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- author, Celia Hutton
- scroll, BBC News
Since 2018, the United States has tightened its laws to prevent its competitors from investing in the country’s strategic industries, which began banning investments in many sectors, from semiconductors to telecommunications.
But these standards were not always this strict.
In 2016, veteran American journalist Jeff Stein, who covers the country’s intelligence services, received an important warning. A small insurance company, specializing in liability insurance for FBI and CIA agents, has been sold to a Chinese company.
“Someone with inside information called me and said, ‘Did you know that the insurance company that protects intelligence personnel is owned by the Chinese?'” he recalls. “I was amazed!”
The insurance company, called Wright USA, was quietly acquired in 2015 by Fosun Group, a private company believed to have close ties to the Chinese government.
This discovery immediately raised concerns in the United States. After all, Wright USA had access to the personal information of many top US Secret Service agents and intelligence officials.
In the United States, no one knew who would have access to this data, after the insurance company and its parent company, IronSure, were owned by China.
Wright USA was not an isolated case. The BBC obtained exclusive and early access to new data showing that Chinese state money is flowing towards rich countries, to acquire assets in the United States, Europe, the Middle East and Australia.
Beijing considers the details of its spending abroad (how much money it spends and where it spends it) a state secret.
Regarding the terms of Wright’s sale in the USA, Stein says: “There was nothing illegal; it was a transparent deal, so to speak.”
“But because everything in Beijing is so interconnected, we essentially hand this information over to Chinese intelligence.”
The Chinese government participated in the agreement. New data obtained by the BBC reveals that four Chinese state banks provided a loan worth US$1.2 billion (about R$6.4 billion), channeled through the Cayman Islands, so that Fosun could acquire the American company Wright.
Newsweek magazine published Stein’s report. The reaction in Washington was rapid.
The Committee on Foreign Investment in the United States (CFIUS), a body of the US Treasury Department responsible for overseeing investments, has launched an investigation into the matter.
Shortly thereafter, the company was sold again, this time to the Americans. It is not known who ordered the sale.
Fosun Group and Starr Wright USA, the new owner of Wright USA, did not respond to a BBC request for comment.
High-level American intelligence sources confirm that the sale of the American company Wright was one of the cases that prompted the Trump administration to tighten investment laws in 2018, while it is still in its first term.
But very few people understood at the time that this Chinese state-backed spending appeared to be part of Beijing’s much broader strategy to invest and acquire goods on every continent.
“For many years, we viewed almost all the money flowing out of China as going to developing countries,” says Brad Parks, executive director of Aid Data.
“So we were very surprised when we discovered that in fact hundreds of billions of dollars were being invested in countries like the US, Germany and the UK, right under our noses,” he added.
Investigate AidData
AidData is a research laboratory based in the US state of Virginia, specializing in monitoring public spending in several countries beyond its borders.
It is located at the University of William and Mary, one of the oldest universities in the United States. It is paid for by government funds and charitable organizations around the world.
Over the past 12 years, AidData has primarily focused on China. Four years of work, with the participation of 120 researchers, resulted in the first known attempt to account for all Chinese state-backed investments outside the country.
The collection’s full dataset is now available online, but the BBC has gained exclusive early access to its content.
Aid Data’s main finding is that since 2000, Beijing has spent US$2.1 trillion (about R$11.2 trillion) outside its borders, with a fairly equal distribution between rich and developing countries.
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“China has a financial system that is unprecedented in the world,” explains Victor Shih, director of the Center for China in the 21st Century at the University of California, San Diego, in the United States.
The Chinese banking system is the largest on the planet. It is larger than those of the United States, Europe and Japan combined, according to Shih.
This size, combined with the degree of control Beijing exercises over state banks, provides unique capabilities.
“The government controls interest rates and directs the flow of credit,” Shih continues. “This is only possible with very strict capital controls, which no other country would be able to maintain sustainably.”
It is clear that some Chinese investments in developed countries were aimed at achieving good profitability. Others support Beijing’s strategic goals, which were outlined a decade ago in a major government initiative called “Made in China 2025.”
