America & China Part III: The Great Deal

This is part 3 of a continuing series on the strategic and financial relationship between China and the United States: how it came to be, how it works, and where it’s going. You can see part 1 here and part 2 here.  

When Richard Nixon became President of the United States in 1969, the stars of geopolitics aligned in a rare way to allow the creation of a pact between the United States and China that would change the world. China was opening to a relationship with the United States, at just the same time that the United States was opening to a relationship with China. In the United States, a highly capable, Rockefeller family ally named Henry Kissinger was in full control of foreign policy, while his boss, President Nixon, was fully committed to a policy of rapprochement with China, and he had just won one of the most crushing election victories in American history. China was in fear of the Soviet Union and in internal turmoil. In both countries, everything was falling into place for the resurrection of the Rockefeller family’s dream of an industrialized China integrated into their cherished international system.

The pairing of Kissinger’s mind and the unfettered power of the  American Empire was cold and calculating, yes; but more than that it was wise and effective. Kissinger oversaw the creation of the two economic columns that upold the Pax Americana: the petrodollar and US-China trade. The petrodollar system will be the subject of future posts; you can also read about it here. For now I focus on Kissinger’s master work: clearing political obstacles to the forging of the US-China joint venture. After his work was complete, David Rockefeller, scion of the family’s diversified financial empire, stepped in and negotiated the terms for the deployment of hundreds of billions of dollars of American capital over the coming decades.

Just the Right Moment

As we have seen, Kissinger was a Rockefeller man through and through. And as we have seen, the Rockefeller dynasty desired a closer relationship between the United States and China. One that would remove ideological obstacles to their investments, which could then earn beautiful returns by accessing and developing China’s virgin markets and cheap labor. In the 1970s, China was ready for that alliance. In fact, so many things came together just right during the early 1970s that it’s hard not to see the hand of Providence in it all. A full accounting of the complex and difficult diplomacy behind China’s opening to the United States is beyond the scope of this effort (you’d need to write a big fat hardcover book) but I’ll tell the story in brief.

Mao had tried to face the United States as an adversary. He took us on directly in the Korean War, where Chinese forces forced the US Army into its longest-ever retreat, and managed to secure China’s strategic buffer zone. Mao certainly was determined, considering he stated his willingness to lose half of China’s population in a nuclear war at least once. Sheer psychotic determination worked throughout the 1950s and early 1960s but ultimately it was not enough. Mao couldn’t beat geopolitical facts. By the late 1960s, the Soviet Union had become an enemy to China, Mao’s economic policies were costly failures, and he faced an increasingly treacherous internal elite. Mao needed help to shore up his position.

Mao: There’s probably going to be a nuclear war, and you’ll all die, but that’s ok with me, because there’s a lot more of you. [CROWD CHEERS IN JOYOUS UNISON]
If Mao needed help, so did Nixon and Kissinger. Nixon had been elected in 1968 on the strength of his promise to end American involvement in the Vietnam War. To do that, he needed to cultivate closer relationships with China in order to put pressure on North Vietnam, which depended on China for aid and support in its war effort. Both countries had an interest in isolating and frustrating the ambitions of the Soviets. Thus for a brief window of time, reconciliation and a new partnership were imperatives for both China and the United States.

Kissinger Enters the Red Chamber

This allowed Kissinger to get to work. But he couldn’t just call up Mao and ask if he wanted to be allies. China and the US had no diplomatic contacts whatsoever at that time, and just communicating with China was physically difficult given the country’s state of self-imposed isolation. Kissinger started passing notes like a crush-stricken schoolgirl, via every back channel he could think of-including the murderous and egomaniacal communist dictator of Romania, Nicolae Ceausescu, Mr. Yahya Khan, a noted whoremonger and President of Pakistan, the Polish Foreign Ministry and even some of Nixon’s personal friends. One can only imagine the consternation these messages created inside the Chinese leadership. Eventually Chinese Communist Party Premier Zhou Enlai responded to Kissinger’s note-passing via Yahya Khan, and invited him to China. Thus, in the summer of 1971, Kissinger arranged for a visit in complete secrecy by creating a cover story about a visit to the UK for meetings with the Prime Minister.

