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Did U.S. Firms Help Propel China’s Balloon Fleet?

February 24, 2023

Sen. Mark Kelly, who previously served as a decorated space shuttle pilot with NASA, waded into the Chinese spy balloon uproar early this week after keeping publicly mum about it for several weeks.

The Arizona Democrat said it makes no sense for the U.S. military to launch expensive missiles at weather balloons or other benign floating objects. Kelly was referring to a heat-seeking, air-to-air missile used in recent weeks to shoot down several high-flying aerial objects that the administration later suggested likely didn’t pose a threat. Earlier in the month, a U.S. Air Force F-22 shot down a Chinese surveillance balloon after it breached American airspace and floated across the country, setting off a firestorm in Washington.

Kelly, who is set to be inducted into the U.S. Astronauts Hall of Fame in May, says he’s working on legislation that would require weather balloons to carry transponders that would communicate with air traffic control systems to separate research balloons from mysterious objects.

“It would really help the Defense Department to be able to sort out what is civilian science payload, what’s a weather balloon, what’s a NASA balloon, what’s a private company in the United States doing, what might be even a U.S. military,” Kelly, who was tapped to chair a Senate Armed Services subcommittee amid the balloon controversy, told the Associated Press.

Sen. John Tester, a Montana Democrat who is heading up the investigation into how a Chinese surveillance balloon was allowed to pass over crucial U.S. missile sites, including some in his state, was more forceful.

“We’re going to get to the bottom of what happened and make sure we have a plan going forward to detect and then find out what potential problems this balloon may have caused,” Tester told Fox News.

China’s high-altitude spy balloon controversy appears to have taken most Washington lawmakers and the intelligence community by surprise, but it really shouldn’t have. China’s interest in these stratospheric dirigibles has been an open secret for nearly a decade.

Kelly himself has first-hand knowledge of China’s investments in near-space balloon technology. The Arizona senator co-founded a balloon space-exploration company named World View in 2012. Just two years later, he helped facilitate investments for the firm from Chinese tech giant Tencent, RealClearPolitics reported in 2020. Kelly’s eldest daughter, Claudia Kelly, served as World View’s business opportunity manager from 2016 to 2019, according to her LinkedIn profile.

Tencent is one of the world’s largest Internet enterprises and owns the popular social media platform WeChat, a texting application with more than one billion users worldwide.

In recent years Tencent has faced international bans and scrutiny over its practice of monitoring the activity of its users inside and outside China and for the Chinese government’s use of the data as a key component in its mass surveillance and persecution of the Uyghur population and other minorities, as well as dissidents – even those who have escaped China.

In 2020, President Trump issued an executive order banning it and the popular social media app TikTok in the United States. But a U.S. district court judge issued an injunction blocking the order several months later. President Biden withdrew the order in 2021, while directing the Commerce Department to investigate foreign influence enacted through the apps.

To be fair to Kelly and his role in facilitating the Tencent investment in World View, in 2014, WeChat’s surveillance applications in China were either not widely known or weren’t yet fully instituted.

When the Tucson-based company was first launched, it focused on space tourism with plans to charge $75,000 per commercial passenger on flights to near outer space in a capsule attached to a giant helium balloon. By 2015, the company shifted to contracting with NASA and the Department of Defense to use the balloon, known as a stratollite, to carry unmanned payloads for extended periods and provide imagery of the earth with a resolution sharp to five centimeters, far better than satellites can offer.

Kelly served as a strategic adviser to World View until launching his senate campaign in 2019. According to his 2019-2021 financial disclosure report and amendments filed with the Senate as required, he maintained a $100,000-$250,000 financial stake in the company.

It’s unknown how much the stock is worth now – or whether Kelly still owns it. After this investment and others drew scrutiny in his Senate campaign, in 2021 Kelly moved his assets to a blind trust, a formal arrangement in which lawmakers officially transfer management of their financial assets to an independent trustee to oversee.

Kelly has at least one other tie to Tencent. His 2020 Senate campaign accepted $5,000 from David Wallerstein, Tencent’s chief exploration officer, responsible for the company’s operations outside mainland China and business initiatives with multinational partners.

Neither Kelly nor World View has disclosed the total amount of investments the company received from Tencent. In the fall of 2014, Jane Poynter, the then-CEO of World View Enterprises, announced during a visit to Beijing that Tencent had invested an undisclosed sum in the venture. In April 2016, as part of a subsequent $15 million investment round, World View announced that it had received more funds from Tencent and three other venture capital firms.

Chinese news reports from November 2014 quoting Poynter show that Kelly was instrumental in securing the first Tencent investment. In an article in the Oriental Morning Post, translated from Mandarin, Poynter is quoted as saying that a “Tencent American leader named David met Mark Kelly, a space pilot of our team.”

“After Mark introduced him to space travel technology, David was very interested and willing to invest at this stage,” she added. “When I choose a partner, I value the contribution this partner can bring to the project, and Tencent can push our cooperation to China. I think it is very important.”

