CHRISTOPHER BALDING: The Soviet Union was on its 13th 5-year plan, and China is in the middle or near the end of its 13th 5-year plan right now. The Soviet Union did not see a 14th.

In the bureaucrats' minds. Debt is not a problem as long as they can essentially always stay one step ahead of a plate that might fall off.

China, in some cases, was responsible for 50% or 75% of global growth in trade in some of these areas, and that's essentially been cut off.

MIKE GREEN: Mike Green for Real Vision. I'm here in Los Angeles. I'm going to get the chance to sit down with one of my friends, Chris Balding. Chris was a professor at Peking University in Shenzhen, and has been one of the more vocal Americans who's come back from China in terms of the underlying dynamics of the CCP, and the truth that underlies China's statistics. I really am looking forward to getting his thoughts on what's going on in the world today, particularly as it relates to the dynamic between the US and China. I think Chris is going to have some really interesting insight and I really hope that we are able to push forward in terms of what's likely to happen next.

Mike Green. I'm here for Real Vision in Los Angeles, and I'm sitting down with Chris Balding, who most people that watch Real Vision probably have heard something about you either on Twitter or in the news, but you and I came into contact over Twitter. Your background is as an economics professor who was based in China, and started talking very openly about it. First, how did you end up in China?

CHRISTOPHER BALDING: The first time I ended up in China was one of the greatest stories. My wife had a job here in LA doing homes for rock stars. She had a very bad job she wanted to get out of and so I actually pretended to be her sending out her resume. She got a US-based headhunter that offered her a job on Wednesday, and she had to be in Beijing to start Monday morning. I still remember the conversation telling her, "Honey, I might have found you a job. It's in Beijing." That conversation did not go super well the first time, but we ended up going to China for 9 years and had a great time.

MIKE GREEN: When you went over, initially, you went over as a bit of a China file?

CHRISTOPHER BALDING: Actually, no. I actually went over really knowing even then, after a couple of months in China, knowing very, very little about China. As a junior professor, I was focused on knowing the very standard, turn out journal articles and academic books and things like that. That's really what I did for the first, probably almost 5 years of my career there at PKU.

MIKE GREEN: What started the change at Peking University? What led you to start speaking out and writing about some of the concerns that you had in terms of-- whether it was China accounting issues, or whether it was China's behavior on a national account basis? What was the trigger?

CHRISTOPHER BALDING: The first couple years, I would say really 3 to 5 years that I was there, I really felt like I knew so little, that I was just really learning and asking questions and everything like that. I remember-- and I don't mean to pick on this guy, but I remember Joe Biden coming to China and writing an article in The Washington Post or New York Times about how China was the future and the US needed to emulate them. At that point, having lived there for-- I forget the exact timeline, 4 to 5 years, I was like, well, this is what's being written in the US press and this just isn't matching what you're seeing on the ground-- whether it was inflation data, or whether it was all the underlying problems that weren't being addressed. That was really the first time I started just blogging. At that point, I think it was just my mom and a couple of her friends that were reading what I wrote.

MIKE GREEN: Your mom obviously liked it, you kept writing. Did you encounter blowback in China immediately, or did that build over time?

CHRISTOPHER BALDING: Honestly, without any hesitation, I can say I never had the school really push back on anything I wrote about China. I'm sure that people at my school got phone calls about what I wrote. I can honestly say I never got any pushback. The only time that I know of that I got pushback about things that I wrote about China was really involving China only tangentially and that was when there was a case where there was a gentleman in Singapore that hung himself and here was some question as to whether or not it was potentially Chinese military that might have been involved in his death, we still don't really know to this day.

He had told friends that he was being pressured to work for Chinese military in high grade microelectronics work. I had written about Singapore, and I knew some of the cast of characters that he was involved with, and they were Chinese military industrial companies that their armor, their weaponry is really involved in really almost any hotspot in the world. I mentioned them in passing about with this Singaporean death. Other than that, honestly, nothing I wrote in China did I get any real official or unofficial request to take anything down.

MIKE GREEN: When you ultimately decided to leave China-- so you worked at Peking University until late 2017, early 2018, and then you came back here briefly, what was the decision process in terms of the decision to leave Peking University?

CHRISTOPHER BALDING: The decision went like this. In this late summer of 2017, I had started a petition about Cambridge University Press censoring some of their articles on China and I had created petition for foreign universities and academics to just reevaluate their relationship with China. I was scheduled to start teaching in November 2017 and the way it worked at our school was they would open up the registration system for students to register for classes about a week to 10 days beforehand.

I had been in touch with the school in the spring, summer, and early fall about my class. When they opened up the registration system, I started getting emails from students. I was going to take your class, Professor Balding, but it's not listed. I emailed the school, and they said, oh, well, we'll check into that. Mind you, this was roughly a week to two weeks after Chairman Xi was reelected for life, and the next day after emailing the school, the school informed me that I was no longer teaching in all of 2017-'18 and my contract would not be renewed at the end of the year.

