Roger Robinson: China is content for us to concentrate on this shiny object over here called trade. Can they handle a tariff war and so forth? Yeah, it’s painful, but yeah, they can, they can play that game all day. Look at the ebb and flow. You know, you don’t see any panic. They just depreciate the currency or do something else to help offset the negative impact of tariffs. And they also think that Trump himself, the president, is constrained by our farmers and other aggrieved sectors of the economy who are going to pressure him. In other words, they have this thing gamed out to the nth degree.
Technology: When we started to go after the high tech, they liked that a lot less. That was not so comfortable when Hikvision and ZTE and Huawei and others started to come into view as national security problems and human rights problems. They didn’t go for that. But they can live with that because ZTE was reversed. They’re planning to reverse Huawei. They’re trying to get even Megvii off of the entity list … artificial intelligence. So they can work it. I’ll tell you what they can’t afford to see the light of day … the money, the U.S. capital markets. Because that’s where they live or die.
Host: The U.S. has roughly $1.9 trillion invested in Chinese stocks and another trillion in bonds. These figures are roughly the size of China’s foreign reserve and could easily pay the bill for China’s Belt and Road Initiative. However, a large portion of these Chinese companies pose national security concerns, contribute to human rights abuses and engage in fraudulent practices. What does this mean to America? How significant is its impact? What will happen if nothing is done about it?
I interviewed Roger Robinson, senior director of International Economic Affairs at the National Security Council during the Reagan administration who later served as chairman of the Congressional U.S.-China Economic and Security Review Commission. He is the one who brought this issue to light.
I am Simone Gao and you are watching Zooming In.
US Capital Is the Lifeline of the Chinese Communist Party: Roger Robinson Interview
Part 1: The TSP Decision
Narration: On November 18, 2019, the Thrift Savings Plan’s board reaffirmed a 2017 decision to follow the MSCI All Country World Ex-US Investable Market Index, beginning sometime in 2020. This decision allows its International Fund to be invested in markets from not only what are considered developed countries, such as those in Western Europe and North America, but also in emerging markets in countries with growing economies, such as China.
The TSP board has been receiving pressure from a bipartisan group of senators, including Senator Marco Rubio who has written twice to the board to urge them to reverse their decision since Chinese companies do not meet transparency standards and many of their operations counter American interests.
The TSP board issued a statement afterward claiming their decision is in the best interest of the participants and beneficiaries, a current best practice in the investment industry, and is widely recognized as a smart strategy in today’s market.
Simone Gao: Thank you very much Mr. Robinson for being with us today.
Roger Robinson: My pleasure.
Ms. Gao: So the TSP board remained their position, they said the ten largest U. S. companies’ 401(k) plans all invest in emerging markets, as do the ten largest federal contractor plans and the six largest target date fund providers and many more. So they are entitled to do the same. What do you make of it?
Mr. Robinson: Well, I’ve read that letter and they also use terms like , “Prudent to take this step, appropriate, in the best interest of members”… You see that throughout the text. They use the proliferation of the MSCI All Country World Ex US index and its wide usage, as in effect, a justification for their doing so. Well, The fact is that over the past 20 years there’s been no screening mechanism over the U S Capitol markets. There’s been no national security minded due diligence performed, or human rights related diligence. And as a consequence, China has felt, in effect, entitled. They felt that the capital markets were not scrutinized, that they weren’t on anybody’s mind. They were never a subject of discussion in the Congress or the executive branch or even the media before March of this year. You can’t find any remarks about this even in the NGO community. So this was not on the radar screen, so to speak.
And as a consequence, Beijing saw an opportunity and not only did they move in aggressively with their stocks and bonds, pulling out what could be as much as $3 trillion thus far from US investors, both institutional and individual. But that number could go up very considerably. And they weren’t particularly prudent, to use that term, about what companies they sent into the United States markets. Companies that were on OFAC sanctions list or the Entity List, (which is) the so called “black list” of the department of commerce. (For example) advanced weapons manufacturers. Those companies responsible or are enabling egregious human rights abuses like the surveillance cameras that are every few meters atop the walls of the concentration camps holding well over a million Uyghurs. This is of course Hikvison for example, which is in the MSCI All Country World Ex US Index as is ZTE, as is AVIC, the Chinese advanced weapons manufacturers, [which make] jet engines, ICBMs etc, targeting American cities. In other words, we have a lot of bad actors of China in the United States, capital markets today. And these represent risks to American investors. It’s not just that it’s rather shocking that we would permit PLA companies or those associated with acute human rights violations to be in our markets at all.
