- The Washington Times - Monday, December 13, 1999

The spotlight on the World Trade Organization and the eagerness of the Beijing government to join it brings to mind another kind of trade with communist China the sale of stocks and bonds in Chinese government-owned companies for U.S. dollars. Roger Robinson, a member of the National Security Council staff in the Reagan administration who now chairs the William J. Casey Institute of the Center for Security Policy, has warned for years of the need for disclosure in such transactions.

Then the Cox report, issued last May by a committee headed by Rep. Chris Cox, California Republican, on China’s military and commercial activities, noted Beijing’s use of U.S. capital markets to finance its military modernization. Mr. Cox said Americans who buy Chinese securities without adequate disclosure “are essentially lending money to the communist government of China.”

China is creating a modern military machine with the goal of projecting enough force to make Taiwan join the mainland on its terms, and if necessary to invade Taiwan while holding the United States at bay. Beijing is buying modern military equipment from Russia, including SU-27 and SU-30 fighter aircraft, Kilo submarines, air-to-air missiles, and other advanced weaponry. Add the domestic production of new aircraft, naval units, and medium-range ballistic missiles, and Beijing is acquiring weapons needed to attack Taiwan. But China also is producing advanced cruise missiles to threaten the U.S. Pacific Fleet and new intercontinental ballistic missiles that hold American cities at risk. Last year, China raised defense spending 15 percent, the 11th year in a row of double-digit increases.

One source of hard currency for weapons purchases is the sale of stocks and bonds for dollars. John Berlau, writing in Investor’s Business Daily on July 27 and Sept. 7, revealed how the California Public Employees Retirement System (CalPERS) invested millions in Chinese companies with alleged ties to military or intelligence services. One is China International Trust and Investment Corp. (CITIC), which the Rand Corp. calls “a conduit for military sales and acquisition.” Another is Cosco Pacific, one of whose ships was seized by U.S. customs in 1996 for trying to smuggle 2,000 automatic weapons into the port of Oakland.

Other Chinese companies with U.S. dollar investments include China Resources, cited by Sen. Fred Thompson as “an agent of espionage economic, military, and political for China.” Investor’s Business Daily reported that the Texas Teachers Retirement System and the Tennessee state pension fund also hold stock in this alleged front for Chinese military intelligence. Another company, China North Industries Group (NORINCO), reportedly is “a significant part of China’s Military apparatus.” Poly Technologies, whose chairman also is chairman of CITIC, is said to be owned by the People’s Liberation Army and acts as a conduit for Russian arms sales to China.

Three state-owned banks, the Bank of China, China Construction Bank, and China Development Bank, have raised some $3.8 billion in bond offerings in U.S. dollars. It was the Bank of China that allegedly was used to transfer funds to Johnny Chun and Charlie Trie in the 1996 Democratic campaign finance scandal. Overall, Chinese entities have issued more than $14 billion in bonds for U.S. dollars, $800 million by CITIC alone, in most cases without adequate disclosure about the borrowers, their management, or affiliates and subsidiaries much less their ties to the Chinese leadership.

Last July, the Deutch Commission, chaired by President Clinton’s former CIA Director John Deutch, reviewed the government’s ability to limit the proliferation of weapons of mass destruction and expressed concern that “known proliferators may be raising funds in U.S. capital markets.” The commission noted that without a national security review of foreign companies that sell stocks and bonds for dollars, U.S. investors do not know how their money is used.

Most Chinese companies sell stock on the Hong Kong market, but at least 27 are listed on the New York Stock Exchange. In September, the Dow Jones Report revealed that China National Petroleum, a government-owned enterprise with some $1.4 billion invested in Iraq and more than $1.5 billion in Sudan, a state-sponsor of terrorism, is planning an initial public offering on the New York Stock Exchange to raise $5 billion to $10 billion.

In an effort to bring these investments under prudent scrutiny, Rep. Spencer Bachus, Alabama Republican, chairman of the monetary policy subcommittee of the House Banking Committee, and Rep. Dennis Kucinich, Ohio Democrat, proposed The U.S. Market Security Act of 1999. This bill would establish an Office of National Security at the Securities and Exchange Commission to report to Congress the names of foreign government affiliates seeking to enter the U.S. stock and bond markets. The sponsors emphasize they are taking great care not to impede the free flow of capital. Their goal: to improve transparency so Americans will know more about the foreign organizations in which they are investing.

Portfolio managers are investing the pension funds of Americans in companies controlled by the Chinese government and in some cases the Chinese army without sufficient disclosure of their true owners or activities. How much ultimately is going to support China’s militarization? No one knows, but greater disclosure is needed. Congress should take up and enact the U.S. Market Security Act early in the next session.

James T. Hackett is a contributing writer to The Washington Times based in San Diego.

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