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Book details how China courts global finance giants

Wall Street firms have been guiding US-China policy for decades

Wall Street sign

Wall Street sign (AP photo)

TAIPEI (Taiwan News) — An excerpt from the new book “Hidden Hand: Exposing How the Chinese Communist Party is Reshaping the World” by Clive Hamilton and Mareike Ohlberg details how Beijing has wooed major financial firms in the U.S. and Europe.

An edited section of the book was shared by the Sydney Morning Herald and starts off discussing how Wall Street firms have been influencing Washington’s China policy for decades, spanning the Clinton, Bush, and Obama years, and specifically getting the administrations to back down from taking a harder stance against the Chinese Communist Party (CCP). In essence, financial firms have been China’s most powerful supporters in the U.S.

According to the authors, Wall Street heads have been advising Chinese firms on which U.S. companies to buy, lending them the capital to do it, and then taking a commission from the sales. The most notorious of these companies is Goldman Sachs, which by 2003 “had become the lead underwriter for major Chinese state-owned companies.”

In 2006, Henry Paulson transitioned from CEO of Goldman Sachs to Treasury secretary under George W. Bush and took charge of America’s China economic policy. Writing for Foreign Policy, journalist Paul Blustein criticized Paulson for not responding strongly enough to China’s currency manipulation, strict control of state-owned enterprises, treatment of U.S. firms in China, and intellectual property theft, which in Blustein’s opinion helped lay the groundwork for the trade war.

Hamilton and Ohlberg then talk about how Beijing manipulated Paulson by allowing him access to its inner circle to give him the false perception that he had influence in China. After Paulson left office in 2009, he set up the Paulson Institute, which is dedicated “to fostering a U.S.-China relationship that serves to maintain global order.”

Another Goldman Sachs executive with close ties to China is John Thornton, who retired as the bank’s chairman in 2003 and became director of the Global Leadership Program at Beijing’s Tsinghua University. In 2008, the CCP awarded him the highest honor a foreigner can receive — the Friendship Award of the People’s Republic of China.

For Western financial companies to effectively do business in China, they need to establish connections (guanxi) to Chinese families who control the biggest companies and dominate the CCP hierarchy. Employing sons, daughters, nieces, and nephews from these families is the quickest way to make those connections.

The book refers to these hires as “princelings,” who usually start off with an undergraduate degree from an Ivy League school before moving on to a hedge fund or bank in New York or London. Afterward, they get an MBA and finally join a Wall Street firm.

The writers give the example of JP Morgan, which after a 2016 U.S. Securities and Exchange Commission inquiry was forced to pay US$264 million for violating the Foreign Corrupt Practices Act. JP Morgan had been caught hiring CCP family members under its Sons and Daughters Program, which gave out dozens of jobs in Hong Kong, Shanghai, and New York.

Having their children employed at these major U.S. financial firms allowed CCP higher-ups to gather intelligence and exert influence at the heart of America’s most powerful institutions.

Next, the book discusses how European financial institutions were also eager to hire Chinese princelings. In the 2000s, Germany’s largest bank — Deutsche Bank — used bribes and corrupt practices, such as giving lavish gifts to officials, to gain access to China; Deutsche Bank also had a program that employed the children of Party elites.

Over in Switzerland, Credit Suisse maintained a spreadsheet that kept track of princeling hires and how much business they brought to the company, according to the authors.

The Swiss bank hired over 100 sons, daughters, and friends of top Chinese government officials. In 2018, Credit Suisse agreed to pay US$77 million to the American authorities to avoid being prosecuted for bribery charges.

Clive Hamilton is a professor at Charles Sturt University in Canberra, while Mareike Ohlberg is a research associate at the Mercator Institute for China Studies (MERICS) in Berlin.

Updated : 2021-09-23 08:55 GMT+08:00