China is making a statement in the Pacific that threatens several of America's most important allies and could force a showdown with the United States. The Red Chinese plan, say U.S. intelligence sources, is to expand its military hegemony to dominate trade in the South China Sea. It's called "power projection" and Pentagon officials, China experts and senior intelligence specialists privately are saying that it could erupt in bloodshed on the water.
These experts say the United States is facing a multibillion-dollar military threat. And, to complicate matters, it is being subsidized by the U.S. bond market, senior national-security officials tell Insight. It is money from American pension funds, insurance companies and securities that may never be paid back.
China's plan is militarily to dominate the first tier of islands to the west of Japan and the Philippines and then project its force to the next "island tier," leaving America's most important allies in the Pacific surrounded by the Chinese military and, short of nuclear war, defenseless.
Foreign diplomats tell Insight the move toward the second tier started two years ago when China's People's Liberation Army, or PLA, set up command posts on uninhabited islands near the Philippines. "They are drawing their line, basically saying this area is Chinese territory," a Philippine diplomat who is monitoring Chinese military movements warns.
An ancillary motive behind China's plan to expand its military hegemony by more than 1,000 miles to the southern part of the South China Sea, say regional experts, revolves around the Spratly Islands, believed to be rich in oil and natural gas. Countries already claiming part of the Spratlys include Taiwan, the Philippines, Malaysia and Vietnam. In addition, China has shown interest in Guam and a set of islands north of the Spratlys, which Japan claims. A further target, says the Philippine diplomat, is control of the Kalayaan Island group, dominating the supply routes to the Philippines and important logistically to resupply other islands.
"They are setting the building blocks to eventually make that power projection," says the diplomat, who asked not to be named. "These are the building blocks for controlling the sea lines on which all the countries in the region such as Taiwan and Japan rely for economic vitality. The Chinese want to constrict trade to break Taiwan and Japan by being able to cut off the oil supply. While they may not be a direct threat to the U.S., they are more than enough of a threat to smaller weaker countries including ourselves and Japan.... The U.S. has done nothing because there is no blood on the water -- yet."
A Japan Embassy official, who spoke for the record but asked not to be named, says Japan has no intention of surrendering claims to its islands in the region. "It is clear the islands [Beijing wants] belong to us " the official says, adding that if China moves in this way Japan expects the U.S. to intervene. "We have been watching China's military very closely," says the official.
Arthur Waldron, a China strategy expert at the U.S. Naval War College in Newport, R.I., says China has wanted to reclaim the South China Sea since 1950, but placed that mission on the back burner because it was trying to defend itself from a possible Soviet invasion. Most of China's troops were deployed along the Soviet border or near Tibet and Vietnam, countries that were armed by Moscow. But now that the Russian threat has been greatly reduced, Beijing strategically has revised its military strategy and reorganized the PLA aggressively to pursue its maritime expansion mission, as was evident last year when Red Chinese missiles were fired over Taiwan as a means of intimidating both Taipei and Washington.
"I think it's absolutely delusionary to think they can achieve that goal by military force, but for us not to take China's military seriously is extremely dangerous," Waldron warns. "That is exactly what the Chinese want us to do. This is such a very dangerous situation that [protection of the South China Sea] should be negotiated and settled by all the parties concerned."
In April, the House Intelligence Committee released a Department of Defense report called "Selected Military Capabilities of the People's Republic of China" which highlights similar concerns. The report claims China has focused on developing nuclear-weapons systems and advanced intelligence, surveillance and reconnaissance capabilities to "develop a capability to fight short-duration, high-intensity wars in the region" and defeat the U.S. Navy.
The report concludes that China will have the capacity "to produce as many as 1,000 new [ballistic] missiles within the next decade" and is developing land-attack cruise missiles as a high priority for strategic warfare.
A naval-intelligence report released in February warned of Beijing's emphasis on obtaining a sophisticated blue-water navy technology to achieve four objectives: First, safeguard what the PRC calls China's territorial integrity and national unity -- this includes China's claim over Taiwan; second, conduct a possible blockade of Taiwan; third, defeat seaborne invasions; and fourth, create intercontinental nuclear retaliatory forces. Meanwhile, two Red Chinese fleets patrol the area -- one within 20 nautical miles of the coast targeting the first tier of islands, and another patrolling the outer reaches of the East China Sea in the area of the Taiwan Strait, the February report says.
