Excerpts from Insight Magazine’s cover story entitled “U.S. Is Financing China’s War Plan”

by Timothy W.
Maier

Publication
Date 12 May 1997

China is making a statement in the
Pacific that threatens several of
America’s most important allies and could
force a showdown with the United States.
The Red Chinese plan, say U.S.
intelligence sources, is to expand its
military hegemony to dominate trade in
the South China Sea. It’s called
“power projection,” and
Pentagon officials, China experts and
senior intelligence specialists privately
are saying that it could erupt in
bloodshed on the water.

These experts say the United States is
facing a multibillion-dollar military
threat. And, to complicate matters, it is
being subsidized by the U.S. bond market,
senior national-security officials tell Insight.
It is money from American pension funds,
insurance companies and securities that
may never be paid back.

China’s plan is militarily to dominate
the first tier of islands to the west of
Japan and the Philippines and then
project its force to the next
“island tier,” leaving
America’s most important allies in the
Pacific surrounded by the Chinese
military and, short of nuclear war,
defenseless.

***

“They are setting the building
blocks to eventually make that power
projection,” says [a Philippine]
diplomat, who asked not to be named.
“These are the building blocks for
controlling the sea lines on which all
the countries in the region such as
Taiwan and Japan rely for economic
vitality. The Chinese want to constrict
trade to break Taiwan and Japan by being
able to cut off the oil supply.”

***

A naval-intelligence report released
in February warned of Beijing’s emphasis
on obtaining a sophisticated blue-water
navy technology to achieve four
objectives: First, safeguard what the PRC
calls China’s territorial integrity and
national unity — this includes China’s
claim over Taiwan; second, conduct a
possible blockade of Taiwan; third,
defeat seaborne invasions; and fourth,
create intercontinental nuclear
retaliatory forces.

***

Also, China possesses accurate and
stealthy ballistic and cruise missiles
with multiple warheads — some of which
are aimed at Los Angeles and either
Alaska or Hawaii, according to U.S.
intelligence officials. China’s
force-projection plans also include
building modern aircraft carriers.

The architect behind this buildup, say
Western intelligence sources, is the
Soviet-educated Chinese navy commander,
Gen. Liu Huaqing, 79, a hardliner whose
family is reported to be heavily involved
in international power-projection through
trade with the West in the manner of V.I.
Lenin’s New Economic Plan. To China’s
neighbors Liu is the “power broker
who calls the tunes,” which fits
with the widespread opinion among
security experts that the PLA is the
power behind the Chinese government.

***

In 1994, a war game at the Naval War
College conceptualized a sea battle
between the U.S. Navy and the PLA navy
off of China’s shores in the year 2010.
The battle hypothesized that China
continued to acquire military technology
at a rapid pace. The game, which Pentagon
officials have refused to talk about,
ended with a PLA victory, according to
reports in Navy Times.

“The U.S. Navy is very angry at
the Clinton administration for not taking
a more robust approach,” Arthur
Waldron [a China strategy expert at the
U.S. Naval War College in Newport, R.I.]
says. “We should pay a lot more
attention. It’s a great mistake to think
a country with a military only comparable
to ours will not attack. I worry very
much about what China will do.”

China analysts and national-security
officials say the operating officer at
the heart of Beijing’s master plan to
seize hegemony over Taiwan, Japan,
Okinawa, Iwo Jima, Saipan, Guam and the
Philippines is Wang Jun — Clinton’s Feb.
6, 1996, coffee-klatsch guest who has
taken advantage of corporate greed by
persuading American investors to pour
billions of dollars into joint-venture
projects that allow Wang to tap into the
U.S. bond market, borrowing millions from
American mutual funds, pension funds and
insurance companies to support the war
chest.

Wang chairs both Poly Technologies, or
Poly, the arms-trading company of the
PLA, and China International Trust and
Investment Corp., or CITIC, a $23 billion
financial conglomerate that Wang says is
run by China’s government, or State
Council. His dual control of CITIC and
Poly (the PLA company caught last year
allegedly smuggling 2,000 AK-47 assault
rifles to U.S. street gangs) makes it
difficult for American firms to know
whose hand they are shaking. “He’s a
master of muddying the waters,” say
James Mulvenon, a China researcher at
California-based Rand Corp.
“American companies are playing a
shell game.”

