Hearings
Hearing Type:
Open
Date & Time:
Wednesday, May 11, 2022 - 2:30pm
Location:
Hart 216
Witnesses
Full Transcript
[Senate Hearing 117-305]
[From the U.S. Government Publishing Office]
S. Hrg. 117-305
COUNTERING THE PEOPLE'S
REPUBLIC OF CHINA'S ECONOMIC
AND TECHNOLOGICAL PLAN FOR DOMINANCE
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HEARING
BEFORE THE
SELECT COMMITTEE ON INTELLIGENCE
OF THE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
MAY 11, 2022
__________
Printed for the use of the Select Committee on Intelligence
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-983 PDF WASHINGTON : 2022
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SELECT COMMITTEE ON INTELLIGENCE
[Established by S. Res. 400, 94th Cong., 2d Sess.]
MARK R. WARNER, Virginia, Chairman
MARCO RUBIO, Florida, Vice Chairman
DIANNE FEINSTEIN, California RICHARD BURR, North Carolina
RON WYDEN, Oregon JAMES E. RISCH, Idaho
MARTIN HEINRICH, New Mexico SUSAN COLLINS, Maine
ANGUS KING, Maine ROY BLUNT, Missouri
MICHAEL F. BENNET, Colorado TOM COTTON, Arkansas
BOB CASEY, Pennsylvania JOHN CORNYN, Texas
KIRSTEN E. GILLIBRAND, New York BEN SASSE, Nebraska
CHUCK SCHUMER, New York, Ex Officio
MITCH McCONNELL, Kentucky, Ex Officio
JACK REED, Rhode Island, Ex Officio
JAMES INHOFE, Oklahoma, Ex Officio
----------
Michael Casey, Staff Director
Brian Walsh, Minority Staff Director
Kelsey Stroud Bailey, Chief Clerk
C O N T E N T S
----------
MAY 11, 2022
OPENING STATEMENTS
Page
Warner, Hon. Mark R., a U.S. Senator from Virginia............... 1
Rubio, Hon. Marco, a U.S. Senator from Florida................... 3
WITNESSES
Mulvenon, James, Ph.D., Senior China Analyst..................... 5
Prepared statement........................................... 7
Murdick, Dewey, Ph.D., Director, Georgetown University, Center
for Security and Emerging Technology (CSET).................... 13
Prepared statement........................................... 15
Nikakhtar, Hon. Nazak, Partner, Wiley Rein LLP; Former Assistant
Secretary for Industry and Analysis, U.S. Department of
Commerce....................................................... 23
Prepared statement........................................... 25
Prepared statement dated July 30, 2020 before the Senate
Committee on Commerce, Science and Transportation.......... 61
COUNTERING THE PEOPLE'S
REPUBLIC OF CHINA'S
ECONOMIC AND TECHNOLOGICAL
PLAN FOR DOMINANCE
----------
WEDNESDAY, MAY 11, 2022
U.S. Senate,
Select Committee on Intelligence,
Washington, DC.
The Committee met, pursuant to notice, at 2:52 p.m., in
Room SH-216, Hart Senate Office Building, Hon. Mark R. Warner
(Chairman of the Committee) presiding.
Present: Senators Warner, Rubio, Feinstein, Wyden,
Heinrich, King, Bennet, Casey, Gillibrand, Collins, Blunt,
Cotton, Cornyn, and Sasse.
OPENING STATEMENT OF HON. MARK R. WARNER, A U.S. SENATOR FROM
VIRGINIA
Chairman Warner. Good afternoon. I call this hearing to
order.
Welcome to our witnesses.
As I've explained, there are a couple of fairly significant
votes this afternoon, so there will be some moving in and out.
But again, to our witnesses, Dr. James Mulvenon, Senior
China Analyst; Dr. Dewey Murdick, Director of Georgetown
University's Center for Security and Emerging Technology; and
Hon. Nazak Nikakhtar, a partner at Wiley Rein and Former
Assistant Secretary for Industry and Analysis at the Department
of Commerce.
I would start by saying that the Intelligence Committee
doesn't actually have that many open hearings, if today's
attendance is any indication of why we don't. But the truth is,
on this the Vice Chairman and I believe it's really important
not just, obviously, for the people who are here but to do this
in a public setting to make sure that we are fully aware of the
challenges we face from the People's Republic of China, because
the nature of this challenge extends far beyond the
intelligence and military spheres.
Let me be clear at the outset. When I talk about China, my
beef is with the Communist Party of China. It is with Xi
Jinping and their authoritarian order. It is not with the
Chinese people or in any way the Chinese diaspora, particularly
in terms of Chinese-Americans who've made great contributions
to our country.
But the PRC poses, I believe, a unique challenge to the
United States. Not only United States, but the whole so-called
Western liberal international order. No other state actor in
recent history has been able to compete with both the West
diplomatically, militarily, and now economically, particularly
in our subject today, in technology, at the scale that China
can. And that's why for several years now this Committee, on a
bipartisan basis, has focused on the technological and economic
challenges posed by the PRC. But as strong as we are in this
country, we can't do this alone. We need our allies. We also
need the American public, including the private sector and our
academic institutions and our media outlets to better
understand the Chinese Communist Party's efforts to overtake
and lead on particularly critical technologies, and the global
implications if the PRC is able to do that--of what that would
mean for the United States and others if we ceded that
territory.
That's why in addition to these open hearings, we also have
on a bipartisan basis, again, been hosting what we've called
classified roadshows with intelligence, community leaders,
industry sectors, academia and others on the threats posed by
the CCP's authoritarian regime.
Today's hearing, which will focus on the state of the US-
China technology competition, builds on other efforts we have
undertaken. Ongoing efforts in terms of these classified
roadshows, but other public hearings. One of the more recent
ones we had was in August 2021 when we held an open hearing on
the counterintelligence threat posed by the PRC. I think for
many of us, and I say this as a former telecom guy, the wakeup
call for me was with Huawei when several years ago we realized
that the PRC had positioned its national champion as a dominant
supplier of communications infrastructure across, candidly,
much of the globe. And if you actually looked at where Huawei
equipment was being sold in the United States and the overlay
with some of our anti-ballistic missile installations, it was
really chilling. And the truth was, if we had not raised that
flag, Huawei and the PRC were poised to cement and dominate the
market, not only for 5G, but for next generation wireless
services like O-RAN as well.
Truthfully, I think we were caught as a nation and the
Intelligence Community, the military, into an industry we were,
frankly, caught flat-footed when we realized that there was not
only not any American alternate but very few Western technology
telecom competitors.
Despite the fact that had Huawei been truly successful, the
clear privacy and national security risk presented by that
company with its direct ties to its authoritarian regime in
Beijing would be a tremendous threat to our whole
communications infrastructure. But as we discovered, 5G is just
the tip of the iceberg. In the last couple of years,
policymakers have realized that the PRC has been diligently
working over the past decade to identify a set of emerging and
foundational technologies that will confer long-term influence
into the entire innovation ecosystem and global supply chains.
It is in this context that we realized we needed a national
strategy to identify and counter the PRC's ambitions across a
set of key technologies--not just 5G, but obviously artificial
intelligence, quantum computing, biotechnology, precious
metals--and that we need to safeguard our own and our allies'
leadership in existing foundational and enabling technologies
like semiconductors.
Out of that realization, we've started to act. Legislation
currently moving through Congress, like the CHIPS Act and the
U.S. Innovation and Competition Act, as well as repeated
engagements with the private sector through these roadshows I
previously mentioned, are all steps in the right direction. But
this belated realization by American policymakers reflects a
complacency with our own innovation and, quite honestly, a
little bit of inattention to PRC's objectives and their
efforts.
For a long time, we thought it didn't matter whether we
actually made both the innovation and the products here in the
United States. We thought as long as we captured the value in
designing and providing services based on those products, we'd
basically win out. The conventional view underestimated how
effectively one country, in this case the PRC, could exert
control over the entire ecosystem by leveraging control over
certain key foundational technologies, not only through control
of the technologies themselves, but also through the supply
chains. And something that I think oftentimes we didn't focus
on was those standards setting bodies that often set the rules,
standards, protocols for so many technologies. We dominated
that. We in America in particular dominated that for decades.
In the case of Huawei and 5G, it was the first time we realized
not only did China have a leading company, but they were
literally setting the rules of the game.
This is not a lesson that we need to learn the hard way
once again. If we don't set the standards and protocols for
these technologies, our democracies and other allies will not
win out; the PRC will. Not only will they set the standards to
achieve their illiberal vision of CCP control, but their
advantages will translate into military capabilities,
geopolitical influence, and economic advantages.
I look forward to the witnesses' testimony on this issue.
For Members' information, today we'll be doing something a
little out of the ordinary. Rather than going by order at the
time of the gavel, we will be asking questions by order of
seniority in five-minute rounds.
With that, I turn to my good friend, the Vice Chairman,
Senator Rubio.
OPENING STATEMENT OF HON. MARCO RUBIO, A U.S. SENATOR FROM
FLORIDA
Vice Chairman Rubio. Thank you, Mr. Chairman.
Thank you to all the witnesses for being here today. I
think it is an important hearing we are going to discuss. We
often talk about China's plans and intentions behind closed
doors. But the fact of the matter is that their ultimate goal
and what they're trying to do is really not that big a secret.
They seek to displace the United States and to become the
world's most dominant economic, industrial, technical, and
military and geopolitical power. That's their goal. We in this
country for a long time had this hope for the better part of 20
years, this consensus, really, that once the Chinese Communist
Party in that country became rich, it would become more like
us--move toward democracy, have respect for the rules of
economic engagement and so forth.
Well, obviously that's not materialized. In fact, they've
used the last 20 years to wage an economic war against the
United States, stealing jobs, exploiting the free and open
market, oftentimes with help by American corporations driven by
the short-term profits that can be gained by having access to
the Chinese market. And as part of that goal was to leave us as
Americans economically dependent, not just on their massive
market, places you want to sell things, but supply chains as
well. And we've seen that disruption play out during a
pandemic. Imagine in a time of conflict.
And so, they know that once we are dependent on them, our
manufacturing base, our supply chains, critical minerals, and
not to mention the dangling the promise of access to their
massive market, well then our options will be limited and their
leverage will be extraordinary.
And they've been able to achieve this through their
military-civil fusion strategy, through their national laws
that compel the transfer of sensitive information to the
government, and frankly, by weaponizing some of our companies
against us here in the United States. In many cases, we find
that it's American corporations, because they manufacture there
or because they want to have access to their market, that are
then turned around and become advocates in favor of the Chinese
position on any sort of different issue that we face here
domestically.
