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At least one Chinese company has already asked to bid on a Pentagon contract and analysts fear defence officials lack the tools to protect smaller companies down the security supply chain. They said the task was even more difficult now after the definition of national security interests was widened to include medical supplies during the pandemic.
What I am concerned about is nefarious merger and acquisition practices
Pentagon officials are now opening dialogues with other countries to discuss the their fears.
Defence department official Ellen Lord said: “We have to be very, very careful about the focused efforts some of our adversaries have to really undergo sort of economic warfare with us, which has been going on for some time.
“What I am concerned about is nefarious merger and acquisition practices.
“We have talked a lot with other nations, particularly in Europe, and we see a lot of shell companies coming in where the beneficial owner ends up being one of our adversaries.
“I’m particularly concerned about that.”
Washington’s Committee on Foreign Investment was set up to protect against hostile countries gaining ownership in companies with strategic importance to the US.
And a 2006 law banned US armed forces from using Chinese-made military equipment.
But the pandemic has changed the definition of national security concerns to include drugs, protective gear and medical supplies.
A US security source said: “We are paying close attention to any indicators that China is leveraging COVID-19 to take advantage of a situation where defense companies need capital more than ever.”
Former Pentagon procurement specialist Bill Greenwalt told CNN: “These are now national security needs and we probably should have been thinking about it a long time ago in terms of biowarfare that we should have a trusted industrial base or a set of trusted allies – the UK, or NATO allies or Japan or Korea – who are trusted in that regard.”
Chinese-owned firms dominate the market for protective gear and many drug components and already feature in the Pentagon’s medical supply chain.
A contract for pandemic medical supplies was won by a company that later approached a Chinese-owned firm as a possible subcontract partner.
Mr Greenwalt said the use of subcontractors made securing the Pentagon’s supply chain even more difficult as the original contractors often “don’t have a good handle on what their third or fourth level suppliers are using in their equipment”.
President Donald Trump’s trade adviser Peter Navarro has accused China of using the pandemic to advance its strategic interests.
Beijing responded by warning Mr Navarro to “stop playing his old trick of blame-shifting because it will only lead to greater self-inflicted humiliation and further expose his nature as a habitual liar”.
Concern in Washington has mostly focused on Chinese technology, where the risks include “espionage and harmful effects if these things don’t work.”
Mr Greenwalt said there was a renewed focus on supply chain security for the active ingredients in drugs and protective gear and Congress is now looking for ways to ensure the US is not dependent on China for either.
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He said: “Whether it’s a missile guidance component or a vaccine, the next issue is if you want to surge in this area and you’re dependent on a part from China and can’t surge.”
Mr Navarro told CNN that in the longer term, especially if Donald Trump wins this year’s election, the US will treat offshore supply chains as national security priorities rather than economic questions.
He said: “If we fail to do that in the face of this crisis, we will have failed this country and all future generations of Americans.”
Mr Trump acknowledged China’s supply chain dominance last month when he said: “The pandemic has underscored the crucial importance of building up America’s economic independence, restoring our critical supply chains.”
Secretary of State Mike Pompeo warned US allies again last week to “avoid economic over-reliance on China” and “guard their critical infrastructure” from the China’s influence.
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