Why China's Commercial Sector Is America's Real Strategic Foe

A man poses with a kite shaped like the red star of China's People's Liberation Army on the bund in front of the financial district of Pudong in Shanghai

Washington must take action to defend its national interests against malign Chinese commercial actors.

Despite the furor they’ve caused, the revelations this month that North Korea has functioning ICBMs and miniaturized nuclear warheads shouldn’t come as a surprise. The foreign-policy community has watched for years as Kim Jong-un has steadily developed more advanced weapons capabilities. While most of the world has come together to constrain Kim’s nuclear ambitions, the sophistication of his weapons programs has continued to accelerate. Even before U.S. sources seemingly confirmed Kim had miniaturized nuclear devices, the United Nations Security Council answered this month’s ICBM tests with what U.S. Ambassador to the UN Nikki Haley called “the strongest sanctions ever imposed in response to a ballistic missile test.”

Sanctions may still be the best way to resolve this challenge without force of arms, but whether this latest package proves effective will depend on the factor that has undermined previous sanctions—North Korea’s continuing trade links with Chinese companies and banks, which account for nearly all of its economic activity. The subversion of multilateral sanctions and international security is the most urgent, but it is far from the only way that Chinese commercial entities act against U.S. interests, with the acquiescence—or support—of their government. Government-linked Chinese businesses have also chipped away at our economic future through tactics including intellectual-property theft, cyber-economic espionage and violations of China’s World Trade Organization commitments.

Earlier this year, I convened a congressional hearing on China’s activities in high-tech sectors. Robert Atkinson, president of the Information Technology and Innovation Foundation, testified that “[t]he emerging challenge now is about the Chinese Government enacting a suite of policies to go after the U.S. leadership in our core advanced technologies.” He warned Congress that it should “consider a world where in fifteen years, U.S. technology jobs in industries like aerospace, chemicals, computers, motor vehicles, medical equipment, pharmaceuticals, software, semiconductors, are drastically reduced from where they are today.”

China’s commercial activities have incurred little cost despite violating international norms to advance this agenda. The United States should begin to impose such costs. Recent reports have indicated that the Trump administration is considering trade actions against these malign actors, a welcome development. Reciprocity in the U.S.-China commercial relationship is long overdue.

Part 1: Chinese Commercial Entities Enable DPRK Weapons Development

A United Nations Panel of Experts, the Center for Advanced Defense Studies, and others have documented extensive links between Chinese commercial entities and the North Korean regime in violation of both U.S. sanctions law and multilateral UN resolutions. Overall trade between China and North Korea has continued to rise throughout 2017, suggesting that China is unwilling to use coercion against its client state. The goods that cross the China-North Korea border frequently violate sanctions. Kim Jong-un has abundant access to luxury items, for example, that should be banned under sanctions, including a modified Mercedes-Benz S600 limousine and a Princess 95MY yacht.

Multiple public reports have revealed that China’s largest telecommunications firm, Huawei, has been subpoenaed by the Commerce Department as part of an ongoing investigation into whether it broke U.S. export control laws by exporting or re-exporting U.S. technology to North Korea. Also, earlier this year, a similar Chinese government-affiliated firm, ZTE, was hit with a record-breaking, billion-dollar fine in connection with export violations to Iran and North Korea. Huawei and ZTE were the subject of a House Intelligence Committee investigation in 2012. The Committee’s report documents the companies’ links to the Chinese government and found them to be national-security threats.

These notable cases are just a few of the multitude of Chinese businesses operating, with government links or government acquiescence, without regard to North Korea’s nuclear belligerence. The Trump administration has taken a good first step to address these malefactors. On June 29, the Treasury Department’s Office of Foreign Assets Control sanctioned a Chinese company and two Chinese individuals that were closely connected to North Korea’s nuclear and ballistic weapons programs, pursuant to its secondary sanctions authority. The department’s Financial Crimes Enforcement Network also designated the Chinese Bank of Dandong as a “primary money laundering concern,” cutting it off from the U.S. financial system.