***

And some defense-intelligence sources
tell Insight CITIC is so closely
linked to the PLA that professional
observers have little doubt that the PLA
is calling the shots.

Wang’s ability to mask Poly by
showcasing CITIC has paid off handsomely
for his other enterprises on behalf of
Beijing’s war plans. In particular, the
U.S. bond market already has been an
attractive target for CITIC to the tune
of $800 million in borrowing. That, of
course, begs the question: Why is the
high-level Beijing operative Wang Jun
allowed to borrow huge sums from
Americans when President Clinton says it
is “clearly inappropriate” even
to meet with this PLA arms dealer? The
White House assures that questionable
visitors such as Wang no longer will have
access to the president because FBI and
National Security Council background
checks now will expose them in advance.
Yet, there is no national-security
screening of foreign borrowers in U.S.
securities markets from which huge sums
are being allowed to float into China’s
war chest.

Sound incredible? A new book called Dragonstrike:
The Millennium War, by British
Broadcasting Corp. and Financial
Times journalists Humphrey Hawksley
and Simon Holberton, presents a scenario
on how the Red Chinese military might
manipulate the international financial
market to raise capital. It’s what Roger
Robinson, former senior director of
International Economic Affairs at the
National Security Council, warns already
is happening. Robinson, described by
President Reagan as “the architect
of a security-minded and cohesive U.S.
East-West economic policy,” claims
that these enormous sums may never be
paid back.

“This is cash on the
barrel,” Robinson says. “This
is totally undisciplined cash with no
questions asked concerning the purpose
for the loans. This could be used to fund
supplier credits, strategic
modernization, missiles to rogue states
like Iran and to finance espionage,
technology theft and other activities
harmful to U.S. securities
interest.”

Some of the bond money
“undeniably” is supporting PLA
enterprises, says Orville Schell, a China
expert who is dean of the journalism
school at the University of California at
Berkeley. Schell says that’s because
“there is no division between
government and business” in the PRC,
making it nearly impossible to
distinguish PLA companies from
government-controlled companies.

***

Thomas J. Bickford, a PLA expert and
political-science professor at the
University of Wisconsin at Oshkosh says
accessing the U.S. bond market is just
one way the PLA can raise the money to
purchase the most modern military
equipment. “But it’s not in just the
bond market, it’s also in consumer
sales,” with 10,000 to 20,000
companies, he says.

***

Where large profits from PLA companies
do occur, much goes toward purchasing
food and housing for some 3.2 million Red
troops, says Bickford. This suggests the
bond market may play a bigger role for
the PLA than most people expect because
that money could be going to support a
defense budget the U.S. government claims
to be as high as $26.1 billion a year.
And Munro and Bernstein claim it really
is about $87 billion a year when profits
from PLA businesses are calculated in the
total.

Deeply concerned about all of this,
Robinson advocates creating a
nondisruptive national-security screening
process to help the Securities and
Exchange Commission identify and exclude
PRC fund-raising operations disguised as
business ventures. The process would be
similar to security checks now conducted
at the White House, or the seven-day
waiting period for a background review
required to purchase a handgun. He says
it would weed out dangerous foreign
business partners such as PLA gunrunning
companies and the Russian Mafia.

***

John N. Stafford, chief judge of the
Department of Interior in the Reagan
administration who publishes a highly
respected national investment newsletter,
says the relative ease with which China
can tap into the U.S. bond market by
using intermediaries such as the Bank of
China is based largely on American greed.
Stafford says businessmen are following
the lead of Henry Kissinger and Alexander
Haig who are players in U.S.-China trade.

Stafford says, “We are providing
funding for our own self-destruction,
especially when money is being used to
facilitate efforts to build up China’s
military and provide weapons of mass
destruction to known terrorist countries
and sworn enemies of the U.S.”

***

He compares China’s activity in the
bond market to Soviet operations during
the Cold War, when he says the USSR
diverted billions of dollars of borrowed
Western funds to support military
activities contrary to U.S. interests.

“This is a replay of Russia in
the mid-seventies,” he says.
“This is business vs. national
security. It is a case where money is
more important than human rights. Lenin
was right when he said the capitalists
will sell us the rope with which we will
hang them. That’s what is happening
here.”