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Peter Kenilorea Jr. was scrolling through Facebook one afternoon in September 2019 when he came across a photo that caught his attention. It was a snapshot of an agreement between a provincial governor in the Solomon Islands, where Kenilorea lived, and executives from a company called China Sam Enterprise Group. The agreement appeared to grant the Chinese conglomerate exclusive development rights to Tulagi, one of the Solomon Islands, for at least 75 years.
It was a leak, and an alarming piece of news for Kenilorea. Despite serving as the deputy opposition leader in the Solomon Islands parliament and chairman of its foreign relations committee, he knew nothing about the deal. When Kenilorea began commenting on the photo on Facebook, the original poster sent him a private message that included the full text of the agreement. The more Kenilorea read, the more he found troubling: the agreement was vague in detail and expansive in scope. It offered the Sam Group unusually preferential treatment, including the ability to procure exclusive development rights in the Solomon Islands without going through the legally mandated process of registering as a foreign investor.
“They were talking about economic development and special zones being created,” Kenilorea says. “And just having the run of the place. It was pretty open ended in terms of what they’d be able to do.”
Located just northeast of Australia, in Oceania, the Solomon Islands offered crucial military bases throughout the 20th century for, in turn, the British, Japanese and American navies. Tulagi in particular, with its central location and natural deep-water harbor, has long been a strategic prize for nations with aspirations for dominance in the Pacific. In World War II, the Allied campaign to wrest control of Tulagi from the Imperial Japanese Navy was so bloody and costly that the stretch of ocean south of the island was renamed Ironbottom Sound in honor of the dozens of planes and ships lost in the battle. “It’s always attracted attention,” Kenilorea says of Tulagi. “The strategic importance of that piece of land is quite clear.”
Just a few days before news of the Sam Group deal for Tulagi broke on Facebook, China scored another geopolitical victory when the Solomon Islands switched official diplomatic recognition to the People’s Republic of China after 36 years of relations with Taiwan. The Solomon Islands government also signed onto China’s Belt and Road Initiative, which promised major investment and infrastructure. Now it seemed that Sam Group was poised to stake a claim.
But on whose behalf, exactly, Sam Group was staking that claim was far from clear. On its website, the conglomerate touts a close alliance with the state. Most concerning for Kenilorea was a subsidiary that had originally been founded by the Ministry of Public Security, through which Sam Group serves as a high-level security contractor for the Chinese Community Party. The conglomerate’s apparent obscurity was even more vexing: an article announcing the deal in the local Island Sun News described Sam Group as “one of the largest companies in China”; another local news outlet said that the company was “one of China’s top hi-tech investors.” Yet Sam Group had virtually no public profile and no track record of significant overseas projects.
“There are a lot of companies we’re really familiar with,” says Claire Chu, a senior analyst at RWR Advisory Group, a consulting firm that tracks Chinese overseas investment and later issued a report on the company. “None of us had heard of Sam Group before. It didn’t sound like a normal company — it wasn’t on anyone’s radar.”
As Kenilorea grew more suspicious, the Solomon Islands’ prime minister, Manasseh Sogavare, forged ahead. In early October, in the first official visit under the new diplomatic ties, Sogavare traveled to Beijing, where he signed five memorandums of understanding with the Chinese government. Kenilorea asked for copies of these agreements to be made available to the Parliament, but Sogavare refused. Soon after, Sam Group posted photos of company executives meeting with Sogavare during his trip to China. Domestic opposition was already building when, in mid-October, The New York Times broke news of the secret agreement to an international audience.
The story precipitated a backlash, and forced the government to reckon with public hostility. Soon, the office of the attorney general of the Solomon Islands stepped in to scuttle the deal. The agreement, signed without federal government vetting, was “unlawful, unenforceable and must be terminated with immediate effect,” the attorney general said. Even the provincial governor who had signed the agreement appeared to take it back. “Leasing Tulagi will not be possible,” he said. “Nothing will eventuate.”
Yet the nixed deal offered a rare window into how Chinese companies like Sam Group work in tandem with, and sometimes on behalf of, Beijing. Indeed, despite the audacity of its efforts and the bungled execution, Sam Group is emblematic of a little understood class of companies that increasingly define the Chinese economy, especially when it reaches outside China, into places like the Solomon Islands.
There has to be some way of peeling back the curtain on these firms… At a certain point, if there isn’t a way to understand ownership, we’ll just have to not allow those companies access at least to Western economies.
