Non-Renewal of M.F.N. For China: A Proportionate Response to Beijing’s Emerging, Trade-Subsidized Strategic Threat

(Washington, D.C.): Congress is
expected shortly to consider President
Clinton’s proposal to renew for an
additional year China’s Most Favored
Nation (MFN) status. While there are many
compelling reasons for opposing such a
renewal, the William J. Casey Institute
of the Center for Security Policy
believes that there is one overarching
factor that demands this step: Communist
China is utilizing much of the huge trade
surplus that it enjoys thanks to this
privileged trading status to mount a
strategic threat to the United States and
its vital interests in Asia, the Middle
East and beyond.

While MFN is a blunt
instrument — affecting, if it
is denied, millions of innocent Chinese
workers, the economy of Hong Kong, U.S.
jobs associated with exports to and
imports from China, etc. — it is
also the only measure currently on the
table that is remotely proportionate to
the magnitude of the danger Beijing is
creating, to a considerable degree
with resources it is garnering from trade
with the United States.

China’s Offensive Strategy

In the Summer 1994 edition of Orbis,
Ross H. Munro reported that, in 1993, the
West was afforded “an unprecedented
— and at times disturbing — inside look
at how important elements in China’s
armed forces view neighboring countries
as well as the United States.” This
insight was obtained when a Western
diplomat serendipitously obtained a copy
of a book entitled Can China’s Armed
Forces Win the Next War? that had
been published by the People’s Liberation
Army (PLA) for internal consumption only.

According to Munro, this book provided
“virtual confirmation of
reports…that the Chinese leadership in
general and the senior Chinese officer
corps in particular view the United
States as China’s principal adversary now
and for decades to come.”
This view has become even more entrenched
during the intervening years. As Munro
and co-author Richard Bernstein put it in
their own, critically acclaimed book
published earlier this year, The
Coming Conflict with China:

“China’s harsh rhetoric and
incidents like [a dangerous
U.S.-Chinese naval encounter in
October 1994] in the Yellow Sea
are not so much temporary
responses to a temporary
situation but products of
a fundamental change in the
Chinese attitude toward the
United States. The use
of the words ‘hegemonism,’
‘subversion’ and ‘interference’
with regard to the United States
signals a change in China’s
strategic thinking. Before,
Beijing saw American power as a
strategic advantage for the PRC; now,
it has decided that American
power represents a threat, not
just to China’s security but to
China’s plans to grow stronger
and to play a paramount role in
the affairs of Asia.

“China, in short, has
determined that the United States
— despite the trade, the
diplomatic contacts, the
technology transfers, the
numerous McDonald’s and Kentucky
Fried Chickens open in the
People’s Republic, despite even
the limited amount of cooperation
that still existed between the
two countries — is its chief
global rival.” (Emphasis
added.)

The enormous impetus behind China’s
determined effort to acquire a modern
military capable of decisively
projecting power derives from this
zero-sum view of the U.S.-PRC
relationship.⁽¹⁾
The Chinese leadership believes, after
all, that it must be able not only to
dominate the nations of East Asia and the
South China Sea. It sees China as having
to exercise control over the Pacific out
to what the Chinese call “the second
island chain” (i.e., the
Philippines, Japan and even the U.S.
territory of Guam).⁽²⁾
The larger purpose appears to be even
more ambitious: to render the
United States incapable of exercising
influence in Asia that would compete
with, let alone counter, Chinese hegemony
in the region.

Implementing
the Strategy

The Chinese are pursuing a
multifaceted campaign to accomplish these
strategic objectives. The following are
among the means the PRC is pursuing
toward such ominous ends:

• Strategic Force
  Modernization: The Washington
  Times recently reported that
  China is expected to begin
  deploying by the year 2000 an
  advanced intercontinental-range
  ballistic missile, designated the
  Dong Feng-31 (DF-31). This
  missile will give Beijing the
  ability to deliver nuclear
  warheads with great accuracy
  throughout the Pacific and parts
  of the western United States.

The DF-31 reportedly is
benefitting from SS-18, SS-25 and
Topol-M ICBM technology China is
obtaining from Russia and/or
Ukraine. Its lethality — and
that of other Chinese strategic
forces — will be greatly
enhanced by supercomputers the
United States has provided to
Beijing’s military-industrial
complex.⁽³⁾
And the DF-31 is expected to be
fielded on a mobile
transporter-erector-launcher
derived from Russian technology
supplied by Belarus. The
survivability afforded by this
MAZ launcher, together with
advances in Chinese ballistic
missile-launching submarines
capable of firing the DF-31,
suggests that Beijing is intent
on acquiring a formidable
strategic nuclear capability that
cannot be preemptively destroyed
and that will be capable of
holding American cities and other
targets credibly at risk.

