Battlegrounds

For developing countries with fragile economies, the OBOR sets a ruthless debt trap. When countries are unable to service loans, China sometimes trades debt for equity to gain control of the debtor country’s ports, airports, dams, power plants, or communications networks. The list of countries for whom China set the debt trap reveals a shrewd strategy to control routes vital to commerce and freedom of navigation. By 2020, the risk of debt distress was growing in thirty-three countries with OBOR financing, and eight poor countries (Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan, and Kyrgyzstan) already had unsustainable levels of debt.24

China’s tactics vary based on the relative strength or weakness of the target states’ leaders and institutions. When faced with large-scale investment projects, countries with weak political institutions often succumb to corruption, which makes them even more vulnerable to China’s strategy. In Sri Lanka, for example, then-president Mahinda Rajapaksa incurred debts far beyond what his nation could bear. He agreed to a high-interest loan to finance Chinese construction of a port, despite no immediate or apparent need for a new harbor on the small island nation. The prime minister was later defeated electorally, but the Sri Lankan government remained severely indebted. Following the commercial failure of the port, Sri Lanka was forced to sign a ninety-nine-year lease to a Chinese state-owned enterprise. Although Chinese officials announced that the port would not be used for military purposes, two Chinese submarines docked there in advance of Japanese prime minister Abe Shinzo’s visit to the country in 2014.

The Maldives, a small island nation of four hundred thousand people off the coast of India, was another attractive target because it controls a maritime territory of high strategic importance, one more than three times larger than the United Kingdom. When China approached the country and struck a deal with President Abdulla Yameen (who, along with other officials, greatly profited from the inflated value of contracts), the Maldives incurred a combination of debt and guaranteed loans of more than $1.5 billion, more than 30 percent of their GDP. (Unreported guarantees could make the total loans as high as $3 billion.) In 2018, Chinese efforts to influence the presidential election in the Maldives failed due to a backlash against corruption, indebtedness, and the associated loss of sovereignty.25

Malaysia, the second-largest recipient of OBOR funding after Pakistan, was another important target for the CCP due to the country’s strategic location at the heart of Asia, with 4,500 kilometers of coastline and a shamelessly corrupt government. After Prime Minister Najib Razak and his co-conspirators embezzled $4.5 billion from the country’s sovereign wealth fund—$681 million went into Najib’s personal bank account—China arrived to bail him out. China also financed a Malaysian rail project for $16 billion, over twice the actual cost, a scheme that Chairman Xi personally approved. Five months later, Najib flew to Beijing to sign the deal. Beginning in mid-2017, the much-needed cash flow from Chinese state-owned banks was initiated, helping the president of the third-wealthiest nation in Southeast Asia cover for his embezzled funds.26

In Kenya, the railway project to connect the port city of Mombasa with Nairobi significantly underdelivered in revenue and increased public debt to unsustainable levels. Kenyan economist David Ndii described the railway in harsh terms as heralding “a new age of Oriental colonialism.” Seeing Kenyan government officials “groveling” to the Chinese and making excuses for excesses, such as the maltreatment of Kenyan workers, Ndii was reminded of “the chiefs who sold their people into slavery … and signed away their lands to European imperialists for blankets and booze.”27

The new vanguard of the CCP is a delegation of bankers and party officials armed with duffel bags full of cash. Corruption enables a new form of colonial-like control that extends far beyond the strategic shipping routes in the Indian Ocean and South China Sea. In Ecuador, China financed a great dam in the jungle at the base of an active volcano. The $19 billion agreement allowed China to receive 80 percent of Ecuador’s oil exports at a discount; China sells the oil at a markup for profit. Two years after the dam opened in 2016, thousands of cracks appeared in its machinery, and the reservoir was clogged with silt and trees. The first time the turbines were activated, the power surge shorted out the national electrical grid.28

In Venezuela, China profited from the corrupt authoritarian regime of Nicolás Maduro even as the dictator destroyed the country’s economy. China kept the dictator’s regime on life support with a $5 billion credit line in 2018, and in return secured oil at a discount and resold it at a markup, profiting as the Venezuelan people became destitute.29 The CCP also supports other dictatorships with new technical means of co-option and coercion, such as surveillance technologies, facial recognition, and restricted internet.

