Dangerous Upshot of Clinton-Gore’s China ‘Bonding’: Strategic Penetration of U.S. Investment Portfolios

(Washington, D.C.): Press reports have
begun to focus on a Chinese entrepreneur,
Wang Jun, as one of the most intriguing
— and probably one of the most important
— figures in Communist China’s influence
operation in the United States. For
example, a detailed front-page article in
the Washington Post on 16 March
describes Wang as “head of China’s
most politically connected financial and
industrial conglomerate, as well as a
Chinese military-owned arms trading
company [Poly Technologies] under
investigation for illegally smuggling
assault rifles into the United
States.”

Wang is the object of both
journalistic attention and an FBI
investigation at least in part because of
his participation on 6 February 1996 in
one of the Clinton-Gore campaign’s
notorious fund-raising coffee-clatches at
the White House. Less attention has thus
far been paid to the self-declared reason
for Wang’s desire to gain access to the
highest circles of the U.S. government:
his flagship company, China International
Trust and Investment Corporation (CITIC)
was interested in issuing new “debt
offerings.” Like Johnny Chung,
Charlie Trie and others with access to
Asian “walking around money,”⁽¹⁾
Wang evidently believed that sipping
coffee with the President could only be
good for business.

‘Follow the Money’

This motivation for Wang Jun’s effort
to have “out-reach” to the
Clinton-Gore team highlights what the
Casey Institute of the Center for
Security Policy believes is a potentially
serious new penetration of the U.S.
securities markets by China’s Military
Commission (the governing mechanism
overseeing the Chinese People’s
Liberation Army): the issuing by
CITIC since March 1993 of hundreds of
millions of dollars worth of
dollar-denominated bonds in the American
market.

The fact that the national
security implications of such
transactions have apparently received no
more attention than was evidently given
to the idea of leasing a preeminent U.S.
Navy base to the Chinese merchant marine⁽²⁾
only intensifies concerns about the
Clinton Administration’s management of
the China portfolio. After all,
it would appear that, through this
device, Beijing’s General Staff
Department — which reportedly controls
CITIC and which is, in turn, controlled
by the Military Commission⁽³⁾
— has been given a mechanism for
recruiting American mutual funds, pension
funds, insurance companies and other
market players to help underwrite
activities in some cases inimical to U.S.
interests.

What is more, the interconnection
between Poly Technologies and CITIC —
evidenced by Wang Jun’s chairmanship of
both entities, by CITIC’s former 50%
ownership share of Poly Technologies and
by the apparent, continued linkage of the
two entities through a corporate
intermediary, Continental Mariner
Investment Corporation — raises an
ominous prospect: A large number
of American investors may have
unwittingly actually helped fund,
directly or indirectly, Poly Technology’s
alleged scheme to smuggle automatic
rifles and other weaponry into the hands
of criminal elements in this country.
(Just how deadly the sorts of weapons can
be in such hands was brought home a few
weeks ago when bank-robbers wielding
AK-47’s manufactured by Poly’s
partner-in-crime, Norinco, used them
against Los Angeles police officers
having nowhere near the firepower.)

‘The Chinese Clean-Up’

Beijing broke the code over a decade
ago concerning the contribution bond
offerings by state-owned or operated
companies like CITIC could make to
expanding China’s sources of
international borrowing. As noted in a
paper entitled “Financial Sanctions:
How Might They Be Used Against
Proliferators” presented by Casey
Institute Chair Roger W. Robinson, Jr. in
a 26 February 1997 meeting attended by
U.S. government officials and sponsored
by the Nonproliferation Policy Education
Center, these benefits include the
following:

• Access to large sums of
  relatively inexpensive,
  general-purpose cash that can be
  used for almost any purpose the
  borrower has in mind.
• The recruiting of an entirely new
  group of lenders — including
  securities firms, pension funds,
  insurance companies, corporations
  and even individuals —
  diversifying away from sole
  reliance on Western governments
  and commercial banks as sources
  of funding.
• Avoidance of conditionality,
  discipline and collateral in the
  process of attracting borrowed
  funds — offering a new avenue to
  circumvent the compliance
  milestones embodied in such
  mechanisms as International
  Monetary Fund stand-by
  arrangements.
• The construction of
  politically-powerful new
  constituencies in Western nations
  with a vested financial interest
  in ensuring that the borrowing
  nation is not subject to future
  economic sanctions or other forms
  of international isolation and
  penalties.
• The non-reschedulable character
  of bonds — thanks, in part, to
  the large secondary market for
  such instruments. This reality,
  which was much in evidence in the
  recent case of the Mexican tesobonos,
  tends to create an incentive on
  the part of Western governments
  to intervene in the event of a
  liquidity crisis that threaten to
  harm scores of prominent firms
  and possibly thousands of
  investors.
• The interest rates offered can be
  considerably lower than those
  sovereign borrowers are
  accustomed to paying. A case in
  point is Russia’s
  dollar-denominated bond offering
  last November which attracted $1
  billion for five years at a rate
  that was just 3.45 percent higher
  than U.S. Treasury notes of
  comparable maturity — a rate
  competitive with that of
  Venezuela, Mexico, India and
  other better-known international
  borrowers.

The CITIC Play

CITIC is a prime example of China’s
application of this sophisticated
fund-raising technique. The Casey
Institute has learned that CITIC has
issued some 15 bonds in the securities
markets since the summer of 1988. Most of
those bond offerings were yen-denominated
(some 10 issues) and totaled roughly 183
billion yen. At least four CITIC
bond issues, however, were denominated in
U.S. dollars, raising a total of $800
million. Two of the U.S. dollar offerings
had American investment firms as lead
managers.