I suspect, I don't know that that was, for lack of a better term, a decision that was taken outside of the school to terminate my contract. The school and I had had, like any normal working relationship, there've been issues over the years, I don't think there was anything there that had been significantly outside of ordinary or anything that was unresolvable.

MIKE GREEN: To the extent that you and I have talked over the years about some of these dynamics, one of the sources for a lot of your information on a lot of the questions that you delved into were your students. You had it sounded like you had a very good relationship with most of your students and were well respected certainly as a teacher. When I looked up your reviews at Peking University-- I'm joking, I didn't look it up, but it did feel like this is a fairly sudden acceleration in terms of your relationship with China more broadly.

CHRISTOPHER BALDING: Yeah. I think one of the things that even for me, I think it was very informative. You really begin to feel China change in 2012. When I first arrived in 2006 and 2009, in relative terms, China seems-- looking back now, almost open in freewheeling. Things really began to change in 2012 when Xi was there and I think those changes really began to accelerate in, let's say, 2014-'15. I remember just some of the incidents, I had a journalist call me up some time, I want to say it was 2016 or so, saying, hey, I need a pro-China commentary on this specific issue.

This was something that would have been pro-party, pro-Beijing, this wasn't looking for an activist position and I called up a couple of colleagues saying, hey, there's this journalist, would you mind doing this? The couple of colleagues that I called up said, no, I'm not going to comment. You can't comment in China today. Don't ask me again. It was very interesting to me that there was such even-- and this was a couple years, this was probably two years before I left-- of how much the environment in China had changed that people didn't even want to say pro-party things publicly.

MIKE GREEN: Well, one of the things that you and I have discussed somewhat ad nauseum is the dynamic that began to emerge with Xi's ascension, I would phrase it as, in particular, there seems to be an obsession with the decline of the Soviet Union and the advent of Perestroika and the opening up that occurred in the Soviet Union prior to its dissolution roughly 1990. From what I understand and from what we've talked about, that seems to be a very key focus in terms of the CCP and in particular, Xi. Is that consistent with how you think about it?

CHRISTOPHER BALDING: Absolutely. I think that is probably one of the biggest things that is missed in everything that's being discussed about China is Xi is almost, in my estimation, singularly focused on not just the collapse of China, but the accompanying numerology that is there right now. One of the ones is-- and I might be wrong on the name of the plan, but I believe leave it was the Soviet Union was on its 13th 5-year plan, and China is in the middle or near the end of its 13th 5-year plan right now, and the Soviet Union did not see a 14th. Xi is singularly focused on not just having a 14th, but on making sure that he does not replicate what he sees as the errors of the Soviet Union that led to its demise, specifically, opening and liberalization.

MIKE GREEN: That's consistent with the discussion we've also had, which is my contention is that this is also very true that Xi is very focused on this dynamic of 13th to 14th plan, the mistakes of 1989. The way I look at it is that if you were working assiduously to avoid the mistakes of 1989, you're almost guaranteed to repeat the mistakes of 1936-'37, which was when Stalin was made Emperor for life or appointed for life as both head of the party and head of the Politburo. The equivalent cultural reformation that accompany the time period in which the Soviet Union withdrew from the West and '36-'37 ultimately culminating in the Ribbentrop, do you see it similarly, or do you think there's a different dynamic at work here?

CHRISTOPHER BALDING: No, I think you're seeing a very similar dynamic play out. One of the things is the people I continue to talk to in China is you hear things about how much sentiment there is to retake Taiwan. You hear about, well, Hong Kong should be grateful to China. You hear all of these types of things. Well, we're just turning Xingjian into China. We have to do this. There's this cultural imperative to make China great again, for lack of a better term.

I think there's a very similar dynamic. I don't think, when we talk about the US or other countries working with China, I think there's a very static understanding of how China views itself domestically and how China views itself in reasserting itself and taking its place as an equal or looking down upon the United States. Part of that is this like almost cultural cleansing that they seem to be going through right now to elevate China again.

MIKE GREEN: Yeah. Unfortunately, I see these dynamics playing out very, very similarly. One of the alternate takes, so I would argue two primary narratives. Three. One is China's the future. This is the Joe Biden articulation, which is difficult to square with many of the facts on the ground, but certainly remains, I would argue, the consensus view.

The second one is that no, China is not the future, but it's going to manage it similarly to Japan, that it's going to have a step down in growth, that it's going to age and therefore have deflationary pressures, and probably an appreciation of the yuan as they seek financial power and global power in terms of the financial sphere as compared to the manufacturing or outright growth. Then the third one is the China collapse model. What do you think about that middle one, the idea that China can gracefully go the route of Japan?