But if you put that aside, these companies are subject to sanction as we’ve recently seen. And as a consequence, they represent a risk to the share value and corporate reputation of those Chinese companies and those American investors that take the plunge and invest in them. So how does that equate with “prudent”? How does that represent the best interests of 5.7 million federal employees? How does working to fund the PLA and enabling concentration camps serve the best interest of federal employees who, some of whom, many of whom have spent their whole careers trying to combat (these types of organizations).
So you can see the very narrow view of what I call the thrift savings plan board, which is more officially known as the Federal Retirement Thrift Investment Board. They’re looking at return on investment. They’re looking at the fact that everybody does it. They’re looking at their fiduciary duty with this very narrow mindset. Well, what about material risk? That’s a market condition. That’s not some outside complaint, like socially responsible investing, (might be considered) for example. It’s not a preference, it’s a reality. So they’re prepared to overlook this kind of thing. And I think that they have missed fundamentals in this decision. It’s a wrongheaded decision and I don’t believe it will stand.
Ms. Gao: Okay. So for that, I have two questions. Number one, from the U S government point of view, this shouldn’t happen, right? These companies on sanction lists, frequently on sanction lists and then even on the Entity list, how can they be included in the MSCI indexes? What went wrong in the system? (Is it just that) we just don’t have the oversight apparatus or what?
Mr. Robinson: Well, that’s correct. When you have 20 years of utter neglect, when you have the SEC that doesn’t regard these kinds of sanctioned entities to represent a material risk to the share value and corporate reputation of that company and the American investors that are going to perhaps invest in them. You can see the flawed logic here. And so of course, it’s inconsistent, indeed a glaring inconsistency. If you’re not allowed to do business with these designated companies by law, but you can invest in them, you can fund them, you can give them all the prestige of being in the world’s deepest and most voluminous markets, which you know that they use as the “good housekeeping seal of approval” to legitimate their stature around the world. It’s a privilege to be in the U S capital markets. It’s not a right. This got confused along the trail.
The Chinese and Wall Street believe it’s a right. It’s not. You have to obey the rules. Chinese companies are not compliant with federal securities laws. They’re not submitting themselves to PCAOB audits like every American companies needs to do. They’re not compliant with Dodd-Frank legislation, Sarbanes-Oxley legislation. You know that they don’t share their financials because they’re regarded as state secrets. Gee, that’s convenient. I wish I could say that to my bank (when they would say), “Well, you know, I want to see your financial condition before I give you a loan to add on to your house.” And I said, “Well, I’m sorry, but that’s privileged information. You know, I’m not gonna share that with you.” The bank would tell me, “bye bye” very quickly. And this is of course what we should be doing as well.
So China’s receiving privileged treatment over their American corporate counterparts. I’d like to see somebody tell me that that’s not the case. That is a fact. And so here we are in this wildly unbalanced situation. You don’t have to worry about federal securities laws. You don’t have to worry about material risk when it comes to national security and human rights abuses, despite the fact that these are sanctionable offenses and often are. And then when a company is sanctioned, today our attitude is, “Oh well, is it a good return on investment?”
Ms. Gao: Even on that, a good return on investment… You know, those Chinese companies, almost all of them have two to three sets of accounting records, one for internal use, one for the tax Bureau. And if a company is trying to go IPO, it has a 3rd set for the IPO use. So how can you trust these companies records (if you are an) institutional investor, when they say they only look at financial returns. Don’t they think this poses a financial risks to their (investors)?
Mr. Robinson: They’re willing to basically look the other way. They see those $3 trillion in Chinese reserves and they basically, even though they might not say it openly, are counting on the fact that the Chinese government’s going to make these companies hold if they run into a fraudulent situation. If it turns out that they’re a Sino-Forest, (for example) which was one famous case in the past, (which) had no forests. In other words, multi-billion dollar fraud is not unusual.
And you know, the Chinese mainland exchanges, anyone will tell you its the wild West. You’re at a casino, you’re not in an established, solidly founded and anchored market. You’re in the shifting sands when you’re in the Chinese exchanges. And yet our index providers are happy to buy hundreds of companies at one time. You know that the FTSE Russell index, it was reported, they went to China in June of this year and they added 1097 Chinese companies to their index in a month.