Longtime American diplomat in the region
Existing in a murky space between private and public, these companies seem to prioritize advancing the Chinese government’s interests just as highly as they do earning a profit. With the globe-spanning Belt and Road Initiative pushing ahead, the companies are increasingly woven into projects with potential strategic implications, like the proposed development of Tulagi. In the process, they are raising uncomfortable questions about the international expansion of China’s model of Party-state capitalism — questions that confound long established norms in the global economic framework, and which Western policymakers have hardly begun to understand, much less grapple with.
“There has to be some way of peeling back the curtain on these firms,” said one longtime American diplomat in the region. “I think of it as the conversation over listing on U.S. exchanges: at a certain point, if there isn’t a way to understand ownership, we’ll just have to not allow those companies access at least to Western economies.”
The haziness of this class of companies makes it hard to know if Sam Group is truly, as it claims, one of the biggest or most important conglomerates in China — or if the botched deal in the Solomon Islands simply made it, for a short time, the most visible and controversial.
“Somebody leaked it,” Kenilorea says, referring to details of the Sam deal. “And thank God they did, because without that I’m sure it would’ve been signed, and we wouldn’t even know about it.”
THE MYSTERIOUS SAM GROUP
If Kenilorea was looking for red flags in the Sam Group’s corporate profile, they would have been easy to find: by its own proud admission, the Sam Group is a Beijing-based company with ties to the People’s Liberation Army, the People’s Armed Police, and a trading company that ships weapons around the world on behalf of the Chinese government.
The Sam Group, for instance, has a subsidiary called China Jing An, which has longstanding ties to China Jing An Import and Export, a “state-owned military trading corporation” that operates with the approval of China’s State Council and the Central Military Commission.1The two companies still share the same address in Beijing. The trading firm exports pistols, rifles, machine guns, mortars, police and riot gear, drones and counter-terrorism equipment to more than 100 countries. 2See their online video, in English here 3Among the company’s overseas clients is an American firm in Tennessee, which received a shipment containing more than seven and a half tons of shotguns last November. Meanwhile, the Sam Group’s subsidiary, also called Jing An, provides private security services for Chinese embassies and consulates, Chinese officials traveling abroad and foreign dignitaries visiting China.4Records for the two Jing An companies show that both grew out of the Ministry of Public Security in Beijing and are located at the same address. But a recent restructuring, in 2017, obscures the ownership details. China Jing An Import and Export Corporation traces to Hong Kong and lists an individual, Liu Song, holding shares. In its own report, RWR said that China Jing An Import and Export is part of the Sam Group. We could not confirm that definitively but can only determine that it has had some affiliation with Sam Group through the security and police firm China Jing An.
The Sam Group’s security arm, though, is just one piece of a sprawling $9 billion conglomerate that also boasts energy exploration and chemical production assets, tourism ventures, an infrastructure and agricultural business, and Sam Film, which produces propaganda films extolling the virtues of the Party. Sam Group also holds investments in Canada, Australia, and Mongolia, a substantial stake in a publicly traded company called SinoEnergy, and alliances with powerful state-owned enterprises such as the AVIC Corporation and China Xinxing, a military firm with ties to the PLA.
Though privately-held, the company’s promotional material is peppered with government slogans, like: “Sam Group will continue to adhere to the leadership of the Party and take the Xi Jinping thought of socialism with Chinese characteristics for a new era as the guidance to practice the purpose of development that is ‘the leadership of the Party, group development, employee growth and social harmony.’ ”5On the conglomerate’s website, the Sam Group bills itself as “Party Led,” with an active Party cell that organizes lectures, study sessions, and work projects for employees.
And yet who ultimately controls this corporate colossus remains a mystery. The company traces its roots to a state-owned enterprise called China Electronic Materials Xiamen Company that was founded in 1985, but in the years since there has been a constant reshuffling of the entity’s name, shareholders and business focus. The conglomerate settled into its current structure in 2015 under the name China Morita, before adopting the name Sam Group in 2019.
Corporate records show that the conglomerate’s ultimate beneficiaries are a woman named Xue Dongping, who owns 91 percent of the company, and her daughter, Guo Siying, who owns 9 percent.6Together Xue and Guo control about 102 companies, according to corporate filings. Though neither woman has much of a public profile, Xue seems to have worked in Fujian real estate while Guo, a 2014 graduate of the University of Leicester in the UK, currently works at a subsidiary of the China Communications Construction Company, a massive state-owned firm.7Last August, CCCC was placed on the U.S. Entity List by the U.S. government, which sanctioned the firm for working with the Chinese military to “construct and militarize the internationally condemned artificial islands in the South China Sea.” Experts say it is doubtful that two private individuals, with no apparent expertise in government affairs, could own or control a huge firm that works with the Chinese military and provides security to the state.