In a country with nuclear attack submarines, this could mean trouble. Also, China possesses accurate and stealthy ballistic and cruise missiles with multiple warheads -- some of which are aimed at Los Angeles and either Alaska or Hawaii, according to U.S. intelligence officials. China's force-projection plans also include building modern aircraft carriers.
The architect behind this buildup, say Western intelligence sources, is the Soviet-educated Chinese navy commander, Gen. Liu Huaqing, 79, a hardliner whose family is reported to be heavily involved in international power-projection through trade with the West in the manner of V.I. Lenin's New Economic Plan. To China's neighbors Liu is the "power broker who calls the tunes," which fits with the widespread opinion among security experts that the PLA is the power behind the Chinese government.
Former Time journalists Ross Munro and Richard Bernstein claim in their recently published book, The Coming Conflict With China, that Beijing's primary objective is to become "the paramount power in Asia" by tapping U.S. technology and using Russian military experts. The authors contend China has proceeded in its plan with the help of about 10,000 Russian scientists and technicians -- some of them in China and others communicating through the Internet. Though some of this is official, the Russian government is known to be sharing some very sophisticated weapons technology to assist the PLA, not all of it is. "The Russian military-industrial complex, staffed by some of the world's best (suddenly underemployed and underpaid) minds in military technology, is so corrupt and so desperate for cash that everything seems to be for sale," Munro and Bernstein write. "In 1995, for example, there were reports that Chinese agents, paying bribes to staff members of a Russian base near Vladisvostok, obtained truckloads of plans and technical documents for Russia's two most advanced attack helicopters." The Chinese since have obtained intact nuclear weapons from Russia, according to intelligence reports.
Adm. Joseph W. Prueher, chief of the U.S. Pacific Command, testified before a House National Security Committee in March that China is not yet a threat because its military is about 15 years behind that of the United States. In light of the blow that the U.S. military might have delivered even 15 years ago, say defense experts, that hardly is comforting. And, Waldron says, this can be a dangerous presumption because history indicates it didn't stop Japan in 1941 or Saddam Hussein during the Persian Gulf War. In 1994, a war game at the Naval War College conceptualized a sea battle between the U.S. Navy and the PLA navy off of China's shores in the year 2010. The battle hypothesized that China continued to acquire military technology at a rapid pace. The game, which Pentagon officials have refused to talk about, ended with a PLA victory, according to reports in Navy Times.
"The U.S. Navy is very angry at the Clinton administration for not taking a more robust approach," Waldron says. "We should pay a lot more attention. It's a great mistake to think a country with a military only comparable to ours will not attack. I worry very much about what China will do."
China analysts and national-security officials say the operating officer at the heart of Beijing's master plan to seize hegemony over Taiwan, Japan, Okinawa, Iwo Jima, Saipan, Guam and the Philippines is Wang Jun -- Clinton's Feb. 6, 1996, coffee-klatsch guest who has taken advantage of corporate greed by persuading American investors to pour billions of dollars into joint-venture projects that allow Wang to tap into the U.S. bond market, borrowing millions from American mutual funds, pension funds and insurance companies to support the war chest.
Wang chairs both PolyTechnologies, or Poly, the arms-trading company of the PLA, and China International Trust and Investment Corp., or CITIC, a $23 billion financial conglomerate that Wang says is run by China's government, or State Council. His dual control of CITIC and Poly (the PLA company caught last year allegedly smuggling 2,000 AK-47 assault rifles to U.S. street gangs) makes it difficult for American firms to know whose hand they are shaking. "He's a master of muddying the waters," says James Mulvenon, a China researcher at California-based Rand Corp. "American companies are playing a shell game."