How much diligence did they perform? Did they look at the subsidiaries of those companies? Did they ever look at the Entity List or the sanctions list? Did they look at the fact that they are advanced weapons manufacturers or human rights abusers? Of course they didn’t. They think that that’s somebody else’s job. That’s the exchange traded fund sponsor’s job. That’s the asset manager’s job, who is going to build a fund, an investable fund, around that index list. They’re going to say, “We just provide the list”. We want a full spectrum of companies that represent all different segments of the economy and sectors and so forth. They’ll give you a very elaborate technical explanation, but at the end of the day, they don’t care about material risk. That’s somebody else’s concern. All of this is “Apres Moi le Deluge”. After me. It’s somebody else’s problem, a good French expression to describe passing the buck.
So here we sit, with the American people, unwittingly holding companies that manufacturer ICBM’s targeting their cities. That We have the (US) military investing in companies that are militarizing the illegal islands in the South China sea or building hypersonic anti-ship missiles when (the investors are) part of the American Navy. This is why the US secretary of the Navy, Richard Spencer, a great American, came out (and said) … and he’s not a former, he’s the sitting secretary of the Navy and he came out very forcefully and said, what’s going on here? These are my sailors. I mean this is the uniform military that with their own money, when they seek international exposure, which most diversified portfolios do have … International companies, there’s only going to be one choice and that’s built around and mirroring, as they say, the MSCI All Country World Index, there’s no second choice. They imply that there is, that the I fund will give you a few choices.
But there are no choices. There won’t be. Of course, this hasn’t been implemented yet and that’s the best news of all. They’ve made their decision. They’ve reaffirmed that decision after kicking they can down the road during three other previous board meetings. Now they’re on the record saying, ladies and gentlemen, this is the way it’s going to be and we’re sticking with our guns. We’ll see about that. This show is not over. There’s legislation on this. There’s bipartisanship on this and there’s the executive branch. Are we going to have the Trump administration sit by and watch this on their watch? President Trump’s watch, is he going to put (the investments) into PLA companies and concentration camps? There’s some hard questions that have to be asked of the executive branch and the Congress both, but Congress has stepped up and they have said, no, no, no. Don’t think, you the board, don’t think you’ve had the last word.
Part 2: POTUS’ Stance
Ms. Gao: Right. What about the president, the executive branch? How does he think about this?
Mr. Robinson: I think they’re studying the problem. I think that they’re aware of this concern. I think there are meetings taking place on this matter. I think there are a number of pockets in the white house and elsewhere, like the secretary of Navy who are very concerned about what they’re seeing here. They see this imminently coming down the pike where this transition is made from a “developed country only” fund with no emerging market companies, to one that includes not only China and Russia, and by the way, on the Russia side, there are five U.S.-sanctioned Russian companies in the MSCI all country world Ex-US index, OFAC- sanctioned, the most severe form of sanctions we have… “Oh, that’s fine. That’s somebody else’s problem.”
See, these are the kinds of things that are being presently considered. And I’m cautiously optimistic that the Trump administration is going to come to a consensus on this, that this is not [good], that they’re not actually going to sit by and have this take place on their watch because any executive branch that has this laid at their doorstep and [it was] said, “You saw this happening.
Did you ever step in? Did you ever use your executive authority”? I worked for a president by the name of Ronald Wilson Reagan and I can’t necessarily speak to the Trump administration and its operations but I can tell you that I know intimately, having run it, what the international economic and financial portfolio looked like for president Reagan and what kind of president he was in this connection. And we would not be having this debate and the federal thrift savings board wouldn’t be taking the arrogant attitude they are, in the letter that you’ve just read and telling us to go peddle our papers, because they would be up against an insuperable force.
Ms. Gao: Talking about the Trump administration’s attitude on this. I wonder what’s the relationship between Trump’s trade war with this? Because if Trump eventually wants to have a trade deal, with China, wants the U S and China economy to still engage each other, Would this effort be opposing that?
Mr. Robinson: Well, you can be sure that behind closed doors the Chinese are making clear to the Trump administration that they should not even think about (taking) any action, even if it’s merely enforcing existing laws and existing regulations, nothing even new. But if they even tried to enforce existing rules of the game, there’ll be hell to pay, including in the trade portfolio.
Look at the NBA. The Chinese are very well-known for their extortionary practices, shall we say. And they don’t have … they’re not shy, behind closed doors at least, in telling you exactly what the consequences of your actions are going to be. This is their M.O. as they say. So I think they probably conveyed that message and there’s some that are listening to it and concerned about it because of course the politics and the substance of this trade deal in phase one and so forth are terribly important.