The Intelligence Community--I think at this point leaders
on both sides of the aisle have been pretty clear that this is
the single greatest challenge this Nation has ever faced. We
have never faced a near-peer adversary that poses such a
comprehensive challenge the way that China does today. The
Soviet Union was a military and a geopolitical rival. They were
never an industrial or technical or commercial rival. China is
all of that and more. And as I said earlier, if we think having
supply chain disruptions as a result of a pandemic shutting
down some factories has been bad for our economy, imagine it
being shut down deliberately as leverage against us in a time
of future conflict, because that's what we can expect to see.
It leaves us vulnerable, and it's something we need to begin to
address.
I will make one final point and then the two things I hope
we can take from this hearing. I think this matters because I
think it matters if the most powerful--. Let me put it to you
this way. If the most powerful and influential nation on earth
is a dictatorship that is willing to enslave its own people in
death camps and commit genocide against its population, if
that's how they treat their own people and that's the most
powerful country in the world, that's not going to be a good
world. And that is, unfortunately, what we're headed toward if
we don't deal with that. And if anyone has any illusions about
the nature of the Communist Party of China, ask the people of
China and people living in places like Tibet and Hong Kong and
Xinjiang, and they'll tell you what this government is capable
of doing.
In closing, what I hope we'll hear today are your views on
China's economic and technological plan to dominate key
technologies and control critical supply chains. And also,
perhaps as part of this hearing, we can begin to think more
about how we can dramatically increase our efforts to reduce
our economic vulnerability to the Chinese Communist Party.
Thank you for being here with us today.
Chairman Warner. Again, I thank all the witnesses for being
here. I'm not sure who's going to go first, so I'm going to
throw it to the panel and whoever is going first, proceed.
STATEMENT OF JAMES MULVENON, Ph.D., SENIOR CHINA ANALYST
Dr. Mulvenon. Good afternoon.
Senator Warner, Mr. Chairman, Vice Chairman Rubio, other
Members of the Committee, thank you for inviting me here today.
I first need to say my name is James Mulvenon. I'm here in
my personal capacity. I'm not representing either the company I
work for nor any of my Intelligence Community sponsors. They
asked me to say that.
For the Committee's reference, the three of us have a rough
show-run that we've worked out. I'm going to introduce at a
strategic level the key elements of the Chinese strategy and
the elements of that strategy, and then pass it to my other
colleagues to discuss specific Chinese progress in certain
technology areas. And then, clearly, the toolkit that the U.S.
Government has for us to be able to deal with these threats--
what's working, what's not and how could Congress help us fresh
out the toolkit.
The overwhelming strategic point, which just echoes what
Senator Warner said in his introduction, is that China does
have a deliberate, published national economic and national
security strategy to achieve the very levels of domination that
Senator Rubio mentioned in his introduction. And as part of
that, these strategies are designed to create an unfair,
asymmetric environment for U.S. and other multinational
companies operating in the Chinese market to force the transfer
of technology to domestic national champions who will then turn
around and push our companies out of the China market and then
compete with them globally.
The main features of this strategy are multifold, but
deliberate. First is a focus on industrial planning. We're all
familiar that Communist parties like five- and ten year plans,
but the Made in China 2025 Plan, the Mid- to Long-Range Science
and Technology Plan are dedicated roadmaps for how to achieve
their objectives over the next 20 years. I find it notable that
whenever we pay too much attention in English to any of these
plans, they are suddenly deleted from the Chinese Internet and
then it becomes difficult to find them. My question, of course,
is what do you have to hide?
That is also followed, as Senator Rubio said, by very
dedicated national strategies for what is now more commonly
known as military-civil fusion. We've done a lot of work in the
last couple of years across the Community looking at this issue
and really explicating it.
Finally, there's a level of state subsidy through that
industrial planning that disadvantages our companies. And those
subsidies are directed primarily toward national champion
companies chosen by the parent ministries in China to be the
focus of their funding, the focus of their technology
development. And then once our companies go to China, they find
themselves having to joint venture with these national
champions at the direction of the regulator, which then
facilitates that technology transfer.
In the last five to ten years, China has also published a
blizzard of new laws and regulations, despite not being a rule-
of-law country, but a rule-by-law country. But these are
codified to be able to use against multinational companies to
defend the predatory and extractive practices of the
government.
As Senator Warner mentioned, the Chinese for the last 15 to
20 years have used the international standards regime as a
trade weapon in order to shape the future of the architecture
in ways that benefits their companies like Huawei and ZTE by
local directives, Greenfield investment strategies inside the
United States once we started to cotton on to the idea that
they were trying to force us to do transfers in China, instead
decided to come where the technology was, which was in the U.S.
And then finally, their global mercantilist policies, which
undermine many elements of the international rules-based order
that we had put in place since Bretton Woods.
In my own research, I've focused significantly on the
illegal technology acquisition side of their strategy. In 2013
with two government employees, I wrote a book called ``Chinese
Industrial Espionage'' that detailed in extraordinary detail
all of the elements of both the nontraditional collection side
that I'm sure the Committee has heard about a lot in terms of
their ability to hoover up large volumes of information in the
United States and then exploit it back in China. But also their
planetary-scale cyber-espionage program as well as their
efforts to steal technology here in the United States.
And then finally on the nontraditional side, obviously
significant focus on China's 500-plus national, provincial, and
municipal talent programs as a way of luring back researchers
in the United States and other Western countries with financial
incentives in order to transfer that technology. I would only
highlight that one little-discussed aspect of the talent
programs is that it allows them to have contact with experts
who can help them understand the intangible elements of
innovation that they can't understand in the stolen blueprint
or the stolen source code. It helps them fill in the mortar
between the bricks.
I would close by saying that while this Committee deals
with a lot of areas of the intelligence challenge that are
primarily achieved through national technical means, that this
is one of those intelligence challenges that lends themselves
very easily to open source intelligence. Not only are all the
strategies and documents and regulations that I've mentioned
publicly available, but all of the underlying data needed to
assess those strategies, whether it's the technical journal
articles, the patents, the corporate records, the government
and military procurement bidding tenders, are all publicly
facing. The bad news, as you can imagine, is that they're all
in Chinese, which China regards as its first layer of crypto in
terms of being able to disguise what they're doing. Open source
intelligence allows us to really get deeply into these issues,
as I think my colleagues will confirm.
Let me close my remarks there and I look forward to your
questions.
[The prepared statement of Dr. Mulvenon follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF DEWEY MURDICK, Ph.D., DIRECTOR, GEORGETOWN
UNIVERSITY, CENTER FOR SECURITY AND EMERGING TECHNOLOGY (CSET)
Dr. Murdick. Thank you, James.
Chairman Warner, Vice Chairman Rubio, Members of Committee,
thank you so much for the invitation.
In 2018, a Chinese state-run newspaper identified nearly
three-dozen critical technologies that they believe made
themselves vulnerable to potential sanctions and export
control. These articles covered a wide range of examples, from
the difficulty with producing high-strength steel, which
impacts rocket engines and aviation landing gear, all the way
to the challenges with building high-resolution LiDAR, the eyes
of many unmanned vehicles.
These articles express the feeling that the U.S. and other
powers could strangle China at any time. The Chinese are keenly
aware of their deficits and are making strides toward achieving
technical self-sufficiency. They regularly leverage a wide
range of government powers in an attempt to dominate key
technical areas and not just the cutting edge ones.
Understanding who is leading and who is following in emerging
technologies between the U.S. and China requires evaluating the
right markers for the right question. I find it helpful to look
at what the Chinese compare as their strengths and weaknesses
to the U.S. in the emerging technology development. For
example, the Institute for International and Strategic Studies
at Peking University notes China's own technical strength has
been improving progressively in recent years and it has become
an influential S&T power. In AI and machine learning, the
Chinese consider themselves to be leading in product-driven
R&D: areas like facial and speech recognition, computer vision,
and training talent at scale. In basic research, the U.S. and
China are comparable in their eyes in terms of scientific
research, paper publication, and citations. Yet the Chinese
acknowledge they lag behind the U.S. in originality and
groundbreaking research, and also in their ability to attract
and retain top AI talent. The U.S. still has a large lead in AI
chips, algorithms, machine learning and other core technologies
in promoting military AI applications and application of
military technologies and biosynthesis and drug discovery,
where they see the U.S. making a lot of advances and
breakthroughs.
Furthermore, though the U.S. relies heavily on foreign chip
manufacturing, it maintains an overall technical advantage
through its possession of key intellectual property and the
integration of that intellectual property in advanced
semiconductor supply chains. Though China's circuit industry is
rapidly developing, it faces foreign dependencies that keep it
well behind the United States. This is their self-assessment of
where they are.
Beyond AI, the Chinese are also aware of places where they
maintain leverage over the U.S. in key parts of the global
supply chain. In 2019, a majority of malaria test kits, for
example, as well as more than 90 percent of some key antibiotic
imports, came from China. The pandemic has demonstrated the
massive disruptive effects of foreign dominance of the bio-
economic supply chains with a direct impact on U.S. research
and medical care. China gaining advantages in key technologies,
be it artificial intelligence or semiconductors for computing,
be it genome editing or quantum technologies, would have
considerable implications in global security and potentially
even U.S. Intelligence Community operations.
The United States needs to prepare now for the long term.
As China's tech ecosystem matures and becomes increasingly
innovative, the United States risks being increasingly
surprised or even falling behind, because we don't have a
comprehensive view of what China and other actors are doing
across the technical landscape.
I see three basic classes of tools or responses that, when
used together, can achieve the greatest effect. They are: one,
run faster. Spur on the innovation system.
Two, slow competitors down--and you'll hear more about this
soon. Coordination with our allies is essential, in my opinion,
to maximize effectiveness.
And three, monitor the S&T landscape, which is a critical
point of success when dealing with a long-term competition with
a high-tech peer, which is where I believe we are moving with
China. On this last point of S&T monitoring. China's rapid rise
in science and technology has been facilitated by a massive and
sustained state support that is staffed by more than 60,000
open source collectors and analysts. This allows China to
prioritize areas of exploration dynamically and helps ensure
the country is not surprised by worldwide innovations. To my
knowledge, no part of the U.S. Government, including the IC,
has developed a scalable countermeasure to this Chinese
approach. We need to embrace this transformative S&T landscape-
monitoring mission. When used in combination with run faster
and slow them down policy options, it will help maintain
leaderships and critical emerging technologies in supply chains
now and into the future.
Thank you, and I look forward to the discussion.
[The prepared statement of Dr. Murdick follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF HON. NAZAK NIKAKHTAR, PARTNER, WILEY REIN LLP;
FORMER ASSISTANT SECRETARY FOR INDUSTRY AND ANALYSIS, U.S.
DEPARTMENT OF COMMERCE
Ms. Nikakhtar. Thank you, Dewey.
Senators, Committee Members, and staff, thank you for the
opportunity to speak today. And thanks for everything that you
do for America.
