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The Interpreter, 26 July, 2017

The recent exposure of Chinese influence-peddling inside the Australian political system is just one example of China’s growing influence and willingness to act in Western states. In these days of austerity for many Western nations, money speaks loudly and in recent years Chinese investment into Western liberal democracies has surged.

Chinese foreign direct investment is shifting from commodities in the developing world to high-tech acquisitions, equity stakes and mergers in advanced economies. In Europe alone, Chinese investment increased 44% between 2014 and 2015, when it reached €20 billion. For the most part, these funds have been welcomed by cash-strapped Western states seeking to reinvigorate their economies. However, there are also risks associated with Chinese investment in telecommunications and other mainstays of modern commerce.

Research carried out by the Henry Jackson Society suggests that Chinese investment in national infrastructure is taking on critical proportions, and Western states – particularly the five countries involved in the Five Eyes intelligence alliance – are responding in piecemeal fashion with each screening investments in different ways. A number of incidents in recent years have underlined the need for better co-ordination between nations, particularly those that share intelligence, and improved understanding of China’s investment strategy into the West.

In 2016, for example, a Chinese consortium that included a subsidiary of the Chinese defence industrial giant AVIC, bought a large stake in the UK’s largest data centre operator, Global Switch. Whitehall approved the deal, only to see the Australian Department of Defence pull out of future business with Global Switch, citing the AVIC buy-in. Then came the Canadian government’s approval of a Chinese takeover of the Canadian satellite communications company, Norsat.  After the Trudeau administration confirmed that change in ownership, the Pentagon announced it would have to re-examine its contracts with the Vancouver firm.

MERICS research suggests China’s state owned enterprises (SOEs) accounted for more than 60% of China FDI in Europe in 2015. While this is not as high as it has been, the trend is upward which adds to the argument that much of the investment surge is strategic in nature. Beijing has also recently announced its intention to become the global leader in artificial intelligence (AI), a cutting-edge technology upon which the defence of the West will depend. One can see China’s intentions in its Made in China: 2025 strategy that was announced in 2014. The strategy involves subsidising Chinese firms targeting acquisitions and mergers of Western AI, IT, and telecoms firms and using non-tariff barriers to provide a sanctuary for Chinese firms inside China so they can advance safely away from the harsh glare of competition. The goal is to give China strategic dominance in the technologies of future warfare.

Such goals are alarming, and it’s not just policy analysts who think so.The Trump administration, for example, demanded an investigation in Chinese investment into Silicon Valley start-ups and the resulting report indicates that many of the Chinese firms operating in this field have state support and direction.

The recent decision by Berlin to restrict Chinese investment into parts of its digital economy and infrastructure is another indicator of how critical this issue has become. As one of the West’s most open economies, this action demonstrates Berlin is taking the situation very seriously indeed. While London mulls over a body similar to the Committee for Foreign Investment in the United States or Australia’s Foreign Investment Review Board to supplement its current ad hoc system, it is imperative that the Five Eyes alliance members systemically overhaul the range of sectors open to Chinese investment. Some practices that could assist include:

  • Instituting a regular Five Eyes meeting between the heads of their investment review boards.
  • Use this process to build a ‘common operating picture’ of Chinese investment practices and targets.
  • Sharing more information on what Chinese firms are doing in each of the Five Eyes economies, their ownership structures, and any past instances of serving Chinese national security objectives.
  • Considering an overhaul of the Five Eyes working groups in telecoms and AI, giving them greater prominence than they now have, and creating stronger links between private sector actors and security agencies.
  • Developing better monitoring by Ministries of Economy; presently, governments capture statistics without giving much background. They can and should provide more information to regulatory bodies.

The surge of Chinese SOE-led interest into Western infrastructure and high-tech can help bridge the gap between supply and demand for investment dollars. However, we need to be realistic about Beijing’s own industrial goals and objectives and the nature of its investment strategy. A common assessment system for the Five Eyes allies would assist in safeguarding our interlinked telecommunications and high-tech sectors.


