‘Follow the Money’: The Next Shoe to Drop on China Scandal Should be Its Penetration of the U.S. Bond Market
(Washington, D.C.): At long last, the extent of China’s financial penetration of the U.S.
electoral
process and financial system is beginning to receive appropriate attention from America’s
mainstream press, thanks to side-by-side front-page articles in yesterday’s New York
Times.
One piece reported on the testimony supplied Tuesday to the House Government Affairs
Committee by the Democratic National Committee’s campaign finance whiz
kid-turned-government witness, Johnny Chung. Chung confirmed that some
$300,000 was covertly
provided him by General Ji Shengde, chief of China’s military intelligence
agency, with the
simple message: “We hope to see [President Clinton] reelected….We really like your president.”
In a companion article, Pulitzer Prize-winner Jeff Gerth and Tim Golden unearthed evidence
that
the Chinese military and/or intelligence services were probably using a Californian bank,
Far
East National, as a conduit for highly suspicious but, as yet unconfirmed, purposes.
U.S.
officials reportedly believe that “tens of millions of dollars” may have been utilized in the
mid-1990s to pay for illegal political contributions, to underwrite technology theft, to support
intelligence operations in the United States, etc.
Enter the Bond Market
While efforts in Congress and the press to uncover and comprehend the full magnitude of
China’s
financial penetration of the American political and economic systems have revealed operations
involving troubling infusions of hundreds of thousands and even tens of millions of dollars from
the PRC, to date, they have not addressed a potentially more serious problem: The
People’s
Liberation Army’s successful initiative that is taking hundreds of millions, even
billions, of
dollars out of the United States, thanks to Chinese fund-raising in the U.S.
bond market. 1
As the attached article by William J. Casey Chair Roger W. Robinson, Jr. makes clear, there
has
been an estimated $10.5 billion in dollar-denominated bonds issued by China in the U.S. market
since the early 1980s. Even a cursory review of this rapidly growing portfolio demonstrates that
nearly 60% of this amount was raised by just three Chinese entities — all of which
should be
viewed with concern: China International Trade and Investment Corporation
(CITIC),
chaired by China’s most notorious arms dealer, Wang Jun (about $800 million); the Bank
of
China (over $2 billion); and the People’s Republic of China, borrowing under its own
name (an
estimated $3.2 billion).
It is entirely plausible, if not likely, that at least a portion of these funds raised from
U.S.
securities firms, pension and mutual funds, insurance companies and other newly recruited
lenders were diverted to finance activities harmful to U.S. security interests — a point
that
may be addressed in the long-awaited Cox Committee’s report that will reportedly be released
next week in an unclassified form. No less worrisome is the fact that these funds are creating
financial vested interests on the part of these new politically-powerful U.S. constituencies to
oppose economic sanctions and other penalties almost irrespective of the gravity of China’s
misdeeds (e.g., proliferation, human rights abuses, etc.).
The Bottom Line
In the aftermath of the Chinese government’s direct involvement in the trashing of the U.S.
embassy in Beijing — including its approval of placards urging Chinese to “kill Americans” — the
time has come for a thorough reassessment of the Clinton Administration’s policy of engagement
with China on the PRC’s terms. (An eloquent argument for such a reassessment is made in
attached column by Jim Hoagland which appears in today’s Washington Post.)
Part of that reassessment must be a redoubled effort by congressional and media investigators
to
follow the Chinese money trail into the U.S. debt and equities markets. Such an exercise should
quickly establish the need for improved reporting and disclosure requirements with respect to all
foreign government-controlled entities seeking to enter the U.S. capital markets.
One approach to advance this objective was put forward in the last session of Congress in
“The
U.S. Markets Security Act of 1997″ (S . 1315), legislation co-sponsored by
then-Senator
Launch Faircloth (R-NC) and then-Rep. Gerald Solomon (R-NY). 2 It would have established an
Office of National Security at the Securities & Exchange Commission to implement these
sensible,
non-disruptive, reporting requirements. Prudent steps like these would help avoid the
need for
more draconian measures (i.e., capital controls) that might attract political support as the China
scandal continues to unfold and, in particular, as the newest dimension of the money trail — the
penetration of America’s capital markets — comes to public attention.
1 See the Casey Institute’s Perspectives entitled
Will China’s latest Bond Offering Penetrate
U.S. Markets, Institutional Portfolios Through A ‘Backdoor’? (
1998) and Hedging Financial Bets In China: Will ‘ITIC’s’ And Other Entities With
P.L.A.
Connections Be Bailed Out By Beijing? (No.
98-C 182, 12 November 1998).
2 See Sen. D’Amato’s Committee Serves Notice On
Those Who Aid And Abet U.S.
Adversaries: No Fund-Raising On American Markets (
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