    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                   CHINESE INVESTMENT AND INFLUENCE IN EUROPE

    =======================================================================

                                    HEARING

                                   BEFORE THE

             SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS

                                     OF THE

                          COMMITTEE ON FOREIGN AFFAIRS
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 23, 2018

                                   __________

                               Serial No. 115-134

                                   __________

            Printed for the use of the Committee on Foreign Affairs

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Available: http://www.foreignaffairs.house.gov/, http://docs.house.gov,

                          or http://www.gpo.gov/fdsys/

                                     ______

                      U.S. GOVERNMENT PUBLISHING OFFICE

     30-178PDF                 WASHINGTON : 2018

                          COMMITTEE ON FOREIGN AFFAIRS

                     EDWARD R. ROYCE, California, Chairman
    CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
    ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
    DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
    STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
    JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
    MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
    TED POE, Texas                       KAREN BASS, California
    DARRELL E. ISSA, California          WILLIAM R. KEATING, Massachusetts
    TOM MARINO, Pennsylvania             DAVID N. CICILLINE, Rhode Island
    MO BROOKS, Alabama                   AMI BERA, California
    PAUL COOK, California                LOIS FRANKEL, Florida
    SCOTT PERRY, Pennsylvania            TULSI GABBARD, Hawaii
    RON DeSANTIS, Florida                JOAQUIN CASTRO, Texas
    MARK MEADOWS, North Carolina         ROBIN L. KELLY, Illinois
    TED S. YOHO, Florida                 BRENDAN F. BOYLE, Pennsylvania
    ADAM KINZINGER, Illinois             DINA TITUS, Nevada
    LEE M. ZELDIN, New York              NORMA J. TORRES, California
    DANIEL M. DONOVAN, Jr., New York     BRADLEY SCOTT SCHNEIDER, Illinois
    F. JAMES SENSENBRENNER, Jr.,         THOMAS R. SUOZZI, New York
        Wisconsin                        ADRIANO ESPAILLAT, New York
    ANN WAGNER, Missouri                 TED LIEU, California
    BRIAN J. MAST, Florida
    FRANCIS ROONEY, Florida
    BRIAN K. FITZPATRICK, Pennsylvania
    THOMAS A. GARRETT, Jr., Virginia
    JOHN R. CURTIS, Utah

         Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

                   Jason Steinbaum, Democratic Staff Director
                                     ------

             Subcommittee on Europe, Eurasia, and Emerging Threats

                     DANA ROHRABACHER, California, Chairman
    JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
    TED POE, Texas                       BRAD SHERMAN, California
    TOM MARINO, Pennsylvania             ALBIO SIRES, New Jersey
    F. JAMES SENSENBRENNER, Jr.,         WILLIAM R. KEATING, Massachusetts
        Wisconsin                        DAVID N. CICILLINE, Rhode Island
    FRANCIS ROONEY, Florida              ROBIN L. KELLY, Illinois
    BRIAN K. FITZPATRICK, Pennsylvania
    JOHN R. CURTIS, Utah

                                C O N T E N T S

                                  ----------
                                                                       Page

                                   WITNESSES

    Mr. Philippe Le Corre, senior fellow, Mossavar-Rahmani Center for
      Business and Government, John F. Kennedy School of Government,
      Harvard University.............................................     5
    Mr. Gordon Chang, author.........................................    17
    Mr. Kevin D. Freeman, author.....................................    29

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Mr. Philippe Le Corre: Prepared statement........................     8
    Mr. Gordon Chang: Prepared statement.............................    19
    Mr. Kevin D. Freeman: Prepared statement.........................    32

                                    APPENDIX

    Hearing notice...................................................    54
    Hearing minutes..................................................    55

                   CHINESE INVESTMENT AND INFLUENCE IN EUROPE

                                  ----------

                            WEDNESDAY, MAY 23, 2018

                           House of Representatives,

             Subcommittee on Europe, Eurasia, and Emerging Threats,

                         Committee on Foreign Affairs,

                                Washington, DC.

