Today’s Realities of doing Business with China

By Walter Pincus

Pulitzer Prize Winning Journalist Walter Pincus is a contributing senior national security columnist for The Cipher Brief. He spent forty years at The Washington Post, writing on topics that ranged from nuclear weapons to politics. He is the author of Blown to Hell: America's Deadly Betrayal of the Marshall Islanders. Pincus won an Emmy in 1981 and was the recipient of the Arthur Ross Award from the American Academy for Diplomacy in 2010.  He was also a team member for a Pulitzer Prize in 2002 and the George Polk Award in 1978.  

OPINION — Last Friday, while public attention was focused on Chinese military exercises around Taiwan and the vague threat of possible warfare, a Senate Foreign Relations Near East Subcommittee held a hearing on Beijing’s multi-year economic invasion in the Middle East and how the U.S. is quietly fighting back.

First, however, Subcommittee Chairman Sen. Chris Murphy (D-Conn.) pointed out, “Today, more than 50 percent of China’s oil comes from the Gulf States… It’s no secret why China is deepening its ties to the region. It’s the Chinese economy, not the U.S. economy that has become completely dependent on Middle East oil.”

Murphy added, “Today, China now needs the Middle East more than we do. Consider this stunning fact — the value of Saudi fossil fuel exports to China has grown from $1.5 billion in 2000, just about twenty years ago, to $43 billion in 2021.”

Meanwhile, since Moscow’s invasion of Ukraine, Russia has recently become China’s top supplier of fuel, replacing Saudi Arabia, but the Kingdom along with Iraq, Oman, the United Arab Emirates (UAE) and Kuwait still remain Beijing’s main suppliers.

On the other hand, China’s need for Persian Gulf oil presents a potential military advantage to the U.S. The U.S. Navy has played the long-standing role of protecting shipping routes from the Middle East to Asia, particularly around strategic checkpoints such as the Straits of Hormuz and the Strait of Malacca.

This has been a serious concern to Chinese military analysts and has also served as motivation for China’s decade-long effort to develop a blue-water navy.

At Friday’s hearing, Assistant Secretary of State for Near Eastern Affairs Barbara A. Leaf told the Senators, “While China’s current, military engagement in the [Middle East] region is relatively limited, there is clear potential over the longer term for [Beijing’s] economic relations to morph into the direction of more robust defense relationships as the PRC [People’s Republic of China] markets its military hardware aggressively.”

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In 2000, China’s trade with the Middle East and North Africa was worth $15.2 billion but by 2021, it had climbed to $284.3 billion. As the New York Times wrote last February, Middle East states “are increasingly looking to China not just to buy their oil, but to invest in their infrastructure and cooperate on technology and security, a trend that could accelerate as the United States pulls back.”

“Where PRC acquisition of strategic infrastructure builds,” Leaf added, “there is the potential, almost a certainty, for dual use or outright military presence.”

The Chinese, Leaf said, “have acquired space in about a dozen ports across the region, but I would also say, the other piece of this is we are in regular discussions with governments about the risk factors attendant to strategic infrastructure bought up either in part or in whole by even Chinese private sector actors as well as state-owned enterprises because of this military-civilian fusion.”

Leaf further explained, “There are a plethora of laws, Chinese laws, that require Chinese private sector as well as state-owned enterprises to basically give access to their intelligence and their military – so we have lit that up for a number of countries and it has been persuasive.”

In trying to counter the Chinese port proposals, Leaf said the U.S. has also been “finding other investors for countries who are being approached by China on ports and we have a number of partners who are very engaged…This is not a sort of a wide open field and China is not the only country with these ports in play.”

Leaf went on, “We are very engaged both in lining up alternatives [for funding], but [also] to really illuminating the risk factors…Nobody is signing up when they offer a commercial port in part or in whole for sale, nobody is signing up for the PLA [People’s Liberation Army] to use that facility and yet this is becoming clear as a risk.”