As a lawyer, economist, law school professor, and former
government official. I've been on the front lines of the China
economic challenge for decades. I set up the China/Non-Market
Economy office at the Commerce Department nearly 20 years ago
and audited Chinese companies for the U.S. Government.
Recently, I served as both Assistant Secretary for Trade and
CFIUS and Acting Undersecretary for Export Controls. Now back
in private practice, I represent global industries that are
fighting back against predatory practices that are weakening
critical supply chains.
It is from all of these vantage points that I offer my
views today. These views and opinions expressed are mine only.
In my written testimony, I described China's deliberate
predatory tactics to weaken the economies of the United States
and our allies. To be clear, this is not an issue of trade or
protectionism. China has publicly stated that its goal is to
weaken U.S. and other countries' supply chains to the point
where we are helpless. Obviously, we need a strategy that
protects ourselves from harm. We've seen China's stranglehold
over its trading partners in Africa, Latin America and South
America through the One Belt/One Road debt trap. How do we
avoid a similar fate? Through the rigorous use of our laws and
the creation of new laws where there are gaps.
First and foremost, we absolutely need outbound investment
reviews that are currently absent from law. Joint ventures, as
you heard, are happening all the time in China where U.S.
companies are collaborating with the Chinese military to
develop dangerous technologies and manufacturing know-how, when
technology is developed abroad that falls outside of export
control jurisdiction. Plus, the movement of supply chains
outside of the United States to adversary nations is generally
unregulated, like critical lifesaving medical equipment.
Without medicine and supply chains to build our defense
systems, how will we survive under attack? This gives our
adversaries the ultimate trump card.
Second, we need an export control system configured to
allow us to run faster, while at the same time blocking China's
ability to benefit from our technology. China's military
advancements in hypersonic weapons were facilitated by the
transfer of U.S. technology. One company's short-term profits
years ago now threatens global security. Our export system
failed. We need to fix it.
Third, we need to control the export of sensitive data that
can be weaponized by our adversaries to conduct massive
surveillance and develop dangerous AI-enabled weapons. Data
transfer needs to be regulated through new laws on export
controls; so does sensitive research at universities.
Fourth, when we authorize the transfer of sensitive
technology to China through export licenses, supercomputer
enabling technology, for instance. Today we can't even be sure
that our technology is not being used for military purposes
when it goes to China and not being used for weapons of mass
destruction. This is because China restricts our ability to
conduct end-use checks--and has for a long time in China.
That's a big problem if we're allowing exports of critical
technology to China today.
Fifth, we need national security reviews of Greenfield
investments. If you heard, through the CFIUS process, China
buys land here and conducts surveillance, connects to our
energy grid, accesses our control technology from within our
own borders, and wipes out our domestic industries by
underpricing from within our own borders. This is a problem.
Sixth, any revenue loss from sales to China through export
restrictions, make no mistake, can be regained from investing
domestically and in our allies' markets. We need investments
and safe locations to strengthen our supply chains. Consider
the U.S. to be an emerging market, not China.
Seventh, we need laws to address China's additional trade-
distortive practices where we currently have no laws.
Overcapacity in fiber optic cables--this is the infrastructure
of 5G and China's running overcapacity. The economic harm
caused to businesses from cyberattacks and the displacement of
businesses from global markets due to China's predatory pricing
behavior around the world.
To address this, we need additional Section 301
investigations into these practices to recoup the economic loss
to U.S. businesses resulting from these harms. If the
investigations result in tariffs, then we ought to shift the
tariff responsibility onto the Chinese exporter and away from
American importers. Americans should not be paying for China's
predatory behavior.
And finally, we should use the 301 tariffs collected to
create an innovation fund dedicated to capitalizing high
technology in critical industries. In other words, use the
tariff revenue paid by China to build out our critical supply
chains.
In sum, remember, the more we invest in China's non-market
economy, the more we move production to China to avail
ourselves of its cheap prices, forced labor, and other non-
market distortions. The more we buy cheap Chinese products
rather than goods from market economies, the more we allow
distorted, non-market forces to capture a greater share of the
global market. In this way we are accelerating the demise of
capitalism and the market based system. We need to reverse
this.
Thank you and I look forward to your questions.
[The prepared statement of Ms. Nikakhtar follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Warner. I want to thank all three witnesses. And I
want to point out a couple other quick things and then get to
my question.
One, I think we also do need to acknowledge while China has
picked national champions, they have combined the best of both
systems to a level. They do have a ferocious startup industry
in China, oftentimes supplemented by their $500 billion in
intellectual property theft each year. And so, they have that
ferocious competition until that national champion emerges. I
think we need to be clear-eyed about our potential competitor
here.
This brings back two points that maybe I should have made
in my opening comments. I remember, and it was driven a lot by
this Committee, when we woke up about 5G and Huawei and tried
to finally get all the right people who we thought in the room
from USG, we had I think three intelligence agencies. We had
DOD, we had Commerce, we had State, we had NTIA, we had OSTP.
And for those who might be watching this, these are all
relatively large organizations with all these acronyms. We had
the FCC. And it was absolutely clear that these people had
never been in the same room talking about taking on a question
like how do we give up the spectrum that's going to license 5G,
how we think about making competition with our allies, how we
address what was happening with Huawei.
That is a preface. And the other preface before my first
question is if you then look at the technologies where we need
to be competitive against China, we all have I think marveled
sometimes at the game plans that they've laid out. And as I
think Dr. Mulvenon said, James said, that they'll put this out
until the West discovers it and suddenly they disappear from
the websites. But I just know within recent years when I've
asked the intel community, what are the key technologies we
ought to be competing with? We got one list from the ODNI, a
somewhat overlapping but not entirely the same list from CIA.
Commerce has got a different list. The White House through OSTP
may have another list. So if we can't figure out who to get in
the room or what is even the major focus areas of our
attention. Senator Cornyn really took the lead on helping move
forward this idea around semiconductors. I'm not sure we'd have
been making the progress even on semiconductors but for COVID
because of the immediate shortages we were seeing.
The first question I would ask is for the whole panel. Ms.
Nikakhtar, you seem to have looked at this from a trade
standpoint, but if you were going to structure, make a change
in government on how we would put the right people in the room
to make these honest assessments, because I remember from the
fact that our intel community can't even look, frankly, at what
was happening domestically. They can look abroad, but they
can't look here domestically. How do you get the right folks in
the room? And I'd ask the whole panel on that.
Is there a new structure they've put together? Is it a
working committee? What's the structure to make that happen?
Ms. Nikakhtar. Honestly, the National Security Council is a
wonderful body. And this is the convening body that brings
everybody together, and they do a good job at bringing
everybody together. The fundamental problem, because I've been
at these meetings in various positions, is that not every
agency, not every bureau within an agency is like minded. And
so you have bureaus within an agency trying to torpedo one
another. And I personally don't know how to solve that. I
wasn't born in this country, but if I were a Cabinet member, I
would make sure--I mean, if I were President, I would make sure
that I had every single Cabinet member likeminded, every
Cabinet member ask their staff, what is your forward-leaning
China strategy? That way you can convene everything at----
Chairman Warner. You think it has to come from them. What
about your colleagues? What do you guys think?
Dr. Mulvenon. It's early days, but I am hopeful about the
Agency's new Transnational Technology Mission Center, at least
as a locus for doing these types of strategic-level assessments
on technology. I share your frustration. I'm old enough to
remember the 1996 Militarily Critical Technologies List when it
was published by the Pentagon, which for a brief moment in time
was a definitive, governmentwide list that we could all use to
then assess technological progress and make export control
decisions. But then the promise was that it was going to be
updated and then it never was.
One suggestion, Senator, that I've heard that I think makes
some sense is given that many people in the Intelligence
Community in a sense are cutoff from the high tech industries
and may not be as current as they should be. That partnering
with organizations like the National Academy of Sciences for
those studies makes more sense because of their networking
connections.
Chairman Warner. Dr. Murdick?
Dr. Murdick. Lists are always problematic, especially in a
dynamic space of emerging technologies where they're always
changing. And I think to be able to build this kind of
capability, you need a systematic analytic capability that
covers both domestic and foreign capabilities. We don't really
have a place in the U.S. Government for that kind of
capability. And to be able to answer the kind of questions you
need, you need to be able to have people who can go deep enough
to actually answer the substantive questions, not just from a
who do we partnership perspective, from a state perspective, or
from commerce, or from DOD. I think you need to have, what I
would call, an independent capability within the government
that you can regularly turn to and they can coordinate with all
the rest of the U.S. Government entities and even take money
for it for analysis tasks, but actually get at this analytical
capability. And I think the reason I encourage this is even
just watching how China has made their advance. Obviously, we
don't want to mirror China, but they have put a tremendous
amount of resources in--. Sixty thousand people is not a small
number of people to actually look at what's happening worldwide
from the S&T space. And I think that that analytic capability
is essential. And I think there's a variety of ways to do that
to be able to move the things forward.
Chairman Warner. On the next round, I'm going to come back
and ask, as we think about this with our allies around the
world, should that be in a more formal alliance or organization
structure or should it be one off?
I will remind Members before I go to Senator Rubio that
today we are doing something slightly different than normal. We
are going to go by order of seniority.
With that, Senator Rubio.
Vice Chairman Rubio. Thank you.
Let me just start. I'm going to ask a question at the front
end, but I want you to answer at the end, to just give you a
couple of minutes to think about it. As an example, I know
we're all aware of the chips. We're all involved in
semiconductor vulnerabilities and the like. But there's a bunch
of pretty startling vulnerabilities that we have on the supply
chain that are really critical beyond textiles and things of
this nature. One, as an example, I think the figure is right,
about 90 percent of our key antibiotics are sourced from
manufacturing. And what I'm going to ask you to think about in
the next couple of minutes while I go through these other two
questions, is if you can give me another example of something
like that that maybe is not as broadly known, but that's a key
vulnerability that we never want to have to depend on them for.
Here's the first question. I don't know who wants to take
it. Maybe all three of you do. It's been publicly reported now
that as the iPhone 14 comes out that Apple is thinking about
using a memory chip made by a product that is from a company
that is not just a Chinese-government-owned entity, state-owned
business, but it has close ties to the military. So an American
goes to buy or we broadly sell in this country to see an iPhone
14 that has that memory chip in it. Beyond being annoying,
right, that we're getting it from them, what is the actual
vulnerability that that creates for us on a mass scale? The
memory chip?
Ms. Nikakhtar. Let me start by answering that. You first,
Senator, asked for different types of technologies. Seventy-
seven percent of the lithium ion battery cell capacity is
located in China. Chemicals, nobody talks about chemicals. The
ability to make chemicals for semiconductors, for a whole bunch
of things also resides in China. A whole bunch of things. But I
want to get to the second point of your question. In that
example, Senator, that you mentioned, it was actually that the
U.S. company in China who's hiring American tech engineers to
then go to YMTC to make those chips for it. Obviously, there's
threats of backdoor, but the threat that nobody's really
talking about is the brain drain that this is creating in the
United States--the lack of innovation.
