|Rachel Ehrenfeld & Ken Jensen||February 4th 2013|
Economic Warfare Institute
The acceleration in Chinese hacking into U.S. government agencies, major financial institutions, businesses and media outlets seems to match China's growing investments in this country. Both began to intensify since the economic crisis of 2008.
The statements issued by The New York Times, Wall Street Journal, Bloomberg News, and the Washington Post, implied the hackers went only after the passwords and files of reporters who took part in investigations on the wealth accumulated by China's political elite and spying facilitated by Chinese communication devices used in the U.S. and elsewhere.
Apparently, to calm their subscribers, the papers' ridiculous message was, that "the hacking was not an attempt to "gain commercial advantage or to misappropriate customer information." However, the FBI, which, has been investigating the attacks on media outlets for more than a year considers the activity a national-security threat. Surely, the access to financial and commercial information stored in the papers' computers has eased China's growing investment acquisitions in the U.S. and elsewhere.
Since the financial crisis, total Chinese investment to date in the U.S. has increased considerably: from $3.4 billion in 2007 to $22.8 billion at the end of 2012. Last year, Chinese investors completed 62 separate U.S. investment deals worth some $6.5 billion, a 12 percent increase of the previous record of $5.8 billion in 2010. Their investments focus on three main areas: oil and gas extraction and industry; advanced manufacturing operations; and utilities, real estate and hospitality (thus storing value and gaining stable returns).
Already in 2013, they have some $5 billion in deals waiting for regulatory approval.
The U.S. is looking into the problem, but has yet to decide on the steps it'll take to deter the Chinese from hacking. According to media reports, it may threaten revoking some visa categories, or "put major purchases of Chinese goods through national security reviews." Perhaps.
In the meantime, on January 29, days before the media hacking was made public, despite all the evidence, the Committee on Foreign Investment in the United States (CFIUS) has approved Wanxiang's acquisition of lithium battery-maker A123 System's non-defense business, over the objections of Congressmen and business and advocacy groups.
While Chinese economic interests are far from inscrutable (increased access to energy resources, the acquisition of high-tech knowhow), an October 2011 report by the U.S.-China Economic and Security Review Commission found that: "Given the size of resource extraction projects and their importance to China's economic development, central SOEs [State Owned Enterprises] have played a prominent role in China's foreign investments. In 2006, SOEs were responsible for four-fifths of outward FDI [Foreign Direct Investment]; central SOEs alone were responsible for 66 percent of total outward FDI."
The Economist reported in January 2012, that "Government bodies such as Eximbank, China's foreign-aid bank, have made no bones about their enthusiasm for tying foreign aid to commercial advantage. One of China's favorite tools is oil for infrastructure. China offers to provide poor countries with schools, hospitals and the like (usually financed by soft loans and built by China's infrastructure giants) in return for a guaranteed supply of oil or some other raw material. Eximbank supplied a $2 billion low-interest loan to help China's oil companies build infrastructure in Angola."
Moreover, Chinese "private" companies' investments "are tightly state-controlled," according to Heritage Foundation's Derek Scissors' testimony before Congress in 2012. While the companies have private shareholders, they are run by CEOs appointed by the by Communist party.
Under the guise of economic interests China also pursues its international political interests. For example, Chinese investments in developing countries and regions are facilitated by national politicians. The larger the investment, the more political loyalty it buys.
In addition to commercial investments, China increases its political clout through development aid. Today, China provides more development aid "than the World Bank." China's first white paper on foreign aid in 2011, defined their foreign aid mission as a key national policy.
The Chinese are skilled at moving things to their advantage geopolitically. Take, for example, recent developments between China and Burma. The Chinese will now build a gas pipeline, and later one for oil, from Yunnan province through Burma to the Bay of Bengal. The purpose of this is to reduce Chinese dependency on sea routes for energy delivery that depends on the Strait of Malacca. The pipelines will cut deliveries via the Strait by a third. These pipelines will help helpful Chinese political and economic goals vis-à-vis the South China Sea. Large direct investments in Burma helped to overcome Burma's traditional fears of becoming just another province of China.
Political and economic leverage in developed countries such as the U.S. and Canada, while more difficult to achieve, may be more important in the long run. Unlike developed European states, the U.S. and Canada are susceptible for a variety of reasons and because their political regimes are not highly centralized. Therefore, to influence the national political system one has to attend more to the provinces and states than to Ottawa or Washington. Indeed, the influence of a foreign direct investor in one state would influence local and national decisions on matters crucial to the Chinese government.
For example, Canadian Prime Minister Stephen Harper approved China's Cnooc Ltd.'s takeover acquisition of Canadian energy giant Nexen (for $15.1 billion), and Petroliam Nasional Bhd.'s $5.26 billion takeover of Progress Energy Resources Corp. This gave Cnooc a stake in Canada's largest oil-sands project and the biggest position in the Buzzard oil field in the U.K. North Sea. Additionally, Cnooc has assets in U.S. waters in the Gulf of Mexico.
Questioned about his decision, Harper acknowledged the potential of foreign influence in Canada, saying, "When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments." He also added that it was time to diversify the country's energy exports, sending less to the U.S. and more to the Pacific Rim countries. Canada may have used the Chinese against the Keystone Pipeline-averse U.S. government, but it has ended up with an energy partner with a far different agenda than Canada's friendly southern neighbor the U.S.
The greater the involvement with state-owned and managed direct foreign investor, the greater the likelihood of policy influence and meddling. We have already witnessed this with Wangxiang's acquisition of the U.S. taxpayer-subsidized A123 Systems in Illinois.
Questioning the wisdom of such decisions, Daniel Heath, former U.S. alternative director of the IMF had asked, "What would happen to the U.S. economy if the Chinese decide they want to exchange the U.S. bonds we can't redeem for U.S. natural resource land?" If the U.S. economy continues to contract, Mr. Heath and the American people may soon face a troublesome situation.
Rachel Ehrenfeld, director of the Economic Warfare Institute (EWI), is author of "Funding Evil- How Terrorism is financed – and How to Stop It." Ken Jensen also writes for Economic Warfare Institute (EWI).