Pushback: Why the Five Eyes Intelligence Alliance Should Keep Chinese Investors at Bay

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The National Interest, 25 July, 2017

There has been a dramatic shift of investment into the West, which may have a deep impact on U.S. security and the country’s future way of life. According to a report recently published by the Henry Jackson Society, China is making massive investments into Western digital and critical national infrastructure, and Western states are not reacting in a coordinated or rational way. This article argues that those states can and should coordinate a collective reaction through the Five Eyes intelligence alliance. The Five Eyes—arguably one of the strongest and long-lasting intelligence coalitions in history—consists of five of the most robust liberal democracies in the West: the United Kingdom, Canada, Australia, New Zealand and the United States.

Bound by strong cultural links, these five states have seen off authoritarian communist dictatorships and global conspiracy theories from a range of directions. Following the collapse of the Soviet Empire and its satellites, the men and women who worked in the shadows to keep us safe during that time turned their attention toward failed and failing states. They also began defending us from corporate espionage and, now, the rise of domestic-based Islamist terrorism. While the members of this shadow group still work on those issues, a new one has presented itself, and from an unusual and unlikely direction—Chinese malicious investment.

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HJS Report: Safeguarding our System: Chinese Investment into the UK’s Digital and Critical National Infrastructure

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Henry Jackson Society, 18 July, 2017

China’s investment into Western advanced economies – including that of the UK
– is increasing and changing in scope surging from EUR 14 billion in 2015 to EUR
20 billion in 2016, a 44% jump since 2014. More than 60% of the value of deals has been by state-owned enterprises, indicating this push is led by state strategy than commercial
interests.
• In 2016, China invested $11.15 billion into the UK. More than double the amount in
2015 and the most in any one year going back to 2005.
• China’s economic strategy, Made in China: 2025, might threaten the long-term
survival of UK businesses unless some sort of government protection is afforded to
them or unless China affords British businesses more access to China’s home market.
• Because of cyber vulnerabilities, critical national infrastructure will be at the forefront
of any future war.
• The current review system could be improved and rationalised:
– It has allowed access to the UK’s digital and critical infrastructure with elements
of China’s defence industrial concerns
– It has allowed deals that have affected the UK’s closest military allies
– It allows for domestic and foreign pressure on the government of the day
• A formal investment screening regime is both necessary and desirable to protect the
UK’s economic interests and its national security.
• A new regime should be built, which is adequately resourced to carry out the difficult
task of tracking foreign direct investment (FDI) into the sensitive parts of the UK’s
economy.
• The new regime should begin to coordinate more closely with the UK’s closet military
and intelligence-sharing allies, including the Five Eyes partners and NATO member
states.
• Any new regime should carry out its review process in a judicious but swift manner so
that foreign investment in the UK is not hampered or harmed. This report suggests
that the regime should be sufficiently able to pass its decisions within 30 days of
receiving an inquiry.
• Ideally, any regime should be overseen by a special committee in Parliament to ensure
that it is sufficiently funded and resourced to carry out its activities, and that it is
carrying them out in a legal, expedient and sufficient manner

To read the full report, please click here.


 

The Sydney Morning Herald, 4 July, 2017

This is not “just another North Korean missile launch”. The “successful” testing of what North Korea’s state news agency KCNA called an “inter-continental ballistic missile” takes the Korean Peninsula one step closer to a conflict that could drag in the world’s great powers and cost millions of lives.

This time is different, and potentially much worse than those that have gone before, because it threatens to bring a reaction from the United States. The US closely monitors North Korea’s ability to strike cities on the West Coast, and significant progress towards that goal is unlikely to go unanswered.

According to Chad O’Carroll, Managing Director at Korea Risk Group, a North Korean nuclear missile that can reach the West Coast – though similar to Russian and Chinese capabilities – is deeply problematic for any sitting US president, “the extremely acrimonious nature of relations between…

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Panama Has Ditched Taiwan. Here’s Why It Matters for America.