These are companies--I think you had alluded to it,
Senator, earlier in your opening statements, which is every
time we try to stop this, it's the U.S. companies that are
lobbying for the CCP and doing the CCP's bidding.
Vice Chairman Rubio. The second question is, and we've seen
the vulnerability of Americans' genetic information, whether
it's housed in our research and medical systems, whether it's
what you voluntarily turned over because you want to know where
your ancestors came from or whatever it might be. I think data,
obviously, is probably the most valuable commodity in the
world. And the Chinese can compel the biological data of the
largest population in the world. And then they can combine that
with whatever they buy and/or access through different ways
beyond the privacy concern. Because the individual may not want
their stuff out there in the hands of anybody, much less a
foreign government.
Why do they want that genetic information? Obviously, it
has to do with biologics. It has to do with biomedical research
and development. But what are the advantages of being in
possession of a vast dataset of genetic information, not just
on the people in their own country, but so many different
countries around the world, particularly the United States?
Dr. Mulvenon. Before the pandemic, I would have said that
we were primarily concerned with organizations like the Beijing
Genomic Institute and others because of their unethical
practices, because of their connections to the military,
because of their connection to the military's biological
warfare programs in the PLA. After the pandemic, once we
realized that the hyper-globalized model of pharmaceuticals was
broken, and that things would not just seamlessly move across
borders wherever there was market demand, but in fact national
interests had come back to the fore. Clearly having that huge
store of data in a lower-ethical-standard environment, to be
clear, than the United States, in terms of research ethics on
genetic data, means that they would be able to, on the positive
side, use their supercomputing capacity to more quickly
identify and develop vaccines and pharmaceuticals. But also
then, unfortunately, on the offensive side, be able to then
figure out how to mutate and be able to modify those genomics.
And so as we move to a world in which we become more and
more biological- and machine-integrated as humans,
understanding how to make those modifications, particularly
their focus on CRISPR and other technologies and the
unregulated use of CRISPR in China to do gene modification--
that's a very heady and dangerous mix, Senator.
Dr. Murdick. Senator Rubio, you asked a really interesting
question and one that is actually very hard to answer because
we're still doing a lot of basic research and it's unclear
exactly where everything will be opening up. But let me give
one scenario.
Personalized medicine is increasingly learning how to treat
the individual and how to work with the individual's whole
system. And the more diverse that that data is, the more that
they will be able to move beyond what is a much-less-diverse
genetic pool in China and to be able to now see what's
happening in the U.S. There are a number of examples that will
drive innovation. And the more they have this data, the more
they'll be able to make breakthroughs in innovation. And I
think that's one of their goals: they want to be a competitor
and actually make a lot of innovation. And by having access to
genomic data at the scale from around the world, it will open
up new vectors of innovation that I think will make competition
that we can't even imagine in this room right now.
Chairman Warner. Senator Feinstein.
Senator Feinstein. Just for a moment. My experience with
China goes back to when I was mayor of San Francisco. And one
of the things I wanted to do was establish a relationship with
the Chinese city. We picked Shanghai. Wang Daohan was mayor. We
established a relationship. Then Jiang Zemin became mayor. He
became president of the country.
In the meantime, trade ideas went back and forth between
our two cities. We took Chinese students; we had all kinds of
exchanges going on, and I felt it really worked. Now what I see
today is all of that kind of thing is gone and the people-to-
people relationship which is so intrinsic to friendship and
progress and faithful trading has changed to a much more
hardened situation.
And I really very much regret that because I will never
forget. Those of you that knew Jiang Zemin when he was
president of the country know he also sang. And it was the kind
of relationship where you could sit down with a group of
people, have dinner. He would sing a few songs and it was
amazing. And now all that is different.
How do we bring personal relationships back into the
equation?
As I review my material, it's all hard edged, it's all
companies, it's all economy. But relationships matter. And I
deeply believe that. If any of you, you must know China, have
ideas, I would certainly welcome them.
Ms. Nikakhtar. Senator, maybe I can start. I agree with
you, relationships matter. But then how do you foster
relationships in a country that's closely monitoring the
information that its population gets and is engaging in a
propaganda of how the United States is bad? I think that maybe
back in time there was opportunity to grow and foster this
relationship. But we're now competing with the CCP and its
massive propaganda machine and I think our efforts will be
exploited and I just don't think the CCP wants that.
Senator Feinstein. You don't think China can change from
where it is today?
Ms. Nikakhtar. I always think countries----
Senator Feinstein. If it was changed in the past as it has.
Ms. Nikakhtar. Yes, I was born in Iran and Iran was very
different then than it is today.
Senator Feinstein. Iran isn't China.
Ms. Nikakhtar. Right, countries can change for better or
for worse. I think under this current CCP leadership with
President Xi, China will not change. It's only going to get
more and more combative with the United States.
Senator Feinstein. Well, I'll tell you, I would like to do
my utmost as a United States Senator from California to try and
restore the roots of friendship that once existed and enabled
the beginning of the entire trade agenda. If anybody has any
thoughts, I would welcome them. I listened carefully to what
you said and I understand that a hardness has entered into this
relationship, and I think all of us ought to try to change it
because this is a huge country with smart people and a dynamism
that can make the world better if we're able to make the
contacts, the agreements, and the changes to bring it into the
modern day without negative influence.
I just wanted to say that. Thank you very much.
Dr. Murdick. I just wanted to add one thing. You asked for
ideas and I think that's really where we're going to have to
continue to look, because there are challenges on the ground.
However, I just wanted to add from a more encouraging
perspective two points.
One, if you view China as purely out to destroy us, that's
all they want to do, I think that mind view actually limits
options. I actually don't think their sole purpose is to
destroy us. They want respect. They want a place at the table.
They want to be able to remove the vulnerabilities they feel
like they have. I'm not saying these are benevolent, by the
way, but I think viewing them as a competitor and viewing that
there are things that will be worth working on together and
there are things that are not worth working on together.
The challenge, however, in this is two parts and one of
them is people-to-people interactions that building trusting
relationships, but the other is a dearth of information. If you
don't have solid information on what China is doing, it's easy
to get sucked into a discussion that you're underprepared for
and you're actually not realizing what's actually happening.
And I think the U.S. Government can raise the bar, if you may,
and understand more about China by investing more in our
analysis capability, and then arm people who are engaging
personally so that they aren't going to get swept in the wrong
way, because they don't understand the context and can
negotiate through a strength of knowing and power. And I do
believe that those personal relationships ultimately will make
a difference. But I would encourage that those relationships to
be well-informed.
Senator Feinstein. Thank you.
Chairman Warner. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Ms. Nikakhtar, first let me thank you for your very
powerful testimony and your very specific recommendations. I
was also pleased to hear the discussion of the supply chain for
pharmaceuticals. This is an issue I've been very concerned
about ever since the FDA testified that 72 percent of the
facilities making active pharmaceutical ingredients are located
in either India or China. We simply are very vulnerable in that
area.
Let me move to my question. Of the $107 billion in total
exports to China in 2019, I am told that all but $500 million
were exempt from export controls or did not require an export
license in the first place. I think that's absolutely stunning.
That is less than one-half of one percent of all exports from
our country to China that are subject to any form of effective
export control oversight. That seems to me to be potentially
extremely harmful to our national security, economic and
technological advantages, that the United States has
traditionally enjoyed.
As a former implementer of policy at the Commerce
Department, where do you think we have not effectively used
existing tools to protect our national economic security
interests against the PRC?
Ms. Nikakhtar. Thank you for the brilliant question. I'm
going to add a statistic on to what you said, which I found
very disturbing. I think it was about 2018 or 2019. Ninety-nine
point one percent of the export licenses were either granted or
returned without action, meaning the agency took no position.
Ninety-nine point one percent. Of what is controlled and you
actually have to get a license for: Ninety-nine point one
percent.
The other point I want to make is, and I find this very
troubling. I do this because I just want to help this country
protect its national security interests. The back end of the
early 2010s, there was export control reform in the government
and export control rules on dual-use items were pretty much
loosened to create gaps in the laws to allow these exports. You
have definitional issues. You have areas where just licenses
are exempt. That needs to be reformed again given current
threats. And I would support anybody's effort who really wants
to help me and maybe others to sweep through these regs and
then recommend some solid changes.
Senator Collins. Thank you so much.
Dr. Murdick, China's Ministry of Foreign Affairs is
undertaking a very aggressive diplomatic effort in
international organizations to establish favorable worldwide
technology standards that China wants that are favorable to the
PRC and its values. On a scale of one to ten, how effective has
our State Department and other diplomatic arms of NATO and the
West been at pushing back at these efforts?
Dr. Murdick. Just a brief comment on history. The standards
efforts that China is engaged in trying to implement now, in
the push that they've had, was motivated by what they perceived
as a very effective U.S. effort. In aerospace and a variety of
other places, the standards that we helped influence in GPS and
other places were a gold standard. They said, wow, we really
want to do the same thing. So first of all, we motivated them
by our success to try to do something similar. They're working
very hard. It's hard for me to provide a number and I'm not
trying to avoid the question in that sense, but I'm not
actually sure how I would characterize it with a number. I
think it's too soon for me to be able to judge what is the
success. I think it's an ongoing dynamic space and it depends
on the particular industry and the particular standards bodies
where we've been more successful and where we haven't been as
successful. But I do want to lay the foundation that a lot of
the foundation is based on previous U.S. successes in the
standard space.
Not exactly the answer you're probably looking for, but
it's the best I can do right now.
Chairman Warner. Senator Heinrich.
Senator Heinrich. Dr. Murdick, you've said that the U.S.
Government needs an analytic capability to survey and monitor
the global science and technology landscape that we currently
don't possess. If I could put you in charge of just such an
effort, what would it look like? How would you structure it?
Where would it fit into the current USG org chart?
Dr. Murdick. Obviously, political reality will temper this,
but I'm going to go ahead and speak from an idealist
perspective.
From my perspective, an organization that does this type of
analysis needs to be independent. They need to be able to
receive money from all over the government. They need to have a
seat at the table in terms of decisionmaking. But their primary
goal is to do analysis. I think there are Federal elements
here, but there are also regional elements. Just having
everyone sitting in the U.S. capital region is probably not a
great idea because there's innovation happening all around
America. And both the information that this group would need as
well as the results of some of the findings would be relevant
to the sector.
It's probably the majority--or half, let's say--of the
staff would be in the D.C. area. The rest would be throughout
the U.S. And I think it would probably have, I don't know,
maybe a number of hundreds of analysts and data collectors.
