A Chinese firm bought an insurer for CIA agents

Since 2018, the United States has been tightening its laws to prevent its rivals from making purchases in its sensitive sectors – blocking investment in everything from semiconductors to telecommunications.

But the rules were not always so strict.

In 2016, Jeff Stein, a veteran journalist covering the US intelligence community, received a tip: a small insurance company that specialized in selling liability insurance to FBI and CIA agents had been sold to a Chinese entity.

“Somebody with direct information called me and said, ‘Did you know that the insurance company that insures intelligence personnel is owned by the Chinese?'” he recalls. “I was astonished!”

In 2015, insurer Wright USA was quietly purchased by Fosun Group, a private company believed to have very close ties to China’s leadership.

American concerns became immediately apparent: Wright USA had knowledge of the personal details of many of America’s top Secret Service agents and intelligence officers. No one in the US knew who might have access to that information, now that the insurer and its parent, Ironshore, were Chinese-owned.

Wright USA was no different case.

The BBC has exclusive early access to new data which shows how Chinese state money is flowing into rich countries, buying up assets in the US, Europe, the Middle East and Australia.

Over the past few decades, China has become the world’s largest foreign investor, giving it the ability to dominate sensitive industries, secrets, and key technologies. Beijing considers the details of its foreign spending abroad – how much money it is spending and where – a state secret.

But on the terms of the Wright USA sale, Stein says: “There was nothing illegal about it; it was in the open, so to speak. But because everything is so closely linked in Beijing, you’re essentially [information] Even Chinese intelligence.”

The Chinese government was involved in the deal: the latest figures seen by the BBC show that four Chinese state banks provided a $1.2bn (£912m) loan through the Cayman Islands to allow Fosun to buy Wright USA.

Stein’s story appeared in Newsweek magazine. And there was a swift reaction in Washington: an investigation was launched by the Committee on Foreign Investment in the United States (CFIUS), the branch of the US Treasury that investigates investments. Shortly afterwards, the company was sold again to the Americans. It is not clear who ordered that sale.

Fosun and Star Wright USA, the company that now owns Wright USA, did not respond to the BBC’s request for comment.

High-level US intelligence sources have confirmed that the sale of Wright USA was one of the cases that led the Trump administration to tighten its investment laws earlier in 2018.

What few people understood at the time was that this Chinese state-backed spending appeared to be part of a much larger strategy by Beijing to invest and buy assets on every continent.

“For many years, we assumed that almost all of China’s wealth flows were going to developing countries,” says Brad Parks, executive director of AdData. “And so, it was a big surprise to us when we realized that there were actually hundreds of billions of dollars going to places like the US, the UK and Germany, which was happening right under our noses.”

AidData is a Virginia-based research lab that specializes in tracking how governments spend their money outside their borders. It is based at William & Mary, one of America’s oldest universities, and receives funding from governments and charitable organizations around the world. For the last 12 years, AdData’s main focus has been on China.

The four-year effort involving 120 researchers marks the first known attempt to tally all of China’s state-backed investments around the world. The group’s entire dataset is available open source, although the BBC was given special advance access.

AidData’s key finding: Since 2000, Beijing has spent $2.1 trillion outside its borders, with an almost equal split between developing and rich countries.

“China has a kind of financial system that the world has never seen before,” says Victor Shih, director of the Center for 21st Century China at the University of California San Diego. China, he added, has the largest banking system in the world – larger than the banking systems of the US, Europe and Japan combined.

This size, combined with the amount of control Beijing has over state banks, gives it unique capabilities.

“The government controls interest rates and dictates where the loans go,” says Mr Shih. “This is only possible with very strict capital controls, which no other country can do on a permanent basis.”

Some investments in wealthy economies appear to have generated healthy returns. Others are in line with Beijing’s strategic objectives, set out a decade ago in a major government initiative called Made in China 2025.

In it, Chinese officials outlined a clear plan to dominate 10 cutting-edge industries such as robotics, electric vehicles and semiconductors by this year.