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The National Interest, 22 June, 2017

Last week’s sudden announcement by Panamanian president Juan Carlos Varela that Panama would henceforth be shifting its diplomatic relations from Taiwan to mainland China was not entirely unexpected in Taipei. Tsai Ing-wen had deliberately avoided visiting the country during her visit to the region after Panamanian leaders had delayed the acceptance of Taiwan’s new ambassador there for more than six months. For Taipei, it was clear that the writing was on the wall. Varela’s decision to favor Beijing came as another hit for Taiwan after it lost two other allies in the past year.
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So what lies behind the recent moves of Taiwan’s allies to recognize Beijing instead? Part of the story relates to Taiwanese president Tsai. Coming from the independence-minded Democratic Progressive Party, President Tsai’s decision not to affirm the 1992 Consensus (on One China) and her congratulatory telephone call to president-elect Donald Trump in December of last year were poorly received in Beijing. Shortly after the telephone call, one of Taiwan’s African allies, Sao Tome and Principe, suddenly announced that it was dumping Taipei in favor of Beijing. According to Zhang Baohui, an academic at Lingnan University in Hong Kong, the shift by the small African country indicated that “Beijing has a new Taiwan strategy: they’re going back to their confrontational style, and the truce with Taiwan over the past eight years is over.”

Given the fact that the United States sits astride this precarious status quo, any increase in Cross-Strait tensions directly impacts U.S. national interests. While the official U.S. policy is to support the “One China” policy and maintain close diplomatic and economic ties with China, it is also committed by domestic law to protecting Taiwan from unification-by-force. Regardless of their preferences, U.S. presidents are obliged by the Taiwan Relations Act of 1979 to protect Taiwan and supply it with adequate military arms.

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A Taiwanese Arms Package Could Be Used as Leverage in the Korean Crisis

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The National Interest, 29 May, 2017

Taiwan has long been a dormant problem for the U.S.-China relationship, successfully shelved by the Three Joint Communiqués of 1972, 1979 and 1982, with the last serious incident being the 1995 Third Taiwan Strait Crisis. Nonetheless, Donald Trump’s actions in the Asia-Pacific region could signal an end to the modus vivendi that has existed for almost fifty years. While President Trump’s decision to accept a congratulatory call from Taiwanese president Tsai Ing-wen did not herald a new understanding of the “One China” policy, as many immediately thought, it is not clear yet what the new administration’s China policy will be. Under Obama, many strategists worried that the balance of power in the Taiwan Strait was moving in China’s favor, as arms deals to the island were delayed and China grew in strength. Trump’s administration appears to be seeking to redress this issue. A new arms package to Taiwan is on the drawing board and among the names being considered for undersecretary of state for policy is Randy Schriver. An Asia expert, Schriver served in the State Department as an aide to Richard Armitage and is currently the president of the Project 2049 Institute, an Asian security think tank based in Washington. Schriver would be a strong pick for any president intent on bolstering its ties with Taipei. However, critics are already pointing out holes in the president’s plan to strengthen relations. There are recent reports that Trump is actually continuing to perpetuate the United States’ lackluster support for Taiwan as the new deal has stalled, seemingly in an effort to appease China.

The U.S.-Taiwan-China Triangle

Beijing’s enduring hostility towards Taiwan has meant that Washington and Taipei have mutual-defense agreements to safeguard its “independence.” In 1979, the United States switched its diplomatic recognition from Taipei to Beijing as the legal representatives of China and acknowledged Taiwan as a part of One China. However, that same year Congress passed the Taiwan Relations Act, which had the aim of enabling “Taiwan to maintain a sufficient self-defense capability,” and the United States is mandated to provide that capability. Both Republican and Democrat presidents have been committed to the relationship and provided Taiwan with a variety of advanced military assets. For instance, in 1992, H. W. Bush sold Taiwan 150 F-16 jets at $6 billion, and the Clinton administration supplied missiles and radar systems to greatly improve Taiwan’s air-defense capabilities.