Henry doesn’t know what to do with his chopsticks (not many Americans did in 1971) but Zhou is an obliging host

Once he was in China, with the media and the Russians unaware, he was free to hammer out the issues with Zhou Enlai. The discussion ranged across all kinds of matters: Chinese history, the Vietnam War, and especially the status of Taiwan.  These were matters of war and peace that had to be resolved before an economic relationship could begin, and they were wrapped up when, after a bit of ping-pong diplomacy, the bosses (Nixon and Mao) got together to ratify the understandings that Zhou and Kissinger had reached.

The “Gold Mountain” Acquires a Stake in the Middle Kingdom

Most people are familiar with this story up to this point. But what people aren’t aware of is that the political negotiations between Kissinger, Zhou, Mao and Nixon were just half of the opening of China during the early 1970s. There was another set of negotiations, between representatives of the Chinese government and representatives of America’s leading banks and industrial corporations, that began soon after the Kissinger-Zhou talks. Indeed, barriers to trade between the US and China were coming down even before Kissinger visited China. The Chinese were already subtly reaching out to American diplomats in Hong Kong to discuss “terms of eventual trade with US firms” and facilitate business travel between the US and China in 1970, and Nixon ended legal restrictions on the use of US dollars and shipping companies by Chinese firms. Both sides clearly had joint investment on their minds.

Kissinger’s diplomatic success kicked the economic developments into high gear. Remember that Kissinger was a former protege of the Rockefeller family. It only makes sense then, that his former patron, David Rockefeller, began a series of “business trips” to China in 1973, the aftermath of the Mao-Nixon summit. His objective: to begin working relationships between Chinese and American banks, in order to facilitate American investment in China.

David Rockefeller and Zhou Enlai

By the 1970s, David was CEO of Chase Bank (today known as JP Morgan Chase), America’s largest bank. Rockefeller’s 1973 trip to was extremely successful. He accomplished his main goal: Chase Bank became the first international “correspondent bank” for the Bank of China, China’s largest commercial bank. Yes, dear reader, I know I used the word “bank” a lot in that last sentence, so let me explain further. Rockefeller signed an agreement to create a formal relationship between Chase Bank and the state-owned Bank of China. They would now be “correspondent banks” – Chase would contract with Bank of China so that its American clients could store money, change currency, and make investments in China through the offices of the Bank of China. Rockefeller had opened the sluice gate to an irrigating flow of international capital to the untilled fields of China.

Upon his return, he published a very enlightening article in the New York Times that gives us a lot of insight into Mr. Rockefeller’s thought process towards China. In “From a China Traveler”, we see that David Rockefeller, the arch-capitalist, is not averse to praising Chairman Mao, the ultimate communist:

“One is immediately impressed by the sense of national harmony…Whatever the price of the Chinese Revolution, it has obviously succeeded not only in producing a more efficient and dedicated administration, but also in foster high morale and community of purpose…The social experiment in China under Chairman Mao’s leadership is one of the most important and successful in human history.”

At this point, any remaining worries that corporate America’s would feel anxiety about doing business in China because of ideological differences were gone. But there was one last obstacle. The full deployment of American capital into the Chinese economy had to get approval from the top, but Mao was old, feeble, and unable to exert any such decision over the entirety of the Chinese state, whose leadership was in a state of turmoil due to the Cultural Revolution. Fortunately for the everyone involved, Mao obliged and died in 1976, and was succeeded in 1979 by Deng Xiaopeng.

Mr. Rong is Actually Mr. Right for Mr. Rockefeller

Deng Xiaopeng was a pretty cool guy in my opinion. As a young man he lived in France for a time where he worked as a “fitter”, fabricating and fitting together metal parts in a steel mill. He rose through the ranks and survived the turmoil of anarchy, civil war and Japanese invasion, to become a high ranking member of the Communist Party. Then he ended up on the losing side in the Cultural Revolution and was singled out by Mao as the focus of the “Criticize Deng Campaign”, wherein all the millions of members of the Chinese Communist Party had to think of nasty things to say about him in order to prove their loyalty. From the heights of power, he was demoted to work as a lowly fitter again, in a tractor factory. But then Mao died and Deng took over the Communist Party in a couple of years anyway. He’s definitely one of the few modern leaders that it’s easy to admire.

