A Chinese company has taken over the CIA agents' insurer. The shadow plan of the Party-State

Since 2018, the United States has tightened laws to prevent rivals from buying shares in sensitive sectors – blocking investment in everything from semiconductors to telecommunications. But the rules were not always so strict, writes the BBC.

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.

“Someone who had found out called me and said, 'Do you know that the insurance company that insures the Secret Service personnel is owned by the Chinese?'” he recalls. “I was amazed!”

In 2015, insurer Wright USA had been secretly acquired by Fosun Group, a private company with very close ties to China's leadership.

US concerns immediately became clear: Wright USA had access to the personal data of many top secret service agents and US intelligence officials. No one in the US knew who might have access to this information now that the insurer and its parent company, Ironshore, were owned by the Chinese.

Wright USA was not an isolated case. The BBC shows how Chinese state money has flowed into rich countries, buying assets in the US, Europe, the Middle East and Australia.

Over the past two decades, China has become the world's largest foreign investor, which gives it the potential to dominate sensitive, secretive industries and key technologies. Beijing considers the details of its foreign spending — how much money it spends and where — a state secret.

But regarding the terms of the sale to Wright USA, Stein says, “There was nothing illegal about it; it was in plain sight, so to speak. But because everything is so closely tied in Beijing, you're basically giving this information to the Chinese intelligence.”

The Chinese government was involved in the deal: new data seen by the BBC reveals that four Chinese state-owned banks provided a $1.2 billion loan to enable Fosun to buy Wright USA.

Stein's article appeared in Newsweek magazine. And there was a swift reaction in Washington: the launch of an investigation by the US Treasury's investment watchdog arm, the Committee on Foreign Investment in the United States (CFIUS). Shortly thereafter, the company was sold again – back to the Americans. It is not clear who ordered this sale.

“For many years, we assumed that virtually all of China's money flows went to developing countries”

Fosun and Starr Wright USA, the company that now owns Wright USA, did not respond to BBC requests for comment.

US intelligence sources confirm that the sale of Wright USA was one of the cases that prompted the first Trump administration to tighten its investment laws in 2018.

Few could have understood at the time that this Chinese state-backed spending was part of a much larger strategy by Beijing to invest and buy assets on every continent.

“For many years, we assumed that virtually all of China's money flowed to developing countries,” says Brad Parks, chief executive of AidData. “So it was a big surprise for us when we realized that actually hundreds of billions of dollars were flowing into places like the US, the UK and Germany, right under our noses.”

AidData is a Virginia-based lab that specializes in tracking how governments spend their money across borders. It receives funding from governments and charities around the world. For the past 12 years, AidData has mainly focused on China.

A four-year effort involving 120 researchers led to the first known attempt to count all of China's state-backed investments worldwide. The group's entire dataset is available in open source format, although the BBC has been granted exclusive access in advance.

“The Chinese government controls interest rates and directs the direction of credit”

AidData's key finding: Since 2000, Beijing has spent $2.1 trillion outside its borders, with the sums split roughly equally between developing and rich countries.

“China has a 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 has the largest banking system in the world – bigger than the US, Europe and Japan combined, he adds.

This size, along with the level of control Beijing exercises over state-owned banks, gives it unique capabilities.

“The Chinese government controls interest rates and directs where credit goes,” says Mr Shih. “This is only possible with very strict capital controls, which no other country could sustainably have.”

Some of the investments in rich economies appear to have been made to generate a healthy return. Others are in line with Beijing's strategic goals set out under a government initiative called Made in China 2025.

Chinese authorities have unveiled a plan to dominate 10 leading industries, including robotics, electric vehicles and semiconductors

In this program, the Chinese authorities presented a clear plan to dominate 10 leading industries, such as robotics, electric vehicles and semiconductors, by this year.

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

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

“All kinds of plans are still being released,” he says, “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 set a goal of accelerating “high-level scientific and technological self-sufficiency and self-improvement” by 2030.

The new AidData database highlights state-supported spending abroad corresponding to 10 targeted sectors. Earlier BBC reporting detailed how the Chinese government financed the acquisition of a British semiconductor company.

The United States, the United Kingdom and many other major economies have tightened their investment vetting mechanisms after each country appears to have been caught off guard by deals such as the sale of insurer Wright USA.

AidData's Brad Parks says rich governments didn't initially realize that Chinese investment was part of Beijing's broader strategy.

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

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

“The Chinese government has always required Chinese enterprises operating abroad to strictly comply with local laws and regulations, and has consistently supported them in carrying out international cooperation based on mutual benefits,” 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.”

China's spending patterns are changing, the AidData database shows, with Beijing's state money flowing to countries that have decided to receive Chinese investment.

There has been debate in the Netherlands over Nexperia, a troubled Chinese-owned semiconductor company.

It also appears in the AidData database – Chinese state-owned banks lent $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 confirmed when Dutch authorities seized control of the company's operations in September – in part, the Dutch government said, because of concerns that Nexperia's technology was at risk of being transferred to other parts of the larger Wingtech company.

This bold move saw Nexperia effectively split in two – separating its Dutch operations from its Chinese manufacturing.

Nexperia confirmed to the BBC that its China division has ceased to operate under Nexperia's governance framework and is ignoring the instructions.

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

If China is so far ahead of its rivals in its plans to buy into sensitive sectors, does that mean the race to dominate these arenas is already over?

“No! There will be more turns,” claims Brad Parks. “There are many Chinese companies that are still trying to make these types of acquisitions. The difference is that they now face higher levels of scrutiny to check these sources of foreign capital inflow.”

“So China is no longer the country that does what others are doing, but the country that sets the tone. It sets the pace. But what I anticipate is that many countries in the G7 will move from the defensive to the offensive.”