Back in 2020, the company did not respond to several RCP requests to clarify Poynter’s statements about Kelly’s role in facilitating the Tencent investments and what Poynter meant when she touted Tencent’s ability to “push our cooperation to China.”

Another article in English-language newspaper China Daily elaborated on how Tencent became involved in World View. Poynter told the paper that Wallerstein “has already met with one of World View’s pilots and exchanged ideas on future technology and that she considered the passion and contribution that Tencent could give to the project of “huge significance to her operation.”

Jacob Peters, who served as a Kelly campaign spokesman, in an email exchange with RCP in 2020, confirmed that Kelly was a World View co-founder and that “in the early stages, he spoke to many people about his experiences as a pilot and astronaut.”

He argued that Tencent has “no influence in the company’s day-to-day business” and referred questions about the company’s future to World View.

Peters touted World View’s work with the Department of Defense and NASA and its role in creating jobs and generating millions for Arizona’s economy.

He didn’t mention, however, that World View never reached its job-creation goals, promised as part of a deal to allow the company to lease a $15 million county facility for no upfront costs. It also experienced several setbacks in its early years, including an explosion of a stratospheric balloon during ground testing in 2019 that caused more than $475,000 in damages to the company’s county-owned building, and ceiling tiles to fall on employees at a Raytheon missile storage facility near the property.

No one from Kelly’s Senate office, including Peters, his press secretary, responded to several email inquiries from RCP over the last week. World View’s press office also didn’t respond to several inquiries.

From 2014 to 2016, when World View was a new start-up company, U.S.-China relations were far less acrimonious than they are now. However, there were still grave intelligence concerns about their government’s theft of U.S. intellectual property and outright hacking of U.S. government agencies and private companies.

For more than a decade U.S. law has barred American astronauts from working with China in space due to security concerns. In 2012, National Security Agency Director Keith Alexander said China’s cyber espionage of U.S. intellectual property constituted the “greatest transfer of wealth in history.” And in 2014 and 2015, the U.S. formally blamed China for hacking into the Office of Personnel Management, compromising the personal data of hundreds of thousands of federal workers, including all who had applied for top secret clearances.

In his blind trust filings with the Senate, Kelly also reported having a $100,001-$250,000 stake in Boom Technology, a high-speed aircraft company in Colorado that partnered with a Chinese based travel company to help “bring supersonic flight to China.”

World View executives have repeatedly denied sharing any technology information with Tencent. But the near-space travel business model was something the company openly marketed, and Chinese companies apparently were eager to copy it.

In 2016, the same year of TenCent’s second investment in World View, a Chinese company, Kuang-Chi Science, poured a whopping $1.5 billion into a space balloon tourism business. ArsTechnica, a website covering news and opinions about technology and science, reported that the Kuang-Chi operations “appears to be similar to that of an American company, World View Enterprises.”

Citing the Chinese company’s website and a China Daily report, ArsTechnica said human flights would reach an altitude of 24 kilometers (about 15 miles) and “then cruise for two to three hours before a controlled descent.”

“If this experience sounds a bit familiar, that’s because it seems modeled after that of Tucson, Arizona-based World View, which plans to fly six passengers in a pressured cabin to an altitude of 30km,” the website noted.

When RCP reached out to World View in 2020, Ashley Smith, a company spokeswoman, downplayed Tencent’s level of investment, calling the Chinese company “an early investor” that now maintains “less than 5% in common stock.”

“They do not have a seat on the board, means of control, or any access to inside information about the company or its technology,” she told RCP at the time.

Since World View shifted its focus to the unmanned stratollites for Earth observation, which have defense applications, Smith said, “World View has not taken foreign investment and has reported all foreign interest and its entire ownership structure to the Defense Counterintelligence Security Agency (DCSA) to obtain security and facility clearance.”

The DCSA “has concluded that foreign interests do not have any influence, control, or authority over World View,” Smith added.

However, when RCP contacted DCSA directly to verify that it had given World View its seal of approval, the DCSA Office of Communications and Congressional Affairs denied that it had offered a clearance for World View.

The agency told RCP in an email that in January 2020, it had suspended the process to grant World View a clearance for defense work, though it would not disclose the “internal deliberations” or “specific communications” that led to the decision.

The international uproar over China’s spy balloon comes at a sensitive time for World View. In January, the company announced plans to go public in a merger with special-purpose acquisition company Leo Holdings, a deal worth $350 million. It’s expected to close in the second quarter of this year.

Last November, World View also announced a partnership with Sierra Nevada Corp, an American aerospace and national security contractor, to jointly operate balloons for defense “intelligence, surveillance, and reconnaissance.”