They would bring the data together. They would be able to
provide analysis on S&T challenges. They would be able to have
a monitoring situation so that you could answer questions and
be alerted when things are changing. And that this information
would be available to U.S. policymakers and as appropriate to
the public and industry as well as relevant. I think the U.S.
can learn, actually, something from the Chinese implementation
of this in terms of the scale of investment. And we're not
talking about more than, I don't know, could be a couple
hundred million dollars. We're not talking about a
colossal--. We're not launching multiple satellite
constellations here. We're talking about a reasonable and
consistent and sustained development that has an analytic
capability that looks at both foreign and domestic. It provides
strategic input. It provides input on where unwanted tech
transfer is happening. And it provides the kind of information
that's actionable and useful to policymakers.
In a thumbnail, that is a few thoughts I have.
Ms. Nikakhtar. I'd like to quickly add to that. I would
take a little bit from what Senator Warner had also asked.
There are two lists in the government. There's the emerging
technologies list that just came out from the White House. And
then it's BIS's, I think 2019 or 2020, foundational
technologies list. You combine those two, you've got a pretty
darn good list of where we need to focus on. And then the
National Labs. Our National Labs know stuff about what we're
doing, our competitive advantage. And our adversaries, what
they're doing, how far they are in terms of even
commercializing their R&D. I think the National Labs are a
completely underutilized crown jewel in American policymaking,
and I think we really need to leverage them.
Senator Heinrich. I agree with you, although in the fact
that I interface with those labs all the time, sometimes
pulling that information out of the labs in a usable way for
the government and particularly for policymakers can be quite
challenging.
Let me ask you about export administration regulations and
the current definition of fundamental research.
Ms. Nikakhtar, you've talked a lot about that and you write
that the exception of fundamental research is a gaping hole
right now. Can you give us some context for why that gaping
hole exists in the first place and what we need to do to change
it?
Ms. Nikakhtar. Yes. Basically, the rule is pretty squishy
and it basically says that if the building blocks essentially
are built from fundamental research, then pretty much what
generates from it is also this fundamental research. And if you
might have the intent of publishing it at some point then it's
exempt from export controls. I mean, we're lawmakers. When you
leave squishy things like that, can anybody exploit it?
Absolutely. And the reason why I'm completely nervous about
this is because I've got a friend who's doing some critical
semiconductor research in Silicon Valley. And he calls me and
he goes, there's a prominent university in California who has
these Chinese nationals coming in and doing research on the
next generation of semiconductor technology. And my response
is, oh my gosh, of course this is because of the fundamental
research exception because this is how it always gets used. And
then he's like, what's the fix? And I said, issue an ``is
informed'' letter to the universities to say cut it out for
these technologies and then go back and change the definition
of fundamental research. And I don't need to tell you guys, but
an agency's regulations belongs to the agency, they can change
it any time they want. Why wouldn't they do it? Over.
Senator Heinrich. Okay. Thank you.
Chairman Warner. And one of the things, I think, Senator
Heinrich, when you asked that question, as we've seen on the
intel side, you've got some pretty good folks who do some
pretty good research in issue areas. But at least the folks on
the Intel Committee, they can't even look at what we're doing
domestically. How we figure out where that's located and
letting them have a full 360 would be really important.
Senator Blunt.
Senator Blunt. Thank you, Chairman.
Dr. Murdick, we're in conference right now on a bill
regarding largely competition with China. Most of us, if not
all of us, are free-market thinkers in terms of how things
should sort out. But clearly, what is the best way to compete
with a country that largely subsidizes and moves quickly in
technologies without either regulation or without having to
have total outside financing to be your competitor? Do you
think it's reasonable that in these areas like chips that the
United States makes a government-taxpayer-funded commitment to
bring that industry back here?
Dr. Murdick. With respect to competition with China, I just
wanted to have one meta comment or high-level comment, which is
the U.S. strength is because we have a highly distributed
system. We do not run a command economy. We have a lot of
innovators working, a lot of people moving. There are times
when we get the need for the government to step in to correct
subsidies that are happening within China or other places. So I
do think it makes sense to step in when it's been very clearly
identified. We've lost a core capability of chip manufacturing.
It needs to be done in a way that enables the diverse and
distributed innovation system to flourish. We can't put it
under a thumb or put it in a constraint in a cage that tries to
control too much of how it happens. But I do think that we
clearly have identified there's a gap here. We can bring back a
manufacturing capability if correctly executed, that will
enable us to bring that competition back.
Now, there are a number of other areas that will also need
this kind of attention. And that's why I mentioned that we need
to be monitoring and dynamically watching the situation because
it's a very fast and rapidly moving space. And it moves at a
speed outside of lawmaking in its traditional form.
Senator Blunt. You're saying we don't want to find out that
suddenly we're behind like we might have a few years ago in 5G,
for instance?
Dr. Murdick. Yes, exactly. And I think there are very
discrete and clear things that we can do to make sure that that
information is flowing. To Senator Warner's last point, we
don't have a good foreign-domestic, red-blue analytic view that
we have wonderful intelligence assets that can find very
pristine and immaculate information that will help. But that
needs to be contextualized effectively with an unclassified
base that these pristine and exquisite sources can augment
insight. I do think we have the opportunity to do this, if
that's helpful.
Senator Blunt. Alright.
Dr. Mulvenon, do you want to add anything to that? This
idea of how we compete with countries that are highly
subsidized?
Dr. Mulvenon. Well, I think the first thing I would say,
Senator, is that we shouldn't compete alone. That in particular
one of the things that I support about the current
Administration's policies is the emphasis on a coalition of the
willing in particular tech areas, looking at how we can bring
together countries with similar value systems, democratic
countries, similar legal systems, and break down some of the
barriers that we have between us. A very good example of that
is in 5G. We are all aware of the fact that for a long time
Huawei was the only company that really had an end-to-end
offering from handsets to servers and base stations. But the
obvious industrial coalition between companies like Cisco and
Juniper and Nokia and Ericsson would have fallen afoul of
antitrust regulation unless the U.S. Government effectively
moved to break down those barriers, so that there could be an
alternate 5G end-to-end offering to compete head-to-head with
Huawei. That is a solvable policy problem, particularly given
the likeminded countries that we're dealing with.
So, I would just say not competing alone, but using our
OECD allies, and I'm including the South Koreans, the Japanese,
the Singaporeans, the Taiwanese, all of our European friends.
We obviously have a lot of work to break down a lot of our
barriers, common data privacy protections first--.
Senator Blunt. Let me see if I can get one more question in
here for Ms. Nikakhtar.
I was interested in the discussion Senator Collins had
about pharmaceuticals. One question that's come up that I
wonder about is the United States, with vaccines, obviously, a
big thing now. Do we have the capacity within our own system to
produce and deliver end-to-end vaccines without dependence on
China, particularly, or outside the United States supply
chains?
Ms. Nikakhtar. Thanks for that question.
There are a lot of pharmaceuticals and active
pharmaceutical ingredients that we can actually make in the
United States if we use our current facilities and we're able
to retool and re-shift so we can produce them. I think the
first step is to look at what our manufacturing companies, our
pharmaceutical companies, not just what they make today, but
give them a survey of all these active pharmaceutical
ingredients and say what can you do with the facilities you
have? What's the lead time? What's the cost? And okay, now that
I can solve that in a case of emergency, what can I actually
now not make in the United States and maybe Canada? And then,
how do I solve for that?
Senator Blunt. That sounded like a no, but we could get
there.
Ms. Nikakhtar. No. Exactly. That's right. No, but we can
get there.
Senator Blunt. Alright. Thank you, Chairman.
Chairman Warner. I think we've seen in the midst of COVID
where something like 80-plus percent of the APIs were coming
from either China or India.
Senator King.
Senator King. Thank you.
First, Dr. Mulvenon, I absolutely agree. I think it's a
huge mistake to not take advantage of our allies. And if you
add the EU and us and Japan and South Korea and Australia and
other countries, we're bigger than China. We have a bigger
market and a lot of intellectual horsepower, so I think that
ought to be part of the strategy. And having uttered that word
strategy, it strikes me that what we're doing here today is
we're throwing darts at a policy dartboard. And this whole
thing started with your discussion of the detailed strategy and
doctrine that the Chinese had developed. I believe we need to
do that same kind of thinking. Our policy toward China is all
over the place. It involves trade, it involves intellectual
property theft. We haven't even mentioned the word military
here today--enormous military competition. And I feel that
there's no comprehensive or cohesive or comprehensible overall
strategy.
Dr. Mulvenon, I just served on a commission on cyber, a
national commission. It involved Members of Congress, private
sector, and members of the executive. And I found it a very
useful exercise to be assigned to think about a large issue in
a comprehensive way.
Do you think that we ought to be thinking about having a
national strategy to deal with China?
Dr. Mulvenon. Well, we do have elements of a national
strategy. I wish it was more explicit. Obviously, we were all
disappointed that Secretary Blinken got COVID last week,
because he was going to articulate for the first time, I think,
the comprehensive nature of the strategy. And I think that is
coming eventually. The Indo-Pacific framework that was
published gives us a lot of clues.
But I would say the following. Industrial policy is a 16-
letter word, not a four-letter word. We've had a lot of really
successful industrial policy----
Senator King. I agree with that, by the way. And in facing
a rival like China, we've got to get over our aversion to the
idea of industrial policy, which indeed we are on the CHIPS
Act. That's industrial policy.
Dr. Mulvenon. Well, I mean if you go back to the Eisenhower
Interstate System, there are ways in which we can have market-
based policy solutions that are industrial policy that are not
socialism, to be fair. And semiconductors in particular, which
is a major focus of mine, I agree with General Selva when he
was the vice chair of the Joint Chiefs he said, we can't
protect everything. He said, I want to protect semiconductors
because that's the hill I want to die on. Because it's the
foundational technology under all of the other advanced
technologies.
Senator King. And that is something that we are taking an
active role in. But I think that your example of the scientists
working on advanced semiconductors, who are Chinese nationals--
I mean we've got to just be more sensible about this.
Let me ask a broader question. China had this explosion of
economic growth and now they seem to be re-imposing the old
central planning. Everything is controlled from the government.
Is there a danger that they will not kill, but stifle the
golden goose by re-imposing a state central planning dead hand
of government on what was really a capitalist explosion?
Dr. Mulvenon. I agree with you, Senator. I have been,
frankly, stunned by the retrogression in Chinese economic
development over the last decade because private sector
enterprises, private enterprises accounted for a huge majority
of the amazing growth of the Chinese economy between 1978 and
the late aughts. But the current regime is clearly focused on
re-centralization of planning, re-emphasis on state-owned
enterprises, and frankly, a squelching of entrepreneurship. The
recent crackdown on the tech companies that were outside of
government control. And to Senator Warner's point, it's no
accident. The last time I was in China, you went in a bookstore
and there was a whole section of the bookstore with books of
some variation of a title of Where is China's Steve Jobs? And
the idea was that they were looking for innovators, but----
Senator King. He's probably in jail somewhere.