We get that. On the other hand, it can’t be an excuse for looking the other way on hundreds of billions of dollars potentially going for purposes…from American investors, into China for malevolent purposes to be used in effect, if not against us, through military modernization and problematic activities in the political military sphere, nation capture, and too many other activities to name, but also trampling American values, stepping on individual liberties and freedoms of people. We’re supposed to be in the freedom business. We’re supposed to be the beacon of freedom. Why should we allow our people to be funding concentration camps and the use of facial recognition technology at Tibetan train stations so that we can round up those dissidents. Are we supposed to fund the social scoring operation of China or the surveillance state or digital totalitarianism or whatever term you’d like to use? You know, these are odious activities that contravene American values and Wall Street can’t just erase that and pretend as though that’s not the case.
The wake up call has happened. I don’t think you can put the proverbial genie back in the bottle. You can’t unring this bell. There is a Clarion call that’s gone out to the American people, including on a bipartisan basis in the Congress and too many mainstream media pieces to name thank goodness, all since June, since we began publishing our research findings over a two to three year exhaustive effort, which we started to release in March of this year. Before which you see exactly nothing. Now you’re going to see this issue building out and others are getting involved. Other experts who know a lot about the PCAOB auditing side who are experts on Dodd-Frank or understanding the consequences of what it means to consider financial disclosure “state secrets”. So in other words, we’re concentrating, myself included, are concentrating on the human rights national security side of this equation.
I’m a national security guy, but I’ve also been heavily involved in human rights for many years. So that’s one dimension. But then there’s also the fiduciary side. What happened to disclosure? What happened to transparency and risk management and protecting share value and corporate reputation. What happened to caring about the rule of law, for arbitration if for no other reason. In other words, what about good corporate governance? Corporate governance is a priority in this country. That community can be very tenacious and they bite at the heels of Wall Street all the time. For the good.
Where’s the corporate governance community on this? Utter silence.
Part 3: What Happened to Oversight Mechanism?
Ms. Gao: What about the SEC?
Mr. Robinson: Well, they’re certainly receiving a deluge of inquiries as to what’s going on here. I think they’re going to have to react. And I think that we shouldn’t accept less than (not investing in companies that create) national security abuses and human rights related abuses by Chinese enterprises. Enablers, contributors to these odious problems. These represent material risk to the share value and corporate reputation of those enterprises because of bad press, which hurts share value, and because they can be sanctioned or end up on the Entity List and then you’re going to see that stock plunge. Now that should be disclosed as a risk to the American people. That’s not fair.
Ms. Gao: Don’t you think that the fact that almost all Chinese companies have two to three sets of accounting records should also be disclosed to the American investors?
Mr. Robinson: I do. I do. Because look, the SEC was founded, I think in 1933 if my history is right. What is its central mission? It’s central mission, I think, is to ensure that material risks to share value and corporate reputation are properly disclosed to prospective investors so that they can make better informed investment decisions. So if you go back to 1933 and read their mandate, I think it says something roughly along those lines. So I look at the SEC as one of the principle avenues of remedy. But if you’re going to be part of the solution, then get on with it. I mean, why were they silent on the thrift savings plan? (Which is) a debacle.
Ms. Gao: So they haven’t said anything?
Mr. Robinson: Not a peep. So you know this is a challenge. Now again, I don’t want to be unfair. This is a new issue. (And) It’s a massive issue in its scale.
Ms. Gao: Oh, you know what? We have contacted SEC for interview. They ignored us.
Mr. Robinson: Well I think they probably might’ve ignored you (even) if you were CNBC. In other words, I think that they’re not ready would be my guess. I hope it’s because they’re studying specific solution sets and they don’t want to preview new rules or new enforcement measures. I mean, if we wanted to take the most optimistic view on this and I think perhaps it’s warranted. I certainly hope so. This is a new issue. As I say, it’s of a massive consequences scale. It implicates $40 to $60 trillion of funds under management. I mean the United States capital markets let’s remember, have over 60% of the world’s liquidity. It is the size of, roughly speaking, the capital markets of the rest of the world combined. So this is a huge issue and hopefully it’s that they’re taking the time to get their arms around this and understand where they can use enforcement measures of existing laws and regulations to step up and fix these horrendous imbalances.
Ms. Gao: They did offer one excuse, they said they are short of manpower, they are short of means. And they said to tackle this problem, this new problem, it would be like using an AK 47 trying to shoot down a satellite.