The Military-Civil Fusion policy is the most totalitarian of the three prongs; it reveals starkly how Xi has moved away from the market-reform trajectory of Deng Xiaoping. Under Xi’s rule, SOEs and private companies alike must act at the direction of the party. First in 2015 and then again in June 2017, the party declared that all Chinese companies must collaborate in gathering intelligence. “All organizations and citizens,” reads Article 7 of China’s National Intelligence Law, “must support, assist with, and collaborate in national intelligence work, and guard the national intelligence work secrets they are privy to.” Chinese companies work alongside universities and research arms of the People’s Liberation Army not only to achieve its economic goals but also to extend China’s influence internationally. Chinese companies have become arms of the party as it dominates key sectors of the global economy, leads in the development of dual-use technologies, and modernizes the PLA. Capturing private companies under its systemic efforts through Made in China 2025 allows the party to conceal its intention to move ahead of the forerunning nations (e.g., the United States) that lead in technologies with both economic and defense applications. Chinese companies steal or force the transfer of intellectual property; abet the party’s bribery and compromising of foreign political and business leaders; and create financial and infrastructural vulnerabilities to allow espionage or intelligence operations.30

But Military-Civil Fusion extends beyond the use of Chinese companies to include efforts that are varied, comprehensive, and unconventional. In addition to espionage through traditional channels such as cyber-theft by the Ministry of State Security or undeclared intelligence personnel at Chinese diplomatic missions, the party tasks some Chinese students and scholars in U.S. and other foreign universities and research labs to extract technology. Many of the returning scholars and scientists are then received in one of more than 150 “Overseas Chinese Scholar Pioneering Parks,” located in high-technology development zones, for what is essentially an intelligence debriefing.31 Chinese entities marking themselves as nongovernmental science and technology organizations and advocacy groups are particularly effective. Founded in 2015, the Shenzhen-based China Radical Innovation 100 (CRI 100) is a self-described nonprofit development platform that targets innovation hubs overseas such as Silicon Valley and Boston in the United States and Tel Aviv in Israel. CRI 100 boasts a “new international cooperative innovation model” that, in fact, consists of extracting and sending back the results of cutting-edge research in U.S. universities and labs via the centers it has established overseas, such as the Radical Boston Innovation Center. In 2019, the CRI listed the Massachusetts Institute of Technology, the University of Michigan, Carnegie Mellon University, and Oxford University as partners. At the Boston-based North America Chinese Association of Science and Technology, over 85 percent of the members have doctoral degrees from top U.S. universities and work in the top research labs in corporate America. Also affiliated with CRI is the six-thousand-member Silicon Valley Chinese Engineers Association, which provides “channels to allow members to engage in China’s rapid economic development.”32

Military-Civil Fusion fast-tracks transferred and stolen technologies to the People’s Liberation Army in such areas as maritime, space, cyberspace, biology, artificial intelligence, and energy. Military-Civil Fusion also encourages state-owned enterprises and private companies to acquire companies or a strong minority stake in companies with advanced technologies so they can be applied not only for economic, but also military and intelligence, advantage. China is known to have more than a dozen organizations that direct a nationwide effort to access foreign technologies and recruit the scientists and engineers to work in China. An example is the Thousand Talents program that targets for recruitment professors and researchers who have access to cutting-edge technology. In January 2020, Professor Charlie Lieber, the chair of Harvard University’s Department of Chemistry, who had received a $50,000 monthly salary, $150,000 in annual living expenses, and more than $1.5 million under the program for a special laboratory in Wuhan University of Technology, was arrested for lying to FBI investigators. Sometimes, U.S. national defense funding supports the CCP’s highly organized technology transfer activities.33 Scientists affiliated with the People’s Liberation Army have worked on projects funded by the U.S. Department of Defense and the Department of Energy. One of many examples is the Shenzhen-based Kuang-Chi Group, described in the PRC media as “a military-civilian enterprise.” The Kuang-Chi Group was founded largely on U.S. Air Force–funded research on metamaterials at Duke University. The group is applying research as it works with the People’s Liberation Army’s space-based reconnaissance platforms.34

Under Military-Civil Fusion, so-called “private” companies in telecommunications are the CCP’s most valuable tool for industrial espionage. China’s use of communications infrastructure for espionage is not a theoretical possibility; it is ongoing and gaining in scale. In 2018, for instance, African Union officials accused China of having spied on its headquarters’ network system in Addis Ababa over a period of five years. The headquarters building had been built by a Chinese SOE as China’s gift to the African Union.

