A startling new report published this morning in the Wall Street Journal claims that China attempted to embed “a network of spies inside the Federal Reserve system” over the course of a decade.
According to an investigation by Republican staff members of the Senate’s Committee on Homeland Security and Governmental Affairs, Fed employees were offered contracts with Chinese talent recruitment programs over a ten-year period, frequently with cash payments, in exchange for information on the American economy and changes in interest rates.
As part of their efforts, the nation even threatened to detain a Fed economist who was traveling to Shanghai. According to the article, the economist was jailed in 2019. Although we are unsure of how “secret” Fed information is to begin with, WSJ writes that it is uncertain whether any “sensitive information was compromised.”
According to the inquiry conducted by Republicans, the Fed did not offer a sufficient defense. The report’s conclusions demonstrate “China’s consistent attempt over more than a decade to gain influence over the Federal Reserve and the Federal Reserve’s failure to effectively counter this danger.”
Fed Chairman Jerome Powell vehemently rejected the report’s conclusions and said that it unfairly characterized some staff. “Because we are aware that certain actors want to take advantage of any weaknesses, our procedures, controls, and technology are strong and routinely updated. Sen. Rob Portman of Ohio, the committee’s top Republican, received a letter from him stating, “We respectfully reject any assertions to the contrary.
China criticized the report, with a Chinese embassy spokesman in Washington citing the “Cold War zero-sum thinking” of some members of Congress. “The cooperation between China and the U.S. in economic, financial and other fields is open and aboveboard, which has played an important role in enhancing mutual understanding and mutual trust between the two countries,” said the spokesman, Liu Pengyu.
According to the report, the Fed inquiry identified 13 persons of interest who worked at eight out of the twelve regional Fed banks and were collectively known as the “P-Network.”
“Z,” a former employee of the Fed or one of its local banks, made an attempt to recruit members of the network. The report indicated that this individual kept relationships to talent acquisition initiatives supported by the Chinese government and “indicated a desire to continue an inside information exchange relationship” with Fed personnel.
In his letter to Mr. Portman, Mr. Powell said the Fed would be concerned about “any supportable allegation of wrongdoing, whatever the source. In contrast, we are deeply troubled by what we believe to be the report’s unfair, unsubstantiated, and unverified insinuations about particular staff members.”
In a response, Mr. Portman expressed his alarm over the Fed’s potential threat. He expressed the wish that the inquiry “awakens the Fed to the overall challenge that China poses to our monetary policy. The risk is obvious.
The Fed maintains connections with central banks all around the world, and many scholars inside the Fed system have held positions at colleges and central banks abroad. Many economists recognize the US central bank’s appeal on a global scale.
The congressional investigation cites a number of incidents involving “P-Network” persons, including one in which a person provided economic modeling code to a Chinese institution with connections to the People’s Bank of China, according to the study.
Another made at least two attempts to move sizable amounts of data from the Fed to an offsite location, according to the study. A request for nonpublic information on the opinions of three Fed bank presidents on rate rises had also previously been made to this individual by a person connected to the Chinese government, the report stated.
The most extreme example cited in the report involved the Fed economist who traveled to Shanghai in 2019 after the U.S. and China had levied tariffs on hundreds of billions of dollars of goods. Chinese officials detained the economist on four occasions during the trip, the report said. The economist, later in his report to the Fed, said that the Chinese government approached him multiple times on his trip, even ‘detaining’ him in his hotel room with multiple bodies in an effort to scare him. The Chinese officials told the Fed employee that he must “share sensitive, nonpublic economic data to which he has access” and that he must “advise senior [Chinese] government officials on sensitive economic issues, including trade tariffs” and confidential information, according to the report. The officials also threatened to ‘imprison him and destroy his life if he didn’t sign a letter promising not to mention the encounters to his family’, the report said.
So far, the FBI and the State Department has not commented or replied to the WSJ.