In it, the Chinese authorities outlined a clear plan to control 10 advanced sectors, such as robotics, electric cars and semiconductors, by this year.
Beijing’s intention was to finance huge investments abroad, in order to import technologies that are considered essential for China.
The global warning raised by the plan prompted China to stop mentioning it publicly. But Victor Shih claims that it “remained in effect” as a guiding strategy.
“All kinds of plans are still being published, including the AI plan and the smart manufacturing plan,” he explains. “But the most important plan of all is the 15th Five-Year Plan.”
At a key meeting of the Communist Party of China last month, China’s leaders set the goal of accelerating “self-reliance and high-level scientific and technological development” by 2030.
The new AidData database shows that Chinese public spending abroad coincides with the 10 priority sectors identified in 2015.
A recent BBC report also explained how the Chinese government financed the purchase of a British semiconductor company.
The United Kingdom, the United States and several other major economies have strengthened their investment monitoring mechanisms, after each of these countries apparently found themselves surprised by transactions similar to the sale of the American insurance company Wright.
Brad Parks of AidData says that governments in rich countries did not initially realize that Chinese investments in each country were part of Beijing’s broader strategy.
“At first, they thought it was just individual initiatives by Chinese companies,” Parks explains. “I think they realized over time that it was the state apparatus in Beijing that was financing all of this behind the scenes.”
But it should be noted that these acquisitions and investments are considered legal, although they are sometimes made through shell companies or through accounts in tax havens.
The Chinese embassy in London told the BBC, “The Chinese government has always required Chinese companies operating abroad to strictly comply with local laws and regulations and constantly support them in seeking international cooperation on the basis of mutual benefit.”
“Chinese enterprises not only provide high-quality products and services to people around the world, but also actively contribute to domestic economic growth, social development and job creation.”
AidData shows that China’s spending patterns are changing. State money flows from Beijing to countries that have decided to welcome Chinese investments.
The Netherlands discussed the issue of troubled Chinese-owned semiconductor company Nexperia.
The edData database indicates that Chinese state banks lent US$800 million (about R$4.3 billion) to help a Chinese consortium acquire Nexperia in 2017. Two years later, its ownership was transferred to another Chinese company, Wingtek.
Nexperia’s strategic importance became clear when Dutch authorities took control of the company’s operations in September. The decision was made in part out of concern that Nexperia’s technology was at risk of being transferred to other divisions of the larger Wingtech company, according to the Dutch government.
This brave move led to Nexperia being split in two, separating its operations in the Netherlands from its production in China.
Nexperia confirmed to the BBC that its company in China had stopped working within the framework of Nexperia’s management and was ignoring its instructions.
The company said it welcomed China’s commitment to resume exports of its key chips to global markets.
Researcher Xiaoxiu Martin, from the Clingendael Institute in The Hague, Netherlands, says that many Dutch people were surprised by the form of case management adopted by the country’s government, which has always carefully managed its relations with China.
“We are a country that has always been very successful in free trade,” she explains. “This is actually the commercial side of Dutch policy.”
“We have only recently realized that geopolitical factors make it necessary to have a stricter industrial policy and control of investments. Before that, this was not something that received much attention.”
Xiaoxiu Martin clearly states that it is easy to fall into excessive fear about the potential consequences of maintaining such a large volume of business with a superpower like China.
“There is a risk of giving the impression that China is a monolithic bloc, where everyone wants the same things and that its goal is to dominate Europe and the United States, when that is clearly not the case,” she explains.
“Most companies, especially private ones, just want to make money. They want to be treated like any other company. They don’t want the bad reception they get in Europe.”
But if China has such an advantage over its competitors in its investment plans in strategic sectors, does this mean that the race to dominate these sectors has already begun?
“No! There will be several stages,” says Parks.
“There are many Chinese companies that are still trying to do these types of acquisitions. The difference is that they now face greater scrutiny when evaluating these sources of foreign capital.”
“The important point is that China is taking the lead. China is no longer a follower, it is a leader. It is setting the pace.”
“But what I expect is that many G7 countries will move from defense to offense,” Brad Parks concludes.