on it some more. I am a currently a 3rd year law school student with a strong interest in working in China. I have visited China twice and am currently taking Mandarin lessons, but beyond these steps I am not certain how else to find an opportunity in China. I was hoping you could share your own personal experience.
My second question relates to the Chinese banking sector. In 2007, per WTO obligations China will open its retail banking sector to foreign banks. I am wondering if you see this as a potential tripwire. Considering the high rate of non-performing loans, lack of transparency, and problems with corruption that Chinese banks have, could this cause a run on those banks? Even if only a small number of Chinese are concerned about the health of their local banks (and thus their savings), if a Citibank opens up next door do think there could be a run on Chinese banks that could spin out of control?
Thank you for taking the time to answer
-Mischa
July 20th, 2006 at 11:41 am
The follow-up Q&A is here.
My apologies to those of you whose questions were not answered.