Senator Thompson Offers Leadership On The National Security Dimensions Of The U.S. Capital Markets

(Washington, D.C.): In a stirring speech to a high level gathering of policy
practitioners and
media representatives at the Heritage Foundation on 3 March, Senator Fred Thompson joined the
swelling ranks of those on Capital Hill and elsewhere who demanding answers to questions the
Casey Institute has posed over the past four years: What are the true identities and activities of
foreign firms seeking large-scale U.S. investment dollars and how are those funds to be used?
Indeed, building on the growing firestorm of national security- and human rights- related
controversy surrounding PetroChina’s bid to raise as much as $5-7 billion through an initial
public offering on the New York Stock Exchange, Senator Thompson broadened the scope of
this controversy to include a visionary look ahead at the funding efforts of known and suspected
proliferators and other security-relevant violators worldwide. Among the Senator’s important
remarks were the following:

• “[A]nother intriguing idea was implicit in some of the finding of the Cox Committee and
  the
  Deutch Commission. The Cox Committee reported that “the (PRC) is using capital markets
  as source of central government funding for military and commercial development.”

• “According to recent estimates , the PRC is presently involved in U.S. bond markets to the
  tune of approximately $14.5 billion. I believe that this may be an economic lever that could
  be used. We already know that we are financing some bad actors, including a notorious PRC
  arms dealer. In fact, the PRC, itself, is the largest Chinese borrower of dollars in the United
  States — some $3.2 billion in sovereign bond offerings. We have no idea what these funds
  were used for.”

• “That is why we should also pass legislation which brings greater
  transparency to all
  foreign companies that use our markets. The SEC provides little information on these
  companies now, many of whom, in the case of China, are front companies. We need to
  require more detailed information in prospectuses regarding the specific identity and
  activities of foreign government related firms applying for entry into our capital
  markets.“

• “This would giver pension fund managers something to look to in order for them to develop
  their own national security criteria for investments. This would also give Congress, as part of
  an annual review, a mechanism whereby companies, or even countries, who engage in
  proliferation activities are denied access to our debt and equity markets.”

• “This is leverage. Perhaps enough to cause China to reconsider some of
  those nuclear
  missile sales.“

In addition to providing critical insight with respect to Senator Thompson’s
ground-breaking
pronouncements, the attached Wall Street Journal-Asia piece by Eduardo Lachica
helps break
the code on prospective links between China’s proliferation and funding activities and the
granting of permanent NTR status for that country.

Wall Street Journal Asia, 6 March 2000

China’s Conduct Is Hurting Vote In U.S. On Trade

By Eduardo Lachica

Congressional anger over China’s recent saber-rattling and arms-dealing is starting to hurt its
trade and financial prospects in the U.S.

At immediate risk is a congressional vote that would permanently grant Chinese products
low-tariff treatment, or PNTR status, just before its entry into the World Trade Organization. A
Reuters poll taken last week shortly after China renewed its threat to reclaim Taiwan by force
showed the normally free trade-leaning U.S. Senate supporting China’s PNTR status by only the
slimmest of margins.

Sen. Daniel Patrick Moynihan and other members of the Senate Finance Committee warned
that
the vote could be lost unless China reins in its truculent rhetoric and the Clinton administration
does a better job of rounding up votes in the House of Representatives.

More Opponents

House Minority Whip David Bonior counted 199 House members opposed to the bill — 19
short
of what’s needed to defeat it, but a lot more than earlier votes cast against China’s trade benefits.

Even if PNTR eventually passes, the backlash could still hurt China over the longer haul if
the
Senate succeeds in attaching national-security amendments to the bill. Sen. Fred Thompson, the
chairman of the Senate Governmental Affairs committee, said these amendments could
incorporate some elements of the Taiwan Security Enhancement Act, which the House passed by
a veto-proof margin earlier this year. Beijing strongly objects to that measure’s provision for
closer U.S.-Taiwanese defense coordination.

The Chinese may have assumed they have a “locked deal” with the Clinton administration on
PNTR since “they show no hesitancy in threatening to invade Taiwan, embarrassing our
high-level delegation and reminding us of their ability to lob an ICBM (intercontinental ballistic
missile) onto one of our cities – all practically on the eve of PNTR consideration,” Sen.
Thompson said at a briefing Friday.

The Tennessee Republican was referring to the release of a Chinese white paper on Taiwan
shortly after a visit by U.S. Deputy Secretary of State Strobe Talbott and the publication in the
Chinese press of a possible retaliatory Chinese missile strike if the U.S. were to intervene in a
Taiwan conflict.

Link to Fund Raising?

Sen. Thompson also may tie the PNTR bill to legislation requiring greater transparency for
stock
and bond offerings by Chinese and other foreign government-owned enterprises. Noting a plan
by PetroChina Co., a China National Petroleum Corp. subsidiary, to raise capital in the U.S., he
said Congress needs a mechanism that could deny “bad actors” access to the U.S. debt and equity
markets.

A number of other congressional critics are likely to oppose PetroChina’s initial public
offering
unless it can be shown that the proceeds aren’t used to prolong a civil war in Sudan or unfairly
exploit Tibet’s natural resources.

The senator said that selective capital denial may be just the right “leverage” to cause China
to
back away from its practice of selling missile technology to rogue states like Iran and Iraq. Sen.
Thompson is attracted to that formula because it could inflict pain on the intended target without
the collateral damage to U.S. importers that high tariffs would cause. The legislator also
announced his intention to toughen U.S. export-control rules so that further transfers of U.S.
missile-launching knowhow to China can be averted.

The reaction to the latest display of Chinese belligerence also spilled over into the U.S.
presidential campaign. During their Los Angeles debate last week, Republican candidates George
W. Bush and Sen. John McCain echoed the Clinton administration’s warnings against any hostile
action against Taiwan. But they stopped short of endorsing Taiwan’s request for U.S.-supplied
antimissile defense systems.

Such a transfer should be made “after a careful assessment by the Department of Defense and
the
State Department – as has been our tradition in the past,” Mr. McCain said. But he also vowed, if
elected, to develop sea-based missile defenses that can deployed in such a way as to convince the
Chinese that “the consequences of aggression against Taiwan far, far exceed anything they might
gain from committing that aggression.”