        The subcommittee met, pursuant to notice, at 2 o'clock
    p.m., in room 2255 Rayburn House Office Building, Hon. Dana
    Rohrabacher (chairman of the subcommittee) presiding.
        Mr. Rohrabacher. This hearing is called to order.
        In nearly two decades--it's been nearly two decades--since
    China entered the World Trade Organization in 2001, and since
    then America has experienced a debilitating consequence of
    unfair trade, and that is unfair trade with the People's
    Republic of China.
        And it has been a relationship since that time that has
    sometimes been dubbed as an economic blood transfusion from
    West to East--a vast transfer of wealth that has financed the
    Chinese security state at home and a coercive military foreign
    policy abroad.
        Yet, America has not been the only target. China, likewise,
    seeks economic and political advantage over Europe and that is
    the subject of today's hearing.
        According to an open source data, which is likely to
    underestimate such true figures, direct investment from China
    into Europe now stands at $95 billion a year and China has
    bought or invested well over $300 billion in European assets in
    the last decade. That is a significant sum. But those figures
    do not do justice to the scale and breadth of influence that
    China has thus achieved.
        Chinese investment, much of it directed by the state-owned
    enterprises of China, reflects and serves the political goals
    of Beijing.
        China is a global strategy--it has a global strategy--to
    control the extraction of raw resources, to control
    transportation corridors, to dominate the innovation and
    production cycles of others, and then to sell the products it
    has abroad to enrich the corrupt elite that rule over China
    today.
        As has been much discussed elsewhere, the Belt and Road
    Initiative is part of this grand strategy as are Chinese
    efforts to set up a stage--an event for letting them do Arctic
    shipping between Europe and Asia as well as, of course, the
    creation of a parallel regional platform such as 16+1.
        For China, Europe represents a large market with few
    economic defenses like we have in the United States. So Europe
    is relatively vulnerable compared to our country to this type
    of economic challenge.
        For example, while the Committee on Foreign Investment in
    the United States--better known as CFIUS--has blunted some of
    China's attempts to buy key companies in the United States,
    only 12 of the 28 European Union member states have a
    comparable mechanism to screen for an investment and also
    screen the efforts to create and an EU-wide system has proven
    unsuccessful. So they don't have it now and it doesn't look
    like it's in the works. I am interested in hearing what our
    witnesses will say about that.
        Likewise, Chinese political influence operations have found
    opportunities in Europe. There are now over 440 Confucius
    Institutes and classrooms in Europe, often partnering with
    credentialed local educational institutes.
        These Confucius Institutes are, ultimately, and they are
    ultimately the spokesman for the Chinese Communist Party and
    the transition belts that inject Chinese propaganda directly
    into the education of European youth.
        Despite the differences between the United States and
    Europe, we broadly share a commitment to human rights and rule
    of law. China is using economic leverage to weaken and divide
    the West.
        Economically, China seeks to prevent either American or
    European companies from competing against Chinese companies
    abroad, especially in the Indo-Pacific and also areas and
    politically they have been involved in the transatlantic
    community trying to speak about this--about this threat has
    been thwarted by the Chinese themselves within Europe and
    within the United States.
        So we can't even now talk about, and I've noticed this in
    the film business--this is in my notes here--I've noticed in
    the film business, the Chinese have invested in the film
    business in the United States and all of a sudden you see
    positive Chinese characters emerging in films that have nothing
    to do about China.
        Well, this type of influence that they've been using has
    prevented the type of criticism that China deserves about the
    destruction of Tibet, East Turkestan, the murder of Falun Gong
    prisoners, the plight of political dissidents, the elimination
    of the political opposition in Hong Kong, the suppression and
    infiltration of Christian churches in China, and, of course,
    the issue of the sovereignty of Taiwan.
        These issues have not been able to be discussed or at least
    the discussion of these issues are undermined by Beijing's
    efforts economically as well as politically.
        So Beijing seeks to use its influence to create scenarios
    where the Western governments and private companies are
    preemptively obedient and kowtow to the interests of China
    because they have laid the groundwork intellectually for
    undermining these charges against them.
        In this contest for influence and dominance, the United
    States and Europe--we have no choice but to work together. I
    say to my European colleagues that protection is not
    protectionism.
        So we must all agree that not all investment is equal.
    Financing from Brussels or New York is fundamentally different
    than money that is offered by China.
        And perhaps the terms could be cheaper than what the
    Chinese offer or the credit could free--be a freer flowing. But
    I can promise anyone who takes part of this, you will be paying
    more in the end by taking such deals.
        With that, I would like to yield to my ranking member, Mr.
    Meeks, for his opening statement and then I will ask our
    witnesses to proceed with 5-minute statements and then we will
    have a dialogue.
        So with that said, Mr. Meeks.
        Mr. Meeks. Good afternoon, everyone, and thank you for
    being here. Thank you, Chairman Rohrabacher, for calling our
    attention to the ongoing concern of ours that affects both
    sides of the Atlantic--Chinese direct investment and the
    associated strategic implications.
        Large investments from China are not necessarily new. But
    as China's foreign policy adapts and sharpens into one of
    economic diplomacy, we should be aware of their goals and their
    intentions, overt or covert.