Over the last several years, plenty of U.S. China experts have been warning about Chinese investment in the U.S. space industry. A 2018 article in The Hill newspaper said China was increasingly investing in U.S. space industry start-ups, including the one in World View, even as it increased its cyberattacks on U.S. technology companies. The article noted that the Justice Department had charged Chinese hackers with stealing data from 45 technology companies and government agencies, including NASA. It also highlighted a decision by Boeing to cancel a satellite order with Global IP, a Los Angeles-based start-up, following a Wall Street Journal investigation that shed light on a $200 million investment by a Chinese company into the startup.

In 2021, the U.S. intelligence community in a Global Risk Assessment report warned that China was working to weaponize space and gain a strategic edge in operations “integral to potential military campaigns by the [People’s Liberation Army].”

Since the China spy balloon controversy rattled Washington earlier this month, U.S. intelligence sources have confirmed that China’s balloon fleet is part of a broader effort to beat the U.S. on a new near-space battlefield.

Brendan Mulvaney, the director of the China Aerospace Institute, a research center serving the U.S. Air Force, told RCP that China has gone to great lengths to build up its technological high-flying balloon capabilities – some quite publicly.

“I remind people that not only does China steal technology, but they are more than willing to legally purchase it, invest in it, hire people, etc., whenever possible,” he said in an email. “Without knowing the exact details, it’s hard to say how this [near-space balloon technology] information was transferred, but we can say for sure that this and other technology is making its way to China.”

Yet, if U.S. intelligence knew about the coming threat, why didn’t it prevent Chinese investments in U.S. space exploration companies?

The Committee on Foreign Investments in the U.S. is designed to monitor and prevent U.S. adversaries’ influence on U.S. companies that could be detrimental to national security. But the agency usually focuses on mergers and doesn’t prevent smaller start-up investments from Chinese companies, experts told RCP.

In recent years, U.S. agencies have instituted several safeguards to monitor foreign investment and restrict the flow of high-tech exports to China and other adversaries. The Treasury and Commerce Departments also have slapped sanctions on Chinese companies widely known for their surveillance products.

In early February, the U.S. Department of Commerce’s Bureau of Industry and Security added six Chinese companies linked to People’s Liberation Army aerospace programs to a sanctions blacklist for being a “national security threat” as a result of the tension between Washington and Beijing over the incursion of a hot air balloon in U.S. airspace.

As a result, the six Chinese companies are prohibited from obtaining U.S. goods and technologies without prior authorization or a license from the U.S. Government. 

Amy Mitchell, a former senior official at the Departments of State and Defense, said the U.S. government could do far better than this scattershot approach with its Chinese sanctions. Instead, lawmakers should be establishing some across-the-board prohibitions for Chinese investments and U.S. exports, she said.

“It can be some decoupling of the very problematic companies, it can be additional sanctions – there are multiple ways to do this,” Mitchell told RCP. “But what we are doing right now is like whack-a-mole. We don’t have one kind of comprehensive approach to this issue, and the first step is closing the loopholes in the current system that the CCP is exploiting.”

Others urge a more cautious approach. Matt Turpin, a visiting fellow at Stanford’s Hoover Institution who served on the National Security Council during the Trump administration, warns against going too far in arbitrarily passing punitive laws aimed at China that could weaken U.S. competitiveness.

In a capitalist system, arbitrarily changing private investment rules will “disadvantage the companies in the long term,” Turpin said. “So, we want to be certain about where to draw the lines.”

On the flip side, Chinese companies – even those closely affiliated with PLA and some that the U.S. has sanctioned – are increasingly funded by U.S. investors. Many China companies also are listed on U.S. stock exchanges.

“We need to plug the holes,” Mitchell said. “We have to come up with a formula that protects our national security, and for some reason, we're just not doing it.”

According to the 2021 Annual Report to Congress of the U.S.-China Economic and Security Review Commission, U.S. holdings of Chinese equity and debt securities have risen by 57.5% since 2017 to $1.2 trillion total.

Many Republicans want to force these Chinese companies to give up their listings on Wall Street if they refuse to open their books to U.S. accounting regulators. New laws could also bar them from raising money from American investors.

A Senate bill, sponsored by Sens. Todd Young and Mike Braun of Indiana and Marco Rubio of Florida, would prohibit investments in Chinese companies and entities reasonably believed to be involved in activities contrary to the national security or foreign policy interests of the United States. Rep. Mike Gallagher, who chairs the new House China Select Committee, plans to introduce a House version of the bill.

Gordan Chang, a Chinese American lawyer who lived and worked in Hong Kong for two decades, says Americans need to step out of their comfort zone and do far more to confront the growing national security and economic threat from China.

“China has a doctrine of civil-military fusion, which means that the Chinese military has access to everything that every Chinese company or university or research institution has gained,” he said. “So, if we ignore those differences between the U.S. and China, we are effectively allowing the Chinese to pillage the United States.”

“It’s a very simple question: If we want to survive, we’re going to have to take measures that once were considered to be extreme” against China.

This article was originally published by RealClearPolitics and made available via RealClearWire.

Susan Crabtree is RealClearPolitics' White House/national political correspondent.

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