A fundamental principle of strategy is do not help your enemy defeat you. Funding your adversary clearly is out of the question. Cold War strategist George Kennan understood this principle in developing America’s policy of “containment.” We would not fund the Soviet Union to permit it to become a stronger enemy. Even the sale of grain to the Soviets was controversial. Moreover, no state that seeks victory in an international conflict would permit its enemy to raise money on its capital markets. Neither would a state brazenly use the retirement funds of government workers to fund its enemy’s military. Lamentably, the United States risks doing so.
China sees the United States as its fundamental enemy, and the U.S. treats China as its strategic competitor. Remarkably, the U.S. permits investment in entities owned by the Chinese Communist Party (CCP). The Thrift Savings Plan (TSP) is the world’s largest pension fund, with an extensive portfolio. It provides retirement saving opportunities for past and present U.S. government employees, civilian and military. In 2020, the manager of most of these funds, BlackRock, and TSP’s oversight Federal Retirement Thrift Information Board (FRTIB) attempted to invest in companies that may have been owned or controlled by the CCP.
By supporting the CCP, TSP would be aiding the communist regime’s grip on the Chinese people, assisting its effort to overthrow the U.S. as the world’s dominant state, and further the development of the People’s Liberation Army. Fortunately, the Trump administration stopped this attempt.
But once again, BlackRock and FRTIB are trying to get governmental employees to invest as much as 25 percent of their savings in as many as 5,000 mutual funds without informing TSP participants that they may be investing in the CCP. The Biden administration must stop this renewed effort to pour retirement savings, including from retired and active U.S. military service members, into CCP entities. If it were permitted, China would become an even more formidable opponent of the U.S. military. This is a situation that is equally idiotic and horrifying — that U.S. entities would assist the rise of an enemy that U.S. service members one day may have to fight.
The problem the U.S. faces with investment and economic exchange with Chinese entities is even more profound. Any interaction with a Chinese firm introduces great risk to people, firms, and the U.S. and allied governments. In December 2020, the Department of Homeland Security (DHS) released a significant advisory to U.S. businesses warning of the risks associated with the use of data services and equipment from firms with ties to China. The advisory noted that such interaction presents a major threat to data security for the U.S. government, businesses, and people, because China’s government can access data covertly through entities it influences or controls.
The advisory highlighted the persistent risk of Chinese government-sponsored data theft because of Chinese laws: the PRC National Intelligence Law of 2017, Data Security Law of 2020, and the Cryptology Law of 2020. These laws compel Chinese businesses and citizens — including academics, universities and investors — to provide the Chinese government access to the collection, transmission and storage of data. Of course, this violates the spirit and intent of U.S. and international law and longstanding business principles. Additionally, companies can be required to store data within China’s borders and, again, allow access by Chinese authorities under the guise of national security.
What should be of paramount concern to non-Chinese firms are the requirements that China’s laws and initiatives compel Chinese firms and entities to cooperate secretly with security and intelligence services. These laws can be used to compel Chinese firms to provide Beijing with data and encryption keys, and to install “backdoors” or “bugdoors” (a “backdoor” that masks itself as a computer “bug”) in equipment to create security flaws that China can exploit. Data centers owned or operated by Chinese firms, foreign data centers built with or otherwise operating Chinese equipment, or Chinese partners in joint ventures are required to provide information.
Funding an enemy’s rise has three major consequences. First, China’s relative rise is accelerating. In 2021, China’s revenue reached 20.25 trillion yuan, nearly doubling from 11.73 trillion yuan in 2012 when President Xi Jinping came to power. Companies in China — private, foreign and state-owned — contribute more than 80 percent of the government’s coffers, which are used to build hypersonic weapons, increase China’s nuclear arsenal, develop space weapons and stealth bombers, and expand its fleet and global surveillance network. Every firm has a duty to make money for the regime, so any investment in China’s firms equals a contribution to its war machine.
Second, it harms the economic interest of the U.S. and other Western business communities. China’s rise was aided by its ability to influence Western firms in China, trading access to the country’s enormous market in return for the firms’ knowledge, technology and processes. At the same time, China employed the firms’ influence with their domestic governments to ensure support for China. What the CCP could not willingly receive from economic cooperation they would steal through bribery, extortion, or the development and employment of their persistent cyber capabilities.
Third, the rise of China was met by a historically unique case of threat deflation in the United States. Regrettably, this remains. China’s deception started under Deng Xiaoping, projecting an image of itself as a benign and responsible great power that fully accepted the liberal international order. Equally, it was a consequence of Wall Street’s willingness to embrace and sustain China’s deception. The U.S. consistently — and gravely — underestimated the dangers and implications of China’s rise, including its threat to U.S. interests and the security of the American people.
The willful ignorance of the China threat may be perhaps the greatest strategic blunder in U.S. history. Countless Sinologists, think-tank denizens, Silicon Valley and Wall Street gurus, and U.S. policymakers contributed to the failure to recognize the threat. There are consequences for these actions. That the FRTIB and its fund manager would consider using TSP funds demonstrates gross disrespect of their clients and an appalling indifference to their country’s fate. It demands immediate attention from the Biden administration and the American people. Beijing should not have the ability to raise capital on U.S. and allied markets.
The U.S. and Western allies can achieve victory against the CCP, but it will require a determined struggle. That struggle is obviously made harder as long as Americans fund their enemy.
Lianchao Han is vice president of Citizen Power Initiatives for China. After the Tiananmen Square Massacre in 1989, he was one of the founders of the Independent Federation of Chinese Students and Scholars. He worked in the U.S. Senate for 12 years, as legislative counsel and policy director for three senators.
Bradley A. Thayer is the co-author of “How China Sees the World: Han-Centrism and the Balance of Power in International Politics.”