‘A financial system the world has never seen’: Why is China spending ‘hundreds of billions of dollars’ in countries like the US and UK?

 ‘A financial system the world has never seen’: Why is China spending ‘hundreds of billions of dollars’ in countries like the US and UK?

 

Since 2018, the US has been tightening its rules to prevent its rivals from buying into sensitive sectors. In effect, Washington is blocking investment in everything from semiconductors to telecommunications, but the rules weren’t always so strict.

In 2016, Jeff Stein, a veteran journalist covering the US intelligence community, received news that a small insurance company that specializes in selling insurance to FBI and CIA agents to protect them from financial losses had been sold to a Chinese firm.

A source familiar with the matter called me directly and said, “Did you know that the insurance company that insures intelligence officers is owned by the Chinese?”

According to him, “I was stunned to hear this.”

In 2015, the insurance company Wright USA was quietly bought by the Fosun Group. It is a private company believed to have close ties to the Chinese leadership.

American concerns were immediately apparent because ‘Right USA’ was privy to the personal details of several top US intelligence agencies and intelligence officials.

No one in the US knew who might have access to this information.

Right USA is not the only company to have been secretly sold to a foreign entity.

China has become the world’s largest foreign investor in the past two decades, giving it the ability to dominate sensitive industries, secrets and key technologies.

Beijing considers details of its foreign spending abroad to be state secrets. These details include how much money was spent and where it was spent.

But on the terms of the Wright USA sale, Jeff Stein says, “There was nothing illegal about it, it was a public purchase agreement that could be negotiated. Since Beijing is so closely involved in all this, it’s as if you were passing all this information to Chinese intelligence.”

The Chinese government was involved in the deal. The BBC has seen the agreement, which shows that four Chinese state banks provided loans of $1.2 billion for this purpose. These loans were routed through the Cayman Islands so that Fosun could buy Wright USA.

Jeff Stein’s story was published in Newsweek magazine. Washington reacted quickly.

The US State Department opened an investigation into the matter. The Committee on Foreign Investment in the US (CFIUS) was activated.

The company was sold back to Americans shortly after the intervention. It is not clear who ordered the sale.

Fosun and StarRite USA, the company now owned by ‘Rite USA’, did not respond to questions sent by the BBC.

High-level US intelligence sources have confirmed that the sale of Rite USA was one of the cases that led the Trump administration to tighten its investment rules in 2018.

Few could have understood at the time that these Chinese state-backed spending was part of a much larger strategy by Beijing to invest and buy assets on every continent.

                 The company said it welcomed China’s commitment to restarting its key chip exports to global markets.

Many people in the Netherlands were surprised by how the government handled the case, as it has always approached its relations with China cautiously in the past, says Xiashuei Martin, a research fellow at the Clingendael Institute in The Hague.

“We are a country that has always done very well with open trade, free trade, and this is really the trade side of Dutch policy,” she says.

Recently, we discovered that in fact, a little ‘patience’ is needed, that in geopolitics, there should be an industrial policy to investigate such investments, but in the past, this was not given much attention.

 

Xiashuei is very clear that patience is a safer path with such projects, rather than fearing the consequences of doing so much business with a superpower like China.

“It’s as if China is the only power that can take over Europe and America in the same way it can,” she says, “but that’s obviously not the case.”

“Most Chinese companies, especially if they’re private, just want to make money. They want to be treated like a normal company. They don’t want to be perceived negatively in Europe.”

“If China is so far ahead of its competitors in its acquisition plans in sensitive sectors, does that mean the race to dominate these areas is over?”

“Not so,” says Brad Parks, “but there are still more goals to be achieved. There are many Chinese companies that are still trying to achieve these kinds of goals. The difference is that they now face a higher level of scrutiny for such sources of foreign capital.”

“So China is now moving forward. China is not following anyone. It  is a leader. It creates an investment climate, but what I expect is that many G7 countries are going to go from the back foot to the front foot. They are moving from a defensive to an offensive strategy.

  

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