The Chinese Military Industrial Complex
In the waning days of the Trump administration, the White House has issued a sweeping new Executive Order targeting major Chinese defence companies.
One of the most salient legacies of the Trump Presidency will be its complete reframing of US-Sino relations. Gone are the bromides that once declared that trade and the internet will “transform” China into a benign democratic appendage of the global economy, content to serve under US tutelage. Instead, the US has embarked, under Trump, upon a complete reset with China and increasingly identifies it as its chief strategic competitor.
This partly explains why, despite being its last days, the Trump White House continues to be preoccupied with pressuring Beijing and obsessively focused on accelerating a “de-coupling” between the economies of the two powers.
Its latest effort is aimed at the Chinese “military industrial” complex. On November 12, Trump issued an Executive Order that prohibits US investments in 31 companies that are said to the part of the Chinese “national strategy of Military-Civil Fusion”:
The Order appears to have been crafted with vague language and additional guidance will be required to understand its intent. One assessment has estimated that, depending on how the Order is interpreted, close to 40,000 companies could be in scope of the investment restrictions given the byzantine ownership structures of the sanctioned targets.
China has been under a general arms embargo by the West since the Tiananmen massacre of 1989. Regardless of this, US defence assessments have noted the increasing quality, sophistication and capability of Chinese weapons research. The new Order’s intent is to isolate the US financial system from providing any support to the Sino defence sector.
A Biden Pivot on China?
Given the great gulf that has opened up between the United States and China, it is unlikely that a Biden presidency will repudiate Trump’s attacks against the People’s Republic, although the focus may shift. In June, for example, Biden signalled that his focus will be human rights violations, particularly in Xinjiang:
Congress, too, remains focused on China and will continue to pursue legislation to further constrain it. Most recently, for example, the China Task Force Act was introduced in the House of Representatives by the Republicans. Though unlikely to succeed, this omnibus bill would pass, in one go, over a 100 underlying bills all focused on Chinese conduct and actions. Given the in-coming configuration of Congress under Biden, Republicans will remain a potent force, and press on with their aggressive stance against China.
Acts Reviewed
China Task Force Act
The Chinese Communist Party (CCP) is completely committed to a hostile communist ideology in which individuals exist to serve the state, enjoying rights and freedoms only at the state’s discretion.
Driven by its hostile communist ideology and enabled by decades of foreign policy from the United States and likeminded democracies which disregarded this ideology, the CCP has risen to be- come the United States prevailing economic and na- tional security threat of this generation.
The CCP’s malign conduct, its threat to American interests and values, and its fundamental illegitimacy as a means of governing one-fifth of mankind all ultimately derive from the CCP’s hostile communist ideology. As in the United States prior great power competition with a communist superpower, the United States goal should be the end of the CCP’s monopoly on power, rather than indefinite coexistence with a fundamentally hostile communist state.
Sources and Methods
Trump Bars Americans From Investing in Firms That Help China’s Military
Those firms, which include large state-run aerospace, shipbuilding and construction companies as well as technology companies such as the video-surveillance-equipment maker Hangzhou Hikvision Digital Technology Co., enable China’s access to advanced technologies and expertise to help the PLA expand and take a more aggressive posture around the world, administration officials have said.
Among the 31 companies, many are traded on mainland Chinese and Hong Kong stock exchanges, and some are purchased by investors as a part of mutual and other funds. Two of the companies—China Mobile Communications and China Telecommunications Corp.—have units whose shares or depositary receipts trade on the New York Stock Exchange.
Even if reversed, financial-industry executives said, the order is likely to serve as a warning to U.S. investors that their Chinese holdings are at risk because of the strained relations between Washington and Beijing.
Global Engagement: Rethinking Risk In The Research Enterprise
Citing a threat to long-term economic vitality and the safety and security of the American people, Presidential Proclamation 10043 of May 29, 2020, directs the US secretary of state to deny visas to study or conduct research in the United States to any postgraduate student or researcher from the PRC “who either receives funding from or who currently is employed by, studies at, or conducts research at or on behalf of, or has been employed by, studied at, or conducted research at or on behalf of, an entity in the PRC that implements or supports the PRC’s ‘military-civil fusion strategy.’ ”
This report concludes that the proclamation’s threat narrative is empirically well-founded. The PRC’s “Seven Sons of National Defense” universities directly support military-civil fusion; the PLA; and the defense research and industrial base, weapons programs, and myriad other entities that are part of the PRC’s military, public security, and surveillance apparatus. Scientific collaboration between US research institutions and these seven PRC universities has promoted the missions of those entities, compromised US national and economic security, and undermined the integrity of US research.
