THE OLD SMITHY, STAFFORDSHIRE – “[MI6] told me about honey-traps and warned me that the Chinese secret service often use women to entice men to bed to get information. I didn’t think for one minute that I would fall for it.”
– Ian Clement, after falling for it
Clement was deputy mayor of London when he decided to “proactively engage” with the hospitality department of the Chinese Communist Party. It was during BoJo’s mayorship, when he was on an official visit to Bejing for the 2008 Olympics.
“The next thing I knew I was waking up and she was dressed and leaving the hotel room,” he would confess later (after losing his job for expenses fraud).
“My wallet was open. She had plainly gone through it but I knew she wasn’t a simple thief because nothing was missing.”
The alluring lady in question wasn’t after his money. She wanted information. The secrets he was privy to as deputy mayor; and intel on his contacts and the network of power.
That’s why she didn’t plunder his wallet – but his BlackBerry phone instead.
The CCP’s intelligence apparatus, the Ministry of State Security (MSS), is hungry for any advantage over other nations, and will go to great lengths to obtain sensitive information or create kompromat.
The use of honeytraps, or meiren ji – literally “beautiful person plan” – is just par for the course for the MSS, and something they’re clearly very good at.
Clement isn’t the only high-profile politico to have succumbed to an MSS seductress – the Dutch ambassador was reportedly found to have been similarly “compromised” in 2016, and lord knows how many cases have been kept under wraps.
Considering BoJo’s promiscuous reputation and appeasing stance to the CCP, who’s to say he wasn’t compromised as his deputy was? You can be almost certain attempts were made by the MSS… but were they successful?
I have no idea. But sadly I would not be at all surprised if they were.
Sleeping with the enemy
While Clement’s seducer in Beijing may not have wanted money – her bosses did and do.
The CCP’s rise has been financed with Western capital, which has been willingly provided by banks and investors for decades now. In a world centered around the US dollar, you need greenbacks if you want to grow your economy – and investors have been happy to send them to China for some time now.
This isn’t because the CCP sent over ladies that the investors couldn’t say no to (though they probably have for good measure on some occasions). With interest rates lower than ever before in history, the CCP can ply investors with something even more seductive to investors than the advances of a charming woman: positive yields.
Forget the “beautiful person plan” – all that’s required to get into investors wallets is a higher interest rate than they’ll find elsewhere. Even if they’re funding the military wing of an organisation guilty of crimes against humanity, investors won’t say no (until they’re forced to – more on that in a minute).
We’ve written in the past how Western investors have been happy to finance the People’s Liberation Army’s naval expansion if it meant they earned a bit more interest on the loans (Poseidon the profiteer – 14 January 2019).
But recently, as the second Cold War has escalated even further, this has kicked up a notch.
From the Wall Street Journal, emphasis mine:
Two major Chinese state-owned firms recently labeled by the U.S. Department of Defense as “Communist Chinese military companies” are selling billions of dollars in bonds with the help of Western banks…
On Tuesday, power company China Three Gorges began selling five- and 10-year dollar bonds, according to a term sheet seen by The Wall Street Journal. The day before, ChemChina priced $2.4 billion of dollar bonds along with the equivalent of $593 million in bonds denominated in euros.
Units of Bank of America Corp. and Goldman Sachs Group Inc. are working on ChemChina’s bond offering, as are various European and Chinese institutions. JPMorgan Chase & Co. and Morgan Stanley are among underwriters for the Three Gorges deal…
A Hong Kong-based investor at a U.S. asset manager said the [companies’ designation on the Pentagon’s list] was concerning for firms like his with large ChemChina bondholdings, since these investments could fall in value if the company were to come under sanctions that damage its financial health. He also said his company’s holdings of the bonds could lead to reputational problems.
He said his institution had contemplated trimming its holdings of ChemChina bonds. However, he said the company’s bonds offered a higher yield than similar Chinese dollar debt that was hard to ignore.
Sleeping with the enemy, or what?
One of the many differences this Cold War has with the last is that the West wasn’t financing the Soviet military the last time around.
But just as Clement got suckered, I reckon the banks and investors lending money to ChemChina and Three Gorges will discover that they’ve been honeytrapped.
These bonds are promises to pay back the loan with a higher interest rate. As the US-China relations continue to degrade (the US ambassador to Beijing, a personal friend of Xi Jinping viewed as the US’s “best shot” to cool tensions announced he will be departing a few days ago) these promises will come under significant strain.
Either company could simply break the promises and keep the money over the next ten years (good luck taking Chinese military enterprises to court to get your cash back). This is something the CCP could threaten to do to exert influence, or be forced to do if they’re cut off from other sources of dollar funding (the CCP cannot of course print dollars).
At the same time, the US could punish the banks and investors who own the bonds or have facilitated the deals with sanctions, or by forcing a default on the Chinese side by preventing the companies in question from making any payment in dollars at all (by locking the banks the companies use out of SWIFT, the international dollar payment system).
Even if I didn’t have a personal moral objection to financing a communist military force, I’d still think this is a very bad idea from the European and American banks who’ve decided to do this. Investments like these are exactly the kind which will become collateral damage in the ravages of Cold War II.
Not to mention the reputation risk of financially sleeping with the enemy. When McCarthyism 2.0 starts ramping up, those banks will become a major target for anti-communist propaganda.
Wishing you a good weekend,
Editor, Capital & Conflict
PS That’s all from me for this week – Will Dahl will be back with you on Monday with an update on the US election, and I’ll be back with you again on Tuesday. In the meantime, on the subject of Chinese communist espionage, you may be interested in this from earlier in the year: This isn’t sexy, but you should be excited about it (10 July).
Also of note: Moderna ($MRNA), a biotech company working on a WuFlu vaccine, was a more recent target of Chinese cyber espionage – which we’ll be covering more of next week.