Dr. Mulvenon. Or forced under common prosperity to give
away millions of dollars of his hard-earned money. But the idea
was that the political and legal and intellectual property
milieu in which you have to innovate in China does not
encourage mavericks to rise up through the system, as I think
that Jack Ma and others have discovered in the last two years.
Senator King. I don't think we can rely on that to save us,
but I do think it's a factor in what's going on now.
I have this feeling--I serve on the Armed Services
Committee--and of these two heavily armed blind giants
stumbling toward one another in a conflict that neither one
wants and it would be catastrophic for both. But there needs to
be some discussion about where we want to go. The old saying is
if you don't have a destination, you'll never get there. And I
think we need to have a better definition of where we want to
get and have a more comprehensive thought about how we want to
deal with China on a whole series of levels.
Thank you, Mr. Chairman.
Chairman Warner. Senator Cornyn.
Senator Cornyn. Thank you, Mr. Chairman, for this hearing.
This is exactly the sort of hearing we need to be having, an
open session so that not just the Committee can hear, but the
American people can hear and be better informed about the
competition that we're having with the PRC and the Chinese
Communist Party.
Ms. Nikakhtar, I was happy to see that you cover in your
written testimony the importance of an outbound screening
mechanism. And I'd like to get you to talk about that first,
and then maybe have the other witnesses talk about it as well.
As you noted, Senator Casey and I have a piece of legislation
called the National Critical Capabilities Defense Act. But some
of the figures that you mentioned here, Mr. Mulvenon, I think
from these figures that we see here in this testimony, it looks
like U.S. venture capitalists have funded the rise of the
Chinese economy. And we know they don't play by the same rules
that we do and they don't follow the law. They shamelessly
steal secrets and they coerce American investors into joint
ventures, steal their IP and their know-how. And of course,
that was part of what we tried to address in the CFIUS reforms.
But we also tried to include an outbound screening mechanism to
see what American companies were doing investing in China and
its impact on the United States, not only from an economic
standpoint but from a national security standpoint.
And I want to thank Senator Casey for working with me on
this, and I with him. Thankfully, the House COMPETES bill has a
piece of that in it. And I think it provides us an opportunity
in the conference committee that a number of us are on to try
to include this in that final conference report.
But Ms. Nikakhtar, you mentioned in your testimony that
this could be one of the most important pieces of legislation
before Congress today. And the numbers that you mentioned here
totaling $3.5 trillion in market value of holdings by U.S.
financial investments in China in 2020. Of course, we know this
is a part of the CHIPS Act. The semiconductor bill is going to
be focusing on providing incentives for re-shoring of
semiconductor manufacturing. But these companies are global
companies. And I for one, and I bet I'm not alone, don't want
to see those companies using some of these taxpayer dollars
that we're trying to provide to incentivize re-shoring of
semiconductor manufacturing to enhance their investments in the
PRC, which is exactly where we are and who we are competing
against.
Maybe you can start and talk about why you think this is
important and then hear from the other witnesses.
Chairman Warner. Before the witness starts, I just want to
indicate that because of the voting, I'm going to run and vote
and come right back and we'll move down the line. But I think
Senator Cornyn's got a very good question.
Vice Chairman Rubio [presiding].
Ms. Nikakhtar. Senator, your question is about the outbound
legislation, right? And the importance of that?
Senator Cornyn. It was about the outbound screening
mechanism and the National Critical Capabilities Defense Act.
Ms. Nikakhtar. Okay. Perfect. I just wanted to make sure.
No, like I said and you pointed out, it's one of the most
important pieces of legislation because this is a gap in the
laws. We have the limits of export control jurisdiction. What
is that? U.S.-origin items and then certain items produced from
technology. But this doesn't involve the movement of plants
abroad. This doesn't involve the companies that are forming
joint ventures or just like building facilities in China and
then developing technology in China. Even if they avail
themselves of the CHIPS Act money--and I know the CHIPS Act is
so, so important--there's got to be guardrails so they don't
double down and make more investments in China because of the
revenue saved because we gave them taxpayer dollars for
subsidies.
Back to the outbound legislation. Right now, legally, we
actually do not have the ability to stop this flow of dangerous
capabilities to our adversaries. We're not talking about the
rest of the world. We're talking about the adversaries.
And I just wanted to give you some really, really critical
examples of where export controls--. We don't control these
things. We don't control lifesaving medical cancer detection
equipment. Semiconductor capabilities, even those that are
below controls, what good is it to move things abroad when we
can't even make any of those in the United States? High-
capacity batteries. We are struggling to make lithium ion
battery cells in the United States because we've moved
everything over to China. Materials, chemicals, critical
material chemicals. People don't adequately understand how much
of the chemicals that we're enabling China to produce. Active
pharmaceutical ingredients, we already talked about that. I can
go on for hours listing technologies. We certainly don't have
that time, so I'll stop there.
But I really want to say, look, by moving the supply chains
there, we've become hostage to our adversaries. Businesses will
not protect national security. That is not their job. That's
the government's responsibility. And thank you, thank you,
thank you for identifying this gap in the law and developing a
legal mechanism to fix it.
Senator Cornyn. Can I let the other two witnesses comment
briefly?
Vice Chairman Rubio. Yes, you can.
Dr. Mulvenon. Senator Cornyn, you may remember actually a
member of your staff invited me to testify before Senate
Banking. And I think I was the only person on the panel in
favor of FIRRMA against the venture capitalists and the other
corporate types. And I was very happy that it passed. Of course
there were some pieces missing from the original legislation,
in particular monitoring of JVs in China, and the outbound
investment.
I fully support the legislation and the concept paper,
which I read first, about the legislation. And the two things I
like best about it are, first, the way you parameterized the
first tranche of outbound investment that would be subject to
the regulation, clearly delineating what was subject to it and
what wasn't. And also, your point that we shouldn't wait for
allies. That we needed to be able to make a lot of those moves
unilaterally first and let our allies catch up with us. And I
think those are the two strongest parts of the bill.
Vice Chairman Rubio. And I'm sorry to interrupt. I promise,
we will get back to that second answer, Senator. But we're
running out of time on this vote and I want to make sure
Senator Bennet gets to vote.
Senator Bennet. I really appreciate that, Mr. Chairman.
Thank you very much. We're running out of time on the vote.
I wanted to come back to Dr. Murdick's red-blue analogy in
terms of our analytic capabilities. And it hopefully suggests a
way forward. Senator Sasse and I have been working on several
bills to better position ourselves for the competition and
better direct our investments. In the last year's Intelligence
Authorization Act, we advanced a national technology strategy
which we continue to push forward. We're currently working on a
bill to establish the capability to conduct technology net
assessments in order to determine U.S. leadership on critical
technologies relative to other countries, particularly China.
What we found through our work on this Committee is that while
the Intelligence Community looks at what China and other
countries are doing on emerging technologies, no one in the
government, as we were talking about earlier, is really looking
at how such trends compare to the U.S. private sector activity.
Our new Office of Technology Net Assessment would review
U.S. competitiveness and technologies critical to economic and
national security based on a fusion of intelligence, including
open-source intelligence and commercial data.
Would a capability like this help us determine where we
need to direct investment and answer some of the questions
we're asking today and protect leadership and technologies that
matter most to U.S. economic and national security, do you
think?
Dr. Murdick. Clearly, the net assessment type model is
quite exciting and has a lot of potential. And I think that
pursuing that kind of approach makes a lot of sense. I think
it's important, wherever this capability is, that they have the
authorities and incentives to be able to answer the questions
in a full way. Authorities, meaning that they can get at both
the red and blue like you were highlighting.
I think that's a central point. And also the incentives.
The U.S. tends to use open source as a complement for SIGINT
and HUMINT and other sources. And I think other models are
using the open source as a first resort and then laying on top
of that the classified sources. I think to get another
assessment, it's important that you look at the big picture
first and then fill in the pristine information on top of it.
And so it's a methodological--in making sure those incentives
are honored.
Senator Bennet. We'd like to work with you on that. And
with the last couple of minutes remaining though, thank you for
your testimony. I think it really is important and I'm very,
very pleased that Senator Cornyn said what he said about the
importance of doing this in public.
I think it is very clear too, having been on this Committee
now for however many years it is, that our failed experiment of
prioritization and making stuff as cheaply as possible in China
has been just that, a catastrophic failure for the United
States of America. And it's going to require something totally
different for us to compete.
I wonder with a couple of minutes left, what does that
industrial policy look like? How do we do it in a way that
harnesses the imagination of the capitalist system that we
have, as opposed to the way that the Chinese are doing it? And
finally, how are we going to know that we're actually
succeeding so when people are sitting at that table at some
point in the not-too-distant future, they're actually telling a
story about how we're outcompeting rather than have our lunch
eaten by Beijing?
I don't know who would like to start, but I'd be happy to
hear all of you or any of you. Thank you.
Ms. Nikakhtar. I can. Go ahead.
Dr. Murdick. Just very briefly. I'll be short, though. This
is a good time to re-engineer our innovation system and to be
able to think about--. There is a good friend of mine who wrote
a paper dealing with the system, re-engineering of the American
R&D system. There are options and ways to be able to take the
strengths of the U.S. system and be able to effectively engage
in a way that recognizes the government authorities that we
actually have--where we actually have authorities, where we can
engage and where we should be letting the innovation system
work in that beautiful American way of it's hard to predict.
Just a very small comment. I'll let you go deeper.
Ms. Nikakhtar. Thank you.
Look, representing industries, folks are really excited
about this potential for industrial policy and many of us have
been champions of it for a long time. What you see is you were
getting a lot of excitement. You've got companies with really
exquisite IP, clean rare earths processing, for example, that
actually have the IP, but they've never really had the
financial means to get this launched.
There's a lot of IP that's in the works that this is also
catalyzing. Catalyzing is the key word. But I think to make
this successful, these companies are still reluctant to make
the investments in the United States because they're like, I'm
going to be displaced by cheap Chinese stuff because China is
configured to outcompete all the time. They're really freaked
out about that.
We've got to think of a mechanism that once our industries
through our industrial policy are growing, we're able to really
cut out unfair predatory competition.
And then finally to your last point, how do we know that
we're succeeding? When the world starts buying our goods and
not the Chinese goods.
Vice Chairman Rubio. Senator Casey, you voted already?
Senator Casey. I did.
Vice Chairman Rubio. Okay.
Senator Casey. Mr. Chairman, thank you very much. I want to
thank our witnesses. I'll focus my question and some comments
before it on Ms. Nikakhtar. In particular, I'll be quoting you
in reference to some of the areas of questioning that Senator
Cornyn raised on outbound investment.
