China Dupes U.S. Investors

0 Comments | Insight on the News, August 9, 1999 | by J. Michael Waller

Proliferators of weapons of mass destruction have found creative ways of financing their doomsday work -- through unwitting American investors. So concludes a bipartisan commission chaired by former CIA director John M. Deutch.

With the Clinton administration turning a blind eye, Congress created the panel in January 1998 to assess the capabilities of the federal government in combating the proliferation of nuclear, chemical and biological weapons and to recommend policy changes.

Clearly the United States is not making optimal use of its economic leverage in combating proliferation, the Deutch commission reports. It calls for waging economic warfare with the same level of sophistication and planning devoted to military options and says the United States should create legal mechanisms required to exercise this leverage. The commission is concerned that known proliferators may be raising funds in U.S. capital markets.

The Cox committee's recently released report found that "the [People's Republic of China] is using capital markets both as a source of central government funding for military and commercial development and as a means of cloaking U.S. technology-acquisition efforts by its front companies with a patina of regularity and respectability." Because there is currently no national-security-based review of entities seeking to gain access to U.S. capital markets, investors are unlikely to know that they may be assisting in the proliferation of weapons of mass destruction by providing funds to known proliferators.

The Deutch commission recommends that the federal government consider options for denying proliferators access to U.S. capital markets, including national-security disclosure requirements for foreign-government-controlled or -affiliated organizations seeking entry to U.S. capital markets.

Among the U.S.-based financial houses managing Communist Chinese bonds are CS First Boston, Morgan Stanley, Merrill Lynch, J.P. Morgan Securities and Chase Manhattan.

The financial section of the 280-page Deutch report vindicates years of lonely work by Roger W. Robinson of the Center for Security Policy. Formerly senior director of international economic affairs on President Reagan's National Security Council, Robinson virtually has been alone in warning that Communist China's multibillion-dollar bond issues in the United States are duping U.S. investors into bankrolling Beijing's secret weapons-of-mass-destruction programs -- weapons that China willingly provides to regimes such as Iran, Iraq, Libya and North Korea.

Rep. Spencer Bachus, an Alabama Republican and chairman of a House Banking Committee panel, has introduced the U.S. Market Security Act to establish some of the legal mechanisms the Deutch commission proposes. Download the Deutch commission report online at www.senate.gov/~specter/11910-book.pdf.>

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