Deng didn’t “care if the cat was red, so long as it catches mice”. One of his first acts after taking power was to call upon Rong Yiren, known as the “Red Capitalist”, to lead the newly created China International Trust and Investment Corporation (CITIC). Rong was a wily pre-revolution industrialist who had somehow managed to stay alive and keep hold of a good chunk of his money throughout the long decades of Mao’s rule. I don’t know how he did that, I haven’t been able to find out even though I tried, and, well, maybe I don’t want to know. The fact that he accomplished this feat should tell the reader all they need to know — Rong Yiren was a serious operator. The purpose of his new state-owned CITIC venture was to attract foreign investors for commercial projects in China.

When you’re Rong Yiren, you can sit when Jiang Zemin greets you.

Rong led a delegation of CITIC officials to Rockefeller Center in Manhattan in 1980. I’ll let Mr. Mikhail Chussodovsky, author of “Towards Capitalist Restoration?: Chinese Socialism after Mao” explain:

The 1979 visit of Deng Xiaoping to the US was followed in June 1980 by the equally significant encounter in Wall Street of Rong Yiren, chairman of CITIC, and David Rockefeller. The meeting, held in the penthouse of the Chase Manhattan Bank complex, was attended by senior executives of close to 300 major US corporations. A major agreement was reached between Chase, CITIC, and the Bank of China, involving the exchange of specialists and technical personnel to ‘identify and define those areas of the Chinese economy most susceptible to American technology and capital infusion’.

In other words, Mr. Rong and Mr. Rockefeller brought together corporate America and the Chinese government, so they could be co-investors in projects to develop China’s economy. Only David Rockefeller could have brought together such a large and influential group of investors.

This project was such a success that it led directly to China’s rise to become the world’s largest economy. Foreign direct investment in China surged from essentially nothing under Mao to the low billions by the early 1990s, and then exploded to today’s annual figure of about $130 billion. This capital largely paid for the new factories and infrastructure that industrialized China’s mostly agricultural economy, beginning in the 1980s.

Not all of this investment was coming from American mega-capitalists like the Rockefellers and their friends in the Big Four American banks. Many projects were also funded through CITIC by wealthy “overseas Chinese”, Japanese zaibatsu and other players. But much of it was funded by American investors. Kissinger was in the midst of it. Beginning in the late 1980s, his firm, China Advisers, did brisk business assisting Fortune 500 clients in gaining CITIC’s approval for investment projects in China. Thanks to his connections with China’s leadership, the Rockefeller family and, through them,  CITIC’s boss, Rong Yiren, Kissinger had the guanxi to make it happen for Americans looking to earn good returns in China.

Pictured: lower level guanxi in action

The Rockefeller family’s flagship institution, Chase Bank, also made out handsomely on the influx of foreign direct investment to China. Remember, all they ever wanted was for China to grow economically, so that China could become a nation of reliable consumers of Rockefeller empire products. In 1997, that dream, which the family had nursed since the 1910s, finally became a reality, when the Chinese government issued $500 million of bonds on the international capital markets. Chase Bank (now known as JP Morgan & Chase) was the joint underwriter. The wealth being generated by the investments that Rockefeller, Kissinger, Deng and Rong Yiren had facilitated had now enriched the Chinese state enough that it could be a reliable client to international creditors like the Rockefeller financial empire.

That, dear reader, is why investing in the development of entire countries can be a smart business move. Too bad the barriers to entry on that particular investment strategy are just a wee bit too high for me.

All this business stuff just isn’t meant for a poor blogger like me. Guess I’ll just have to have some of this damn fine coffee with ol’ Dick. You kinda got left behind too, didn’t you Dick? Well, at least we got coffee and donuts.

2 thoughts on “America & China Part III: The Great Deal

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