Some years ago, I had occasion to spend a few days in the Chinese city of Shanghai. While I was working most of that brief visit, I did have one afternoon and evening free to explore a vast marketplace near the hotel, and was amazed to see the number of fake items for sale there, from iPhones to handbags. One merchant insisted his wares were "genuine Versace handbags," and insisted I should buy one for my wife. But I figured, if it was a fake, I'd be out $20, so I didn't buy one. But that afternoon was something of an eye-opener. There is very little in China that is genuine.
China is a growing problem for the Western world. They are becoming increasingly bellicose, with threats issued regularly at other nations of the Western Pacific, both covert and overt. They are building a blue-water navy (although their progress is thankfully slow) with the ultimate goal of challenging the United States' naval dominance. Their army is growing, too. They are also a primary geopolitical ally of the other two nations that are most interested in seeing the United States being taken down a peg or five: Iran and Russia.
There's another problem. The Middle Kingdom is home to all manner of illicit activities, from scams and frauds to money-laundering to supplying cartels with stuff like fentanyl precursors and even the drug itself. What's more, the Chinese Communist Party, or CCP, seems to have little or no interest in slowing down or stopping any of this. A recent piece at Foreign Affairs by Alvin Camba describes the problem.
For years, international discussion of China’s economic rise has focused on how it has built a manufacturing and export powerhouse and used industrial policy to support such efforts at a continental scale. But there is another, darker side of China’s dominance: its outsize role in the illicit global economy. China purchases roughly 90 percent of Iran’s sanctioned oil exports, which often arrive relabeled as originating from Malaysia and are paid for with money routed through small banks and shell companies acting as intermediaries. Cryptocurrency brokers in China and Hong Kong help North Korean hackers, such as the notorious Lazarus Group, convert stolen coins into usable cash. And China-based networks support money launderers working with Mexican cartels selling fentanyl, online scam centers in Southeast Asia, and the global wildlife trafficking trade.
And Iranian oil is a big part of it. On Friday, I reported on a major Treasury Department lockdown on the extensive financial network that allows Iran to illicitly move oil, of which China is its major purchaser. A Hong Kong bank was among the organizations sanctioned. This cannot possibly be going on without the tacit approval of the CCP. Iran's oil is a major part of China's energy portfolio, and it is going to want to keep it flowing, which sets it directly at odds with American interests.
There's a lot of money in all this.
Data from organizations and governments tracking illegal activity suggests that the Chinese illicit economy generates nearly $1 trillion in revenue annually, about the size of Switzerland’s GDP. Roughly two-thirds of counterfeit goods seized by customs authorities worldwide originate in China or move through Hong Kong, and the notorious scam compounds that have proliferated in Southeast Asia—many of which are operated by or linked to Chinese criminal networks—have trafficked more than 300,000 people from at least 66 countries into forced labor while generating roughly $40 billion in profits each year.
Why? Why China? And why does the CCP turn a blind eye to so much of it?
Part of this is because China remains a low-trust society. The very financial and business enterprises that compose China's legal economy are also deeply involved in the illegal economy. The line between criminal groups and the legal economy is very blurry, if indeed it exists at all. It's also in the CCP's interests to keep this increment flowing. They need Iranian oil, and they need the $1 trillion a year of economic activity that the scams, smugglers, and money-launderers bring in. Now and then, the Middle Kingdom's government will do a limited crackdown and bring a few lower-level goblins in and toss them in a Chinese prison, but the big fish generally remains active and untouched, swimming in the deep, dark depths of China's underground economy.
Part of this is also because much of that activity is aimed at harming the United States, in particular the illicit aid to Iran, the smuggling, the support for the cartels, and the scamming rings aimed at American citizens. Add that to the extensive purchases of American land, much of it conveniently situated near American military installations, and the cropping up of illegal biology labs in the USA operated by Chinese nationals, and you have a very clear picture of a country that is up to something.
About that, Mr. Camba concludes:
Beijing’s enforcement, although real, is selective and partial because elements of the illicit economy serve the country’s larger strategic goals, such as sustaining trade with Russia while maintaining distance from the war in Ukraine. What may appear to be a collection of unrelated crimes is intertwined with China’s imbalanced growth model and its foreign policy. As Washington struggles to compete with China, Beijing’s role in the global illicit economy is working against U.S. priorities around the world.
Ay, that's the rub. That's why the CCP turns a blind eye (or, at least, a very myopic one) toward all this. It helps its economy, and many of the scams, frauds, money-laundering, and illicit oil trading hurt the United States.
China is not a friend to the United States. They are our primary geopolitical adversary, and will remain so for the foreseeable future. They are, at present, mostly an economic adversary, and not a military one. But the United States should not rely on things staying that way.
