In fact, the Chinese are preying upon that public, corporate and media myopia, cleverly portraying these transactions as opportunities to seek high returns (Blackstone) and/or invest in distressed assets (Morgan Stanley), and masking their real intent – to seek coveted financial expertise.
Under the premise that the CIC (and its real funding source) is the spearhead or vanguard of the entire Commulism threat, the Analyst would be remiss if not noting more ironic bungling by the U.S. and WEAST, blindly helping CIC take root, develop and grow. In other words, giving away the store. As reported in the Jan/Feb 2008 Atlantic magazine article on China, the CIC, admittedly an overnight behemoth startup lacking financial management and investment expertise (the latter addressed above vis-à-vis Blackstone, Bears Stearns and Morgan Stanley connections), conducted a crash course this past summer (2007) in modern financial operational management, the “training” led in large part by who else – the (naive) U.S.
That education/training was provided by several expert organizations. McKinsey and Booz Allen provided separate confidential reports about the way CIC should organize itself and the investment principles it should apply, while Towers Perrin provided advice on staffing and pay. The CIC leaders also commissioned studies of other large state run investment funds including Norway, Singapore, the Gulf States and the U.S. (Alaska) – to see which approaches worked and which didn’t. Finally, to round out the CIC “financial/management/organization expertise grab” they indulged their fascination with the way large U.S. university endowments are organized, managed and operated (investments). This was accomplished through long study visits at Yale and Duke among others, by CIC leadership.
Again more “carrot for expertise” trade imbalance, this time unique knowledge (expertise) for a few token fees (carrot). While the U.S. entities received project compensation and goodwill for their services, the CIC reaped quite the opposite - a windfall, a veritable knowledge bonanza. That knowledge gained will now be used in the future against the same entities (and many others) enmasse that gave it away. Did McKinsey, Booze Allen, Towers, Yale and Alaska have to pass Exon-Florio scrutiny. No. Should they have? Absolutely, if one believes CIC fundamentally presents a threat to U.S. national security.
The Chinese government has therefore with great planning and cunning execution, now concentrated its sizable financial resources and growing financial expertise into one centralized and now U.S. educated, economic power projection entity, the CIC. In doing so, China clearly is pursuing an even more calculated and sophisticated approach than other country SWF’s. Evidence the sheer magnitude of its initial tranche of $200 billion resources, the robust foreign exchange reserve machine in place to continue to feed it and acquiring world class financial (and other industries to come) market expertise; all supporting its ultimate global objectives – to dominate and control the global economy rather than just make specific one off investments and associated returns.
So What Does It All Mean?
Here’s where it all comes together, yet the connection or rather integration and projection point is neither being recognized nor annunciated by the media or anyone else. The economic spearhead or vanguard in the China economic power projection machine is the vehicle CIC. CIC’s investment banking expertise and private equity expertise will flow from Bear Stearns and Blackstone (and Morgan Stanley) vis-à-vis its sibling government entities making those investments, respectively Citic Group and China Jianyin. Interestingly, China Jianyin was absorbed into CIC in September 2007. And Citic-Jianyin have a significant partnership established in 2005. Therefore, the tripartite linkage between SWF/reserves pool (CIC), investment banking (Citic) and private equity (Jianyin) is complete.
Importantly, in determining how best to thwart Commulism, as is the purpose and theme of this article, it is important to also understand the foreign exchange money flow noted above, which fuels/drives it.
It all starts with any and all Chinese manufacturers’ customer payments received. Those funds enter China from contractual relationships these manufacturers have with customers in the U.S. and elsewhere. The Chinese manufacturing company then exchanges the dollars received for Yuan/RMB at their local Chinese bank. Unlike other countries where these local bank equivalents are freely able to invest or trade these dollars for other currencies, the local Chinese banks are required/bound by the government to treat the U.S. dollars as contraband and turn them over to the Chinese equivalent of the Federal Reserve, the Peoples Bank of China (PBOC). The PBOC itself has but one option as respects what to do with the dollars/money received. It is required to then send the dollars to another central government arm – the “State Administration for Foreign Exchange (SAFE)”. SAFE then becomes the vault and/or clearinghouse if you will, for the $1.5 trillion or so foreign exchange reserves already there and the $1-2 billion new dollars coming in every day. SAFE then parcels the dollars out to externally focused central government agencies such as China Investment Corp. Recall CIC received its first tranche of funding in the form of $200 billion. Those funds came from SAFE.
With that money flow understanding, now back to the three noted entities. While the Gang of Four (individuals) lost their power bid in 1976, this new Gang of 3 or perhaps more aptly labeled “The Gov-3” (government entities CIC, Citic and Jianyin), are now firmly in position and as importantly empowered to execute the Commulism global economic control plan. The source of that power being its unparalleled, covetous and growing foreign exchange reserves war chest (SAFE). Now accessing the missing ingredient, sophisticated financial expertise, poised to unleash integrated, coordinated and centrally orchestrated economic havoc with that raw financial power and muscle.
It is worth noting and of growing concern, the interest, if not outright requests being made by U.S. investment banks to seek out and secure SWF capital from foreign players like China and Dubai to recapitalize their balance sheet, devastated by recent huge credit losses. Unfortunately, the price down the road for these “country to company” investments will be incredibly high, dwarfing the near term perceived euphoria from the cash infusion.
In closing out the Economic Pillar analysis/assessment, bottom line, the Soviets had a failed economic model and the U.S. and WEAST had no economic dependency on it. Conversely, the Chinese are pursuing a healthy and robust (dominating) economic model, in fact an economic juggernaut, one the U.S. and WEAST is already substantially dependent upon, and blindly moving towards complete addiction, if not already there. Now add in the steam roller effects of dominating global financial markets via CIC, and one can readily see the underlying, yet non-vocalized intent of China to totally control the global economy.
Coming Next: “Commulism Series” – Part 4
Part 4 will analyze and assess the next three Commulism Pillars - Military, Social Order and Technology.
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