C.C.P.’s Ominous Military Build-Up: U.S. Investors Picking Up the Tab

By Frank Gaffney

Washington, D.C.—On October 31st, the Washington Post published a 2,100-word article describing the Chinese Communist Party’s vast power projection and war-fighting infrastructure built out over the past decade on Hainan Island and atolls across the South China Sea. According to a report prepared for the Pentagon by a defense consultancy called the Long Term Strategy Group (LTSG) and provided to the Post, over $50 billion has been spent on: ports for submarine and surface vessels; a tunnel for hiding ships carved out of a mountain; airfields; a space-launch facility; missile bases; and anti-ship and air defenses; and numerous ground-force facilities.

The cumulative effect of this investment is strategically ominous. According to various active duty and retired senior military personnel interviewed by the paper, it has been transformational, offering the CCP the ability to project power and likely dominate the Western Pacific’s strategic so-called “First Island Chain” and possibly the second one, as well.

One of those officers, the current Commander of U.S. Indo-Pacific Command, Admiral Samuel Paparo, said: “It’s a profound challenge to the region. It’s a profound challenge to our allies and partners. There’s no denying that the increase in the capability within the South China Sea…is a threat…to U.S. interests.”

Absent from the Post’s account of the LTSG analysis, however, was a shocking fact: There is a high probability that American investors’ funds made up much of the more than $50 billion funding for China’s military build-up that now threatens our military personnel, homeland and, as Adm. Paparo put it, “interests.”

That is because Wall Street firms like BlackRock, Vanguard and State Street have for many years sluiced significant portions of their respective funds under management – including the investment dollars of state and local pension funds, university endowments, foundations, family offices, defined contribution plans, and publicly-listed funds – to underwrite Chinese Communist Party controlled companies.

Even more outrageous is the fact that those American financial firms are including in their China-related investments companies that the U.S. government has sanctioned on national security and/or human rights grounds. Incredibly, even though it is illegal to do business with such companies, it is deemed permissible to help them stay in business.

Examples of this phenomenon are two subsidiaries of China State Shipbuilding Corporation (CSSC) – a major firm behind the Yulin Naval Base buildup on Hainan. While it is a Treasury Office of Foreign Asset Control-sanctioned company that is off-limits to U.S. investors, its two subs are not: CSSC Holdings and CSSC Science and Technology. American investors have some $315 million invested in those two companies, including emerging market funds managed by Vanguard, Fidelity, BlackRock,  J.P. Morgan, Nuveen and Goldman Sachs, among many others.

These and numerous other Chinese enterprises directly implicated in building the infrastructure on Hainan Island, the heavily armed bastions across the South China Sea and/or the weapons associated with them are not only intensifying dramatically the threat we face from the People’s Liberation Army. Like the CSSC subsidiaries, many have deeply penetrated our nation’s most popular emerging market index funds.

One exception is the National Security Emerging Markets Index ETF. It explicitly screens out companies that are enabling the PRC’s threatening military build-up and helping the Chinese Communists repress their own people, in some cases genocidally. This NASDAQ-listed exchange-traded fund offers investors who wish to continue investing in China –– but not underwrite activities contrary to their values, to do so with the assurance that the latter have been excluded from the portfolio.

The subtext of the Post article is that the United States and its regional allies find themselves suddenlyconfronting a vast Chinese military infrastructure, an array of formidable weapons and the aggressiveness encouraged by the dramatic shift they are enabling in what the CCP calls “comprehensive national power.” That is certainly not the case.

In fact, in 2015, one of the most visionary contemporary national security practitioners, Roger W. Robinson – whose expertise in financial warfare helped develop and execute Ronald Reagan’s strategy for cutting off the Soviet Union’s hard currency cash flow and, thereby, precipitating its downfall – warned a predecessor of Admiral Paparo, the then-Commander-in-Chief of U.S. Pacific Command Admiral Harry Harris, of the advent of China’s military transformation being made possible in the South China Sea by mostly unwitting U.S. investors. Regrettably, Adm. Harris’ civilian superiors, President Barack Obama and Vice President Joe Biden dismissed the alarm he then tried to sound about such funding and told him, in effect, to get “back in his lane.”

In fact, two years before, in May 2013, Vice President Biden had helped arrange a Memorandum of Understanding between the United States Public Company Accounting Oversight Board and its Chinese counterpart to the Securities and Exchange Commission that greatly exacerbated the problem. It granted the CCP’s companies privileged access to our capital markets, exempting them from the obligation to comply with the SEC’s regulations concerning audits, accounting, transparency and governance to which American companies, and every other nation’s companies, were obliged to conform.

In the closing days of the current presidential race, it is hard to overstate the magnitude of the menace we face from the Chinese Communist Party – and the necessity of informing the American people about it. That is especially true insofar as it is not just in the Western Pacific that our interests are imperiled.

As the Committee on the Present Danger: China has documented in nearly 200 webinars over the past two years, the United States now confronts the cumulative effects of myriad dangers on the home front, as well, including: the extensive practice of “unrestricted warfare” in which the CCP has long engaged; the People’s War against America it announced five years ago; the growth of its cyber, electromagnetic pulse, biological warfare and sabotage capabilities against our people, critical infrastructure and society; the murder of more than 70,000 Americans with fentanyl each year, not to mention over a million more with COVID-19; the illegal entry into this country of tens of thousands of People’s Liberation Army personnel; and hundreds of thousands of Chinese students, businessmen, “captured” American elites and Maoist fellow travelers.

This week’s vote must be informed by such facts and create a mandate for the kind of comprehensive corrective action that is required to protect the country we love from the Chinese Communist Party and all other enemies, foreign and domestic.