Mr. Robinson: Well, let me ask a question to the audience or yourself. Why isn’t the intelligence community of the United States in touch with the SEC and used as a resource to better understand who these Chinese and Russian companies are? I mean, yes, a lot of this is in the open source and I work only on an open source research basis. I don’t have clearances. I have no access to privileged information, which incidentally is fine with me. I certainly have in the past, but not anytime recently. But for example, if I were still senior director of international economic affairs at the National Security Council, my former position, I would create, in a day, a new liaison relationship between the intelligence community and the SEC, so that when we screen companies, Chinese and Russians, coming into our market at all, whether it’s even the over the counter market, much less if it’s an initial public offering on the New York stock exchange as the other side of that spectrum…
But if that kind of thing’s happening, the American people deserve to understand who are these folks? Do they have a history of these kinds of abuses? Have they been engaged in fraud in the past? Have they been or are they known hackers? Have any of their employees been arrested for espionage? Are they PLA-affiliated and are they South China Sea island-builders? Are they contributing to the North Korean nuclear and missile programs? Or even just providing life support to Pyongyang and that abusive state, particularly from a human rights perspective. The American people are not fools.
They understand these things and they want their investment dollars I think for the most part, to be consonant and consistent with their strongest held values and principles. These, for the most part are Patriots. These are people with acute feelings about human rights abuses. Do we really believe that if they knew that their investment dollars were going into the perpetrators of these abuses that are threatening the lives of not just their families, but their communities, their cities, their states, their country, I think they’d be outraged.
Now how many of them are there? 150 million are holding “bad actor” Chinese stocks and bonds today. Millions and scores of millions more are holding Russian sanctioned companies and sovereign bonds. CalPERS owns $460 million, I believe in Russian sovereign bonds. Well wait a minute. What’s a sovereign bond? It’s “I the Russian government give you a piece of paper with a maturity date and an interest rate on it and you give me scores of millions of dollars or more”. And what do I do with that money? Well, it’s discretionary cash. I could do anything I want with it. I can undermine further, Eastern Ukraine. I can build up my military presence in Syria. I can fund that latest supersonic cruise missile (that is) nuclear tipped. I can build that new generation ballistic missile submarine.
You know, we used to have something called Liberty bonds that financed World War II. What’s this? What are we in the business of now? Anti-Liberty bonds? That’s what I think of them as being. Anti-Liberty bonds. Hey, let’s use the proceeds to crush Liberty. Now, do you really think that this issue is going to go away or can be put back in the can for another 20 years? I don’t think so. I think this goes right to the core of who we are as Americans. And we’re not going to listen to a narrow view of what these folks think is their fiduciary duty, which also happens to give them, you know, an extra yacht in the Hamptons for the weekends. In other words, this is about greed to a large extent too. Let’s not try to make it seem like these are altruistic, wonderful folks that are only thinking of the investor and not themselves. Let’s get that straight.
Well, look, I’m a thorough believer in capitalism and I have been a Wall Street international banker. I started my career with Chase Manhattan, which is about as blue chip as they come in that day. So I have no problem about, making money and being creative and doing so. But the stakes here are different. I mean, there are ways to make money and ways not to do so. You know, the mafia likes to make money. Triads like to make money. The point is we don’t want to commingle our values here and we don’t want to check those at the door when we’re coming to work and think that we don’t have to worry anymore about our country or national security. And we don’t have to worry about concentration camps and human rights abuses. In other words, (it is not as if) “all dollars are the same color.”
I don’t think so. I think you need to have true governance. I think you want to stand for something. You want to preserve your reputation and keep yourself pristine in terms of the ways you make money. That’s my view. And I think it’s the view of most Americans, that’s what they expect. You know, folks that invest in an exchange traded fund or so-called index fund, or even their mutual funds and so forth, they’re relying on that fund manager. They’re not getting into the weeds and choosing those stocks, which could be hundreds, if not thousands of companies. That’s not their business. They’re trusting of their financial advisors, their fund managers, their asset managers of all stripes to do this ethically, properly and with a very healthy regard for material risk, not just return on investment. That’s where the system has fallen down. So in part it’s because China’s had this free lunch program for 20 years and they saw that we were so complacent whereby even their sanctioned companies had no penalty.
I mean, even if they were on the entity list, no penalty over here. Well, what is over here? Trillions of dollars that they’re accessing. The money. You’re going to tell me that trade is bigger than the money. Think again.
Ms. Gao: Tell me the estimate of the Chinese penetration in the U.S. capital market.