A foretaste of the use to which
China may be willing to put such
a capability can be seen in a
report published on the
front-page of the New York
Times on 24 January 1996. It
described how a senior Chinese
official had signaled Beijing’s
willingness to engage in “nuclear
blackmail” against
the United States by suggesting
that American interference in
China’s coercion of Taiwan could
result in an attack on Los
Angeles. In the absence of any
deployed U.S. ability to
intercept a Chinese ballistic
missile launched at Los Angeles
— or any other target in the
United States — such threats may
well have the desired effect.

• Build-up of Other Aspects
  of China’s Military: Beijing
  is also pouring billions of
  dollars into what might be called
  a “Great Leap Forward”
  for other elements of the
  People’s Liberation Army, notably
  its power-projection capabilities
  (long-range aircraft, blue-water
  naval units, precision-guided
  munitions and unconventional
  weapons). Such capabilities pose,
  most immediately, a danger that
  China will be able to control
  transit of the South China Sea
  and access to its energy and
  other strategic resources.⁽⁴⁾

China’s drive to modernize the
non-nuclear elements of its
military is also benefitting
hugely from imported technology.
Thanks to advanced machine tools,
computer-aided design
capabilities, composite
materials, chip-manufacturing
technology and the other foreign
dual-use technology like —
whether acquired legally or
illegally — together with its
purchase of full-up military
hardware or components,⁽⁵⁾
Beijing is now obtaining new
generations of highly competitive
jet fighters, cruise missiles,
attack submarines and armored
vehicles. The threat posed by
such weaponry will not arise from
China alone; given past Chinese
practices, such equipment will
shortly be available for purchase
by rogue states from Iran to
North Korea.

• Espionage: The
  illegal acquisition of U.S.
  technology — especially that of
  the dual-use variety — is a
  priority assignment for the
  hundreds of People’s Liberation
  Army-owned or-affiliated front
  companies operating in the United
  States.⁽⁶⁾
  Together with large numbers of
  intelligence operatives, 40,000
  graduate and undergraduate
  students and Overseas Chinese
  entrepreneurs doing business in
  this country or with its
  companies,⁽⁷⁾
  America faces a literally
  unprecedented risk of penetration
  and espionage and, consequently,
  an immense counter-intelligence
  challenge. In his new
  book about economic espionage, War
  by Other Means, John Fialka
  declares that China’s prime
  intelligence agency, the Ministry
  of State Security, has
  “flooded the United States
  with spies, sending in far more
  than the Russians even at the
  height of the KGB’s phenomenal
  campaign.”

Not least is the danger that
China’s penetration of the
computer and telecommunications
industries will translate into a
sophisticated, if not unique,
Chinese capability to wage information
warfare (IW) against the
United States. This capability is
especially sinister since the
vulnerability of America’s
computer infrastructure to IW
attacks offers Beijing a means to
inflict grave harm on the U.S.
economic and national security in
a way that may enable the
attacker to avoid detection,
responsibility and retaliation.

• Arming U.S. Gangs and
  Drug Lords: China has
  been caught shipping AK-47s and
  other lethal firepower to
  criminal elements in this country
  with the potential to sow mayhem
  in American society.
  PLA-affiliated companies have
  offered to sell undercover U.S.
  law enforcement officers posing
  as drug lords not only automatic
  weapons — whose lethal
  effects were evident when the
  streets of Los Angeles were
  turned into a war zone by bank
  robbers wielding AK-47s
  manufactured by the Chinese firm
  Norinco⁽⁸⁾
  — but rocket-propelled
  grenade launchers, light armored
  vehicles and shoulder-fired
  surface-to-air missiles.

China is also believed to be
active in supplying narcotics
from Southeast Asia to the U.S.
market. Its merchant marine —
the Chinese Ocean Shipping
Company (COSCO) — has been
implicated in smuggling drugs as
well as guns and other contraband
into the United States. President
Clinton has nonetheless
personally intervened no fewer
than three times on COSCO’s
behalf in connection with the
effort this arm of the PLA has
been making to take over the U.S.
Navy’s vast Long Beach Naval
Base. This is all the more
extraordinary since, according to
a senior Soviet military
intelligence officer who defected
to the United States, China
is likely collaborating with
Russia in utilizing COSCO assets
and facilities for signals
intelligence and other espionage
activities, pursuant to
the two nations’ bilateral
intelligence cooperation
agreement of 1992.

• Financial Penetration:
  Since 1988, China has issued some
  eighty bonds on the U.S. and
  Western securities markets. While
  the bulk of these have been
  yen-denominated bonds, the
  total amount of
  dollar-denominated Chinese bonds
  (primarily issued in the U.S.
  market) has now reached at least
  $6.7 billion.