Not surprisingly, CITIC officially has controlled Poly. The relationship dates back to 1984 when the PLA created Poly for arms trading and structured it under the ownership of CITIC in part to conceal Poly's link to the PLA, according to Western analysts. Wang is the son of Red China's late vice president and Long March veteran Wang Zhen. The president of Poly is Maj. Gen. He Ping son-in-law of the late Deng Xiaoping. A former defense expert for the Chinese Embassy in Washington, He Ping is director of PLA arms procurement and chairs CITIC-Shanghai. A second major subsidiary of CITIC is CITIC Pacific in Hong Kong, chaired by Rong Yung, son of China's vice president, Rong Yiren, who founded CITIC. In short, this is a high-level operation of the Beijing government directly connected to the men in charge.
With the help of CITIC-Beijing, He Ping engineered the billion-dollar sale of Chinese arms that included missiles to Saudi Arabia and short-range cruise missiles to Iran during the mid-1980s. deal was assisted by the government-controlled China Northern Industrial Corp., or Norinco, which now is under investigation in the West for selling chemical-weapons materials to Iran for weapons of mass destruction, according to April testimony before a Senate Governmental subpanel. China's sale of nuclear and chemical weapons to the Middle East all are part of a strategic plan to spread out deployment of the US. Navy so the PLA can concentrate on the South China Sea, according to intelligence and diplomatic officials.
But take Wang's word for it, he is far removed from Poly, according to a rare and exclusive interview he gave to the Washington Post. The Post did not question Wang's assertion that he only spends 5 percent of his time with Poly. But Mulvenon, who is researching the PLA empire, laughs at that estimate. "It is more likely 15 to 20 percent," he says. And some defense-intelligence sources tell Insight CITIC is so closely linked to the PLA that professional observers have little doubt that the PLA is calling the shots.
Wang's ability to mask Poly by show-casing CITIC has paid off handsomely for his other enterprises on behalf of Beijing's war plans. In particular, the U.S. bond market already has been an attractive target for CITIC to the tune of $800 million in borrowing. That, of course, begs the question: Why is the high-level Beijing operative Wang Jun allowed to borrow huge sums from Americans when President Clinton says it is "clearly inappropriate" even to meet with this PLA arms dealer? The White House assures that questionable visitors such as Wang no longer will have access to the president because FBI and National Security Council background checks now will expose them in advance. Yet, there is no national-security screening of foreign borrowers in U.S. securities markets from which huge sums are being allowed to float into China's war chest.
Sound incredible? A new book called Dragonstrike: The Millennium War, by British Broadcasting Corp. and Financial Times journalists Humphrey Hawksley and Simon Holberton, presents a scenario on how the Red Chinese military might manipulate the international financial market to raise capital. It's what Roger Robinson, former senior director of International Economic Affairs at the National Security Council, warns already is happening. Robinson, described by President Reagan as "the architect of a security-minded and cohesive U.S. East-West economic policy," claims that these enormous sums may never be paid back.
"This is cash on the bartel," Robinson says. "This is totally undisciplined cash with no questions asked concerning the purpose for the loans. This could be used to fund supplier credits, strategic modernization, missiles to rogue states like Iran and to finance espionage, technology theft and other activities harmful to U.S. securities interests."
Some of the bond money "undeniably" is supporting PLA enterprises, says Orville Schell, a China expert who is dean of the journalism school at the University of California at Berkeley. Schell says that's because "there is no division between government and business" in the PRC, making it nearly impossible to distinguish PLA companies from government-controlled companies. "It means China is going to be exporting and docking at facilities in Long Beach [Calif]" at the former U.S. Navy base there, notes Schell in reference to what some regard as a military concession to go along with its acquisition of control of ports at both ends of the Panama Canal. "It means China is going to be buying U.S. companies. It is going to be doing all of the things that everyone else does. Whether it is a security risk depends on your assessment of China" says Schell. "But one thing for sure. China is the most unsettled country in Asia."
Thomas J. Bickford, a PLA expert and political-science professor at the University Wisconsin at Oshkosh says accessing the US. bond market is just one way the PLA can raise the money to purchase the most modern military equipment. "But it's not in just the bond market, it's also in consumer sales" with 10,000 to 20,000 companies, he says (see "PLA Espionage Means Business," March 24). Many of those PLA enterprises are losing money and in essence promoting corruption in the ranks, says Bickford, as some PLA business operatives personally are pocketing profits to purchase luxury cars or resorts, while others are fully engaged in smuggling operations. "The corruption is so high it goes all the way up to the generals" Bickford says. "That gives you an idea how much rot exists."
