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Editorial Last Updated: Feb 17, 2017 - 10:45:48 AM

Trump And Chinese Business
By Dr. Gary K. Busch 16/2/17
Feb 17, 2017 - 10:45:58 AM

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There has been a great deal of concern about the involvement of the Trump business empire with a varied group of foreign businesses and banks, especially Russian, which has been seen as a potential conflict of interest for the President who has not fully disengaged himself from the revenue streams and ownership of his businesses. Their day-to-day operations have been delegated to a number of family members and trusted associates, but the President still maintains his direct ownership of the businesses and properties and has a stake in their success or failures.

One of the least well-known and most fraught aspects of the international financial nexus of Trump businesses is Trump�s relationship to Chinese businesses and Chinese banks. Under the terms spelled out in the U.S. Constitution. Article I, Section 9, Clause 8 it states �No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.�. Essentially this means that the President is forbidden from accepting gifts or financial rewards from foreign leaders or companies owned by these leaders or foreign states. Under U.S. statute law �emolument� is defined as it as including all salaries, fees, wages, perquisites and profits whatsoever. Perquisites include benefits in kind. For Trump the operative terms are profits and perquisites.

In the course of his businesses his companies borrow large sums of money to acquire properties, acquire land, build hotels and golf courses and as working capital to buy furniture, fittings, permits, taxes, etc. Trump�s companies leverage their borrowings from these lenders against income which comes from operating the properties. In addition, Trump�s companies engage in direct commerce with foreign companies to provide services, transport, surveys, licenses, equipment and goods for sale throughout the international Trump empire.

While this a normal way of conducting business no matter who is running a company the engagement of Trump with Chinese companies is a special case. Chinese business is a very different kind of business than in most countries as almost every enterprise is a part of one or more branches of the Chinese Government and controlled, directly or indirectly, by the Communist Party of China. When Trump borrows money from Chinese banks, rents out property in Trump Tower to China�s largest bank, or trades with Chinese corporations for goods and services he is dealing with the Chinese state.� This puts him in direct violation of Article I, Section 9, Clause 8 of the U.S. Constitution.

Moreover, a great deal of China�s enterprises are owned and operated by parts of the Chinese People�s Liberation Army (�PLA�) in a giant military-industrial complex. The influence of the Chinese military in the economic affairs of China has been extensive for the last three thousand years. They have always dominated the agricultural sector and, after the death of Mao Tse Tung, they have been the dominant force in Chinese industry and politics. There has been a long tradition of warlords in China especially from 1916 to the late-1930s, when the country was divided among military cliques, a division that continued until the fall of the Nationalist government in the mainland China regions of Sichuan, Shanxi, Qinghai, Ningxia, Guangdong, Guangxi, Gansu, Yunnan, and Xinjiang. In this period a warlord maintained his own troops loyal to him, dominated and controlled the agriculture and mining in his area or region; and acted as the de facto political power in that region. To maintain themselves they often fought with their neighbouring warlords and against any attempt by the Emperor or central government to control them. Some of the most notable warlord wars, post�1928, including the Central Plains War, involved nearly a million soldiers. The central government was weak and relied on the power and support of these fractious warlords. The central government provided a national civil service and a national administrative regime but was uniformly weak.

The defeat of the Kuomintang leadership of the ex-warlord Chiang Kai-shek in the wake of the Second World War left the ravaged China in the hands of the Chinese Communist Party led by Mao Tse-Tung. Mao was both the Chairman of the Chinese Communist Party as well as the Chairman of the Central Military Committee. His rule was personal, direct and disastrous. The Great Leap Forward and the Cultural Revolution led to the virtual self-destruction of China. Millions starved to death; many more were exiled or driven away from the cities. He was succeeded by Hua Guofeng who attempted to keep a tight control over the power structures of China, including the Central Military Committee. However, his power waned and control was transferred to the reformer Deng Xiaoping, who revolutionised the economy of China. Deng never held office as the head of state or the head of government, but served as the de facto leader of the People's Republic of China from 1978 to the early 1990s as the leader of the Communist Party of China (CPC).

Deng represented the second-generation Chinese leadership and was instrumental in introducing�� Chinese economic reform, also known as the socialist market economy and partially opened China to the global market. He is generally credited with pushing China into becoming one of the fastest growing economies in the world and by raising the standard of living.� Deng Xiaoping's ouster of Hua Guofeng was the moment when the market policies of economic reform began. This reform was carried on primarily by the military companies created in the various regions by the armies which controlled them.

