Selling China the Rope to Hang Us

by Kevin D. Freeman on September 2, 2011

Over the past three years, I have spent countless hours briefing and educating members of the national security establishment and policy makers. The sad thing is that, on the whole, these people are so set in their thinking that they cannot separate the forest from the trees, notice the elephant in the room, or even consider that their understanding of the world may not be quite right.

My message is a simple one. Other nations and groups are actively engaging in economic warfare and financial terrorism and we have little in place to protect ourselves. I can cite specific examples. I can show evidence of intent. I can demonstrate the risks. Now, I can even point to a track record of predicting events well in advance. Sadly, those charged with protecting our nation tend to filter everything through a narrow worldview.

As one example, they assume that all actions taken are done for economic reasons. They thus argue, for example, that the Chinese would never harm the American economy because they need American consumers. The reality is far more complex than that. For one thing, China is not monolithic. While business people might not want harm to the American consumer, the PLA clearly understands that a weakened American economy equates to lower defense spending. They have well established military doctrine regarding Unrestricted Warfare including means to manipulate and crash our stock market or debase our currency.

Osama bin Laden is another example of seeking non-economic objectives. He inherited a huge amount of money and could have lived as a King with a Saudi fortune. He chose instead to live in caves and die in a Pakistan neighborhood. Whatever you might say about the man, he was not motivated by money.

Even when non-economic outcomes happen, the establishment attempts to explain them away in economic terms. An example from the Opinion Pages of the September 1, 2011 issue of The Wall Street Journal is a case in point. Anil Gupta and Haiyan Wang have a brilliant piece titled How Beijing is Stifling Chinese Innovation. Their analysis begins with the following paragraph:

“China’s indigenous innovation program, launched in 2006, has alarmed the world’s technology giants. A recent report from the U.S. Chamber of Commerce even went so far as to call this program ‘a blueprint for technology theft on a scale the world has not seen before.'”

The article provides an analysis that demonstrates pretty soundly that Chinese efforts are actually counter-productive to economic motives. They cite several key points including that Chinese companies have not been earning patents and has not won foreign R&D opportunities. They conclude with the following:

“If it wants to become a global technology leader, China needs open doors, strong intellectual property protection, and no stacking of the deck in favor of Chinese companies—a policy mix exactly opposite to some of its current indigenous innovation measures.”

While the analysis is excellent, the question that should be asked is whether the Chinese truly have an economic motive with this program. Instead, it must be considered that this is another PLA effort to steal technology. Perhaps they are achieving their goal under the guise of economic intention?

Now, couple this thought with the recent Pentagon assertion that Huawei Technologies has extensive ties to the PLA according to a Washington Times  article the same day:

“Last year, representatives of the National Security Agency urged major telecommunications companies such as AT&T and Sprint to cancel a deal that would put Huawei firmware and hardware on the cell towers of the 4G wireless network.

“U.S. businesses and government entities should be very wary of entering into business with any of the companies identified by the Pentagon’s report on Chinese military power as having ties to the People’s Liberation Army,” said Dan Blumenthal, a resident fellow at the American Enterprise Institute and a former China policy official at the Pentagon.

“The report is vetted by the secretaries of state and defense and the national security adviser. It represents the consensus view of the U.S. intelligence community,” Mr. Blumenthal said.”

The reality is that ANY Chinese company can be influenced or controlled by the PLA. And, the PLA is not primarily driven by economic motivations.

Craig Steiner has a terrific opinion piece that makes these points quite well. It is worth reading so I have included it here:

Selling China the Rope to Hang Us

By Craig Steiner


China has the ability to quickly destroy the U.S. economy by refusing to buy additional U.S. Government debt. While supporters of the Obama Administration paint this as unlikely, how unlikely is it really?

In an article that ran as’s lead story last week, Fareed Zakaria–someone who recently suggested updating the Constitution and who apparently has the ear of President Obama–asserted that it’s extremely unlikely that China would stop buying U.S. Government debt.

Here in the U.S. you hear many people worry that the Chinese government might stop buying American T-Bills. I think these fears are vastly overblown.