Where large profits from PLA companies do occur, much goes toward purchasing food and housing for some 3.2 million Red troops, says Bickford. This suggests the bond market may play a bigger role for the PLA than most people expect because that money could be going to support a defense budget the U.S. government claims to be as high as $26.1 billion a year. And Munro and Bernstein claim it really is about $87 billion a year when profits from PLA businesses are calculated in the total.
Deeply concerned about all of this, Robinson advocates creating a nondisruptive national-security screening process to help the Securities and Exchange Commission identify and exclude PRC fund-raising operations disguised as business ventures. The process would be similar to security checks now conducted at the White House, or the seven-day waiting period for a background review required to purchase a handgun. He says it would weed out dangerous foreign business partners such as PLA gunrunning companies and the Russian Mafia.
"Russia thinks the water is fine" Robinson says. "They are going to have as many as 10 to 12 bond offerings in the next 18 months -- and some of those might involve organized crime. So there is every reason to be concerned because there might be bad actors among the Russian bond offering. We don't want terrorists, drug dealers, an organized criminal syndicate, gun smugglers or national military establishments borrowing on the securities markets with impunity."
Bickford says Robinson's solution would "catch the obvious" PLA players, but it won't stop all the diverting of money to the military because many of the PLA enterprises have joint ventures with Chinese government-controlled companies -- making it nearly impossible to track the bad seed. "The PLA businesses are very good about hiding themselves," Bickford warns.
But Robinson says the National Security Council knows who the bad actors are and could effectively knock out the threat. "We need to get national security back in the picture," Robinson insists. "We are not trying to discourage investing in the market, but this is too fertile a territory for potential abuse. We just need to get additional protection for the American investment community via U.S. intelligence in a secure, nondisruptive manner."
Robinson has uncovered $6.75 billion in Chinese government-controlled bonds floated on the U.S. and international securities markets between September 1989 and December 1996. China also has placed $17.2 billion in bonds with Japan. About 65 percent of the U.S. money, or $4.4 billion, was issued to the PRC, the Bank of China and Wang's CITIC. The PRC raised $2.7 billion on six bond issues from October 1993 to July 1996. The Bank of China raised $850 million on four bond issues from October 1992 to March 1994. CITIC raised $800 million on five bond issues from March 1993 to October 1994.
Robinson says all three areas could be suspect: The PRC because that money could go anywhere, Wang because of his direct link to the PLA and the Bank of China -- a company that has flooded the Washington radio market with an advertising and public-relations campaign -- because it now has been directly linked into the fund-raising scandal.
What is the link? For one, the Wall Street Journal recently reported that the Bank of China transferred hundreds of thousands of dollars in $50,000 and $100,000 increments to Clinton friend Charlie Trie in 1995-96. Trie and Harold Green, another Clinton friend who assisted Wang with getting security clearance, dumped similar amounts of cash into the Democratic National Committee and Clinton's legal defense fund shortly after Wang was permitted access to the president.
John N. Stafford, chief judge of the Department of Interior in the Reagan administration who publishes a highly respected national investment newsletter, says the relative ease with which China can tap into the U.S. bond market by using intermediaries such as the Bank of China is based largely on American greed. Stafford says businessmen are following the lead of Henry Kissinger and Alexander Haig who are players in U.S.-China trade (see "Lion Dancing With Wolves" April 21).
Stafford says, "We are providing funding for our own self-destruction, especially when money is being used to facilitate efforts to build up China's military and provide weapons of mass destruction to known terrorist countries and sworn enemies of the U.S." A onetime supporter of Robert Kennedy and Scoop Jackson, Stafford turned his support to the Republican Party because he says under President Carter the Democrats gutted national security and had a dismal economic record. He compares China's activity in the bond market to Soviet operations during the Cold War, when he says the USSR diverted billions of dollars of borrowed Western funds to support military activities contrary to U.S. interests.
"This is a replay of Russia in the mid-seventies"' he says. "This is business vs. national security. It is a case where money is more important than human rights. Lenin was right when he said the capitalists will sell us the rope with which we will hang them. That's what is happening here."