A Job for C.F.I.U.S.: Proposed Chinese Buy of U.S. Telecommunications Assets Needs National Security Scrub

(Washington, D.C.): On 23 June, Hutchison USA announced its investment of $957 million
into
the combined telecommunications company of Voicestream Wireless and Omnipoint. Hutchison
is already the largest shareholder in Voicestream, owning 24% of the company and its latest
investment will increase its ownership to 30% of the newly merged conglomerate. Normally,
such an announcement would not receive a second glance in the morning edition. Since, on
closer inspection, Hutchinson is not a run-of -the-mill American corporation, this transaction
demands a careful review by national security-minded agencies of the U.S. government and,
most especially, by the Committee on Foreign Investment in the United States (CFIUS).

What Exactly Is Hutchinson?

Hutchison USA is a division of the large Hong Kong business conglomerate,
Hutchison
Whampoa, whose business ventures include real estate, port ownership in Asia, Europe
and
Panama, retail and manufacturing, and telecommunications and energy projects. Owned largely
by billionaire Li Ka-shing, the company has recently initiated an extensive
overseas acquisition
strategy.

Among other companies, Li is also the principal owner of the Panama Ports Company and
China
Resources Enterprise which collectively control four major ports at the eastern and western entry
points to the Panama Canal. In a recent hearing before the Senate Committee on Foreign
Relations on U.S. interests in the Panama Canal, a former Chairman of the Joint Chiefs of Staff
and Chief of Naval Operations, Admiral Thomas H. Moorer (USN, Ret.)
raised an alarm over
Hutchison’s role — and that of the Chinese government — in Panama. As Adm. Moorer put it:

…There’s far more going on [in Panama] then meets the eye. A company called
Panama Ports Company, S.A., affiliated with Hutchinson Whampoa, Ltd. through its
owner, Mr. Li Ka-Shing, currently maintains control of four of the Panama Canal’s
major ports. Now, Panama Port Company is 10 percent owned by China Resources
Enterprise, the commercial arm of China’s Ministry of Trade and Economic
Cooperation.

Adm. Moorer added:

Hutchison-Whampoa controls countless ports around the world. My specific concern
is that this company is controlled by the Communist Chinese. And they have
virtually accomplished, without a single shot being fired, a stronghold on the Panama
Canal, something which took our country so many years to accomplish — [that is] the
building and control of the Panama Canal — along with military and commercial
access in our own hemisphere.”

Just What Is China Resources Enterprise?

On 16 July 1997, Senator Fred Thompson (R-TN) was quoted by the
South China Morning
Post as saying that China Resources Enterprise acts as “an agent of espionage —
economic,
military, and political — for China.” He also has observed that CRE has “geopolitical
purposes. Kind of like a smiling tiger; it might look friendly, but it’s very dangerous.”

In their best-selling book, Year of the Rat, Edward Timperlake and William C.
Triplett III
claimed that China Resources “had previously been identified as an associate of Chinese military
intelligence.” The authors also identified ties between Li Ka-shing and known arms-smuggler
Wang Jun, head of Polytechnologies, an enterprise closely associated with the
People’s
Liberation Army.

Troubling ‘Connections’

According to [an investigative report entitled href=”https://www.afpc.org/issues/panama.htm”>”The Panama Canal in Transition” which was
published by the American Foreign Policy Council on 23 June 1999], Li Ka-shing’s connections
to Chinese government and government-connected entities are extensive — and worrisome:

The Senate [Government Reform] Committee…revealed that Hutchison Whampoa’s
subsidiary, HIT, has business ventures with the China Ocean Shipping Company
(COSCO), which is owned by the People’s Liberation Army. COSCO has been
criticized for shipping Chinese missiles, missile components, jet fighters and other
weapons technologies to nations such as Libya, Iraq, Iran and Pakistan. In 1996, the
U.S. Customs Service seized a shipment of 2,000 automatic weapons aboard a
COSCO ship at the port of Oakland, California. The man identified as the arms
dealer, Wang Jun, is the head of China’s Polytechnologies Company, the
international outlet for Chinese weapons sales.