It is not difficult to see why. The PLA controlled the security situation in its region. That meant it issued permits to enter or leave the region; it controlled the communications network in the region; it had the trucks and other transport under its control; and it was charged with maintaining order. It was, in fact, in charge. This was not controlled by one central PLA group but was under the control of the individual army for each region; some, like the 28th Army and the 39th Army were in economic hotspots and were able to thrive quickly. The Northern Army was quick to exploit its opportunities.

After Mao's death in 1976, the new leadership encouraged the military plants to begin exploring civilian uses for their products and to engage in the broader liberalizing economy. The nimblest managers were free to exploit new markets for their goods. During the early 1980s, the PLA's share of the national budget declined, spurring it to look to other sources for cash, especially hard currency. The higher organizational levels of the PLA created trading companies like China Xinxing, China Poly and China Songhai to take advantage of the opening of China's economy to the international market.

They formed banks, holding companies and international trading companies like Everbright to market these goods worldwide. Now the PLA runs farms, factories, mines, hotels, brothels, paging and telephone companies and airlines, as well as major trading companies.

The number of military-run business exploded during the boom of the late 1980s. The "third line" factories opened branches in the coastal areas, earning increasingly high profits from the manufacture of civilian goods. Even the lowest levels of the PLA set up production units. In fact, the PLA had a largely captive audience of Chinese who had never really had the chance to acquire personal goods produced in China before. In addition to their international arms sales, their production of consumer goods for the domestic market soared.

The government first attempted to regulate PLA business activities in 1989 with a series of decrees, among them a prohibition on active military personnel concurrently holding positions at commercial enterprises. The reforms were intended to keep management of PLA enterprises under the control of senior military leaders and prevent lower-ranking officers from becoming involved in the daily functioning of the military companies. In the wake of the rejection of the Party in 1989 these government strictures fell away. The government tried again the early 1990s, when the central leadership of the military took steps to coordinate the production of the vast number of military factories by tying the plants together under "group companies." The groups, acting like conglomerates, have been successful in centralizing management and production, running the trading companies and expanding the groups' business operations. The PLA now acts as a state within a state, with its power growing in the latest wave of Chinese economic expansion.

Many of the companies have listed themselves on capital markets in Hong Kong and elsewhere, opened representative offices in overseas markets, solicited foreign companies for joint ventures and partnerships in China and emphasized exports.� The so-called red chips, companies listed on the Hong Kong exchange but which are in fact mainland Chinese firms, are the hottest stocks on the market. Hong Kong is the PLA's favoured stock exchange because of its loose disclosure guidelines. China Poly Group has two listed companies: Continental Mariner Company Ltd. and Poly Investments Holdings Ltd. Both Continental Mariner and Poly Investments have a large number of subsidiary companies in mainland China, Hong Kong and tax havens like Liberia, the British Virgin Islands and Panama. China Carrie's listed company in Hong Kong is Hongkong Macau Holdings Ltd. China Carrie also owns HMH China Investments Ltd. on the Toronto Stock Exchange and HMH Gold Mining on the Australian Stock Exchange. 999 Enterprise Group, another company controlled by the PLA General Logistics Department, operates Sanjiu Pharmaceuticals Group, the largest pharmaceuticals manufacturer in China. 999 has listed on the Hong Kong exchange.

Smaller military enterprises, like the Songliao Automobile Company owned by the PLA Shenyang Military Region, have also listed in the domestic Chinese markets.

China Poly Group is a commercial arm of the Chinese People's Liberation Army (PLA) General Staff Department. The PLA General Logistics Department operates China Xinxing. The PLA General Political Department owns and operates China Carrie. And the PLA Navy runs China Songhai.

These are not small operations. As early as 1994, with $382 million worth of import-export trade, China Poly Group was the fifty-ninth largest import-export company in China, according to China State Statistical Bureau. China Xinxing ranked 170th with $159 million, China Carrie ranked 203rd with $137 million, and China Songhai ranked 395th with $71 million.

