US has warned others to avoid loans from Chinese state banks. But it’s the biggest recipient of all

WASHINGTON (AP) — Washington has been warning others for years not to trust loans from Chinese state banks that have fueled its rise as a superpower. But a new report reveals an ironic development: By far the biggest buyer is the United States. Its implications in terms of security and technology are not yet fully understood.

China’s state lenders funneled $200 billion to U.S. businesses over a quarter-century, but most of the loans were kept secret because the money was first routed through shell companies in the Cayman Islands, Bermuda, Delaware and elsewhere, which helped disguise their origins, according to AidData, a research laboratory at the College of William & Mary in Virginia.

Even more troubling, many of the loans were made to help the company buy stakes in U.S. companies, including a robot maker, a semiconductor company and a biotech firm, many of which are tied to critical technology and national security.

The report found a much more widespread and complex lending network than previously thought; a network of financial obligations that extends beyond developing countries to rich countries, including Britain, Germany, Australia, the Netherlands and other U.S. allies.

“China was playing chess while the rest of us were playing checkers,” said former White House investment adviser William Henagan, who worried that secret loans were putting China under pressure on technologies. “Wars will be won or lost depending on whether you can control the products that are critical to running an economy.”

Chinese currency comes under closer scrutiny

The United States still welcomes most foreign investment, and President Donald Trump Money from China has come under particular scrutiny as the world’s two largest economies with opposing ideologies battle for global supremacy.

Deals financed by China’s state-owned banks examined in the AidData report are particularly problematic. Lenders are controlled by China’s central government and the Communist Party’s Central Financial Commission and are directed to advance China’s strategic goals.

The AidData report found that in total, China lent more than $2 trillion globally from 2000 to 2023; That’s double previous high estimates, making China’s rise a surprise even to longtime analysts. Most loans to rich countries were focused on critical minerals and high-tech assets, such as rare earths and semiconductors needed for fighter jets, submarines, radar systems, precision-guided missiles and telecom networks.

“The United States, under (former President Joe) Biden and the Trump administration, has been beating the drum that Beijing is a predatory lender for more than a decade,” said Brad Parks, chief executive of AidData. “The irony is so rich.”

shell games

Until now, a full accounting of China’s sovereign debt has never been published because much of the financing was buried under layers of secrecy, masked by posing as Western shell companies, and mislabeled as ordinary private financing by international databases.

“There is a complete lack of transparency that shows how far China has gone to make it extremely difficult to get this full picture through shell companies, confidentiality agreements or redactions,” said Scott Nathan, the former chairman of the US International Development Finance Corp., an organization created during Trump’s first term to invest in foreign projects deemed to be in the US national interest.

U.S. scrutiny has gotten better since the report’s last documented credit in 2023. Screening mechanisms, such as the interagency Committee on Foreign Investment in the United States, were strengthened in 2020 to protect sensitive sectors of the economy.

But China has gone one better, in part by establishing offshore banks and branches (more than 100 in recent years) and then lending to offshore entities, further blurring the origins of the money.

“He found ways to get around barriers to entry in places where there were more cops,” Parks said.

Where did the credits go?

Chinese state-bank financing has touched projects across the United States, particularly in the Northeast, the Great Lakes region, the West Coast and along the Gulf of Mexico, which Trump renamed the Gulf of America. Many loans targeted critical target high tech industriesaccording to the report.

— In 2015, for example, Chinese state banks lent $1.2 billion to a private Chinese company to buy an 80% stake in Ironshore, a U.S. insurance company whose customers include Central Intelligence Agency and Federal Bureau of Investigation officials and undercover agents who might need help paying legal bills if they run into trouble on the job.

U.S. regulators were unaware of the Chinese government’s involvement because the financing was funneled through a Cayman Island business with no apparent ties to China, according to the report. U.S. officials later realized the Chinese government might have access to the information and ordered the Chinese buyer to withdraw the money.

— That same year, the Chinese government released its “Made in China 2025” list of 10 high-tech fields such as semiconductors, biotechnology and robotics in which it wants to reach 70% self-sufficiency within a decade. The following year, in 2016, the Export-Import Bank of China, a policy bank, provided a $150 million loan to help a Chinese company buy a robotic equipment company in Michigan.

After China adopted its manufacturing master plan, the percentage of projects targeting sensitive sectors such as robotics, defense, quantum computing and biotechnology rose from 46 percent to 88 percent of China’s cross-border procurement loans portfolio, according to AidData.

— In 2017, a Delaware private equity firm using a Cayman Islands company tried to buy a U.S. chip maker; The deal was blocked when investigators discovered that both companies were owned by a Chinese state-owned enterprise. The same Delaware company successfully acquired a British semiconductor manufacturer that had to be divested when British authorities learned of it.

— And in 2022, the UK will hire a Chinese company dispose of Another sensitive British firm in the sector is the designer of the chips in Apple phones but could potentially be adapted for military systems. The Chinese company purchased it through a company it owns in the Netherlands. That Dutch company now accused of banning semiconductors It is vital for automakers in the US-China trade war.

follow the money

AidData examined regulatory filings, private contracts and stock market disclosures written in multiple languages ​​in more than 200 countries to track down China’s secret loans.

China’s effort to track government loans and investments began more than a decade ago, when Beijing launched its own project. Belt and Road Initiative Building infrastructure in developing countries. The project expanded sharply three years ago when the AidData team, which eventually numbered 140 researchers, realized that most loans were provided to developed economies such as the US, Australia, the Netherlands and Portugal; The acquisitions would give Beijing access to technology it sees as essential to its global rise.

The report states that the findings show a shift in the use of government credit from supporting economic development and social welfare to gaining geoeconomic advantages.

“There is global concern that this is part of a concerted effort to gain control over economic downturns and use that leverage,” said Brad Setser, an adviser to the U.S. Trade Representative in the Biden administration. “It’s important that we understand what they’re doing, and they’re not making it easy.”

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Condon reported from New York.