Is your 401K funding China's war on the US?

PLEASE SHARE THIS ARTICLE WITH YOUR FINANCIAL ADVISOR - PARTICULARLY THE PART ABOUT CHINA!
THEN INSTRUCT THEM TO GET YOUR MONEY OUT OF THE HANDS OF THE CHINESE COMMUNISTS!

The following is adapted from a speech delivered at Hillsdale College on September 9, 2019, during a conference on the topic, “Understanding China.”

Roger W. Robinson, Jr.
Chairman, Prague Security Studies Institute

In the early 1980s, I served on President Reagan’s National Security Council. Prior to my time at the White House, I was a vice president at Chase Manhattan Bank, in charge of its USSR and Eastern Europe division. It was my job to assess the creditworthiness of the countries in that part of the world, and I had come to realize that the Soviet Union had relatively modest hard currency income—and that what little it had came largely from the West.

In 1982, the Soviets had an empire stretching from Havana to Hanoi, but their hard currency revenue totaled only about $32 billion a year—roughly one-third the annual revenue of General Motors at the time. They were spending about $16 billion more annually than they were making, with the funding gap—the USSR’s life support—being financed by Western governments and banks.

President Reagan had long believed that the Soviet Union was economically vulnerable, because he knew it lacked the entrepreneurship, technological dynamism, and freedoms that are the prerequisites of a strong modern economy. And when he learned that we in the West were financing its brutal regime, he committed to slowing, and ultimately terminating, that flow of discretionary cash.

Our European allies had a completely different approach. Their belief in Ostpolitik, as the Germans called it, presupposed that commercial bridge-building would lead to geopolitical cooperation. If the West would offer financing and trade with the Soviets, peace and prosperity would result. Meanwhile, the Soviets were using the proceeds of Western loans, hard currency revenue streams, and technological support to build up their military, expand their empire, and engage in anti-Western activities.

The Reagan administration drew the line on a project called the Siberian Gas Pipeline, a 3,600-mile twin-strand pipeline that stretched from Siberia into the Western European gas grid. If completed, not only would it become the centerpiece of the Soviets’ hard currency earnings structure, but Western Europe would become dependent on the USSR for over 70 percent of its natural gas, weakening Western Europe’s ties to the U.S. and leaving the continent open to Kremlin extortion. Moreover, the pipeline was being financed on taxpayer-subsidized terms, since France and Germany viewed the USSR as a less developed country worthy of below-market interest rates.

The U.S. at the time had a monopoly on oil and gas technology that could drill through permafrost—which we had developed for Alaska’s North Slope—and we imposed oil and gas equipment sanctions on the USSR and European companies that were helping to build the Siberian pipeline. At one point, despite the strain it placed on relations with our NATO allies, we closed the U.S. market entirely to companies that continued to supply the pipeline project over our objections. Four of the six affected companies went under within six months, and Europeans woke up to the fact that they could do business with us or the Soviets, but not both.

As a result of these efforts we capped Soviet gas deliveries to Western Europe at 30 percent of total supplies, delayed the first strand of the pipeline by years and killed the second strand, and eventually helped dry up the bulk of Western credits to the USSR. In a secret deal, we also persuaded the Saudis to pump an additional two million barrels of oil per day and decontrolled prices at the wellhead in this country, knocking oil prices down to about $10 a barrel—significant because for every dollar decrease in the price of a barrel, the Soviets lost some 500 million to one billion dollars. In short, the Soviet Union never recovered from these economic and financial blows. It defaulted on some $96 billion in Western hard currency debt shortly before the total collapse of the Soviet empire.

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The story with China today has certain similarities, but with one big difference: the U.S. has been playing the role of the naïve Europeans. Since adopting the Kissinger policy of engaging with China in the 1970s, our government has operated on the assumption that economic and financial relations with China would lead Beijing to liberalize politically. And since 2001, when we backed China’s entry into the World Trade Organization, the pace at which we have given China access to our best technology and capital and trade markets has accelerated. Yet China has shown no signs of embracing individual freedoms or the rule of law.

Instead, with our support, the Chinese have launched a massive campaign to become the world’s leading superpower. We know about the “Belt and Road Initiative,” a strategic undertaking to place huge segments of the world under China’s influence or outright control. We know about “Made in China 2025,” a strategy designed to dominate key technology sectors—from artificial intelligence and quantum computing to hypersonic missiles and 5G. We know about China’s practice of forced technology transfers: requiring American companies to share their trade secrets and R&D in order to do business in China. We know about China’s predatory trade practices. We know many of these things only because President Trump has brought them to the forefront of national attention, for which he deserves credit. And the ongoing tariff war is a good thing in the sense that we’ve finally begun to take a stand.

But there is an issue more critical than trade that Americans, by and large, do not know about: China has over 700 companies in our stock and bond markets or capital markets. It has about 86 companies listed on the New York Stock Exchange, about 62 in the NASDAQ, and over 500 in the murky, poorly regulated over-the-counter market. Among these companies are some egregious bad actors. Hikvision, for example, is responsible for facial recognition technology that identifies and monitors the movement of ethnic Uyghurs. It also produces the surveillance cameras placed atop the walls of Chinese concentration camps holding as many as two million Uyghurs in Xinjiang. Both its parent company and Hikvision itself are on the U.S. Commerce Department Entity List (what many describe as the “Blacklist”).

Do any of us have the financing of concentration camps in mind when we transfer money into our retirement and investment accounts?

This sounds difficult to believe, but it is an empirical fact: the majority of American investors are unwittingly funding Chinese concentration camps, weapons systems for the People’s Liberation Army (PLA), and more. This is because the U.S. has no security-minded screening mechanism for our capital markets, which have roughly $35 trillion under management.

When it comes to screening Chinese investments in U.S. companies, we have the Committee on Foreign Investment in the United States, which was recently strengthened with the Foreign Investment Risk Review Modernization Act of 2018. Congress expanded its reach because it was properly worried about China undermining our security and stealing our technology.

Our capital markets, on the other hand, are completely unprotected. There are serial violators of U.S. sanctions in our markets today. There are proliferators to our adversaries of advanced ballistic missiles. There are manufacturers of sophisticated weapons systems for the PLA. There are companies that are militarizing the illegal islands in the South China Sea. There are companies helping maintain the North Korean nuclear threat. There are companies that have been indicted or whose employees have been arrested for espionage as well as known cyber criminals.

Do we find any of these material risk factors in the risk section of our prospectuses? No. Are we hearing about these concerns from our financial planners or fund managers? No. Nor has there ever once been a hearing on this topic in Congress.

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