China always objected to the sale but was never in a position to offer any real opposition until recently. As a result of growing Chinese economic and military strength, U.S. deals have become smaller and met with stiffer backlash. In 2005, Beijing passed the Anti-Secession Law which formalized into policy China’s long-standing rule to use “non-peaceful means” to ensure its territorial integrity should the Taiwanese government declare independence. Signaling that Beijing was no longer afraid to voice its intentions openly and become more assertive in reducing U.S. influence with Taiwan. In 2010, Beijing did not only condemn a $6 billion package, but also sanctioned some participating U.S. companies. It would take until 2015 before Obama authorized another package and it would be a markedly smaller at $1.83 billion. Announced with little fanfare, it still attracted Beijing’s ire. Upon hearing of the deal, the Chinese vice foreign minister said the move “severely damaged China’s sovereignty and security interests.” A year later Obama would even block a smaller $1 billion sale, an obstruction that was reported by the Washington Free Beacon to have considerably damaged Taiwan’s defensive capabilities as it contained spare fighter-jet parts and additional missiles. The move coincided with Trump’s phone call with Tsai, giving the impression that the Obama administration prioritized good relations with China over U.S. obligations of the Taiwan Act.

Randy Schriver and Trump’s China Policy

Trump’s China rhetoric has signaled a significant break with Obama’s Asia-Pacific strategy. A new arms deal on the table could be one such indication that Trump has no intention of going soft on China, as some critics allege. According to sources, the administration may be considering providing to Taiwan rocket systems and anti-ship missiles, with companies such a Lockheed Martin being linked to the deal. Lockheed is the manufacturer of the THAAD missiles system currently being deployed to South Korea, this raises the possibility that the system could also be sold to Taiwan. Even discussions of THAAD could prove troublesome as Beijing has already raised considerable objections to the missiles system in South Korea, even going so far as to apply economic pressure on South Korean companies.

If the rumor mill is to be believed, then Secretary of Defense Jim Mattis is considering Randy Schriver, a prominent Taiwanese supporter, to fill the position of undersecretary of defense for policy. With a strong network among U.S. allies in the Asia Pacific, Schriver would be a reassuring figure for America’s friends in the region. He is also closely linked to Richard Armitage, having worked as his chief of staff and senior policy advisor when Armitage was deputy secretary of state. Schriver is known to be a vocal proponent of strong U.S. engagement with Taiwan and maintains a tough stance against Chinese expansionism. In a piece he co-authored in The National Interest, after the infamous Trump-Taiwan phone call, Schriver wrote that “higher-level engagement with Taiwan serves U.S. national interests and values,” arguing that the phone call was, in fact, “a good first step” towards rebalancing the trilateral China-Taiwan-U.S. relationship.

Schriver himself has called for the United States to provide submarine technology and vertical, short takeoff and landing fighter jets. If rumors about the new arms package are true, then Schriver could be well placed to carry this particular agreement through, as he is already familiar with the weapon systems and their capabilities. He has long been a proponent of balance as a means of deterrence.

Objectives and Issues

The United States must ensure that deals are no longer deferred and it delivers equipment that fits Taiwan’s defense policy of stopping an invasion force before it reaches the island. Schriver’s appeal for the jets to be supplied to Taiwan could be a bad call. In 2010, Cross-Strait military analyst Mark Stokes told a U.S. congressional commission that “every citizen on Taiwan lives within seven minutes of destruction” and in 2015 Beijing bought from Russia several S-400 Triumf, an antiaircraft missile system. Expected to be fully operational by 2020, the missile launchers, which have a range of 400 kilometers, will allow China to strike aircraft over Taiwan, essentially giving China air supremacy in the territory. The Chinese ballistic-missile buildup was examined in a Taiwanese defense report, which stated that by 2020 China would be in a position to invade the island and successfully repel a U.S. counterattack. With the sheer amount of Chinese missiles pointed at Taiwan, it would be unwise for them to buy large amounts of expensive aircraft, which could be destroyed before getting the chance to take off. It is, however, encouraging that Schriver has also called for the sale of submarine technology to Taipei, something the country has been seeking for some time. Advanced submarine technology alongside the defensive missile systems, alleged to already be part of the arms package, would make a suitable combination for an over-the-horizon defense package. In a way, imitating China’s anti-access/area denial (A2/AD) might be Taiwan’s strongest approach to defense. What’s good enough for the gander should be good enough for the goose.