Mr. Robinson: I saw one estimate by a group that looks at these matters. It’s very hard to determine. It’s a very hard number to get particularly for the bonds, because dollar denominated bonds, our currency, are issued in Frankfurt, Hong Kong, Singapore, but they end up in the United States because American investment banks buy them overseas and bring them in via the secondary markets. So it gets very complex. Believe me, I’ve tried. But I’ve seen a number of $1.9 trillion from the equity or stock side alone and as much as another trillion in bonds. Now we spend 700 billion a year on defense. Imagine how that stacks up to 3 trillion. It’s one quarter.
Ms. Gao: Yes. And China’s entire foreign reserve is 3 trillion. And the gross investment for the belt and road initiative is $600 billion.
Mr. Robinson: How do they seemingly have an unlimited checkbook for nation capture, In the regions (such as) Southeast Asia and so forth. Or continent capture in the case of Africa. Or region capture in parts of Latin America. How do they have unlimited money, so it seems, to become a near competitor with the United States militarily.
Ms. Gao: It’s ironic. There’s no alternative to the belt and road initiative. The U S cannot afford a belt and road initiative. China can, but where does China get its money? Right?
Mr. Robinson: Again, people say, “Well, you know, if the U S even enforces existing regulations and securities laws, Oh, you better watch out. China will go elsewhere. They’ll go to London, they’ll go to Frankfurt, they’ll go to Singapore, they’ll go to Hong Kong and we’ll be the ones that have shot ourselves in the foot. Our markets won’t be as competitive anymore. We’re going to lose all this business gratuitously to others”. I hear that a lot.
There are no others. We have the bulk of the investable capital in the world today. They would use up a Frankfurt or a London or a Singapore in months, not years. They don’t have the depth. They don’t have the liquidity to handle the excruciating sums, the voracious dollar appetite of China. So just remember there is nowhere else to go.
Ms. Gao: So if this is cut off. What do you think will happen to China?
Mr. Robinson: Well first I don’t think it’ll be cut off and you know I’m not advocating that it be cut off in the sense that this is the second largest economy in the world. It needs to be represented in the markets. Just like our trade flows. I don’t think many people realistically are asking for the cessation of all trade. We are interested in free and fair trade and we are interested in trade that doesn’t act to the detriment of our national security or trample our values such as our human rights priorities. The same should be true in the capital markets.
You know if a bicycle manufacturer wants to raise funds in New York, I’m not necessarily going to have a sleepless night. If a PLA advanced weapons manufacturer wants to do the same, that’s a whole ‘nother matter.
If we’re looking for return on investment, let’s make sure that it’s funding things that are benign, commercial and that we don’t have a problem with it in terms of our feelings about our fundamental national security, our feelings about our patriotism and (if it’s) the right thing to do.
And the feelings about our values and principles and moral compass. Why can’t all of these things work together? Why can’t we be guided by these obvious milestones of our lives?
But any contraction of the unfettered access that China has to the American capital markets could lop another percent or two off the growth rate. And if you think that China is struggling now, just imagine then. So China’s anxious for no change to the status quo and they will threaten anybody that tries to make such changes. So this is not going to be easy. It’s going to take some courage. I think the administration has that courage (in the) president. I hope so. And he’s shown it on other occasions. And so it’s a matter of just educating folks and having the scales dropped from their eyes and seeing this in layman’s language, like we’re having this conversation today.
This is not exotic. This isn’t technical. This is the kind of thing we could (discuss) over tea or beer. And every American needs to become their own activist. They need to be going to their financial advisors and their fund managers and their pension plan systems and administrators and saying, “Do I have China exposure? Do I have Russia exposure? Show me which Chinese companies I’m holding. Do you have a profile of who they are? Can I see what their subsidiaries do? Can you give me that list of their subsidiaries? Can you tell me if they’ve ever engaged…have they ever been sanctioned or are they sanctioned now? Have they ever been accused of human rights abuses or hacking or corruption? Can you tell me a little bit about these companies that I’m holding in my portfolio? You know what the universal answer’s going to be?
Ms. Gao: What?
Mr. Robinson: “I have no idea. I have no idea. I’m not paid to do that.” Wrong. Yes you are. Yes you are. And I’ll go find somebody that will, that’s the next line. That’s where the average American can be empowered to take a stand. Go to the congressman, go to the senators, go to the white house and the Department of Treasury and the SEC and ask, “Why am I unprotected? Why is this swirl of controversy happening? You know, what’s this guy talking about in this interview? Is that right? Is this true?”
The Real Battleground Is Not Trade
Ms. Gao Tell me about that. Trade and the US investments in Chinese companies, which one is bigger?