The economic situation between China and the U.S. is the financial version of mutually assured destruction – that cold war doctrine of nuclear deterrence. If you destroy me, I will destroy you…

So ignore all those theories about China doing America a huge favor. The reality is, they have nowhere else to go. We’re probably doing them a favor.” – CNN

In this article, the author went on to diminish the idea of other places that China could invest its surplus: Japan, Europe, British pounds, Swiss Francs… none of those options seem attractive for China either due to animosities between the Chinese and Japanese, the instability of the Euro zone, and the fact that neither the British nor the Swiss sell enough bonds for China to buy. The conclusion is that there’s nowhere else for China to invest all its money, so obviously it will continue to invest in the U.S.

But the article completely ignores other possibilities.

China, as other central banks, could buy gold. In a world where so many countries are devaluing their currency, buying gold isn’t a bad alternative. While there’s a limit to how much gold they could buy (the quantity of gold in the world is not infinite), there’s not much of a limit as to how high they could bid up gold with trillions of dollars.

There’s also nothing that says that China can only buy government debt and commodities. China can also buy companies, and they are.

The Chinese have been busy buying companies around the world the last decade. They’ve bought U.S. companies at least as far back as the early 2000’s. They’ve been buying U.S. general aviation companies. Lenovo-IBM. They’re buying British businesses.

Aside from the nervous reality of a communist country going out and buying the “means of production” around the world, the truth is that these kinds of purchases are increasingly insulating China from its inevitable future losses on the U.S. dollar, and the unsustainability of the current model where it exports trillions of dollars worth of products to countries around the world that finance those purchases by borrowing money from China (or by printing money).

By buying commodities or companies that actually produce wealth, China has the potential of becoming increasingly independent of the U.S. Treasury trap that some seem to think has the U.S. and China forever locked in an economic mutual assured destruction that will never be triggered.

Of course, this M.A.D. scenario assumes that China actually cares about its citizens. While the government of a free society must give due consideration to the well-being of its citizens, one has to wonder whether China would give priority to the short-term well-being of its citizens when faced with the potential elimination of the world’s economic and military superpower. With both Europe and America struggling, China could launch an economic “first strike” by refusing to buy any more debt.

The turmoil that would cause–and the domestic unrest higher unemployment would cause in China–would seem to suggest that if China’s going to go down that road, it might as well go all the way down that road and divest from U.S. Treasuries. The consequences of that could be economically catastrophic to most of the developed world.

Would China do that? That depends on whether China considers the west a long-term economic partner or a foreign threat. They’ve been doing a lot of economic saber rattling necessary–going so far as to lecture us on good financial management, reducing dependence on the dollar, and calling the dollar a “product of the past.” Sure, it might be saber rattling. But if they pull the trigger no-one can’t say they didn’t warn us.

Even if China doesn’t launch a devastating economic war against the west, there’s a larger question.

Using Zakari’s logic in article cited above, the U.S. continues to borrow money from China because there’s nowhere else to borrow that much money and China has nowhere else to park that much money. The government then engages in deficit spending which puts that money in the hands of Americans who go out and buy Chinese goods. All those dollars go back to China where China then loans it to the U.S. Government to engage in ore deficit spending that puts the money back in the hands of Americans.

So we have the Chinese lending us money so we can spend it to buy more Chinese goods so they can lend it to us again.

This circular economic configuration cannot–and will not–be sustained over the long-term. As is often said, “If something can’t go on forever, it won’t go on forever.” The only question is how this will end: Will America end the cycle by getting its deficit spending under control, or will China end it by no longer buying U.S. debt?

Everyone is entitled to their own opinion as to the answer to that question. But considering the circus we saw in Washington last month to even reducing the increase in government spending over a decade, it doesn’t seem that Washington will be reducing our deficit spending anytime soon. So it’s entirely possible that China may ultimately be the one that decides to stop throwing good money after bad, and ceases to sustain the unsustainable.

Zakaria might think that possibility is unlikely. I, however, am far less convinced.

We should all consider the ramifications to America and the world if Zakaria’s attitude regarding China is wrong.

Craig Steiner

Craig Steiner is a writer and political activist from Denver, Colorado.

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All posts Copyright (c) 2011 Kevin Freeman, All Rights Reserved

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