The background of the Sam Group chairman, Jiao Qisen, is no less puzzling. A Communist Party member, Jiao, 39, studied in Beijing and the Philippines, earning two doctoral degrees in business management and psychology. With a professional background in private equity, Jiao makes for an unlikely choice to run a company in the petrochemical and private security business for the state.
The Wire tried and failed to reach representatives of the Sam Group for comment.
Public filings show that the Sam Group expanded rapidly after 2015, partly by acquiring huge state assets. Alongside the weapons exporter and private security contractor China Jing An, Sam Group also acquired China Chemical New Materials,8Sam Group sold this stake back to the state in Sept. 2020 a massive state-backed firm with ties to China’s defense industry.9Jiao’s leadership of the chemical company resulted in party and political sanctions when an explosion at a production facility in November 2018 left twenty-four people dead.
The difficulty in making sense of the Sam Group goes beyond its leadership. Privately held but tied to the state, both formally and informally, Sam Group represents a new breed of Chinese corporation that exists on both sides of the old state-private divide, and thereby positioned to benefit from whichever approach might give it an advantage in the global marketplace. Chang-Tai Hsieh, who teaches at the University of Chicago’s Booth School of Business and studies Chinese firms, says the motive behind some of the deals made by these types of corporations is not simply making a profit but also building relationships with the Party-state. “It’s basically what you call strategic partners or investors or protective umbrellas,” he says. “They’re trying to build up powerful patrons so they can do what they want to do.”
The Sam Group’s move on Tulagi marked its boldest alignment yet with the Chinese state. It was also shaping up to be lucrative. A few weeks after the Solomon Islands deal, the company signed a “strategic cooperation” agreement with a subsidiary of the state-run China Railway Construction Corporation. The agreement said the new partners were to “carry out multiple developments in investment, infrastructure, trade, communications, security and other fields in China and overseas countries, such as the Solomon Islands.”
Sam Group’s strategy, in other words, seemed to be working. As a politically-connected private firm, the company had the clout to bring in major Chinese state firms, which would likely mean low-cost government financing for the planned development of Tulagi. At the same time, to the outside world, it could be made to appear that a private firm was making a large and much-needed investment in the impoverished Solomon Islands to build tourism properties, a fishery base, oil and gas developments and a liquified natural gas terminal. The ambiguity of Chinese state involvement gave both Sam Group and officials in the Solomon Islands room to maneuver.
“Unofficial alignment or adjacency to the CCP is like an amoeba on a whale,” says Jude Blanchette, the Freeman Chair in China Studies at the Center for Strategic and International Studies in Washington and an authority on Chinese state capitalism. “It is where you find most of your food.”
GREAT POWER COMPETITION
On Oct. 9, 2019, Prime Minister Manasseh Sogavare arrived in Beijing for the first official diplomatic exchange between the People’s Republic of China and the Solomon Islands. Sogavare was feted lavishly, in a style befitting Beijing’s newest ally: together with Prime Minister Li Keqiang, Sogavare strolled the red carpet outside the Great Hall of the People, reviewing a People’s Liberation Army honor guard before continuing inside for a round of talks with Chinese officials. Later, at the Diaoyutai State Guesthouse, Sogavare met with President Xi Jinping.
The Solomon Islands, with 650,000 residents and an economy that is smaller than most mid-sized American cities, would hardly seem to represent a plum geopolitical prize. But Washington took notice. While the Trump administration weighed issuing a statement, Senator Marco Rubio, the Florida Republican, took to Twitter with an angry tweet, saying he would “begin exploring ways to cut off ties with #SolomonIslands including potentially ending financial assistance & restricting access to U.S. dollars & banking.”
Washington and its allies viewed Beijing’s victory in the Solomon Islands as part of the new great power competition, according to former American diplomats. While the U.S. embraced “America First” policies under President Trump and withdrew from the Paris Agreement on climate change, Beijing sent its companies overseas and promised investments and infrastructure projects as part of its ambitious Belt and Road Initiative.
Meanwhile, both nations have moved to strengthen alliances in the region, including actively courting Pacific island nations. China has dispatched its PLA hospital ship, the “Peace Ark,” to offer medical assistance in the region. And last August, U.S. Defense Secretary Mark Esper visited the tiny island nation of Palau in a move seen as an effort to shore up America’s interests in the Indo-Pacific.10See the State Department Indo-Pacific strategy paper here.