Mr. Robinson: China is content for us to concentrate on this shiny object over here called trade. Can they handle a tariff war and so forth? Yeah, it’s painful, but yeah, they can, they can play that game all day. Look at the ebb and flow. You know, you don’t see any panic. They just depreciate the currency or do something else to help offset the negative impact of tariffs. And they also think that Trump himself, the president is constrained by our farmers and other aggrieved sectors of the economy who are going to pressure him. In other words, they have this thing gamed out to the nth degree.Technology. When we started to go after the high tech, they liked that a lot less. That was not so comfortable. When Hikvision and, and ZTE and Huawei and others started to come into view as national security problems and human rights problems. They didn’t go for that. But they can live with that because ZTE was reversed. They’re planning to reverse Huawei. They’re trying to get even Megvii off of the entity list…artificial intelligence. So they can work it. I’ll tell you what they can’t afford to see the light of day…the money, the US capital markets. Because that’s where they live or die.
Ms. Gao: You were the economic advisor to president Reagan. What’s the difference between the Reagan time and now and are there any similarities? Is there any experience that we can borrow, we can learn from that time?
Mr. Robinson: Well, President Reagan had a Hollywood background, just like President Trump has a real estate background. President Reagan had the advantage of being governor of America’s largest state for a number of years as you know. And he has been seized with (things) in my area, foreign policy, national security concerns for decades. He used to write his own speeches for General Electric when he was the spokesman there, in longhand, that demonstrated that he was always worried about communism. He was a ferocious anticommunist. He had direct experiences being intimidated and threatened by them as president of the Screen Actors Guild during the years when communists were trying to penetrate Hollywood, and he was the stop in the system and they went to his home and threatened to throw acid in his face and so forth. In other words, he would tell these stories.
So he had firsthand experience and he was also very studied about this. So he knew the character of communists and communism and authoritarianism. And so there’s a difference in background to be sure. President Trump has a number of attributes as well, to be sure. And he’s taken the bold steps on trade. He’s taken bold steps on technology and denying militarily relevant technologies to China that other presidents didn’t take on in the past. He’s willing to anger Beijing, whereas most were always too cautious. And they got away with whatever they wished, including in the capital markets. It’s why we’re in the mess, In a sense, that we are today because there was a kind of de facto appeasement policy, if you want to put it less generously. Some could say it was all about accommodation and hoping that they would come come around to a more pluralistic attitude and greater geopolitical cooperation as we build commercial bridges and so forth. We had the same illusion on detente with the Soviet Union, which was likewise smashed as this one has been. So there’s courage that has been shown.
But with Reagan you had a reservoir, a deep understanding within the man of good and evil. He didn’t call them the “evil empire” for nothing. He coined that phrase. He saw this as a moral choice. He was influenced tremendously by the values and principles and everything we hold dear and knowing that these communist authoritarians and dictators wanted to smash that for all of us and he was determined it wasn’t going to happen on his watch. He wasn’t interested in complicating the life of the Soviet Union. He wasn’t interested in rolling them back here and there. He was interested in their total defeat and that’s exactly what he proceeded to do.
And we had an economic and financial strategy that I had the privilege of structuring and was the architect of. And we went after the hard currency cash flow and we went after the credit arrangements that were keeping them a going concern, the life support that the West was providing them.
Ms. Gao: Tell me about that one day you and president Reagan sat down and decided that that was what you wanted to do with the Soviet Union?
Mr. Robinson: Well, I went to the oval office with his best friend, who was National Security Advisor, William B. Clark, and I laid out a number of elements of a plan of how we could go after their hard currency cash flow, including natural gas sales to Western Europe and trying to stop as much of the Siberian gas pipeline project and others as we could. Things that were going to make a huge difference and that we’re going to double the hard currency income of Moscow and make Western Europe over 75% dependent on Soviet gas (which was) a lever that they would surely use to divide and splinter NATO.
In other words, it’s a complicated story, but the remedies were laid out as to how we could handle this. The Soviets were spending about 16 billion more than they made annually. All of that amount was funded by Western governments and banks every year, and that happened to equate to the hard currency cost of the external Soviet empire. They do a lot in rubles. They do a lot in trade, but the hard currency portion (was in) dollars, yen, you know what hard currency means. So the long and short of it is that I basically said to him that we’re financing 100% of the hard currency cost of the Soviet external empire every year. Not 10%, a hundred percent.