        Moreover, is it important to understand where the money is
    going and to determine just how strategic these sectors are.
    This is especially significant, given the monolithic nature of
    the Chinese Government and the fact that the majority of the
    foreign direct investment in the EU from China are led by
    state-owned enterprises.
        Europe, including countries beyond the EU, is an enormous
    market and our largest trading partner. The targets of Chinese
    investment in this market has evolved over the last decade or
    so.
        Although Central Europe is becoming a more attractive and
    welcoming place for Chinese investment, notably, in the 16+1
    framework, the vast majority is going to Western Europe.
        Incidentally, it is the Western European countries that
    push forward a European approach to the strategic nature of
    these investments.
        These type of investments are also important to examine
    from infrastructure, technology, to lax residency programs. The
    interest is clear.
        As a senior member of the House Financial Services
    Committee, I am specifically interested in how we screen
    investments into the United States.
        And here on the Subcommittee of Europe, I am searching for
    ways to cooperate with our European allies to keep our
    financial bodies robust, healthy, and free of nefarious
    influence.
        Our open markets are sometimes used as an entry port for
    nefarious activity or simply to hide ill-gained money.
        As a first step, I would like to see a degree of more
    transparency in ownership rules so that, at minimum, we could
    know more about who is investing in what.
        It is this sense this hearing can be all about state-
    directed financing into our systems including those directed by
    the Kremlin, for example.
        And why should we care about these types of investments?
    First off, the investments are not purely commercial. There are
    strings attached.
        Secondly, although we can and should cooperate with China
    on common areas of concern, such as North Korea, it is a
    competitor that does not share our common values--democracy and
    respect for individual rights.
        Hopes that China was moving in a democratic future have
    been dashed, leading some here in the United States and many in
    Europe with a more realistic vision of today's China.
        Thirdly, China has not been reciprocal in market access and
    there's an element of fairness that should be addressed in
    international fora, not solely on Twitter.
        Regardless, in all of the aforementioned areas, I am keen
    on seeing on how we can avoid widening the current rift in the
    transatlantic relations, avoid unnecessary trade spats, all
    important, and let us work together earnestly with our European
    allies to protect the transatlantic project and the values we
    live by.
        I believe cooperation with the EU on this topic can bring
    us a closer--can bring us closer. In fact, I encourage the
    Trump administration to approach it this way.
        Let's not shoot ourselves in the foot by alienating our
    closest allies and partners. Doing so only plays into the hands
    of Moscow and Beijing.
        So I look forward to hearing from our panel about how we
    should address this issue. It should be of transatlantic
    concern to all of us.
        I yield back.
        Mr. Rohrabacher. Mr. Cicilline, would you like to have a
    short opening statement?
        Mr. Cicilline. Thank you, Chairman Rohrabacher and Ranking
    Member Meeks, for convening today's hearing to discuss Chinese
    investment, influence in Europe, and thank you for our
    witnesses for being here.
        China has shown time and again that it is more than happy
    to fill a void whenever we recede, and I just want to use my
    minute to talk about one very specific example, something I've
    been a lot of time working on but I think which really
    illustrates the challenge, and that is the use of a former U.S.
    Air Force Base at Lajes located on the Azorian Islands in
    Portugal.
        The U.S. and Portugal have had a long and rich history and
    partnership together since World War II and until recently
    Lajes was a key installation linking the U.S. to Europe and the
    Middle East.
        It boasts the largest runway in Europe, capable of
    supporting any commercial or military aircraft in the U.S. or
    NATO fleet.
        It was used during the Cold War and is a crucial stepping
    stone in operations ranging from the Berlin airlift to the Gulf
    War.
        However, in 2016, the Department of Defense decided to
    decommission Lajes, a decision I strongly opposed for a lot of
    reasons, but not the least of which was it became clear that by
    vacating that space it would open up a strategic position to
    outside influences.
        In the past year, China has shown interest in investing in
    Lajes, and the Azores may be left in the position where they
    have to welcome them in order for this area to survive.
        This would lead to a previously unthinkable circumstance--
    the Government of China with a perch in the North Atlantic
    between the United States and Europe.
        This is just one example of Chinese interests in Europe,
    which I believe the U.S. needs to take very seriously. I look
    forward to the hearing from our witnesses today and thank you,
    again, Mr. Chairman, for convening this hearing.
        Mr. Rohrabacher. Thank you very much for your opening
    statement.
        I remember when I first found out that the Chinese had
    bought these terminals on both ends of the Panama Canal--how
    concerned I was and what you have raised should be also of
    equal concern to us. Thank you very much for that opening
    statement.
        And now we will go to our witnesses, and again, I would
    like if we could have 5 minutes for opening testimony, then a
    discussion. That's what this--these hearings are all about.
        And our first witness is Philippe Le Corre--Le Corre--is
    that pronounced correctly?
        Mr. Le Corre. Le Corre.
        Mr. Rohrabacher. Le Corre. All right. And he is a senior
    fellow with the Carnegie Endowment for International Peace and
    senior fellow at the Harvard's Kennedy School of Government. He
    has worked in several positions--senior positions in the French
    Ministry of Defense and has been focused on Asia and that
    responsibility. His latest books is ``China's Offensive in
    Europe,'' published in 2016.
        You may proceed.