CHRISTOPHER BALDING: I was talking to someone a couple years ago in Beijing, and I was talking about the debt pressures that China was facing. I was unconvinced that Beijing even understood the severity of debt problems. I asked this person I said, do you think they understand the severity? He said, absolutely, they understand the severity, but you're looking at it as if there's a problem there to be reformed. I was like, what do you mean, of course, they have to reform? He said, no, no, their goal is to just become Japan, not Thailand.

I think internally, in the bureaucrats' minds, debt is not a problem as long as they can essentially always stay one step ahead of a plate that might fall off. However, that is becoming even the Japan model, more and more difficult. Not to say that they're going to become Thailand, but the greater the debt pressures become both on domestic debt and on foreign debt, you have to elevate it one step above Japan if you're going to make sure that you don't become Thailand and what that requires is almost going the DPRK model of financial repression.

I think more and more, that is what you are seeing is that level of financial repression. Just as an example, we're seeing a lot of evidence that there are essentially price mandates on real estate prices. Just this week, we're seeing-- just over the past couple weeks, we're seeing evidence of financial repression with regards to pork sales and subsidies, and you need identity cards to purchase pork. I think what you're seeing is for-- they're realizing it and it's going to be more and more difficult for them to even become Japan and if they do that, to make sure they don't become Thailand, they have to become more financially and socially oppressive at every step of the escalation.

MIKE GREEN: Well, it's also interesting, because I think there's a bit of a misunderstanding of what Japan is. Japan became rich, flirted with the idea of do we want to become a global superpower? Do we want to challenge the United States? They somewhat rationally looked at it and said, no, and therefore chose a path that allowed them to benefit from the assets that they had accumulated abroad, somewhat of the cost of domestic production. They seated share but gained income. That seems to have changed under Abe, and so there's this debate about whether Japan still looks like Japan under that context, I would argue, Japan is one of the countries that has the most exposure to China in terms of the value of the Japanese yen that seems underappreciated on the street.

That does seem like a really difficult path for a country that is fundamentally quite poor. China has $3 trillion in reserves, but that's $2,000 per person. It's just not that much money. If they're looking at that type of difficulty, where they think it's really hard to become Japan, do you think they go the DPRK or North Korean route?

CHRISTOPHER BALDING: I think if you just look at the evidence right now of where Xi is taking them socially and financially, I think you have to believe that yes, that is the direction they're going. If you just take one example, I think there's pretty strong evidence that over the past, say, year or so, they're working very, very hard to lower their import bill. Specifically, one example of this would be-- a lot of their import bill comes from two primary areas-- imports for processing and imports for natural resources that they use as inputs.

One of the areas where they seem to be working very hard to lower their import bill is in iron ore. How they're doing that is they're essentially shifting to domestically produced iron ore that is let's say anywhere from 10% to 20% premium, but at this point, at least, they don't have to expend FX reserves. I was talking to someone, they actually ran the calculations, well, if China has enough cobalt reserves, turn out batteries, what is the payoff period for them to essentially go all electric with batteries and lower their import bill through lower oil purchases? They said within five years, it's not crazy to think that that is on their to do list to essentially shift away from international transactions in oil, because we see that happening right now with iron ore.

If they can essentially say, we're going to cut our natural resource import bill significantly, it's not crazy to think that they are essentially going to that model in the international trade. We see that happening already in the social realm of how much they continue to tighten up and control speech on financial matters. I stay abreast of Chinese language, IB research, and even a lot of the IB research has censorship mandates about what they can and can't say. That DPRK model is clearly something that they're at least trending towards, even if they don't go quite that extreme.

MIKE GREEN: It's interesting, because this is the thing that you would expect to see and it can have two outputs. Over the course of 18 months, if you decide that you're going to deemphasize imported iron ore, seaborne, primarily, and emphasize domestic production, the immediate reaction from most purchasing managers is I'm going to buy as much seaborne ferrous with higher iron or content, the 62% plus stuff as fast as I possibly can so I get ahead of these purchasing restrictions. It shows up as a positive impulse into the global iron ore markets. We saw this, we saw the prices rise, and now they've been falling as this import substitution takes hold.

The other thing that's interesting about that type of behavior is it ends up increasing pollution, destroying productivity, because you can't run the higher technology, steel foundries, with lower iron ore content, lower purity domestic sources. They've depleted their highest iron ore content, ores, and now they're using lower and lower which leads to tremendous amounts of slag build up, et cetera in their product, they just can't do it. Paradoxically, they're going to end up in a less productive, weaker position through this choice, but it is a choice for autarky basically, they want to reduce that import bill.

CHRISTOPHER BALDING: Yes. I think that seems to be the direction that they're very clearly moving. I think fundamentally, the backup issue is that they're quite worried about their foreign exchange position because even as reserves have essentially stagnated for a couple of years, money has continued to grow relatively significantly, such that if there's any problem, that is going to put a real dent in their FX position, especially