The administration is struggling at the domestic level. At the moment, while Trump’s foreign-policy focus is concentrated in the Pacific, he has gone over one hundred days and has failed to appoint key Asia policy positions across the U.S. government, hampering strategy and slowing relationship-building in an increasingly heated region. It might well be that the arms package never gets off the table, with figures inside the White House stalling the deal to appease Beijing. On the other hand, for an administration that negotiates across the board, the arms package delay might well be connected to the administration’s Korea strategy. As the situation in the Korean Peninsula is ongoing Trump could be using the prospect of a large Taiwanese arms package as leverage in the crisis. For instance, he could offer to remove items from the package or continue to defer it in exchange for tougher Chinese sanctions on the Hermit Kingdom. After the Syrian strike, Trump has developed U.S. foreign policy with Chinese characteristics, keeping Beijing guessing. China frequently caught America off guard in the past, Trump could be playing the Chinese at their own game.


Written Evidence for Foreign Relations Select Committee Inquiry on UK-China Relations

Evidence, UK Parliament, 28 April, 2017

1.                   The UK’s China policy under the former government was based on a number of erroneous assumptions that predicate that (i) Chinese economic growth is certain and sustainable, (ii) that Chinese investment into the UK was an unalloyed good; and that (iii) there are few political risks to engagement to China; and (iv) that China is a status-quo power which desires only modest changes to the current global order.

2.                   Western debates about rising power China have long been divided between those who emphasize engagement and the transformative side of trade and those who emphasize China’s autocratic government, human rights record, and assertive foreign policy (particularly over its near maritime space). Over the past ten years, there has been a gradual shift as China watchers have begun to adopt a more critical view of China’s foreign policy behaviour, which has been particularly strong among foreign policy elites in the United States, Japan, and other regional (Asian-Pacific) powers. Despite this shift, most diplomacy seeks to hedge against the risks inherent in China’s rise, carrying out both engagement and balancing behaviours. While many in the mainstream insist that this is the best means of maintaining peaceful and stable relations with China, this ambiguity may be ultimately ineffective, and even counter-productive to both UK national interest and to defending a rules-based international order.

3.                   By this reading, the current spate of tensions between Washington and Beijing are down to the unpredictability of the new Trump administration, and the UK should not or cannot afford to become involved. While these three assumptions still define bilateral ties, they are becoming less and less valid and should be reviewed in the light of changes inside China and in China’s foreign policy behaviour. This submission examines the bilateral under the following propositions:

•         The UK cannot afford let trade define the relationship with Beijing, despite the pressures of Brexit, instilling instead a policy of “cautious engagement”

•         The UK should not develop too strong a dependency on Chinese trade, given the structural weaknesses of its economy, such as slowing growth, uncertain financial reporting methods, the property bubble, the continued dominance of state owned enterprises (SOE), and the large national debt to GDP ratio. There is a potential for sudden shocks.

•         The UK must also consider the costs and risks of Chinese investment inside the UK.

•         The UK must reconsider the proposition that economic interdependency is making China into a “responsible stakeholder”. In key ways, it has not.

•         The UK must realize that Chinese actions in the South China Sea (and Asia Pacific more widely) are bound to effect the UK. The idea that the UK can stand aside as a major power attempts to control a major Europe-Asia trade route is misguided and counter-productive to UK national interests.

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