I wanted to start by way of a predicate quoting the 2022
Annual Threat Assessment. It says in pertinent part, quote,
``Beijing's willingness to use espionage, subsidies, and trade
policy to give its firms a competitive advantage represents not
just an ongoing challenge for the U.S. economy and its workers,
but also advances Beijing's ability to assume leadership of the
world's technological advancement and standards.'' End quote.
In your written testimony, you note, quote, ``U.S.
financial investments in Chinese-domiciled companies total over
$2.3 trillion in market value of holdings at the end of 2020.''
This is on page 24 of your testimony when you make that
statement. And then you have just above it, a list of the
capital and investment types. It's just breathtaking. It's
everything from telecommunications to robotics, biotechnology,
AI, surveillance, semiconductors, pharmaceuticals. It goes on
and on. That gives people a good sense of the challenge we
have.
Later in your testimony, you say, and I'm quoting here,
``We have for centuries regulated the transfer of defense
articles to foreign adversaries. Today in much the same way, we
need to regulate the transfer of technology, economic flows,
and supply chain capabilities to them.'' Unquote.
And as Senator Cornyn mentioned, we have the National
Critical Capabilities Bill and you talk about that in your
testimony as well, in some of your earlier testimony.
I guess a two-part question. One is, what are the limits of
existing regulatory tools, including export controls? That's
question one.
Question two is why is an interagency outbound investment
review mechanism necessary to win the competition with regard
to the Chinese government?
Ms. Nikakhtar. Thanks for a really thoughtful question.
First, what are the limitations of existing regulatory
tools? I think we have a lot of gaping holes in our export
control system and I think we really need to tighten those up.
Greenfield investments. I mean, gosh, what an incredible way
that we're allowing domestic investments to be exploited.
Really, the transfer of sensitive data--data centers--not
to the rest of the world, but to adversaries who we know are
going to take the data from our data centers and use it for
their AI machine. That's another area. And then certainly the
outbound investment mechanism because--. We talked about the
limits of export controls. So when you have these facilities in
foreign countries and you develop the technologies there,
release technologies there, aren't critical manufacturing
capacities there, we empower them and not ourselves in the
United States.
But another point that your thoughtful question had me
realize is that China has all these national security laws that
actually have companies that are in China, transfer data to
them whenever the CCP wants. And then, they have the corporate
credit system, like the social credit system but for
corporations. It even applies to foreign corporations in China,
that if you don't act anytime that the CCP wants to enable them
and to act in their best interests, they can take all these
adverse actions that the EC Chamber of Commerce, European
Chamber of Commerce, basically said that it amounts to life or
death for a company.
And we're allowing our companies with critical capabilities
to go over there. It makes no sense. And again, I really want
to stress that it is not businesses' responsibilities to take
care of national security. It is all of yours. And then, thank
you for what you doing. Remind me of the second question.
Senator Casey. Why would this outbound investment mechanism
be necessary?
I know you've said it. I would just like you to restate it.
Ms. Nikakhtar. Like we said. China has made abundantly
clear. This isn't McCarthyism. China's made it abundantly clear
that it is holding our supply chains hostage to gain leverage,
not only for the United States but the rest of the world.
That's why we need this legislation. Thank you.
Senator Casey. Thanks very much. Thank you, Mr. Chairman.
Vice Chairman Rubio. Senator Sasse.
Senator Sasse. Thank you, Chairman. Thanks to all three of
you. This has been an informative hearing. Obviously, in the
SCIF we cover topics like this regularly, but it's clear that
the American people broadly don't understand these issues. And
corporate America certainly doesn't.
I've become increasingly concerned as I learn more and more
about how premier U.S. law firms ostensibly represent private,
in scare quotes, Chinese companies, where American lawyers work
on cases in what feels a lot like a revolving door of senior
government officials leaving Administrations going out and
being hired at law firms. And then a lot of their clients
become these Chinese fake private companies. As Chairman Warner
says again and again, our beef is not with 1.4 billion Chinese
people created in the image of God. It's with the Chinese
Communist Party and their malevolence and their export of
surveillance-state autocracies and their genocide in Xinjiang
and more and more.
Could you walk the American people through how China uses
former U.S. Government employees and particularly those who've
had access to our government secrets?
Ms. Nikakhtar. Yes, it's really terrifying. What is the
Stalin quote? We'll use the rope that the capitalists sell us
to hang them. There's debate on whether that's a quote or not.
But the true thing is that it's money. It's money, money,
money. When the Chinese companies dangle money in front of
folks who've been in the government and have access to
exquisite data and know how the ins and outs of the government
work, know how to exploit regulations, it's really hard for
people to say no to money.
And so you see this revolving door and then there's various
reasons why people go into the government. But one of the key
reasons is to get a better job on the way out. When the CCP
exploits that with being able to pay a lot of your bills--all
your legal bills. And when there's this rat race within law
firms, who can generate more revenue and with status within the
firm, who can generate revenue.
How do you resist that temptation? The way my firm does it
is we bring trade cases against China, so there's an inherent
conflict of interest. So, I don't have that. But most, as you
pointed out, law firms don't. And so then how do you resist all
of these temptations and these expectations of you that you're
supposed to generate revenue, when the Chinese make it so easy?
Senator Sasse. And what is the Chinese government via these
companies seeking advice about from these law firms? Is their
goal better governance compliance?
Ms. Nikakhtar. Yes, it's twofold. It's just lobbyists.
Lobbyists. Just pepper the government with lobbyists, so they
can just hear, hear, hear from an echo chamber. And the other
one is they hire people who know people in the government and
then know how to manipulate the laws. The more you know the
intricacies of the laws, the more they're interested in you
because you can build in nuances to basically create backdoors
for them to circumvent the laws.
And that's what they're looking for.
Senator Sasse. Anything the two of you want to add to this?
Dr. Mulvenon. Senator, it certainly is a function of our
open system, which is in stark contrast to the opacity, of
course, that our companies face on the Chinese side. And
perhaps that's worthy of some mention. All of the proliferation
of documents that I mentioned, many of which are unpublished.
Our companies will go into meetings with ministry regulators in
China and the regulator will push and draft unpublished
regulation across the table for them to read and to be
enforced. And they ask, can I keep a copy of it? And they said,
no, that's just an unpublished draft and pull it back. They
don't even have the ability then to seek remedy with the U.S.
Government or with other people who could help them in those
situations. Not to mention the fact that, of course, while
there have been some improvements in the intellectual property
courts in China, the court system itself is not an independent
branch of government. It is fundamentally dominated by the
Chinese Communist Party. And the judges in those courts are
first and foremost responsible to the Communist Party
discipline before the legal discipline.
That is just one of these unbelievable asymmetries between
the two sides and further creates that asymmetric environment
for our companies.
Dr. Murdick. I'll take on one small part of this. One of
the challenges in working in the government is you have limited
time to think and you don't have a lot of space to do that
thinking. You tend to rely on what's being said outside,
because you need someone who has had time to be able to draft
out, particularly in emerging technology spaces because these
are very complex. They're technical--technically hard to
understand. There's a lot of players involved. It's important
to get that information.
And I think that information dearth that we've put on
Senators and Congress, individuals, as well as Executive
Branch, actually puts you at an increasing disadvantage because
you're actually dependent on people outside, who might actually
have a conflict of interest, to inform you on what to do. And
therefore, coming back, I do think there is an opportunity to
increase this analytic insight so that you can be informed by
sources that conflict of interest is more clearly controlled.
Senator Sasse. I know I'm nearly out of time. It's been
reported that there are currently 20 former Senators and
Congress people that lobby extensively on behalf of the Chinese
government and Chinese fake private corporations. Is there any
reason why that is in the interest of the United States
citizenry or governance?
Ms. Nikakhtar. I've thought a lot about this, and I really
want to answer this question because I don't understand what
their end game is. If you're taking money from the CCP and
you're lobbying on their behalf, at some point somebody's going
to have to win this conflict. And if we lose, where are you
going to run? Where are you going to hide? You've actually
enabled this to happen. And when China is the dominant power
and we become a vassal state, it's affected you too. I just
fundamentally do not understand why these people are trading in
their future, their children's future, for a few dollars today.
Senator Sasse. Thank you.
Vice Chairman Rubio. Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman.
First question for you, Ms. Nikakhtar. I'm very troubled
about the use of the $10 trillion private equity industry to
mask investments by Chinese-government-linked actors in
critical infrastructure and technology. And you may be aware
that as Chairman of the Senate Finance Committee, I've been
working on legislation that would close disclosure loopholes
for private investment vehicles like hedge funds, private
equity, and venture capital firms.
In your view, would there be a national security interest
in fully understanding who is behind these funds that are
acquiring companies with critical technology?
Ms. Nikakhtar. A hundred percent.
We've got to explore all of the disclosure loopholes and
close those. And then when we trace the financing back, it has
to go back to the ultimate beneficial owner. And I think
companies do not do adequate due diligence to figure this out.
And I think sometimes our intelligence communities fail to do
that.
Senator Wyden. Would it be fair to say you believe
legislation requiring disclosure of beneficial ownership of
these very large investment vehicles would make the CFIUS
review process more thorough and efficient?
Ms. Nikakhtar. Yes, Senator, I do. And I would actually
take it a step further. I actually think that companies that do
business of a certain dollar amount with the CCP need to
disclose that to the government, too, so we really understand
what these transactions are that companies are making. So, yes.
And then again, I would take it a step further.
Senator Wyden. It'd be fair to say between the two
questions I asked and the additions you just made, where you
said you'd go further, you think to a great extent, we're just
pretty much in the dark with respect to anything resembling
useful, fulsome information about these funds?
Ms. Nikakhtar. As the former head of CFIUS at the Commerce
Department, yes, we were completely in the dark. Our
Intelligence community didn't have adequate information. And I
was frequently in the office until three in the morning using
any open source information I could to get to the ultimate
beneficial owner. So, yes.
Senator Wyden. That really is what you are left with is
just flailing about trying to find open source, when, if we had
government doing its job and insisting on disclosure and
insisting on accountability, you would have that information.
Is that fair to say?
Ms. Nikakhtar. Flailing about, yes. Sometimes I found
really good data, yes. And a lot of sleepless nights, yes.
Senator Wyden. Very good. You clearly have the expertise to
use open source information. I don't think it should come to
that. I think we ought to be adopting the suggestions.
Ms. Nikakhtar. You're absolutely right. It was just tongue-
in-cheek. It was never through open source, the exact type of
information I need to take it across the finish line. You're
absolutely right.
Senator Wyden. Very good.