China Tensions Persevere
Of the 31 companies currently listed by the DoD, approximately two-thirds have publicly traded shares or have subsidiaries with publicly traded shares. As noted above, the E.O. prohibits U.S. investors from having either a direct investment in publicly traded securities as well as indirect investments via directives or other instruments providing exposure to company securities. The definition of “securities” in the E.O. includes the definition in section 3(a)(10) of the Securities Exchange Act of 1934, which covers swaps of securities (i.e., security-based swaps). In practice, the prohibitions may impact investment vehicles like pension funds and retirement plans, as well as emerging-markets index funds, exchange traded funds and other investment vehicles with exposure to Chinese Military Companies.
U.S. October Homeland Threat Assessment
We are increasingly concerned about the threat posed by nation state actors in an emerging era of great power competition. DHS is specifically concerned with the direct and indirect threat posed to the Homeland by the People’s Republic of China (PRC). The Chinese Communist Party (CCP)-led PRC is challenging America’s place as the world’s global and economic leader. Threats emanating from China include damaging the U.S. economy through intellectual property theft, production and distribution of counterfeit goods, and unfair trade practices. DHS has a mandate to mitigate these threats and we will do so with a clear-eyed view that China is a long-term strategic competitor to the U.S.
The South China Sea Dispute in 2020-2021
The escalating strategic rivalry between the United States and China will continue to inflame tensions in the South China Sea. Discord between the United States and China could increase markedly in the run-up to the November 2020 US presidential election. Given the bipartisan consensus in America over China, a future administration led by President Joe Biden would be unlikely to adopt a more conciliatory policy on the South China Sea. If President Trump wins re-election, his administration will continue its hardline policy towards China in the South China Sea. In 2020-21, therefore, we can expect to see a higher tempo of US military operations in the South China including presence missions, overflights, exercises and FONOPs. Further US sanctions can be expected to be imposed on individuals and companies from China that Washington accuses of implementing Beijing’s policies in the South China Sea.
DoD: Military and Security Developments Involving China
“…the PLA’s objective is to become a “world-class” military by the end of 2049—a goal first announced by General Secretary Xi Jinping in 2017. Although the CCP has not defined what a “world-class” military means, within the context of the PRC’s national strategy it is likely that Beijing will seek to develop a military by mid-century that is equal to—or in some cases superior to—the U.S. military, or that of any other great power that the PRC views as a threat. As this year’s report details, the PRC has marshalled the resources, technology, and political will over the past two decades to strengthen and modernize the PLA in nearly every respect. Indeed, as this report shows, China is already ahead of the United States in certain areas such as:
Shipbuilding: The PRC has the largest navy in the world, with an overall battle force of approximately 350 ships and submarines including over 130 major surface combatants. In comparison, the U.S. Navy’s battle force is approximately 293 ships as of early 2020.”
China Thinks America Is Losing
CCP leaders connect this rapid American decline to intensified U.S. efforts to contain China; the United States under Trump has gone from being a latent, long-term menace to the source of concerted efforts to, in the favored phrase of Chinese officialdom, “comprehensively suppress” China. In 2018, Trump slapped tariffs on tens of billions of dollars’ worth of Chinese goods and issued bans on the Chinese telecommunications firms Huawei and ZTE. (Although Trump eventually reversed his ZTE decision as a favor to Xi, the threat to the company—which relied on the United States for approximately one-quarter of the components in its equipment—was existential; analysts have described more recent measures against Huawei, similarly, as a “death sentence.”) The rhetoric of past and present Trump advisers, such as Peter Navarro (whose books include The Coming China Wars and Death by China) and Steve Bannon (who called for “regime change in Beijing”), helps vindicate the darkest, most conspiratorial notions among the Chinese leadership.