And we talked about how we could lower oil prices having the Saudis secretly pump 2 million barrels more oil a day, decontrolling prices at the wellhead here in the United States, dropping oil to $10 a barrel, knowing that for every dollar drop in the price of a barrel of oil, the Soviets would lose about a billion dollars. They only made 32 billion a year. I mean we broke them into matchsticks in terms of the cashflow. Anyway, I was laying out a plan and the president was asked by judge Clark as he was called, what do you want to do? And he said, basically, “I don’t care how you do it”. He was joking a little bit because he did care how, but he said, “just do it”.
Ms. Gao: Just do it. That was it. It was a secret plan. Right? It was a secret?
Mr. Robinson: Yes, 12 to 13 people in America. (knew About the plan)
Ms. Gao: Okay. 12 to 13 people.
Mr. Robinson: That’s right.
Ms. Gao: How long did it take for this maneuver to basically end the Soviet Union?
Mr. Robinson: About 18 months. Two years. The pieces were put in place. They fumbled, they trundled along for another seven years, trying to muddle through and so forth. But the point is that they were in their death throws, but it was slow motion by design so that they wouldn’t feel that their back was up against the wall and things didn’t get very scary at the nuclear side of the equation and so forth. We needed this to be a slow, gradual crash.
So the days before the collapse of the Soviet union, they defaulted on $96 billion in Western debt and you can ask yourself, gee, might there be a connection there? There was a connection there. Look, there were many elements. There was the military buildup that stressed out their economy. There was SDI that scared the hell out of them in terms of our technological capability.
Mr. Robinson: There was the fact that we challenged them everywhere we could find them in the third world, from Stinger missiles to the Mujahideen to mining the harbors of Nicaragua, wherever they were, we were there to counter them and to increase their costs.
We conducted a war of ideas in the United nations and others by telling the world who they really are, the ideological component. We deployed Pershings and cruise missiles (with a) six minute flying time to Europe to demonstrate that we weren’t going to accept the intimidation of their SS20 missiles. So there were a number of elements to the plan, but at the end of the day, the economic and financial piece was the most telling.
Ms. Gao: You know, China’s economy is much bigger than the Soviet and now the US and China economies are too much intertwined. Do you think this tactic will still be relevant today?
Mr. Robinson: China has very little cushion, if any cushion. Some would argue that they’re in slow motion, economic implosion now under a 7% growth rate. And they’re considerably under that more, than they say. Obviously they have a real estate bubble that doesn’t quit. They have a nonperforming loan problem that doesn’t quit, the bad debt. They’re very extended. They’re vulnerable. They like to portray themselves as a huge juggernaut that is invincible and they love to show off their $3 trillion in reserves and so forth. Some of which, by the way, is a liquid and in rolling stock in Africa and so forth. It’s not sitting just cash as it should be, but never mind. That’s a debate for another day.
But they’re vulnerable and no more so than vis-a-vis the money. They likewise don’t have a convertible currency. They would love to de-dollarize as they say, just like the Russians. But we are the reserve currency of the world for the foreseeable future.
And you just can’t wave a wand and say, “well, I’m going to stop using dollars”. Because we’re the only show in town. And I mean globally when I say “in town”. So that’s the way it is. So yes, obviously, this is one of the last great near-monopolies the United States has in the world in the 21st century, it’s the money. Once upon a time with the Soviets, it was our oil and gas equipment and technology that was the only technology that could get through permafrost in Siberia. You know, we use that leverage because we had a monopoly there, it’s kind of a long story, but these are the kinds of things that really count when you’re talking about rolling back a totalitarian juggernaut, bnt on trying to dominate your positions of primacy around the world. So I’m optimistic that we utterly dominate the economic and financial domain on the planet earth.
I believe that we have the bulk of the world’s liquidity. I just think that we haven’t woken up.
Ms. Gao: That’s the question. Does the US have the motive? I mean, now the two economies. There’s so much, so deep penetration of the Chinese into the capital market. Do you think it’s too late to move the needle?
Mr. Robinson: No, I don’t. I think it’s a legitimate question and it’s a question of great concern because that has been the argument that’s prevailed to date, and is prevailing as we sit here. That argument’s prevailing right now, but there’s one missing ingredient that hasn’t yet surfaced, which is the awareness of the American people. The American people, in my humble opinion, are not on board this train. They just don’t know the game that they’re in. And they’re going to find out, and at least I’m going to do everything in my power to ensure that they have the facts, not opinions, empirical facts, and when they see those,
I think I know something about my fellow Americans on both sides of the aisle from hardcore national security advocates to champions of human rights, wherever they are on the political spectrum, they are being abused and we can reach out and show them precisely how. And when they find out it’s with their money, not an abstraction, their personal money, guess what? They’re going to take it personally. That’s exactly where I want them to go.