Dr. Mulvenon, I am told you're an expert in China's
Internet censorship. This has been an issue of great importance
to me, and on the Finance Committee in particular. And we have
looked at the way the Chinese government uses Internet
censorship to silence its critics. Internet censorship, whether
at the hands of the Chinese government or nominally private
companies not only undermines free speech and human rights, but
has an economic impact on companies who can't or won't be able
to participate in markets under those terms. For example, a
recent U.S. International Trade Commission report described how
censorship is creating barriers to the entry of U.S. tech firms
in China and protects Chinese companies from competition.
The question would be, given China's expanding economic
influence, how do we stop the PRC cyber and censorship policies
and its views--very odd and ominous views--on Internet
sovereignty from spreading outside of China?
Dr. Mulvenon. I agree with you, Senator. I've been looking
at this issue for a long time. We're entering a new era where
the Chinese model, if you will, of the so-called panopticon
surveillance state is now being globalized. We used to talk
about the Chinese Internet censorship issue largely in a China
context in terms of inbound and outbound information from China
itself. But the export of the Chinese surveillance industry,
whether it's via SmartCities in Africa and other belt and road
countries, up to and including China's proposals to the
international standards bodies, which propose, frankly, a re-
architecting of the Internet and Internet 2.0 that is extremely
surveillance friendly and very national sovereignty friendly,
vice our traditional model of focusing on a global notion of
Internet freedom.
Senator Wyden. One more question if I might ask. There have
been a number of reports of the PRC using its economic power,
in particular its status as a market for American
entertainment, to influence the movies and the television that
Americans consume. Doctor, what do you see is the future of
this kind of censorship and how widespread it might be?
Dr. Mulvenon. Frankly, I've been deeply troubled by the
trends over the last 10 or 15 years where major studios,
because of China's rapidly growing theater market, are
reluctant to depict any negative depictions of China in movies
up to and including, as I'm sure you're aware, the CGI re-
rendering of the remake of ``Red Dawn'' where all of the
Chinese in the movie were remade through CGI into North Koreans
so that studio did not anger the Beijing regime. And I don't
see how we reverse that given the economic pull of the
theaters, except to acknowledge that it is in fact happening
and it is fundamentally not compatible with our values.
Senator Wyden. Mr. Chairman, can I get one last question
in? Thank you, Mr. Chairman.
This influence, obviously, of the PRC could be indirect.
For example, Twitter's owner has heavily invested in China.
Tesla cars are manufactured in China, rely on the Chinese
market, depend on Chinese lithium for batteries. Do any of the
three of you have concerns that the PRC might try to leverage
Tesla's dependence on China to limit anti-PRC content on
Twitter?
Ms. Nikakhtar. Can you repeat the last part? I had a hard
time hearing.
Senator Wyden. Do you have concerns that the PRC might try
to leverage Tesla's dependence on China to limit anti-PRC
content on Twitter?
Ms. Nikakhtar. Absolutely, absolutely.
By having more of any company's operations and supply
chains in China, we're giving them full ability to basically be
the puppet master and dictate how these companies operate
companywide, owner-wide. Once you hold them hostage, you can
essentially compel them to do anything. And people forget that
in China you don't have the ability to make decisions yourself.
Senator Wyden. I'm way over my time. If either one of you
want to make a quick comment, please do. But I get the sense
that maybe the previous answer to my question is in line with
the other witnesses today. Is that true? Okay. Thank you.
Chairman Warner. I'm going to momentarily bigfoot for one
second, since I've got a TV headline upstairs. And this will be
a lightning round. We touched a little bit on this earlier
around, and I agree that the alliance of democracies. Should
that be--brief, brief answers because I've got one more
question quickly after this and then I want to get Senator
Sasse to close out.
But should it be a formal alliance or not? I had pushed the
Administration to maybe think about this in a more formalized
way. There are good arguments both ways. There might be
different alliances on different issues. Although I'd point out
the fact that by not having some formal alliance approach on
semiconductors, for example, Germany is moving even quicker
than us, even though we had the idea to start with. Maybe done
it in alliance?
But I think you got the gist of the question. Right down
the line: formal alliance, not formal alliance in recognizing
it? Maybe different countries. If you had a core group, you
could expand or contract based upon the technology.
Dr. Murdick. Yes, I think if you're dealing with the right
parties who actually have the play in the question, I think a
formal alliance makes a lot of sense. I think most of these
questions, for them to be effective, require multi-party
engagement because a single actor trying to stop a multi-party
system just gives an opportunity for people to run around that
single actor saying no.
Ms. Nikakhtar. Some formal, some informal. Sometimes our
allies don't want to be out there because the fear of
repercussions from China. On a case-by-case basis, sometimes
formal, sometimes informal, to give our allies top cover.
Dr. Mulvenon. In my 2021 word bingo was plurilateral. In
other words, by specific industries or specific technology, so
that you only have the right countries in the room.
Semiconductors, for instance. We know the Netherlands has to be
in the room because of ASML and their EEV technology. But if
you keep it small like that, then you can set standards and you
can have industrial planning within those small groups and have
coherence, whereas you can't have that at a multilateral level
like the Wassenaar Arrangement, which is just too big, too
diffuse.
Chairman Warner. My concern with that--I'll go to the last
question--and I'd like to get the response. Then I'm going to
turn over to Senator Sasse. And I apologize for jumping back in
like this--is that when you're thinking about technology
development, it's hard to decide who the right countries are at
the right end. Maybe we're doing some of this in a NATO level.
We're doing some of this at a QUAD level. I don't know. It's a
fair question that most of you are not completely unformal, but
I'd like to continue that.
The second half of this, which we've talked a lot about,
the need for us to make investments. I do think, particularly
Dr. Murdick, some of your ideas about how we might structure
this in the government makes sense. One of the things I'm
concerned with is our first time out of the chute here has been
semiconductors. I would posit if you didn't have a huge high-
employment industry that was losing share, and we didn't have
the moment of COVID where suddenly that supply chain loss drove
beyond even the industry, I'm not sure we would making this
kind of $52 billion investment.
How would we ever--? Maybe I'll just leave this for the
record and you can come back to me on it. If it's a new
technology, where China's about to sweep the field, and there's
not a mature industry to invest in that's got the lobbying
power here or we're not seeing the immediate repercussions of
that until potentially years down the line, how do we make a
decisionmaking process that at least elevates this to say you,
Congress, ought to be thinking about making a major investment?
And I would love to get your answers on that but
recognizing that I've abused my jumping in front of my friend.
Senator Sasse, you get to close out this. And thank you, thank
you, thank you. We've had a large number of my colleagues on
both sides of the aisle who have come up and said, very good
hearing.
Senator Sasse.
Senator Sasse [presiding].
Senator Sasse. Chairman, thank you for scheduling this in
public. It's a very important topic. I wish I could hold you
all hostage for half an hour, but the reason I'm the only one
left here is that the vote closes soon, so I'll also ask you to
speak quickly.
But pursuing more of what the Chairman just said, I want to
get back to something like a D10 or a D12 technology standard-
setting and free trade agreement.
But first, explain to us what is Chairman Xi doing in his
own tech crackdown right now? What's motivating him?
Dr. Mulvenon. Well, I think that there is an inherent
suspicion in the Chinese central government about private
entrepreneurship. You see this. There's a number of indications
and warning of this. One is the re-imposition of the
requirement for party committees within private enterprises as
the only reliable mechanism of political control that they're
familiar with.
Secondly, it is fair to say that Alibaba and Tencent were
reeled back in because they had been so fabulously successful
at creating a new mobile digital payment market that it was
having a negative revenue effect on the Chinese state-owned
banking system. And so in some sense what you see is the
revenge of the regulators because of course the state banks and
the state bank regulators are the same people just rotating
jobs every couple of years. There was a sense that as they were
developing eCNY and their own digital currency that they could
imagine--this is my prediction, that there will be a future in
which the Chinese state digital currency will subsume what had
previously been the private enterprise mobile payment system,
and that would allow them to have that kind of central
understanding of what's going on, on their central blockchain,
which helps them with their capital flight concerns, helps them
with their anti-corruption investigations.
There's a lot of things merging together, I think, that
explain why they didn't want so-called rogue elements. It's
also true, by the way, that these entrepreneurs that they're
reining in are not members of the tribe, in a sense. They're
not red princelings. They're not red family members. They have
not asked under common prosperity for any high-ranking party
kid to give millions of dollars to charity. There really is
this sense from Xi Jinping that there is a red tradition and
that there are groups of people that he trusts. And these by-
the-bootstrap entrepreneur guys were not in that circle of
trust. That's just my personal view.
Senator Sasse. Very helpful. And what's the state of the
internal debate with Xi and his closest cronies about a digital
decoupling that they rather than we initiate?
Dr. Mulvenon. Well, I actually agree with the idea that
it's a false dichotomy to say that the U.S., viewing this
hyper-globalized economy, seeing these early problems with the
pandemic, has now been the one that is decoupling. It is
important to remember from a regulatory perspective that the
Chinese state has never allowed us to invest in areas like
telecommunications services and other areas. So to get upset
about removal of Huawei equipment from the U.S. telecoms
market, the natural question is, what is the current Ministry
of Industry and Informatization allowing companies to do in
their market?
I would argue that their protectionist system was a form of
decoupling even before we began thinking about re-shoring. I
think the causation era was backward in terms of blaming the
U.S. now for severing connections with China.
Ms. Nikakhtar. And may I just quickly add to that? To the
extent that U.S. businesses don't care, I try to remind them
all the time that as China's digital currency flourishes, this
is a mechanism to displace U.S. and Western competitors to
manufacturers out of the market because they're just not going
to accept dollars.
Senator Sasse. Helpful.
Sir?
Dr. Murdick. Just to add in one more point on the last
question. Obviously, I'm not privy to the internal discussions
that are happening within China. However, there's a very
interesting, I referenced it earlier, this Peking University
piece from The Institute of International Strategic Studies. At
the very end of this document they lay out, basically, the
dynamics of technical decoupling has evolved from a one-way to
a two-way process. China and the U.S. have different starting
points, but they are moving toward a common goal, which
objectively facilitates a two-way decoupling trend. Whether the
technology level or industry level. Both China and the U.S. are
facing losses brought about this decoupling and China's losses
might be greater at this point.
There is a clear thinking about this as a two-way process.
And I think it's really important to understand that they
recognize there are losses involved in this space. But this
seems to be an ongoing discussion, and they're monitoring
whether they can convert from a loss position, which is what it
seems that they're assessing, to a position where they can have
a little less loss.
Senator Sasse. Very helpful. The vote is technically
closed, so I need to sprint to it. But on behalf of the whole
Committee, thank you for all three of your work and your time
with us today. I'm going to followup with you with some more
questions related to an ideal version of a D10 or a D12 or a
TPP with technology standards and teeth.
But thank you for your work. This hearing is adjourned.
[Whereupon at 4:45 p.m., the hearing was adjourned.]
[all]