This preferred borrowing venue
provides major Chinese
state-owned enterprises and banks
intimately connected with the PLA
and Beijing’s security services
with access to large sums of
undisciplined, unconditioned and
inexpensive cash. This money can
be easily diverted to finance
activities inimical to U.S.
security interests — not to
mention American principles and
values. Worse yet, in the
process, Beijing is
successfully recruiting numerous
politically influential
constituencies in this country
that will have a financial
vested interest in ensuring
that China is not subject to
future U.S. economic sanctions,
containment strategies or other
forms of isolation and/or
penalties.

A sense of the implications of
such financial operations can be
gleaned from the case of one of
the conglomerate’s run by Wang
Jun, the arms dealing
Chinese “princling” who
was invited to attend a
Democratic fund-raising coffee
klatch at the Clinton White House
last year. The Chinese
International Trade and
Investment Corporation (CITIC)
has, thus far, floated $800
million in dollar-denominated
bonds — financial instruments
that are now in the portfolios of
U.S. pension funds, securities
firms, insurance companies and
other prominent players in the
American investor community.

While the full dimensions of
China’s efforts to utilize the
political access afforded by its
financial and other business
operations in the United States
are, at this writing, far from
clear — and currently the
subject of intensive
congressional and Justice
Department investigations, one
thing is certain: Beijing
has had a keen interest in
shaping U.S. policy in various
ways, notably by:
gaining access to supercomputer
and other militarily relevant
technology; preventing the
exploitation of American deposits
of “clean” coal;
facilitating the sale of
securities in the American market
— to say nothing of discouraging
close U.S. ties with Taiwan, etc.
It adds insult to injury that
Chinese efforts to suborn or
otherwise influence this
country’s elected leaders might
have been underwritten, at least
in part, by the proceeds of
undisciplined bond sales to
American companies and citizens.

• Proliferation:
  Beijing has, for years, been
  aggressively and irresponsibly
  facilitating the spread of
  weapons of mass destruction (WMD)
  and other deadly ordinance to
  rogue states capable of using
  them against U.S. personnel,
  interests and/or allies. Worse
  yet, it seems safe to assume that
  open source data concerning
  China’s proliferation activities
  are but the tip of the iceberg.
  If so, the picture that
  emerges is one of a nation
  systematically seeding the Middle
  East, Persian Gulf and South Asia
  with chemical, biological and
  nuclear weapons technology —
  together with ballistic and
  cruise missiles with which such
  arms can be delivered over
  increasingly long ranges.

This danger is only increased by
the prospect that the Peoples
Republic of China regards these
transactions as more than simply
a valuable means of generating
hard currency, securing energy
supplies and garnering influence
around the world. If
Beijing is also using
proliferation as an integral part
of a campaign to diminish U.S.
presence and influence in the
Western Pacific, the possibility
that its clients might use
Chinese-supplied arms to
precipitate conflict in regions
far removed from Asia could seen
as desirable by the
Chinese leadership.
After all, it would almost
certainly preoccupy the United
States — substantially tying
down and drawing down its
military, political and strategic
resources.

A Prescription for U.S. Policy
Toward China

The United
States can no longer indulge in the
delusion served up by some of Beijing’s
paid advocates — namely, that it is up
to America whether China will become an
enemy. In fact, their writings for
internal consumption, their policies and
programs make it clear that the Chinese
leadership decided to view the U.S. in
that way years ago.

The available evidence suggests that
it is foolish to discount the
implications of China’s strategy for U.S.
security out of some confidence that
Western capitalism’s
“engagement” with Beijing will
ensure that the PRC is transformed, over
time, into a benign international power.
Americans’ ironic embrace of this
variation on the Marxist concept of
economic determinism not only disregards
the practical effects of such
“engagement” to date; it also
overlooks the dangers that are likely to
arise in the interim.

Accordingly, while the United States
would prefer to avoid confronting China, it
has no responsible choice under present
and foreseeable circumstances but to stop
engaging in activities that are having
the effect of making it yet more
difficult and more dangerous to challenge
the PRC. The William J. Casey
Institute of the Center for Security
Policy believes that the place to start
is by non-renewal of MFN for China.

This action should be complemented,
however, by a number of other, critically
important initiatives. These include:

• Denying PLA-front
  companies and other inappropriate
  Chinese borrowing entities the
  opportunity to sell bonds
  in the U.S. market. This step can
  be taken in a non-disruptive
  fashion (e.g., by creating a
  security-minded screening
  mechanism for these prospective
  bond issuers) without fear of
  jeopardizing U.S. exports, jobs
  or “people-to-people”
  contacts unaffected by such
  transactions.
• Blocking Chinese access
  to strategic facilities
  (in the U.S. and elsewhere,
  notably at the eastern and
  western ends of the Panama
  Canal).
• Prohibiting the sale of
  American military production
  facilities and equipment to China.
• Terminating the
  “anything goes” policy
  with respect to the export of
  dual-use technology to
  Chinese end-users. In the
  interest of obtaining maximum
  pressure for change in China,
  U.S. allies should be offered the
  same choice they are currently
  given under the D’Amato
  legislation on Iran and Libya
  (i.e., foreign companies and
  nationals must decide whether to
  export militarily-sensitive
  equipment and technology to China
  or risk losing their unfettered
  access to the American
  marketplace).
• Increasing significantly
  the resources dedicated to
  uncovering and thwarting Chinese
  espionage, technology theft and
  influence operations in
  the United States. And
• Intensifying efforts to
  provide truthful information and
  encouragement to those resisting
  communist repression
  (including greatly expanding the
  operations of Radio Free Asia;
  enforcing the existing bans on
  the importation of slave
  labor-produced goods; imposing
  penalties for religious
  intolerance, etc.) After all, how
  a nation treats its own people is
  a good indicator of how it is
  likely to deal with those of
  other states.

This step can help make clear
that the United States is not
an enemy of the Chinese people,
but that it steadfastly opposes
the totalitarian government that
brutally rules them. It can also
help undercut the nationalist
xenophobia that the Chinese
leadership promotes in its bid to
retain power.

The Bottom Line

The Casey Institute is under no illusion that
the tremendous course-correction entailed
in such steps will be easily taken by
either the U.S. executive or
legislative branches. Still, the
nature of the threat posed by China is in
key respects of a greater magnitude and
vastly greater complexity than that
mounted by the Soviet Union at the height
of the Cold War. It behooves the United
States correctly to perceive this danger
and respond appropriately before it
becomes any harder to do so.

– 30 –

1. According to a
front-page article in the 19-25 May 1997
issue of Defense News, the
Pentagon has just released a study
entitled “Chinese Views of Future
Warfare,” that draws on Chinese
writings to document “Beijing’s
doctrinal shift from a low-technology,
personnel-intensive people’s war to
high-technology regional warfare based on
information deterrence and possible
first-strikes.”

2. China evidently
concluded after Operation Desert Storm
that its traditional strategy of
defending its homeland by retreating into
the hinterlands and waging “people’s
war” could not assure victory
against a modern military force like that
of the United States. Consequently, the
PRC had to adopt a forward defense —
geared toward denying the U.S. the
in-theater bases, logistical facilities
and staging points that were decisive to
the Gulf War’s outcome.

3. According to
the New York Times of 28 May
1997, the United States has sold
46 supercomputers to China over the last
18 months, “giving the Chinese
possibly more supercomputing capacity
than the entire Department of
Defense.” Matters are made
worse by former Secretary of Defense
William Perry’s decision to redefine what
a “supercomputer” is: Where in
1992, the standard was arbitrarily
increased from 195 MTOPS (million
theoretical operations per second) to
10,000 MTOPS. As a result, many extremely
powerful machines that fall below the new
definition of supercomputer have also
been made available for export to China.

4. For a
frightening illustration of the
implications of such a development, see Dragonstrike:
The Millennial War by the respected
British journalists, Humphrey Hawkins and
Simon Holberston .

5. Two articles
documenting China’s acquisition of
militarily relevant technology from the
United States and other Western nations
are: a front-page Wall Street Journal
article by Robert S. Greenberger which
appeared on 21 October 1996 and was
entitled “Let’s Make a Deal —
Chinese Find Bargains in Defense
Equipment as Firms Unload Assets”;
and “Unilateral Armament — Until
China’s Position in the World is Better
Defined, Western Countries Should Stop
Selling Arms to Beijing,” by Richard
Fisher, Jr. which appeared in the 2 June
1997 edition of National Review.

6. Insight
Magazine‘s Tim Maier cites Wall
Street Journal reporter John Fialka
as estimating that “about 450
Chinese companies are under federal
investigation for economic espionage in
the United States.” See
“PLA Espionage Means Business,”
24 March 1997, pp. 8-14.

7. According to
Randolph Quon, an investment banker who
formerly worked closely with the Chinese
leadership, 150 prominent overseas
Chinese families — including the Riadys
of Indonesia — represent enormously
important economic and strategic assets
to the PRC’s leadership. Their huge net
worth (measured by some observers to be
in the trillions of dollars), their
influence in their respective countries
and their ability to serve as indigenous
surrogates, if not as “Fifth
Columns,” for Beijing enormously
complicates the task of responding to
China’s predations.

8. According to
the London Sunday Times of 6
April 1997, “Norinco [is] a huge
state-run arms manufacturing
conglomerate, which answers to the State
Council, China’s cabinet. Norinco has
been implicated in the supply to Iran of
strategic materials that could help the
Islamic regime develop weapons of mass
destruction. Its ultimate boss is Li
Peng, China’s prime minister.”