Daniel R. Russel, a career State Department official who helped develop policy for the Obama administration’s “pivot” to Asia before leaving government in 2017, says that even when Chinese firms make ostensibly commercial deals, it’s hard not to weigh the strategic and military implications given that Chinese firms are often considered an extension of the Party-state.
“The Chinese know they are not going to neutralize U.S. naval power in the Pacific,” Russel says. “But they do want to make it harder for the U.S. to operate in the Pacific. And so it’s no surprise that Beijing encourages companies to go forth and do business in parts of the world that they value strategically.”
The West and China plus Japan are all in this global competition for access to places that are going to be important in the future.
Derek Grossman, a senior defense analyst at think tank RAND
The Solomon Islands are no different. When the country was weighing whether to recognize Beijing rather than Taipei, it set up a task force to study the issue and arranged for members to visit other Pacific islands, as well as Beijing. Soon after, Chinese state firms arrived on the islands bearing gifts. The China Railway Group, for instance, offered to lend the nation $825 million to help reopen a defunct gold mine. Beijing also agreed to help finance a new 12,000 seat sports stadium. And last February, Reuters reported that the Honiara government was seeking a $100 billion loan from “Chinese interests” — a loan, provided by “confidential donors,” that the Sam Group offered to broker.
In geopolitics, size matters, but so does location. Andrew Erickson, an expert on China who advises on strategy and teaches at the U.S. Naval War College, says the combined landmass of the Pacific islands is minuscule in a region where the Pacific covers 64 million square miles but it offers a valuable foothold to a rising power. In that context, even tiny islands are viewed as valuable to China, which is building a blue water navy and seeking to project power throughout the Pacific.
“Whether or not history rhymes, geography certainly endures,” Erickson says. “Long after World War II, the Solomons remain one of the Pacific’s limited number of island groups, and Tulagi one of its few natural deep water harbors.”
But is this what the Sam Group was really after in Tulagi? It’s unclear, experts say, because so little is known about the company, its owners or corporate track record. In some ways, the company resembles two other politically-connected private firms that went overseas in the past decade: CEFC, China’s largest private oil firm, which allied with the state and made forays into the U.S. and the Czech Republic, and Chinese billionaire Wang Jing’s HKND Group, which in 2013 signed a 50-year deal to build and operate a canal in Nicaragua.11Ye Jianming, the head of CEFC, was later detained on corruption charges. CEFC is also the firm that tried to work with Hunter Biden, the son of Joe Biden. See David Barboza’s article in The New York Times here.
China, in other words, is likely pursuing commercial and security interests simultaneously, viewing business and investment deals as crucial to building relationships in the region and positioning Beijing to meet longer term strategic goals. It’s an area of diplomacy in which the U.S. was once dominant, but now finds itself playing catch up, especially in the Pacific.
“The West and China plus Japan are all in this global competition for access to places that are going to be important in the future,” says Derek Grossman, a senior defense analyst at the Rand Corporation. “And for China, the Belt and Road Initiative is a way to ingratiate themselves with the local government. And down the road, if anything goes into debt, then maybe they can eventually be positioned to turn it into a military base.”
Sam Group, meanwhile, has been hunting for new frontiers of expansion, both domestically and abroad. The same day that the company signed the cooperation agreement with the China Railway Seventeenth Bureau Group, its executives also met in China with a Jamaican delegation to discuss investment opportunities in Jamaica’s special economic zones. Coming so soon after the nixed deal for Tulagi, the news prompted the Chinese government to try to dispel some of the confusion over Sam Group’s background.
“I wish to make it clear that this is a private company and it has nothing to do with Chinese government,” Wang Xuefeng, China’s special envoy for the China-Pacific Islands Forum Dialogue, said. Then he added a clarification: “Which means it is not a state-owned company.” Left unanswered was what, exactly, Sam Group is.
Editor’s note: An earlier version of this article stated that China Jing An and China Jing An Import & Export were a single company. That assertion was made because the companies share the same address and the same historical parent, the Ministry of Public Security. The corporate records, though, are inconclusive, incomplete and are now partly obscured offshore. What is clear is that they grew up together and are affiliated entities. This article has been updated to reflect the change.
Alex W. Palmer is a writer based in Washington, D.C. His work has appeared in The New York Times Magazine, GQ, WIRED, and other publications.