Foreign companies looking for a foothold in China like partnering with the PLA because of the stability it can offer to any long-term project. Companies with military partners get the added security of knowing that the top "management" of many of the PLA companies are from the ranks of the "princelings," the children and relatives of senior Chinese Communist Party officials. These influential princelings assure that the business operations of the PLA will have the government connections that are so important in China's corrupt system. In the case of China Poly, chair Wang Jun and president He Ping act as brokers between the government and the military. Wang Jun is the eldest son of the late Vice-President Wang Zhen. He Ping is the son-in-law of the late Deng Xiaoping. Wang Jun's brother, Wang Bing, is the chair of the PLA Navy Helicopter Company. China Carrie's president is Ye Xuanning, the second son of late PLA Marshal Ye Jianying.

This dominant role of the PLA corporations grew after Tianamen Square as the Communist Party was in some disarray. By 1998 the Party tried to reassert itself in control. There was an effort by the Chinese Government to try and rein in some of these companies but to no avail. More than a year after the Chinese military was ordered to disband its octopus-like business empire (1999) and return to the barracks, its influence over the nation's economy continued. During 1999, some PLA high-profile investments, such as Beijing's five-star Palace Hotel, were handed over to central government shareholders with great public fanfare. And at least 150 large, profitable enterprises were grabbed up by the central government. Most, however, stayed with the PLA.

By the mid-1990s, the so-called PLA Inc. included over twenty thousand companies in everything from agribusiness to electronics to tourism to arms exports. The 1989-1990 reforms had only a marginal effect. The Party had diminished control of these companies. With the rise to power of Xi Jinping in 2012 the party began to reassert control of the military and its companies. In addition to his role as Chairman of the Communist Party Xi Jinping took over the leadership of the Central Military Council (�CMC�) the Party�s control organisation in charge of the military.� He used his position to dramatically reduce the number of soldiers and reorganised the military structures. Most importantly, Xi embarked upon a strict anti-corruption campaign.

President Xi Jinping concentrated on the "rule of law" within China. An important part of the "rule of law �was the eradication or, at least suppression of corruption. Since the start of his anti-corruption drive in November 2012, more than forty high-level officials have been investigated and shamed. These officials include current and former municipal and provincial party secretaries and vice governors, senior government officials, and executives at state-owned enterprises

This anti-corruption campaign was not embarked upon solely to punish Party and Army leaders who had stolen from the State. It was also a means of removing from the leadership of the Party many of Xi�s enemies; both on the Left (Bo Xilai �and the �New Left� in China); and the Right Jiang Zeminists (Zuo Yongkang, Xu Caihou �and Guo Boxiong). Xi and Wang Qishan, Politburo Standing Committee member and head of the powerful Central Commission for Discipline Inspection, have made it clear that the �new� PLA will not tolerate a senior military leadership that has its loyalties anywhere but the CMC. Many of the leaders of the PLA military corporations had to choose between the companies and their ranks in the Army. This effectively returned many of the companies to Communist Party discipline.

At the same time, after 2014 and the collapse of the real estate market the large, and mostly unregulated �Shadow� Banks� in China were brought back under the control of the large state banks. By far the most important development was the gradual expansion of the State-Owned Enterprises (�SOE� yangqi) under State-Party control. There are about 120 large SOEs in China, managed by the State-owned Assets Supervision and Administration Commission (SASAC) as well as several large banks and insurance companies not supervised by the SASAC. In recent years, the Communist Party leadership has concentrated its financial might in supporting these SOEs with cheap credit and a policy of growth. This has a dramatic effect in spurring their growth and they have spread overseas as well.

What is important in all this is that the Trump Organisation has large financial dealings with Chinese companies and banks which are owned by the Chinese State or the military-industrial complexes of the PLA corporations. According to a detailed study by the New York Times, a building on the Avenue of the Americas in New York City's Manhattan borough that is partially owned by Trump has a loan of $950 million that was paid for by a few different entities, including the Bank of China and Goldman Sachs.

The Industrial & Commercial Bank of China Ltd., a state-controlled enterprise and the world�s biggest lender by assets, is Trump Tower�s largest office tenant, occupying 11 percent of its office space. It is due to renegotiate its lease at Trump Tower in Manhattan during Donald Trump�s presidency. �The bank�s lease is slated to end in October 2019. This will put Trump in direct personal financial negotiations with a state-owned Chinese bank.

There may well be other properties and deals in which the Trump Organisation is in direct negotiation with the Chinese state enterprises. This is why it is crucial for the Ethics Committees to have a look at Trump�s tax returns to see with which, if any, Chinese state companies the Trump Organisation is directly involved. If there is to be the required compliance with the Constitution such disclosures must be made. There is no other way to satisfy the demands for transparency.

Source:Ocnus.net 2017

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