Dirty Business: China Ocean Shipping Company Allegedly Running Guns –and Who Knows What Else — to Cuba

(Washington, D.C.): A front-page article in today’s Washington Times identified the China Ocean Shipping Company (COSCO) as a key player in the ongoing, surreptitious delivery of weapons from China to Cuba. Ironically, this report comes shortly after the COSCO’s CEO paid a visit to the Times for the purpose of disavowing widely reported connections between his company and the Chinese military.

According to the Times, Beijing’s arms deliveries to Cuba have taken place on at least three separate occasions within the past several months. This pattern of reported transfers belie the claim that COSCO’s activities are solely driven by the pursuit of profit, independent of the Chinese government’s foreign policy agenda. Instead, it seems far more likely that COSCO — a 100% Chinese state-owned enterprise (SOE) — is doing precisely what its owners instruct it to do, i.e., supporting the PRC’s goal of increasing military and economic collaboration between Havana and Beijing.

In a move that has, regrettably, become standard operating procedure for making certain Chinese SOE’s more palatable to U.S. and overseas investors, COSCO created a wholly-owned subsidiary — COSCO Pacific — to establish a funding vehicle on the Hong Kong stock exchange. This and other so-called “Red Chips,” however, generally remain largely under the influence of the parent company. The contention by some market observers that there is a genuine “firewall” between COSCO and COSCO Pacific is made still less plausible by the Times‘ identification of yet another COSCO subsidiary (COSCO Tianjin) as the transporter of sophisticated weaponry components to Pakistan in 1998.

American shareholders of COSCO Pacific now seemingly find themselves in the unsavory position of holding the stock of a subsidiary of a Chinese state-owned firm allegedly implicated in untoward international arms smuggling and possibly weapons-proliferating schemes. According to Thomson Financial Research Services, these investors include: the State Teachers’ Retirement System of Ohio (that holds some 6 million shares); the Teachers’ Retirement System of Texas; Nomura Asset Management; Morgan Stanley Emerging Market Fund; Putnam Investment Management; Goldman Sachs Core International Equity Fund; Credit Suisse Asset Management; and American Express Asset Management.

Should Bill Gertz’s reports of alleged violations of U.S. law prove correct, Congress and/or the Bush Administration may feel compelled to deny access to the U.S. capital markets to COSCO and its publically traded subsidiaries as a highly leveraged and singularly effective penalty for activities that facilitate the military armament of terrorist-sponsoring states like Cuba in violation of U.S. law.

At least three arms shipments were traced from China to the Cuban port of Mariel over the past several months. All the arms were aboard vessels belonging to the state-owned China Ocean Shipping Co. (Cosco), according to U.S. intelligence officials.

Intelligence officials who spoke on the condition of anonymity said details of the arms shipments are sketchy but all involved a “known Chinese arms dealer” who arranged the transfers.

One of the cargoes was described as dual-use explosives and detonation cord. The explosives were said to be “military-grade” material.

The latest shipment took place in December. That arms delivery coincided with the visit to Cuba in late December by Chinas military chief of staff, Gen. Fu Quanyou. Gen. Fu signed a military cooperation agreement with Havana aimed at modernizing Cubas outdated Russian weapons.

The arms shipments to Cuba could lead to the imposition of economic sanctions on China and Cosco, according to U.S. officials.

A 1996 amendment to the 1962 Foreign Assistance Act requires that economic sanctions be imposed on any nation or company that provides lethal military assistance to a nation designated as a state sponsor of terrorism. Cuba is on the State Departments list of nine nations designated as supporters of global terrorism.

Sanctions would disrupt a major portion of the U.S.-Chinese shipping market controlled by Cosco, whose business lines include port terminals and warehousing, insurance, real estate and hotel management.

Cuba has been increasing its ties to China in recent months. In April, Chinese President Jiang Zemin traveled to Havana and signed agreements worth about $400 million in loans to Havana.

Other Chinese activities in Cuba include electronic eavesdropping on the United States and Chinese government radio broadcasting, according to U.S. officials familiar with intelligence reports. China also recently agreed to modernize Cubas telecommunications network.

A CIA spokesman declined to comment on the arms shipments.

Spokesmen for Cosco could not be reached for comment.

Wei Jiafu, Cosco group president and chief executive officer, told reporters and editors of The Washington Times on June 2 that the shipping line has no connection to the Chinese military and is only interested in making money.

Mr. Wei insisted during the interview that the Peoples Liberation Army had no influence on the companys operations or global business strategy.
However, the shippers only shareholder is the Chinese government.

Mr. Wei and other Cosco officials were in the United States to meet port officials in Massachusetts, where they had reached an agreement with the Massachusetts Port Authority to begin a weekly shipping service between Shanghai and Boston beginning next year.

Cosco has been linked in the past by U.S. intelligence agencies to illegal smuggling and international arms trafficking.

James Mulvenon, a China analyst with the RAND Corp., said that the Chinese Communist Partys military organ approved establishment of Cosco as an arm of the Chinese navy in 1985.

Mr. Mulvenon stated earlier this year, in his book “Soldiers of Fortune,” that Coscos establishment “legitimized the use of navy ships for civilian shipping and thus provided a legal cover for the navys smuggling.”

The Chinese navy was linked in 1985 to illegal smuggling in foreign cars, vans, TVs and VCRs out of Hainan island in the South China Sea, he wrote.

In 1998, U.S. intelligence agencies tracked a Cosco freighter from Shanghai to Karachi, Pakistan, with a load of weapons-related goods, including specialty metals and electronics used in the production of Chinese-designed Baktar Shikha anti-tank missiles.

The shipment was carried aboard a vessel owned by the company subsidiary Cosco Tianjin.

The arms transfers by Cosco ships contradict statements to Congress made in 1997 by National Security Adviser Samuel R. Berger, who told senators there was no credible evidence linking Cosco to illegal activity, including arms smuggling.

Edward Timperlake, a former House committee investigator, said a Cosco executive was among a group of Chinese officials who were granted access to the White House and to Mr. Clintons weekly radio address in 1995 — days after Democratic Party fund-raiser Johnny Chung made a large payment to the White House for the presidents re-election campaign.

The visit was checked by White House National Security Council aide Robert Suettinger, who wrote in a memorandum that giving White House photographs to the group of Chinese officials and Chung, who in 1998 pleaded guilty to making illegal campaign contributions, would not cause “any lasting damage to U.S. foreign policy.”

Mr. Suettinger, who described Chung as a “hustler,” also stated in a White House memo: “And to the degree it motivates him to continue contributing to the [Democratic National Committee], who am I to complain,” Mr. Suettinger said.
“Cosco is the merchant marine arm of the PLA Navy,” Mr. Timperlake said. “If the Chinese military ever mobilized troops for action against Taiwan, Cosco would be part of the operation.”

Cosco ships would provide arms and logistics support for Chinese military operations, U.S. officials said.

Al Santoli, a national security aide to Rep. Dana Rorhabacher, said Cosco is well-known for worldwide support of Chinese weapons sales.