Jun also sits on the Board of the China International Trust and Investment
Corporation (CITIC), ¹ the chief investment arm
of the Chinese central
government. It is also the bank of the People’s Liberation Army, providing
financing for Chinese Army weapons sales and for the purchase of Western
technology. Jun’s fellow CITIC Board member is Mr. Li Ka-shing,
chairman of Hutchison Whampoa Ltd.

Li Ka-shing has profound ties to the Beijing regime. Li has invested
more
than a billion dollars in China and owns most of the dock space in Hong Kong.
In an exclusive deal with the People’s Republic of China’s communist
government, Li has the right of first-refusal over all PRC ports south of the
Yangtze river, which involves a close working relationship with the Chinese
military and businesses controlled by the People’s Liberation Army.

Li has served as a middle man for PLA business dealings with the
West. For
example, Li financed several satellite deals between the U.S. Hughes Corporation
and China Hong Kong Satellite [CHINASAT], a company owned by the People’s
Liberation Army. In 1997, Li Ka-shing and the Chinese Navy nearly obtained
four huge roll-on/roll-off container ships — which can be used for transporting
military cargo — in a deal that would have been financed by U.S. taxpayers.

A June 1997 Rand report, “Chinese Military Commerce and U.S. National
Security,” stated, “Hutchison Whampoa of Hong Kong, controlled by Hong
Kong billionaire Li Ka-shing, is also negotiating for PLA wireless system
contracts, which would build upon his equity interest in Poly-owned Yangpu
Land Development Company, which is building infrastructure on China’s Hainan
Island.” In 1998, Li Ka-shing attempted to issue $2 billion in bonds, through
his Hutchison company, in the United States. According to the Dow Jones
Newswire, Hutchison revealed that 50 percent of the bonds would be used
through a subsidiary known as Chung Kiu Communications Ltd., which
had signed agreements to provide cellular services and equipment to joint
ventures between the People’s Liberation Army and the Chinese Ministry of
Posts and Telecommunications. (Emphasis added.)

The Bottom Line

The Committee on Foreign Investment in the U.S. (CFIUS) is responsible for analyzing the
national security implications, if any, of prospective mergers and acquisitions which involve the
purchase of American companies by international investors. When concerns are expressed about
such implications, CFIUS has a 90-day period to examine the national security ramifications of
such transactions. If necessary, it can extend its review in order to undertake a more lengthy and
thorough investigation of these implications. It is required to submit a report and
recommendations to the President based on its findings. If the President deems the prospective
merger or acquisition to be a threat to U.S. national security, he may restrict or bar the foreign
investment.

The possibility that harm to American security interests could arise from the Hutchison
purchase
of a large stake in Voicestream Wireless and Omnipoint makes this transaction a candidate for a
CFIUS review, even though it is nominally a U.S. entity. To do otherwise may set the precedent
that by merely incorporating a subsidiary in the U.S., any foreign owned and operated company
would be eligible to acquire — or merge with — U.S. security-sensitive firms without CFIUS
review. If the Clinton Administration — which has shown itself astoundingly indifferent to the
dangers posed by China’s penetration of the U.S. nuclear weapons complex, political system and
economy — proves reluctant to commission such a study, it should be mandated by the Congress.

¹ For more on CITIC, see Casey
Perspectives entitled Hedging Financial Bets In China: Will
‘ITIC’s’ And Other Entities With P.L.A. Connections Be Bailed Out By Beijing? ( href=”index.jsp?section=papers&code=98-C_182″>No.98-C 182,
12 November 1998); and Market Confidence In ‘China Inc.’ Appropriately Shaken —
G.I.T.I.C.
Bond Default A Taste Of What Is To Come (No. 98-C
177, 29 October 1998).