China ‘Trojan Horse’ a Threat to U.S. Security

John Browne
Wednesday, Feb. 6, 2008
On The Times Online appeared the following important story, "Chinese gear up for Rio Tinto battle."

The article goes on to explain that the Chinese government has put a $120 billion war chest at the disposal of state-owned aluminum group Chinalco in order to fight BHP Billiton over mining group Rio Tinto.

This is in addition to the $14 billion made available through another Chinese government arm, the China Development Bank, to make an audacious dawn raid last week to buy a 12 percent stake in the miner, so putting the proverbial wrench in the works of BHP Billiton's bid.

Apparently, Chinalco is teamed up with American aluminum giant Alcoa on this effort and is in talks with other potential international partners.

It has been said that China is very concerned that BHP Billiton (the world's largest mining company), if successful in buying Rio Tinto, would effectively place China in the position of being beholden to a single massive producer of vital iron ore.


One can have genuine sympathy for the Chinese position and much admiration for the subtle and sophisticated manner of their bidding.

But one can also harbor suspicions that China is now starting to use its massive wealth to exert real influence in world trade — influence that could threaten other nations, including our own.

It is well-known that China has already dispensed considerable amounts of aid in order to gain political leverage in various countries. America has done the same over many years.

It appears to me that China has taken careful note of both America's past policies and experiences of having assets nationalized!

In light of that, I feel the Communist Chinese are taking a more subtle approach: They are buying strategic stakes in key American companies!

Just imagine the row in Congress had the Communist Russian government done the same! But our president says, "I have no problem with China providing funds to Wall Street."

China has accumulated some $1.5 trillion in foreign exchange reserves. It is a staggering amount of near-liquid wealth, giving China great financial influence and political power.

Roughly $1 trillion of Chinese foreign exchange reserves are denominated in U.S. dollars and held in dollar assets, including U.S. Treasuries. Indeed, China's holdings are now so large that, in the hands of a single investor, they could influence the massive American Treasury market itself and even, in turn, possibly our interest rates and thereby our entire economy.

This enormous liquid wealth held in U.S. obligations already gives China considerable influence over our government. A measure of just how much influence they already have can be measured by the numerous visits our Treasury Secretary Hank Paulson, has made to China over the past year.

But the influence does not stop at the government or national level. It now appears to extend into the very fiber of our national economy — our corporations. Some of these are possibly engaged in top-secret defense projects, vital to our present and future national security.

Take for instance the fact that the Chinese government has recently purchased, through the China Development Bank, two important strategic holdings: in Morgan Stanley (a prime U.S. investment bank) and in Blackstone (a premier U.S. hedge fund).

On the surface, the Chinese supplied much needed funds to these two Wall Street titans; one recently involved in subprime losses. Fine and dandy you might think, if you listen to our president.

But, on further examination (as I highlighted in an item last year) these seemingly innocent investments have potential strategic defense implications, in addition to merely financial ones.

Let me explain.

Firstly, these overseas investors are not private investors. They are, as their names suggest, sovereign governments and not necessarily of nations friendly to the United States, never mind loyal to our nation.

As a prime investment banker to and underwriter of major American corporations, Morgan Stanley has and indeed is legally required to have informed access to the inside workings of the client corporations they bring to market.

Many of the corporate clients of Morgan Stanley are in key competitive industries, including involvement in top-secret military research and production.

Don't tell me that a major government shareholder in Morgan Stanley would find it too difficult, given patience and the planting of "trainees," to gain covert access to the names of key individuals and even to sensitive information within the investment bank's corporate clients!

As a hedge fund, Blackstone undertakes extremely in-depth research into small private companies, many on the cutting edge of new commercial and defense research.

I believe it will not be long before, camouflaged by smiles, extremely polite manners and apparently correct behavior, China gradually gains access to the most sensitive of American commercial and defense secrets — access which would have made the Soviet Russians green with envy, only two decades ago!

Until completion of the politically important Olympic Games (opening on the eighth day of the eighth month of 2008 (the number eight is very significant in Chinese culture), I expect the Chinese to behave with tough but exemplary manners.

I fear, though, driven by a dire need for equity funding due to a looming recession, our leaders (national and corporate) will run the risk of letting down our guard and allow foreign eyes and influence into the very heart of our country, something none of the "donor" nations would tolerate.

I believe it is strongly in our vital national interests that, when they look for "sovereign" funding, our politicians and corporate leaders pay heed to the experience of the ancient Trojans, who meekly accepted the Greek gift later known as "the Trojan horse."

How they must have rued that day. As the saying goes, beware of the Greeks, especially when they bring presents!

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