In the annual report on Military Power of the People’s Republic of China, issued by the office of the Secretary of Defense on May 23, Beijing’s military buildup is set within a foreign policy at odds with the security interests of the United States on every front. Page 9 sums this up nicely:
China continues to dispute sovereignty claims in the South and East China Seas and is preparing for potential conflict over Taiwan. Chinese companies continue to play a negative role in the proliferation of advanced military capabilities, and continue to supply countries such as Iran with critical military technologies. Beijing has refused to join the Proliferation Security Initiative. China has not fully leveraged its close ties with Pyongyang to stem North Korean nuclear ambitions, and continues to maintain or strengthen political, economic, and military ties with Iran, Sudan, Burma, Zimbabwe, Cuba, and Venezuela, undercutting international efforts to influence those states.
What has not gotten the attention it deserves is the role American business plays in supporting Beijing’s rise to power in world affairs. The Pentagon report makes clear that “the extraordinary economic success of the PRC is a central factor in its emergence as a regional and global power, and is the basis for China’s increasingly capable military. The Party has also relied on the successful transformation of the economy as a primary source of legitimacy.” The report cites a January 2005 interview with Lieutenant General Liu Yazhou, currently Deputy Political Commissar of the PLA Air Force. According to the Chinese general, “when a nation grows strong enough, it practices hegemony. The sole purpose of power is to pursue even greater power.”
Though the conflict between American and Chinese interests is global, attention has tended to focus on Beijing’s desire to capture Taiwan, the “renegade province” which has been a self-governing country for more than half a century. In the 2005 Pentagon report, General Wen Zongren, Political Commissar of the elite PLA Academy of Military Science, is quoted as saying taking control of Taiwan is of “far reaching significance to breaking international forces’ blockade against China’s maritime security…[T]o rise suddenly, China must pass through oceans and go out of the oceans in its future development.” The new 2006 report notes that “China’s air and naval force improvements are scoped for operations beyond Taiwan....[China] has an expressed interest in developing capabilities that could hold at risk maritime targets out to the ‘second island chain’ some 1,000 miles from the Chinese coast. Over the long term, improvements in China’s C4ISR, including space-based and over-the-horizon sensors, could enable Beijing to identify, track and target foreign military activities deep into the western Pacific.”
Where will China get the high-technology needed to make these improvements in weapon systems that can menace the region? From foreign companies eager to make a profit as accomplices in China’s rise to great power status. “Most of China’s defense industries rely on foreign procurement and development. The exceptions are few, e.g., ballistic missiles and some space and aviation programs,” states the report, which continues, “foreign investment in physical plant, management, technical, and marketing expertise in some basic manufacturing sectors, such as strategic metals and electronics, has increased the prospect for spin-off with military and dual-use industries. Joint ventures in China also now manufacture semiconductors and integrated circuits used in military computers, communications and electronic warfare equipment, and missile guidance and radar systems.” Chapter 4, dealing with the resources available to Beijing, opens with a quote from Chinese President Hu Jintao, “We need to build an innovative system of defense science and technology... to create a good structure under which military and civilian high technologies are shared and mutually transferable.”
This system is already in operation. The 1999 report U.S. Commercial Technology Transfers to the People's Republic of China, by the Commerce Department found that "the majority of industry representatives interviewed for this study clearly stated that technology transfers are required to do business in China" and that "US high-tech firms seem willing to pay the price---technology transfers----in exchange for limited market access.” Though Beijing promised to drop such requirements when it joined the World Trade Organization, American firms know that they must still cooperate with their Chinese “partners” as before if they want to do business.
In a study published last year by the Hudson Institute and the Manufacturers Alliance, The Emerging Chinese Advanced Technology Superstate, economist Ernest H. Preeg found “China provides tax incentives and exerts coercion on American companies to do R&D and upgrade the technology level of production in China, and many companies are doing so. There is also a trend to work with Chinese suppliers and thus increase value added within China.”
This makes the current attempt by the Commerce Department to both satisfy business demands for easier sales of high-tech items to China, which totaled $12 billion last year, and to protect U.S. security problematic. In a June 9th speech at the Center for Strategic and International Studies, Commerce Under Secretary David McCormick stated that “our new policy will free future trade of dual use items with certified importers in China for civilian purposes. U.S. exporters seeking to grow market share in critical sectors such as semiconductor equipment and electronics will be spared the need to apply for licenses for potentially hundreds of millions of dollars worth of sales to these companies in China” He thinks that Chinese civilian industry can be prevented from shifting technology to the military.
Yet, one of his positive examples of trade, American firms helping to build commercial airliners in China, was also one of his examples of risk, as he noted that the same composite materials used for airliners could be used for fighter planes. Since both military and commercial aircraft are built by the same state enterprises, how can the two be kept apart? His claim that by “denying only those exports destined for military use, the impact on industry will be lessened” revealed his priorities. It is more to help exporters than to impede Chinese development.
The focus on China among the major transnational corporations borders on an obsession. The Fortune Global Forum was held in Beijing last year, a gathering of the top CEOs from around the world. Chinese President Hu Jintao addressed the meeting. Materials put out by the Forum stated that its theme was “how multinationals can tap into the enormous potential of China.” The October 4, 2005, issue of Fortune magazine was devoted entirely to China, in which it was reported that for Fortune 500 executives, China is “absolutely center stage right now.” According to the May, 17, 2005 issue of the Chinese regime’s newspaper The People’s Daily, Henry Paulson, then CEO of Goldman Sachs, told the Forum, “one thing which is critical to China ...is to move the economy from low-cost manufacturing to high-tech value-added” production.” As the largest foreign investment bank in China, Goldman Sachs has been helping China along this line of development, raising enormous amounts of capital to transform state enterprises into national champions that can compete in the global economy.