Chinese cyber espionage is responsible for what former NSA director Gen. Keith Alexander described as the “greatest transfer of wealth in history.” In fact, a U.S. Council of Economic Advisers study estimated that the loss from malicious cyber activities to the U.S. economy in 2016 alone could have been as high as $109 billion.35 A grim revelation of China’s cyber capabilities came in December 2018, when American and U.K. law enforcement exposed a sustained Chinese hacking operation of tremendous scale. The Chinese Ministry of State Security used a hacking squad known as APT10 to target U.S. companies in the finance, telecommunications, consumer electronics, and medical industries as well as NASA and Department of Defense research laboratories. APT10 hacked into internet service providers in the United States, Britain, Japan, Canada, Australia, Brazil, France, Switzerland, South Korea, and other countries, extracting clients’ intellectual property and sensitive data. For example, the hackers obtained personal information including Social Security numbers for more than one hundred thousand U.S. naval personnel.36

China’s theft and development of cutting-edge technologies is fundamental to its military modernization program. The party’s narrative of national rejuvenation prioritizes the development of a powerful military capable of defending expanding global interests. The PLA has used stolen technologies to pursue advanced military capabilities such as hypersonic missiles, anti-satellite weapons, laser weapons, modern ships, stealth fighter aircraft, electromagnetic railguns, and unmanned systems.37 Their vision is of a force capable of overmatching the United States in future war. Much of the technology needed is dual use. U.S. venture capital and private equity companies help the PLA achieve its vision by providing much of the capital to Chinese companies engaged in research and development of quantum computing, artificial intelligence, and other technologies.

Some transfers from U.S. companies have permitted the Chinese defense industry not only to develop its own capabilities, but also to drive the U.S. defense industry out of the international arms market with inexpensive knockoffs. For example, the Chinese drone company DJI controlled over 70 percent of the global market share in 2018 thanks to its unmatched prices. The company’s unmanned systems even became the most frequently flown commercial drones in the U.S. Army until they were banned for security concerns.38

Chinese espionage is successful in part because the CCP co-opts individuals, companies, and political leaders to collect intelligence and turns a blind eye to their activities. The party cultivates sympathetic agents in the United States and other nations with the lure of short-term profits. Companies from the United States and other free-market economies often do not report theft of their technology because they are afraid of losing access to the Chinese market, hurting their stock prices, harming relationships with customers, experiencing professional embarrassment, or prompting federal investigations.

Co-option crosses over to coercion when the CCP demands that companies adhere to the party’s worldview and forgo criticism of its repressive and aggressive policies. For example, when a Marriott social media account manager “liked” a pro-Tibet tweet in 2018, the hotel company’s website and app were blocked in China for a week, and the manager was fired after pressure from the Chinese government. In the same year, Mercedes-Benz, the German car manufacturer, was forced to apologize to the Chinese people for quoting the Dalai Lama in an Instagram post. In late July 2019, a young pilot of Cathay Pacific Airways was arrested by Hong Kong police during a protest. After being chastised by the CCP for not acting fast enough against employees involved in the protests, Cathay’s CEO and chief commercial officer resigned. Other leading Hong Kong companies rushed to condemn the protests.39

A glaring example of China’s coercion of American companies came in October 2019, when Daryl Morey, the general manager of the Houston Rockets basketball team, tweeted his support for the Hong Kong protesters. Intensely sensitive to any hint of intrusion into its internal affairs, Chinese state-run television canceled its broadcast of Rockets games. The NBA lost contracts totaling approximately $100 million, and Chinese officials demanded that the league issue an apology. The party also threatened to cut off the extremely lucrative revenue stream from China if Americans did not silence their opinions about Hong Kong. Immediately, leading NBA figures, including star players James Harden and LeBron James and coach of the Golden State Warriors Steve Kerr, obliged, chastising the Rockets general manager for expressing his opinion. This external application of the methods used for internal control, such as the social credit score system, succeeded with Orwellian efficiency.