Nonetheless, China has established a port in Djibouti where the U.S. has had a military base for years. However, in 2021, when it appeared the Chinese were constructing a military facility in Abu Dhabi’s Khalifa port in the United Arab Emirates (UAE) the Biden administration showed intelligence to Emirati authorities and as a result they ordered the project halted.

Both Leaf and several Senators also brought up the national security risks involved with Middle East countries such as the UAE when it comes to the purchase of technology, whether it is U.S. technology in weapons systems or Chinese technology that would allow Beijing access to the buyers’ communications.

One issue, brought up by Subcommittee Chairman Murphy, was the Trump administration’s proposed sale to the UAE, announced on November 10, 2020, of 50 high-tech F-35 fifth-generation fighter-bombers worth $10.4 billion; 18 MQ-9Bs unmanned aircraft worth $2.97 billion, and $10 billion worth of air-to-air and air-to-ground munitions.

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Murphy claimed the Trump administration had rushed into the deal without doing due diligence to see if “there was a real risk of appropriation of U.S. technology by China and that is why, I imagine, we have the suspension of that sale by the [Biden] administration.”

Leaf said the F-35 sale “was sitting on the desk when the [Biden] administration came into the office,” and there needed to be an agreement on “rules of the road…given the cutting edge, state-of-the-art technology that would be at risk given the UAE defense relationship with China.”

The UAE has decided to use Huawei 5G technology for ground stations and communications towers on its military bases which experts believe would provide China with an opportunity to gather intelligence about F-35 operations, had the sale gone through. So far, it has not. As then-Pentagon spokesman John Kirby put it last December, “These end-user requirements and protection of U.S. defense equipment are universal, non-negotiable and nonspecific to the UAE.”

Leaf echoed that view last Friday, when she said, “We take deadly seriously the issue of protecting our technology, our systems, our personnel.”

She also said, “The issue of Huawei and other interested [Chinese] vendors is an issue of discussion with us across the region and we’ve been pretty successful in pushing…people out of the direction of purchasing that [Chinese] technology in a number of cases.”

Leaf added, “We have been working across the region to inform, illuminate, [and] educate host governments on the risks to their sovereignty, risks to their security, when they have these untested vendors in their national networks…They’re basically giving a back door to the Chinese government to their data sets and so forth.”

Leaf warned when it comes to surveillance or armed unmanned aerial vehicles (UAVs), “The Chinese have gotten more than their foot in the door precisely because of their virtual monopoly on drone technology and they have spread it across the region, helter skelter – and it is condition free.” The U.S. sells drones, she said, “under specific, clear rules of the road,” conceding “there are specific technologies we should not provide.”

Another issue that came up several times last Friday, was the March 2021 agreement that Iran and China signed –a far-reaching 25-year economic and strategic partnership that promised billions of dollars in potential future Chinese investment in Iran for the development of military and cyber capacities, plus intelligence cooperation.

However, Leaf said, “Many of the elements of it [the 2021 Iran-China agreement] would not be implementable given the strictures of sanctions [against Iran], but it certainly gives a direction to China’s prioritization of Iran as one of five countries it sees as key to its own influence in the region…There is no direct threat as such at this moment to our forces, but it is definitely not good for the region.”

Asked about military and intelligence elements of the agreement, Leaf said she would come back and deal with that in a classified setting.

In answer to a later question, Leaf described the agreement as “an unwelcomed turn of events,” but explained that “the regime in Tehran is itself isolated, and not just because of our sanctions. It’s actually because of its own actions; predatory destructive behavior within it near-abroad region. Members of the regime have long flirted with the idea that turning East, as it were, would allow them to evade all these problems. So that’s the logic of this engagement.”

“To the degree that Tehran feels it has this anchor in a great power,” Leaf said, “doesn’t bode well and it certainly is concerning. What we have to do is the hard, diplomatic, the hard defense work, security cooperation, intel cooperation with all of these neighbors, but not just the Gulf countries.”

Summing up, Leaf said, “It does illuminate rather starkly the way China goes about its business in the region and it is not to the region’s good.”

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