      STATEMENT OF MR. PHILIPPE LE CORRE, SENIOR FELLOW, MOSSAVAR-
      RAHMANI CENTER FOR BUSINESS AND GOVERNMENT, JOHN F. KENNEDY
                SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY

        Mr. Le Corre. Thank you, Mr. Chairman.
        Chairman Rohrabacher, Ranking Member Meeks, distinguished
    members of this committee, it's an honor for me to testify and
    hearing on this subject by other subcommittees in this very
    House I am delighted that your subcommittee has decided to
    address this important topic.
        I've been working on Chinese investments in Europe for
    several years and I've brought actually my book--the one you
    mentioned, Chairman--and it has indeed become quite a topic
    over the past 2 years.
        And it's not just a topic for Europeans. It is also
    relevant, as you mentioned, to the United States, which count
    many European nations as its friends and partners.
        Last month's state visit by President Macron in this
    Congress was clear evidence of this friendship.
        The current national security strategy of the United States
    stresses, ``China's strategic foothold in Europe where it is
    extending its unfair trade practices and investing in key
    industries, sensitive technologies, and infrastructure.''
        It also calls for dialogue with European allies ``to
    contest China's unfair trade and economic practices and
    restricts its acquisition of sensitive technologies.''
        What I will try to do in the next few minutes is to
    describe some of the current trends of China's overseas foreign
    direct investments in the European Union and beyond.
        First, Chinese projects are on the rise. From $840 million
    invested in 2008 they grew to $42 billion in 2017. According to
    a recent compilation by Bloomberg, total Chinese investments in
    Europe, including both mergers and acquisitions and greenfield
    investments, amount to $318 billion.
        Second, these investments cover many sectors, consumer
    brands, services, industry, high technologies, and
    infrastructure.
        Third, they are spread out across the continent. The United
    Kingdom comes first as China is trying to build in the city of
    London its first international RMB platform.
        Germany, which is the EU's largest and best performing
    economy, comes next, followed by Italy, France, Finland,
    Portugal, Greece, and Poland.
        Depending on the size of the economy and the type of
    targets, you will find a nuclear plant construction in England,
    a robotics company partly financed by China in Germany, or an
    automobile brand in Sweden. In the vast majority of cases,
    Chinese investments have been initiated and operated by state-
    owned companies.
        There are, indeed, some private investors--about a third--
    but in most cases they have received funding from state banks
    or Chinese sovereign funds.
        In particular, I would like to point out the cases of
    Portugal and Greece, two relatively small economies which have
    thrown open the gates to Chinese investors.
        In the Portuguese case, the 2008 financial crisis led the
    government to privatize a number of utilities including
    Energias de Portugal (EDP), the largest electricity operator.
    The Chinese company, China Three Gorges, is now offering to
    take over the entire EDP.
        One can easily imagine the national security risk if this
    EU and NATO country was to sell its national grid to a foreign
    power.
        In the Greek case, again, the financial crisis in Europe
    has led the government to privatize the Piraeus Harbor. The
    Chinese state-owned company Cosco now runs 67 percent of the
    harbor.
        China is using Piraeus as its main hub in the Mediterranean
    region with the clear goal of expanding its exports to Europe
    through the maritime rules.
        One question that experts have been wondering about is
    whether Chinese FDI should all be considered part of the so-
    called Silk Road investments. As often in the case of China,
    the response is opportunistic.
        Those that are part of the Belt and Road Initiative and
    controlled by the state can be integrated in that scheme. But
    others, because they don't feed the plan or because their home
    countries have not signed into the BRI are not.
        Launched in 2013, the BRI's network of infrastructure
    projects including railways, roads, ports, airports,
    telecommunication links, oil and gas pipelines, and energy
    facilities, today the BRI is the centerpiece of China's foreign
    and domestic policies.
        But it is not solely aimed at Europe. It is now a broad
    concept, even a global geoeconomic strategy. The fact that
    Chinese entities partially or wholly own at least four airports
    and six seaports is no coincidence--even if some of these deals
    were signed before the BRI, they are now a part of the plan
    which includes developing massively e-commerce across Europe,
    which require huge logistical capacities.
        China so far failed to get a substantial number of European
    countries interested in the BRI. Polls show a lack of knowledge
    about the initiative in most European countries.
        The leaders of Germany, France, the U.K., all skipped the
    Belt and Road forum in Beijing in May 2017 as did the president
    of the European Commission.
        Instead, the latter sent one of his vice presidents, who
    said that any scheme connecting Europe and Asia should adhere
    to a number of principles, including market rules and
    international procurement standards and should complement
    existing networks and policies.
        It is fair to say that the BRI presents opportunities for
    Europe. But it is primarily a Chinese project that will help
    China expand its influence in the Eurasian region and beyond.
        Europe and China have similar aims in their respective
    territories, preserving jobs, fueling economy growth, and
    maintaining social stability.
        However, they have a different way of pursuing these goals
    and may achieve them better by staying somewhat apart, which is
    why, Mr. Chairman, I have been advocating in my writings that
    Europe should speak to like-minded nations and territories to
    analyze and assess the rise of Chinese investment and of the
    Silk Road project, keeping in mind the need for transparency,
    reciprocity, and respect of the rule-based international order.
        Tomorrow, Chancellor Angela Merkel will travel to Beijing
    and she'll be able to, hopefully, stand, not only for her
    country's interests but also those international rules.
        Next month, when leaders of the G-7 meet in Canada, I also
    think it should be part of the private conversations among
    leaders to address this issue of China's investments.
        Thank you.
        [The prepared statement of Mr. Le Corre follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      ----------

