Washington has been cautioning nations for years not to rely on loans from Chinese state banks that are driving the country’s ascent to superpower status.
However, a recent report reveals an amusing twist: the largest receiver by far is the United States. Furthermore, the ramifications for technology and security are yet unclear.
According to AidData, a research lab at the College of William & Mary in Virginia, China’s state lenders have transferred $200 billion into American companies for 25 years.
However, many of these loans have remained undisclosed since the funds were initially transferred through shell corporations in the Cayman Islands, Bermuda, Delaware, and other locations that helped conceal their origins.
Even more concerning, a large portion of the loans were used to assist Chinese corporations in purchasing shares in American companies, many of which were involved in vital technology and national security, such as a biotech company, a robotics manufacturer, and a semiconductor company.
The study discovered a much larger and more complex loan network than previously believed, a web of financial commitments spanning from impoverished nations to wealthy ones like the United Kingdom, Germany, Australia, the Netherlands, and other friends of the United States.
According to former White House investment adviser William Henagan, “China was playing chess while the rest of us were playing checkers.”
Henagan is concerned that China now has a monopoly on technology as a result of the covert lending.
“The ability to control goods essential to an economy will determine whether you win or lose a war.”
Money from China has come under special scrutiny as the two largest economies in the world, with opposing philosophies, compete for global dominance, even though the United States still accepts the majority of foreign investment and President Donald Trump has courted it.
The transactions examined in the AidData research that are funded by China’s state-owned banks are particularly troublesome.
The Central Financial Commission of the Communist Party and the Chinese central government oversee the lenders, which are tasked with advancing China’s strategic objectives.
China lent almost $2 trillion globally between 2000 and 2023, which is twice as much as prior projections and surprised even seasoned watchers of China’s ascent.
Critical minerals and high-tech assets, such as rare earths and semiconductors used for fighter jets, submarines, radar systems, precision-guided missiles, and telecom networks, accounted for a large portion of the lending to wealthy nations.
According to Brad Parks, executive director of AidData, “The U.S., under both (former President Joe) Biden and Trump, has been beating this drum that Beijing is a predatory lender for more than ten years.” “There is a lot of irony.”
Because a large portion of China’s state lending is hidden behind layers of secrecy, concealed by Western-sounding shell corporations, and mistakenly identified by international databases as regular private financing, a complete accounting of the country’s state loans has never been released to date.
“There is a total lack of transparency that speaks to the lengths China goes, whether through redactions, confidentiality agreements, or shell companies, to make it extremely difficult to come up with this full picture,” stated Scott Nathan, the former head of the U.S. International Development Finance Corp., an organization established during the first Trump administration to invest in foreign projects thought to be in the country’s best interests.
U.S. scrutiny has improved since the report’s last recorded loan in 2023. To safeguard vulnerable economic sectors, screening procedures like the interagency Committee on Foreign Investment in the United States were strengthened in 2020.
However, China has also improved, partly because of the establishment of banks and branches abroad (more than 100 in recent years), which lend to offshore companies, further obscuring the money’s source.
“It has found ways to work around barriers to entry in places where there are more cops on the beat,” Parks stated.
Projects in the Northeast, the Great Lakes region, the West Coast, and along the Gulf of Mexico—which Trump has renamed the Gulf of America—have all benefited from Chinese state bank finance.
According to the research, important high-tech businesses were the focus of many loans.
For example, in 2015, Chinese state-owned banks lent $1.2 billion to a private Chinese company to purchase an 80% share in Ironshore, a U.S. insurer that served officials from the Federal Bureau of Investigation and the Central Intelligence Agency, as well as undercover agents who might require assistance paying legal bills if they encountered difficulties at work.
The financing was sent through a Cayman Island company with no clear connections to China, so U.S. regulators were uninformed of the Chinese government’s role.
After learning that the Chinese government may obtain information, U.S. officials asked the Chinese buyer to divest.
In that same year, the Chinese government released “Made in China 2025,” a list of ten high-tech industries, including robotics, biotechnology, and semiconductors, where it aimed to achieve 70% self-sufficiency in ten years.
The next year, in 2016, a Chinese business received $150 million in loans from the Export-Import Bank of China, a policy bank, to assist it in purchasing a robotics equipment company in Michigan.
The proportion of projects aimed toward sensitive industries, like robotics, defense, quantum computing, and biotechnology, increased from 46% to 88% of China’s portfolio for cross-border acquisition lending following the country’s implementation of the manufacturing master plan.
In 2017, an attempt to purchase a U.S. chip manufacturer by a Delaware private equity firm using a Cayman Islands company was thwarted when investigators found that both businesses were owned by a Chinese state-owned organization.
When British authorities learned that the Delaware corporation had acquired a semiconductor manufacturer in the United Kingdom, it was forced to divest.
Additionally, in 2022, a sensitive British company that designed semiconductors for Apple phones but would be able to modify them for military systems was compelled to divest by a Chinese corporation.
It was purchased by the Chinese corporation through a Dutch company they owned.
In the current trade dispute between the United States and China, the Dutch company is allegedly withholding chips that are essential to automakers.
AidData searched over 200 countries’ worth of multilingual regulatory filings, private contracts, and stock exchange disclosures to uncover China’s covert loans.
More than ten years ago, Beijing initiated its Belt & Road Initiative to construct infrastructure in developing nations, which marked the beginning of the endeavor to monitor China’s state loans and investments.
Three years ago, the AidData team—which eventually numbered 140 researchers—realized that many of the loans were going to developed nations like the United States, Australia, the Netherlands, and Portugal, where acquisitions could give it access to technology that Beijing views as crucial to its global rise.
This realization caused the project to grow significantly.
The results indicate a change in the usage of state credit from advancing social welfare and economic development to obtaining geoeconomic advantages.
According to Brad Setser, a Biden administration consultant to the U.S. Trade Representative, “there is global concern that this is part of a concerted effort to gain control over economic chokepoints and use this leverage.”
“They don’t make it easy, so it’s critical to understand what they’re doing.”
