Bosco had a small patch of something similiar on his tummy when he was very young (probably 10 weeks old). The vet said it was because Bosco hadn't really caught on to "cleaning" himself yet after he went pee. She said just clean it with warm water and dry it off good. After that one little patch he never had any more.
It sounds to me like maybe your dog has the same thing?
You could always ask the vet if you are concerned or if it doesn't go away!
Hi there, is your chi neutered? Sometimes they get a buildup of smegma around the penis that just collects a bit of dirt and dries to the consistency of dry skin. If you are able to just peel it right off, it's not likely it is growing or even part of the skin. Does the color of the skin underneath look normal?