        Mr. Rohrabacher. Thank you very much, and we see about--we
    have next with us Gordon Chang is an author who has spent years
    living and working on--in China and in Hong Kong. He's the
    author of ``The Coming Collapse of China'' and is a columnist
    for the Daily Beast and frequently appears as a regular expert
    guest on various news programs.
        Mr. Chang, go right ahead.

                 STATEMENT OF MR. GORDON CHANG, AUTHOR

        Mr. Chang. Chairman Rohrabacher, Ranking Member Meeks, and
    distinguished members of the committee, it's a great privilege
    for me to be here today and I thank you for this opportunity.
        Europe is where China subverts our curbs on the
    acquisitions of sensitive technologies. Whether China is
    revolutionary or just merely revisionist--and I think it's
    revolutionary--but whatever it is, it has to dominate
    technology if it's going to realize its broad and ever
    expanding ambitions.
        Xi Jinping, the Chinese ruler, has his Made in China 2025
    Initiative, which seeks self-sufficiency in 10 critical
    sectors. It is the heart of his industrial policy, and his
    industrial policy is the heart of his plan to become the
    number-one economy.
        Chairman Rohrabacher talked about China's predatory trade
    practices. Clearly, CM 2025, which the Chinese know it is a
    grand assault on the WTO.
        Now, to achieve the goals that Xi Jinping has, one of them
    is to give assistance for the acquisition of foreign
    technology, and government support is probably the best reason
    why Midea Group, which is a home appliance maker--microwaves,
    air conditioners--why it, in 2016 and 2017, acquired Kuka A.G.,
    which is Germany's foremost robotics company.
        Yes, companies diversify all the time. But in this
    particular case where you see a company stray so far from its
    geographical area, so far from its core business that
    government direction is the best answer for why this occurred.
        Beijing's preferred target, of course, is American
    technology and here, we've seen China, very shrewdly, invest in
    startups, also scoop up distressed American tech companies.
        And Ranking Member Meeks talked about the changing mix of
    China's investments into Europe where you can see the changing
    mix in the United States as well with technology.
        China's technology investments seem to have followed in the
    last half decade two things--first of all, the Made in China
    2025 Initiative, plus, also China's two 5-year plans--the
    Twelfth and the Thirteenth.
        Now, Chinese tech acquisitions in the U.S. have gotten
    harder. There have been more clamps on this. Ranking Member
    Meeks asked well, what can we do, and part of this is, you
    know, we have to see what the U.S. does and hopefully these
    lessons rub off on the Europeans as well.
        So, for instance, in that Kuka acquisition, we did not stop
    it, as the United States might have been able to do because of
    our approval process.
        But we did stop in December 2016 in one of the last acts of
    the Obama administration was the acquisition of a subsidiary of
    Aixtron, the German chip equipment maker, and that, I think,
    was a very important turn because we see the Trump
    administration following that example with two disapprovals of
    Chinese acquisitions.
        Interestingly, we see Shenzhen-based Huawei Technologies.
    It is the world's largest maker of telecom equipment. Because
    of its connections with the People's Liberation Army and with
    Chinese security services, it has largely been shut out of the
    American market, and that's a great thing.
        But the one thing that Huawei has done is after being shut
    out of the U.S. it has moved into Europe and now derives
    something like 35 percent of its revenues from the continent.
        We have seen other Chinese companies also adopt this ``shun
    the U.S., embrace Europe'' concept.
        The Chinese are acquiring a lot. We heard from Mr. Le Corre
    some statistics from Bloomberg. What's fascinating is that in
    this 10-year period that Bloomberg refers to $318 billion worth
    of acquisitions in Europe, the Chinese have spent 45 percent
    more in Europe than they have in the United States, as they
    acquired 360 companies.
        At this moment, as Chairman Rohrabacher mentions, there is
    no general screening process in the European Union, only, as
    you mentioned, 12 out of 28 EU countries have a screening
    process of their own.
        The important thing here, I think, is that we are seeing
    France and Germany, which is the core of the economic union, is
    actually starting to think about screening.
        We heard President Macron talk about ``protective Europe''
    a couple months ago. And so this is going to be important. The
    other thing that we can do is set that example and here, I
    think, that we need to show the Europeans that we have the
    political will to stop Chinese investment because then, I
    think, they will, and that will be the example that you talk
    about, Chairman Meeks.
        I didn't plan to speak about Lajes but it's something very
    close to my heart. Just before I run out of time, I want to
    mention that if the Chinese were to get the air base in Lajes,
    they would be able to be closer to Washington and New York than
    Pearl Harbor is to Los Angeles and San Francisco. That is
    something we cannot permit.
        Thank you.
        [The prepared statement of Mr. Chang follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                         ----------