The brilliance of the social credit score is that it coerces by co-opting people’s social networks. If, for example, a Chinese citizen protests against the government in a way deemed threatening, not only will the protester’s score fall (preventing him from purchasing train tickets, renting apartments, obtaining loans, etc.), but so will the scores of all his friends and family because of their association with him. This then prompts his friends and family to “unfriend” or ostracize the protester, and possibly speak out against his antigovernment “unsocial” behavior. The Chinese Communist Party thus has co-opted its citizens to enforce and reinforce the state’s coercive measures. The party also co-opted the NBA in an eerily similar fashion, using the mere threat of losing access to the profitable China market.

The muted international response to China’s oppression of its people and coercion of its neighbors attests to the effectiveness of the party’s campaign of political and economic co-option. China uses both foreign investment and access to its market to incentivize countries and foreign companies to conform to its interests and position on sensitive issues. The party develops a broad range of incentives and influence efforts to manipulate political processes in target nations and engineer policies favorable to Chinese interests. In 2018 and 2019, Australia, New Zealand, and the United States uncovered sophisticated CCP influence campaigns that augmented China’s considerable economic leverage with the purchase of influence within universities, the bribery of politicians, and the harassment of the Chinese diaspora community to become advocates for CCP policy.40

China’s influence efforts are also designed to promote a “China model” as an alternative to liberal democratic governance and free-market economics. China exploits the openness of free societies to promote views and policies sympathetic to the CCP. China’s influence campaign is well organized and sophisticated. Consistent with its long-standing Maoist motto “We have friends all over the world,” the Chinese People’s Association for Friendship with Foreign Countries cultivates relationships with local officials through sister city and state-to-province relationships. Those relationships are based on “principles” consistent with China’s foreign policy. While some relationships are positive financially and culturally, many aim to co-opt officials and influence them to take positions that strengthen the CCP initiatives and undermine U.S. policy.

As Xi intensified efforts to control his own population and co-opt or coerce foreign entities to support his policies, the CCP curtailed or stopped many long-standing dialogues and projects between Chinese organizations and U.S. think tanks and universities. Chinese archives and libraries closed. Yet, the CCP maintained access to programs with U.S. institutions that advanced its interests and gave it access to key technology while constraining or shutting out U.S. researchers. Chinese think tanks and universities mandated centralized approval of topics and foreign participants for conferences. Think tanks work as arms of the CCP and follow Xi Jinping’s directive to “go global” and advance the Chinese narrative. A scholar with long experience in China observed that Chinese interlocutors no longer had “much to say beyond the Xi Catechism.” Instead of demanding reciprocity, some U.S. think tanks and universities chose self-censorship because they feared losing access to China completely if they criticized CCP practices, such as the establishment of a surveillance state, the incarceration of political prisoners, the internment of Xinjiang’s Muslim population in reeducation camps, or the party’s intensifying campaign of intimidation of Taiwan to achieve unification.41

THE CHINESE Communist Party’s obsession with control and its drive to achieve national rejuvenation converge on Taiwan, the island territory that gained autonomy as the last bastion of the Republic of China after the ROC’s defeat at the hands of the Communists during the 1945–1949 Civil War. Taiwan constitutes a particular danger to the mainland’s autocracy and authoritarian capitalist economic system because it presents a democratic, free-market alternative. Taiwan liberalized its economy in the 1960s and undertook political reforms in the 1980s that transitioned governance from one-party rule to a multiparty democracy. Taiwan’s tremendous success confronts the Chinese with a thriving system that implicitly debunks the CCP’s oft-cited contention that Chinese people are poorly suited for representative government and individual rights.