Beijing wanted to raise money for large investments abroad so that key technologies could be brought back to China.

Global concern over the plan led China to stop mentioning it publicly, but Victor Shih says it “very much survived” as a guiding strategy.

He says, “All kinds of plans are still being published, including an artificial intelligence plan and a smart manufacturing plan. However, the mother of all plans is the 15th five-year plan.”

At a key Communist Party meeting last month, China’s leaders aimed to accelerate “high-level scientific and technological self-reliance and self-improvement” by 2030.

AidData’s new database highlights state-supported spending abroad that matches 10 sectors targeted in 2015. Previous BBC reporting has detailed how the Chinese government financed the purchase of a UK semiconductor company.

The United States, Britain and several other major economies have tightened their investment screening mechanisms, as each country appears to have avoided deals like the sale of insurer Wright USA.

AdData’s Brad Parks says wealthy governments did not realize at first that Chinese investment in each country was part of Beijing’s larger strategy.

“At first they thought it was an individual initiative on behalf of Chinese companies,” he says. “I think what they’ve learned over time is that actually the party state in Beijing is writing the checks behind the scenes to make this happen.”

However, it should be underlined that such investments and purchases are legal, even if they are sometimes obscured within shell companies or routed through offshore accounts.

“The Chinese government has always expected Chinese enterprises operating overseas to strictly abide by local laws and regulations, and has consistently supported them in carrying out international cooperation on the basis of mutual benefit,” the Chinese Embassy in London told the BBC.

“Chinese companies not only provide quality products and services to people around the world, but also actively contribute to local economic growth, social development and job creation.”

The AdData database shows that China’s spending patterns are changing, with Beijing’s government money flowing into countries that have decided to welcome Chinese investment.

A debate has erupted in the Netherlands over troubled Chinese-owned semiconductor company Nexperia.

This is also reflected in the AdData database – Chinese state banks loaned $800 million to help a Chinese consortium acquire Nexperia in 2017. Two years later, ownership passed to another Chinese company – Wingtech.

Nexperia’s strategic value was highlighted when Dutch authorities took control of the company’s operations in September – in part, over concerns by the Dutch government that Nexperia’s technology was in danger of being transferred to other parts of the larger WingTech company.

That bold move resulted in Nexperia effectively being split into two – the Dutch operations were separated from its Chinese manufacturing.

Nexperia confirmed to the BBC that its Chinese business had stopped operating within Nexperia’s governance framework and was ignoring the instructions.

The company said it welcomes China’s commitment to resume exports of its critical chips to global markets.

Xiaoxue Martin, a research fellow at the Clingendael Institute in The Hague, says many in the Netherlands were surprised by how the government handled the case, as it has always managed its relations with China carefully in the past.

“We’re a country that has always done very well in terms of open trade, free trade. And that’s really the trade side of Dutch policy,” she says. “Just recently we found that actually, wait – making industrial policy more about geopolitics has made this investment screening necessary, whereas in the past there wasn’t as much focus on it.”

Xiaoxue Martin is clear – it’s easy to go too far down the path of fear of what might happen as a result of doing so much trade with a superpower like China.

She says, “There is a danger of making it seem as if China is a monolithic country, that they all want the same thing, and they’re out to get Europe and the United States, when clearly that’s not the case.”

“Most companies, especially if they’re private, they just want to make money. They want to be treated like a normal company. They don’t want the negative reception they’re getting in Europe.”

If China is so ahead of its rivals in planning purchases in sensitive areas, does it mean that the race to dominate these areas is already over?

“No! It’s going to take a lot of laps,” says Brad Parks. “There are a number of Chinese companies that are still trying to make these types of acquisitions. The difference is that now they are facing a higher level of scrutiny to scrutinize these inward sources of foreign capital.

“So China makes its move. China is no longer a follower, he is a leader. He is going to set the pace. But what I am predicting is that many of the G7 countries are going to move from the backfoot to the frontfoot.

“They’re going to move from defense to offense.”