        Mr. Rohrabacher. Thank you very much.
        And we have Mr. Kevin Freeman. He is an expert on global
    capital markets and is the CEO of Cross-Consulting and
    Services--an investment advisory firm.
        He is also the author of several books, including
    ``Economic Warfare: Risks and Responses,'' analysis of the 21st
    century risks in light of the recent market collapse, and many
    other things that you have written.
        So we welcome your testimony today. You may proceed.

               STATEMENT OF MR. KEVIN D. FREEMAN, AUTHOR

        Mr. Freeman. Thank you, Mr. Chairman. Thank you, Ranking
    Member Reeks. My background--and thank you to the subcommittee.
        My background, as you mentioned, Mr. Chairman, is
    international investing. I went to work for the great John
    Templeton in 1990.
        Sir John Templeton truly pioneered global investing. He was
    a brilliant man, and I remember well--worked with him--being
    with him when the wall was coming down in Berlin, and we looked
    at that and I said, so where do you think the best place to
    invest would be--should we invest in Russia.
        And he said no, we should invest in China, and the reason
    that he said that was he said the Chinese will remember how
    markets operate and they will be able to effectively operate in
    markets.
        The Russians, on the other hand, were so far from a market
    economy that it would be a long learning process before they'd
    be successful.
        Now, I thought that was interesting because at the time, in
    1990, the Russian--the Soviet Union economy was number three in
    the world, second to the United States, and the Chinese economy
    wasn't ranked in the top ten.
        Now we are here, just three decades later--less than three
    decades later--and China's economy is by some measures the
    largest in the world, if you follow purchasing power parity,
    and it is, clearly, at least second to ours.
        So I understand global investments from the financial
    markets perspective and what Sir John Templeton taught me. But
    I also studied economic warfare, and in 2008 I was hired by the
    SOLIC Group in the Pentagon--Special Operations Low Intensity
    Conflict--to study irregular warfare and the role that economic
    warfare may have played in the 2008 financial collapse.
        I believe it's necessary that we both have an understanding
    of global investing and economic warfare if you want to
    understand why and how of Chinese investing.
        I want you to clearly understand that unlike Sir John
    Templeton, whose primary purpose in making an investment was
    the return to the investor, Chinese investments are not made
    with economic purposes--certainly, that they're a consideration
    but they're not the primary consideration.
        This is true for not only China but all sovereign wealth
    funds. There is a national interest whenever a sovereign wealth
    fund invests. But it's particularly true for the Chinese.
        It's also true for any Chinese individual investors who are
    scrutinized by the government for their investments as well as
    any companies in China which are many, in many cases, largely
    controlled by the People's Liberation Army or the state.
        President Xi has announced himself President for life,
    essentially, and he's been jailing rivals, and what we see as a
    marketplace our enemies view as a battle space, and I believe
    that's particularly true with the Chinese.
        One of the books that I've closely studied is a book titled
    ``Unrestricted Warfare.'' It was published in 1999 by two
    senior colonels of the People's Liberation Army, and it
    outlines a series of efforts including hacking, influence
    operations, intellectual property theft, infiltration of
    leadership, currency warfare, and it alludes to things like the
    Confucius Institutes and the mass push of Chinese students into
    our colleges and universities, all of which are soft means of
    warfare.
        I would suggest, to this committee, that Chinese
    investments must be seen from that perspective. I believe that
    this is a part, and my colleagues mentioned the Made in China
    2025 policy, which is designed to have Chinese--China self-
    sufficient in certain industries and areas, I believe that too
    is a form of economic warfare and I believe all of this is a
    part of the 100-year marathon.
        I brought a book from my friend, Mike Pillsbury, who wrote
    about the 100-year marathon and I would point you to the fact
    that in 1949 the People's Republic of China was formed, and 100
    years from that period would be 2049.
        This is an important date to recognize because the Chinese
    have learned from the Tiananmen Square incident in 1989 that 20
    years later they were able to host the Olympics in Beijing.
        So the belief, as I understand it in China, is that within
    two decades that you can remove a massacre and a horrific event
    from the world's consciousness and memory, therefore, if the
    goal is to have, essentially, the largest economy and the most
    powerful position in the world by 2049, the idea would be that
    you have to be completed with your horrific activity by the
    year 2029.
        So I would suggest that over the next decade we will see a
    more aggressive China than we have seen in the past.
        We are already beginning to see this. I was reading some
    Australian press reports complaining about the nations around
    Australia feeling Chinese influence following the acceptance of
    Chinese investments. And the Australians were wondering why are
    they no longer our friends--why are they becoming more China's
    friends.
        I would also point to the effort starting in 2013 where the
    Chinese talked about de-Americanizing the world, removing the
    dollar as the world's primary reserve currency.
        And we have seen an increase step-up in aggressive behavior
    since that day. I would point to recent press reports where
    something as simple as t-shirts sold at the Gap were questioned
    by China and therefore pulled because they happened to mention
    Tibet or Taiwan.
        And a Canada Air travel magazine was recently pulled
    because Canada Air was told it is unacceptable to show Taiwan
    on a map in your travel magazine when you're flying.
        I want to suggest, therefore, that the Chinese view this as
    wholly economic warfare. Every investment that they make is
    viewed from that perspective and we, unfortunately, as
    Americans, tend to view investments purely from an economic
    perspective. We must change that. We must reconnect the idea of
    national security and economics. They have been separated since
    the Clinton administration after the wall fell in Berlin.
        Our nation said we have the most dominant military on the
    planet and we have the strongest economy and we said, go for
    it. And in both cases, we pursued military and economic goals.
    But they were no longer connected, which is a tremendous
    disservice to our national policy. We must reconnect it.
        We must realize China is more than a competitor. They're,
    clearly, an adversary. We must do things like strengthen CFIUS,
    the Committee on Foreign Investment in the United States.
        We must look beyond the political narrative--Democrat,
    Republican, left, right--and recognize that China is truly an
    adversary and we must carefully prepare for it.
        We have largely ignored most of the economic warfare
    attacks, many of the things that I reported to the Pentagon in
    2008, including the fact that Russia undertook what's known as
    a bear raid attack on our economy in the summer of 2008, time
    to disrupt our election.
        I hear lots of discussion about Russia's involvement in the
    election of 2016. But when I was warning this Congress and the
    Pentagon and the FBI and the Defense Intelligence Agency and
    others that Russia was heavily involved in disrupting our
    economy just prior to election, most of my concerns were
    overlooked because, well, we don't really think in those terms.
        We must think in those terms if we are going to succeed as
    a nation for the next several decades.
        And so with that, I thank you for the opportunity to be
    here.
        [The prepared statement of Mr. Freeman follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                   ----------