Understanding that Taiwan’s success heightens the party’s most fundamental insecurities and undercuts the promise of the China Dream, the party under Xi intensified rhetoric concerning the final annexation of Taiwan. The People’s Republic of China dwarfs Taiwan, geographically as well as economically, but some numbers paint a vastly different picture. For example, compare Taiwan’s per capita income, in purchasing power terms, of $57,000 (higher than that of Germany, the United Kingdom, or Japan) with China’s $21,000 (below that of Kazakhstan, Mexico, or Thailand). Taiwan is a threat because it provides a small-scale, yet powerful example of a successful political and economic system that is free and open rather than autocratic and closed.42

Taiwan has been the object of a relentless CCP campaign of co-option and coercion. Although the establishment of U.S. diplomatic relations with China in 1979 was accompanied by the Taiwan Relations Act, which stipulated the peaceful resolution of Taiwan’s future status, the CCP immediately began a campaign to bolster political sympathies in Taiwan for reunification. Co-option efforts included expanding investment and trade to make the island more dependent on the mainland. By 2000, China became Taiwan’s biggest export market, accounting for more than a quarter of its exports.43 Expanded trade with China made Taipei more vulnerable to Beijing’s economic leverage.44 To punish unfriendly Taiwanese political leaders, for example, the CCP temporarily stopped issuing individual travel permits just prior to Taiwan’s 2019 parliamentary elections.45 Other coercive measures against Taiwan included diplomatic isolation as China made renouncing Taiwan a condition for foreign investment and access to its market. Between Xi Jinping’s ascension to power in 2012 and the year 2018, The Gambia, São Tomé and Príncipe, Panama, the Dominican Republic, El Salvador, and Burkina Faso ended diplomatic relations with Taiwan in exchange for Chinese investment and access to the Chinese market for their exports.

In the run-up to the 2020 presidential election in Taiwan, the party did its best to ensure defeat of the incumbent, Tsai Ing-wen, and the Democratic Progressive Party due to her party’s position that Taiwan is an independent country. Those efforts, based in part on the CCP’s erosion of citizens’ rights in Hong Kong and its heavy-handed tactics, backfired. Tsai secured over 57 percent of the ballot and a record 8.2 million votes, well ahead of her rival, Han Kuo-yu, and his Kuomintang, or Chinese Nationalist Party, which favors closer ties with China. The setback is likely to heighten Xi’s desire to push for unification. Xi’s foreign minister, Wang Yi, commented after the election that “Taiwan is an inalienable part of China’s territory” and that “those who split the country will be doomed to leave a stink for 10,000 years.”46

A cause for greater concern is the possibility that the PLA will intensify preparations for a cross-strait invasion of Taiwan. After Xi removed term limits on the presidency, a move that allowed him to rule indefinitely, some speculated that he did so to force unification on Taiwan during his tenure. Statements of CCP officials under Xi were aggressive; many implied military action. In 2019, Chairman Xi said in a speech that Taiwan “must and will be” reunited with the mainland. China’s preparations for a cross-strait assault include rapid modernization and expansion of its navy and air force and increased patrols around Taiwan of bomber, fighter, and surveillance aircraft.47

The sustained campaign of co-option and coercion aimed at Taiwan may represent the most dangerous flashpoint for war, but it is only the first priority in a much larger CCP campaign designed to achieve hegemony in the Asia Pacific region. Since 1995, when China occupied Mischief Reef, a low-tide elevation within the Philippines’ exclusive economic zone (EEZ), China has become increasingly assertive in the South China Sea. Occupying an area twice the size of the state of Alaska, the South China Sea lies east of Vietnam, west of the Philippines, and north of Brunei. It is a vital waterway through which one third of the world’s cargo transport flows. While the PRC made expansive territorial claims in the South China Sea since its establishment, it has since 2012 acted to seize control of the area through quasi-military and military deployments and the construction of military bases on reefs and artificial islands. When its neighbors protested China’s attempted “land grab,” the PLA conducted belligerent shows of force. In 2016, the Permanent Court of Arbitration tribunal in The Hague ruled the Chinese claim as having no legal basis. Yet, in encounters that followed, heavily armed China Coast Guard patrol vessels threatened to shoot foreign fisherman in the disputed waterway. Economic coercion was even more effective than military intimidation. After The Hague ruling, Philippine president Rodrigo Duterte said he would ignore the Permanent Court of Arbitration’s decision and instead advance partnership with China in oil exploration plans. In return, he received $24 billion in pledges of investment and credit lines. Later, that number grew to $45 billion, including railways, bridges, and industrial hubs.48