Paulson was recently named as the new Secretary of the Treasury where he will be involved in several areas of U.S.-China economic and security issues. Frank Gaffney, president of the Center for Security Policy and a former Reagan-era Defense official, has warned, “Paulson’s China-related work at Treasury will require an extraordinary level of transparency and accountability by members of Congress, the media, and the American public. We must be assured he is working for us in this job, not for Communist China as he did so successfully in the last one.”
The Treasury chairs the Committee on Foreign Investment in the United States (CFIUS), which is supposed to investigate foreign acquisitions and mergers that affect national security, and if need be block or require safeguards. China, with the largest dollar reserves in the world, is showing more interest in buying American firms in the high-tech and natural resource areas. In March 2005, Bill Gertz of the Washington Times [http://www.washtimes.com/national/20050305-111738-8027r.htm] quoted Lisa Bronson, a Pentagon technology security director, as saying “"China has somewhere between 2,000 and 3,000 front companies in the U.S., and their sole reason for existing is to steal, exploit U.S. technology.” These companies are in a wide variety of businesses and deal with American firms on a regular basis.
The transfer of American technology and know-how does not just take place in China. During the debate over granting Beijing “permanent normal trade” status (what the rest of the world calls “most favored nation” status) in 2000, the Business Roundtable (BRT) put out a booklet stressing how much the American business community is helping China. This was meant to counter arguments from the Left that corporations were merely in China to exploit its cheap labor in neo-imperialist fashion. The chief executives of the 160 major corporations who make up the BRT membership wanted to prove they were true partners with the Chinese. As a result, this report is one of the most revealing documents to date. For example, Honeywell Aerospace bragged of its “unprecedented” agreement with Aviation Industries of China (AVIC). This state-owned conglomerate is the core of Beijing’s aerospace complex. It is responsible for developing and manufacturing both military and civil aircraft, missiles, engines and other airborne equipment. It also has extensive research capabilities in aerodynamics, materials and manufacturing technology. Honeywell claims it provides extensive training for AVIC’s “best engineers” including bringing them to U.S. plants to learn about American technology firsthand.
There is growing concern in the corporate sector that these relationships might be upset by worries over national security. In the Wall Street Journal on January 17, 2006, Samuel Porteous, managing director of Navigant Consulting's Asian Litigation and Investigation Practice in Shanghai and Hong Kong, penned a column entitled “The National Security Threat to Free Trade.” He fears that the role of transnational corporations is being eroded. “Already there are signs it is fraying around the edges -- initially as a result of action by Western nations. The most recent, and high-profile, example was last year's abortive bid by Chinese energy giant Cnooc Ltd. [China National Offshore Oil Corporation] for California-based Unocal Corp. The outcry in the U.S. Congress that ultimately forced Cnooc to withdraw its bid provided a good example of how a broad interpretation of national-security concerns can be used as an excuse to interfere in what should be the beneficial flow of international trade and investment.” His “blame American first” approach reveals his leanings. He also thought it wrong to even have CFIUS, “the committee's mere existence can deter foreign investment in potentially sensitive areas.”
In the Summer 2006 issue of The National Interest journal, Stephen Roach, chief economist for the Morgan Stanley investment bank, warned of a “newfound protectionism” stemming from fears of China. “[D]isconcerting is a new sense of distrust that is being injected into America’s relationship with the international community.....the United States is now at risk of squandering what could well be the greatest opportunity of global economic integration– the trust that comes from working together with strategic partners,” he wrote, denouncing any tendency to see China as a “competitive enemy.” This echoed another international financial guru, Maurice Greenberg, the former CEO of American International Group (AIG). Writing in the Winter issue of the same journal, Greenberg called for “creating a network of mutual interdependence” with China. He acknowledged that there were significant differences in “values” between America and China, but argued, “it is important that we never allow our trading and economic relations to become hostage to these differences.”
In a recent interview with the Financial Times, Sam Palmisano, head of IBM, called for corporations to truly go global, losing any national orientation or identity. “The alternative to global integration is not appealing: left unaddressed, the issues surrounding globalisation will only grow...People may ultimately choose to elect governments that impose strict regulations on trade or labour, perhaps of a highly protectionist sort,” he wrote.
Palmisano said traditional multinational companies—which he also called “colonial” companies, were designed to deal with the “protection and nationalism” that held sway in the 20th century. Does he really believe that “protection and nationalism” are no longer part of the 21st century? If so, he needs to breath something besides the rarified air of corporate suites.
In 2004, the Chinese Levono Group acquired IBM’s personal computer division, making it the world’s third largest PC business. Included in the deal was the PC manufacturing operation in Shenzhen, China. This was a joint venture between IBM and Great Wall Industry Group, a state-owned enterprise operating under the Ministry of Aerospace Industry. Great Wall specializes in space technology, precision machinery and electronic instruments—and manufactures weapons. It has been repeatedly sanctioned by the U.S. for selling missiles to rogue regimes, most recently in June for deals with Iran. So much for the notion that commerce is not tied to “nationalism” in China.
According to Beijing’s 5-year plan adopted in March, China’s GDP is to double by 2010, aided greatly by foreign investment and the diffusion of transferred technology. In contrast, the most optimist estimate from the U.S.-China Business Council, presented in testimony to the Senate Finance Committee in March, is that by 2010 American trade and investment in China will add only 0.7 percent to U.S. GDP. Such minor performance should be obtainable by other means. It makes more sense to support economic growth at home or to shift trade to allies, rather than to help advance the capabilities of a strategic rival. Corporate behavior should be guided by national security considerations, instead of being devoted to undermining them.
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