        Mr. Rohrabacher. Well, thank you all for some very fine
    testimony and we have some questions for you now, and let me
    just note, Mr. Freeman, that I remember very well Tiananmen
    Square and, quite frankly, most people don't relate this to the
    fact that Ronald Reagan brought down the Berlin Wall and Ronald
    Reagan helped win the Cold War with the Soviet Union.
        Tiananmen Square--Ronald Reagan wasn't President, and I
    have always assumed that had he been President that the
    democracy movement in China would not have been annihilated in
    front of us without any type of response that at the same level
    as the magnitude of what they had just done, and they had just
    derailed everything that we had always thought, well, China
    will get better economically and then become more democratic.
        But what happened, of course, it became more economically
    viable and then the powers that be slaughtered those people
    that would want democracy and, by the way, somebody said, well,
    what would Ronald Reagan have done--would he send in the
    troops.
        Let me just note I believe Ronald Reagan, when he heard--
    now, we knew that those troops were massing to come in and
    attack the people at Tiananmen Square. We knew that. We had the
    intelligence. Everybody knew that--that we knew it.
        Ronald Reagan would have gotten on the phone the day before
    and said to whoever was the head of the government and say to
    them--said, you're going to have to back away from sending your
    troops in and slaughtering the pro-democratic movement in
    Tiananmen Square--we see you're massing your troops--don't send
    them in--or no more credit, no more investment--no more
    American open door to economic interaction between our
    countries--no more transfer technology. You make your choice,
    but there will be a big penalty to pay.
        Reagan would have done that, and you know what? There
    wouldn't have been that slaughter at Tiananmen Square. George
    Herbert Walker Bush was President, and I know when the call
    that--we all know about what he said in his call. Nothing--he
    didn't make the call. He knew that was about to happen. He knew
    there about a slaughter about to happen--a reversal of the
    democratic process in China but did not--decided not to act.
        That, I believe, was one of the most damaging actions or
    inaction that I have ever seen taken place in my lifetime,
    because it has left us right where we are at where we have a
    monstrous now regime in Beijing, and let us note when you're
    talking about the person who is trying to decide whether to
    invest in China or Russia that there have been in Russia at
    least there--opposition parties were forming.
        You actually had a people who were starting independent
    press operations and discussions and there was an opposition
    and not anywhere near what was acceptable but there was a lot
    of political reform compared to under the communist era.
        In China, there has been no political reform. Zero. There
    are no opposition parties in China and there is no opposition,
    and if somebody says anything bad about the government they are
    hunted down and put in jail, and that's the type of regime.
        So it is important for us to consider that that is a factor
    in the decision making we are making for economic activity. We
    are now dealing with a flawed government.
        We are dealing with a government that has never reformed at
    all.
        With that said, I--there is a couple points that were made
    here that I would like to just bring up, and the idea that
    every investment by China is the equivalent of a sovereign
    investment fund from other countries where the government is
    actually sending over investment, the companies--when Chinese
    companies come in and buy--so I have this for the panel--when a
    Chinese company comes in to buy something in West, is that
    Chinese company--is there a chance that the Chinese company
    actually is owned by the Chinese military, and is there any
    other example where a military is coming in to another country
    and buying economic assets?
        I will just leave that with the--go right down the line on
    that.
        Mr. Le Corre. As you know, Mr. Chairman, in the '90s some
    of the PLA companies started to go civilian and started to get
    involved in other things, not just military but also
    infrastructure, hospitality, food business, anything.
        There are PLA-related companies investing worldwide. They
    are not even hiding it. But I would say that the big picture is
    that most Chinese investments in Europe in particular are made
    by state-owned companies, whether they are security related or
    not, and they are directly tied to the Communist Party of China
    and those are private companies----
        Mr. Rohrabacher. I guess a state-owned company--the
    difference between a state-owned company and the People's
    Liberation Army owned companies is that the guy over here
    doesn't have a uniform on.
        Mr. Le Corre. Right. Yes, you're quite right.
        On the other hand, it's the People's Liberation Army, which
    belongs to the Party--to the Party at the very top, and the
    state-owned companies are more or less government entities and
    it's a party state. So, you know, it's pretty much all tied up.
        Mr. Rohrabacher. Mr. Chang.
        Mr. Chang. The important thing is that you do have the
    state enterprises. They act at the direction of the state and,
    more important, at the direction of the party.
        What is really interesting is Huawei Technologies, which is
    nominally private. This was started by a colonel in the
    People's Liberation Army who had recently been mustered out.
        It has become within, like, two and a half decades--as I
    mentioned, the world's largest equipment provider--a telecom
    equipment provider.
        How this occurred and by a private company started from
    scratch is beyond the--unless we can explain that the People's
    Liberation Army, in this particular case, and perhaps some
    elements of the administrative state security were behind
    Huawei, and certainly we know that China's diplomats have been
    very aggressive in their helping Huawei get contracts in
    various countries.
        This sort of leads us to a conclusion that sometimes it
    doesn't really matter whether a company is state owned or
    whether it's nominally private because the state and the party
    have objectives and they will try to accomplish those
    objectives through these commercial enterprises.
        You know, they often, as Mr. Le Corre talked about, will do
    it through state enterprises because they do have more control.
    But nonetheless, even if a company is private, as Huawei is, it
    is still very much an instrumentality of the state.
        And if I could just take 2 seconds to mention your initial
    point, China has--you know, people say China is authoritarian
    these days. It started out, obviously, totalitarian in the
    1950s with Mao Zedong.
        People have talked about sort of the reform. It's now
    become a mild authoritarianism. Under Xi Jinping, the current
    ruler, we are basically going back to totalitarianism, because
    the technology investments by the Chinese state permitted to do
    things which Mao never could do--so, for instance, the one
    example that has popped up in the last couple months is this
    assigning of a credit score to every individual.
        And it's not just credit score as what we have in this
    country. It is looking at social credit--in other words,
    people's political opinions, your jaywalking record, all of
    this is a constantly updated score, which gives the ability to
    control people.
        And we saw that about a month ago when a dissident was not
    permitted to go on a plane because his social credit score was
    too low, and we are seeing, of course, the--just the power of
    the state magnified through technology.
        So we can say that this is basically now a totalitarian
    state or one that will be there very quickly.
        Mr. Rohrabacher. Well, luckily they had some American
    companies that could come over and computerize their system so
    they'd be more efficient.
        Mr. Chang. And sold them equipment.
        Mr. Freeman. I would just add on to what Mr. Chang shared,
    when you couple the social credit score with the facial
    recognition technology software that's been developed, the
    Chinese Government has the ability to pinpoint an individual in
    a crowd of 100,000 in a matter of seconds, and then you couple
    that--they know exactly who that person is and they can
    identify them.
        It does lend itself to a totalitarian state. We should keep
    in mind that there are really two types of capital flows that
    come from China.
        One of them is state controlled--whether it's through the
    banking system which is government controlled, through the
    People's Liberation Army's companies--or through state-
    controlled companies.
        And the second type of capital flows, which they are
    cracking down on--there are some very wealthy people in China
    who would like to see their money get out.
        And so they attempted to do that through noneconomic
    investments but in this case they're willing to be noneconomic,
    meaning take a bad deal, if they can get money outside of the
    China and the Chinese Government has really seriously cracked
    down on that recently.
        For the example of Huawei Technologies, I will throw one
    more anecdote. I had dinner recently with a former member of
    the board of Huawei. He is an American. He was at an American
    company that was sold and purchased by Huawei and as part of
    the purchase deal he was asked to sit on the board of
    directors.
        He said it was surreal to attend board meetings because he
    would go to board meeting. He would have someone as translator
    tell him things were clearly not what the meeting was
    discussing and they fed him nicely and they took good care of
    him and they told him absolutely nothing, and there were always