When one includes a 500 million Hong
Kong dollar bond-offering — worth
approximately $65 million U.S. (by CITIC
Hong Kong Finance in July 1993 lead
managed by JP Morgan Asia Ltd.), the
total U.S. dollar amount involving
American investment firms climbs to nearly
$1 billion. Some of the highlights
of these transactions are as follows:

What Congress Should Want
to Know About CITIC

The fact that such a highly
questionable corporate entity like CITIC,
led by a figure emblematic of China’s
role in the campaign finance scandal,
could entrench itself in the fabric of
the American business and investment
communities undercuts the proposition
that the U.S. securities industry can be
relied upon to safeguard national
security interests in the course of
certain foreign borrowing transactions.
To gain a fuller picture of CITIC’s true
corporate identity and its connections
with China’s military establishment — as
well as how the hundreds of millions of
dollars raised by CITIC through bond
offerings in the U.S. were likely used —
a number of questions should be taken up
by relevant Congressional committees.
They include:

• Who are the subscribers to CITIC
  bond offerings in the U.S.?
• What do the prospectuses filed
  with the Securities and Exchange
  Commission say about CITIC, its
  senior management, and the
  proposed use of bond proceeds?
• What are the disclosure
  obligations associated with
  CITIC’s bond offerings and what
  constituted the precise market
  entry process?
• Can the U.S. intelligence
  community confirm that CITIC is
  controlled from behind the scenes
  by the General Staff Department,
  the right arm of China’s Military
  Commission?
• What is the precise relationship
  between Poly Technologies and
  CITIC today — and to what extent
  are the senior managements and
  directors of this family of
  companies the same people?
• Does China Ocean Shipping Company
  (COSCO) have any formal
  affiliation with CITIC or do
  business with any companies Wang
  Jun heads?
• Who are Wang Jun’s and CITIC’s
  principal political sponsors and
  funders in China and elsewhere?
• What is the history of Wang Jun’s
  reported friendship with Charlie
  Trie and John Huang?

The Bottom Line

The Center for Security Policy has
long believed that there exists an
important nexus between national security
and the Western securities market.⁽⁴⁾
It now appears that the corporate
flagship of China’s military-industrial
complex — with the wrong leadership,
corporate history and agenda — has been
attracting large sums of totally
undisciplined cash from a wide spectrum
of American investors. Accordingly, the
Casey Institute believes that the
troubling national security aspects of
CITIC’s established presence in the U.S.
bond market should be explored forthwith,
at a minimum, by the Senate Governmental
Affairs and House Government Reform and
Oversight Committees.

It is to be earnestly hoped that the
consideration of this subject in
congressional hearings will lead to an
awareness of the larger danger: Western
securities markets may well represent the
most attractive, and certainly one of
the most important, funding vehicles
available to potential adversaries of the
U.S. and their state-owned enterprises
for the balance of this decade and the
21st century. This
“financial bridge” to the next
century — well traveled by CITIC and
other Chinese government and
government-operated bond-offerers on
the Clinton Administration’s watch —
should serve notice that security-minded
market-entry procedures are urgently
needed for the U.S. bond market. The
United States would be wise to pursue as
well the institution of similar
mechanisms and procedures in its allies’
securities markets.

– 30 –

1. Today’s Wall
Street Journal reports on the
apparent source of at least some of
Charlie Trie’s slush fund: The
state-operated Bank of China. Charlie Yah
Lin Trie “a central figure in the
controversy over foreign contributions to
the Democratic Party, received a series
of substantial wire transfers in 1995 and
1996 from a bank operated by the Chinese
government.” The electronic money
transfers from the New York office of the
Bank of China were “usually in
increments of $50,000 or $100,000 [and]
came at a time when Mr. Trie was
directing large donations to the
Democratic National Committee.” The
Casey Institute has learned that between
October 1992 and March 1994, the Bank of
China issued some $850 million in
dollar-denominated bonds.

2. Incredibly,
despite a public outcry about the lease
of Long Beach naval base to the state-run
Chinese Ocean Shipping Company (COSCO),
the Clinton Administration has —
according to the Washington Post:

“quietly agreed to end the
requirement that Chinese ships
provide four-days notification
when entering one of a dozen
sensitive [U.S.] ports [i.e.,
those near sensitive military
installations]. In exchange,
China agreed to provide new
business opportunities it had
first promised American shippers
in 1993, but had not yet
delivered. Officials say
implementation of that offer is
progressing slowly.

“The primary Chinese
beneficiary of the deal struck in
the spring and summer of 1996
is the state-run shipping
company, COSCO.”

3. See “PLA
Espionage Means Business” by Tim
Maier in the 24 March 1997 edition of Insight
Magazine.

4. See the
following Casey Institute Perspectives:
Russian ‘Bondage’: Moscow’s
Financial Breakout Gets Underway With
Wildly Oversubscribed Eurobond Sale
(No. 96-C
119, 26 November 1996); The
Debate Begins Over Russia’s Financial
‘Break-Out’; Where Will It End For
U.S. Taxpayers, Interests?
(No. 96-C
110, 4 November 1996); and If
You Like the Rigging of the Lebed
Dismissal, You’ll Love the Rigging of the
Global Credit and Securities Markets
(No. 96-C
100, 17 October 1996).