    two observers from the government watching every activity that
    took place at the board meeting.
        And so in many cases--in every case where there is an
    investment from the Chinese Government thorough any of the
    mechanisms we discussed, it is government controlled.
        There is no question.
        Mr. Rohrabacher. Mr. Meeks.
        Mr. Meeks. Thank you for your testimony.
        And I want to go back now to some of what I guess the title
    of the hearing, the EU and China trade and investment
    relations--talk about Europe a little bit, talk about--even
    given similar lines of questions that we've had--some that I
    had down here.
        Let me just deal with that first. For example, in listening
    to the testimony you had about China, I think many of the same
    things can be said about Russia with Mr. Putin or so it looks
    like he's going to be there forever--same thing like China--
    looks like authoritarianism has been there in regard to Russia
    in the direction we are moving in.
        And so to a degree I was wondering whether the Kremlin and
    Beijing, do they align where they are looking particularly in
    Europe and if not where do they differ where they're looking to
    move particularly in Europe and if not where do they differ,
    and do know what their views are on the EU, both the Chinese
    and the Russian.
        Mr. Le Corre.
        Mr. Le Corre. Thank you, Congressman.
        I do believe that Russia and China are very different
    countries. Even though I agree with you there is this
    authoritarian common denominator perhaps.
        One big difference, of course, is that Russia doesn't have
    money and that China does. In Europe, and particularly in the
    weaker parts of Europe, if you think about southern Europe or
    Eastern Europe and even the countries outside of Europe, as Mr.
    Chairman mentioned, in the Balkans, in particular, there is a
    real need for cash and for help and technology. I mean, the
    sort of basic technology that a bridge or have a railway or
    sometimes an airport----
        Mr. Meeks. With infrastructure.
        Mr. Le Corre. And infrastructure. Then the Chinese are very
    good at this. Now, Russia is basically being--infiltrating some
    of the local politics of these countries, as we know, just like
    it happened here in this part of the world. But it's happening
    in many Eastern European countries and even in Greece for
    example.
        China is a completely different story. They are not really
    infiltrating the domestic politics. They are buying some kind
    of influence by investing, by trading, and by putting together
    some projects in many of these countries.
        If you take, again, the case I was referring to of Portugal
    and Greece, in Portugal they are basically investing in the oil
    business, in the electricity business. They have a share in the
    aircraft carrier TAP. They have the largest insurance company.
    They have a group of private hospitals. They have invested in
    the media.
        So, indeed, that's--and now there's this project that
    Congressman Cicilline mentioned which is a possibility of
    investing in the Azores and President Xi Jinping actually
    himself visited the Azores and might visit again.
        So, talking about EU and a NATO country this is a real
    concern. And in the case of Greece, we are talking about a hub
    in the Mediterranean Sea with, of course, it's part of the new
    Silk Road and China wants to use this harbor as the hub for
    Chinese goods and link up Greece with Eastern and Central
    Europe, bring more Chinese companies and putting together new
    terminals.
        So, obviously, that's going to impact the Greek economy
    very strongly.
        Mr. Meeks. Do you want to say anything, Mr. Chang, Mr.
    Freeman, on this?
        Mr. Chang. When you talk about geopolitics, Xi Jinping and
    Vladimir Putin pretty much see the world in the same terms and,
    clearly, they are coordinating their activities not only in
    Asia but also in Europe, and we saw that, for instance, during
    the Syrian civil war.
        But when it comes to the economy they are two very
    different countries. You have China--claims a gross domestic
    product last year of $12.8 trillion. Probably a little bit less
    than that, but that's what they claim.
        Russia is under $2 trillion and also it's the structure of
    the two economies that are so different because the Chinese
    have become the world's largest manufacturer. They do sell
    products. That's one reason for their Belt and Road
    Initiative--the Silk Road--and Russia has just basically been
    selling hydrocarbons.
        So when it comes to investment in Europe it's very
    different. You see the Chinese actually investing in
    infrastructure, as we just heard, and of course, in technology,
    which is what I've been focusing in on.
        But when it comes to Russia, they have not really been
    investing. What you see are real estate investments from
    wealthy Russians, sort of the capital outflow that Kevin was
    talking about in terms of China. So you see that in Europe. But
    you don't see the important basic infrastructure, basic
    technology investments coming out of the Russian----
        Mr. Meeks. Other than maybe in some energy that they're
    trying to get into, right?
        Mr. Chang. Yes, because that's really----
        Mr. Meeks. That's right. That's what they--so let me just
    ask this question because I want to go back. And Mr. Freeman,
    you can jump in on this one or any one.
        Because I am concerned about how China is investing and
    what they're looking to do in some of the policies in Europe.
        For example, the so-called Golden Visas, where there's a
    handful of countries in Europe that have residency permits for
    sale, allowing wealthy individuals to invest a certain amount
    of money in exchange for passports. Hungary, for example, their
    program was the most popular, I think, until sometime last
    year, and the focus was of interest of DHS and visa waivers
    program loopholes.
        And we found that in Hungary most of the residency permits
    were given to Chinese investors. So my question is how do these
    systems work in Europe and what screening process do these
    investors face, if any at all, and is there any connection
    between the money invested in Europe and the country's position
    on issues that's regarding China?
        Mr. Le Corre. If I may, I think each of the countries in
    Europe has this kind of rule. The entry tickets can be quite
    different. I think in Malta it's maybe 200,000 euro. You can
    buy a property or building or an apartment and you can have a
    kind of resident permit that leads to a passport and indeed and
    EU passport.
        And so, even the U.K. does that and Portugal, again,
    Greece, Italy. Can I just take this opportunity to say that
    there is indeed a discussion going on now at the European
    Parliament about screening foreign investment and I think this
    is a very timely meeting we are having now because at the
    moment I looks like members of the European Parliament are
    drafting a law that will be--that will give a far wider
    definition of, you know, critical infrastructure and
    technologies that could trigger the screening process.
        In effect, the idea is that any investment that affects
    national security issues and some critical infrastructure--
    that's why the definition of infrastructure is so important--
    will now be discussed.
        The problem is when you have 28 nation states, how many of
    those will actually support that bill. The European Commission
    will then try to pass this--to implement the text that the
    European Parliament is working on.
        But many countries, because they have golden visa rules--
    because they have Chinese investments--mainly Chinese--will
    basically raise their hand and say, we don't want to take part
    in this--we don't want to offend Chinese investors.
        That is the situation now. My own feeling is that we will
    probably end up with a nonbinding mechanism that will at least
    create opportunities for debate, which is somewhat lacking in
    many of these countries which we refer to.
        Mr. Meeks. Anything, Mr. Chang, you want to say----
        Mr. Chang. There's another issue here, which is in addition
    to the screening rules that are under consideration at the EU,
    there's also talk of a bilateral investment treaty between the
    EU and China.
        And, of course, when we are talking about curbs on
    acquisition of technology, that will be one of the more
    important things that is under consideration.
        Now, in the United States, we also have the discussions of
    a bilateral investment treaty which, at this particular time,
    is going nowhere.
        And I think that that's a good thing, largely, because of
    some political considerations and also because the Chinese just
    don't honor their obligations, as the chairman talked about.
        So I think that if we would have a bilateral investment
    treaty, it would really be we'd honor it and the Chinese
    wouldn't, and I think that's probably the same thing with
    regard to Europe because the whole issue will be enforcement.
        But there is that issue out there and it does affect us
    because, as I mentioned, Europe is the big hole through which a
    lot of Western technology goes to China, which they can't get
    in the United States.
        So when the Europeans talk about an investment treaty, we
    have a direct and vital interest in that.
        Mr. Freeman. Congressman Meeks, I would like to first
    address the Russia-China question and then I'll--in the year
    2008 I mentioned Russia literally attacked our financial
    system.
        They sold off every holding they had in Fannie Mae and
    Freddie Mac. They did it in time before the election to
    influence the election.
        They asked the Chinese to join them in 2008 and the Chinese
    chose not to. They were not prepared for it.
        In the year 2013, it became official Chinese policy to de-
    Americanize the world. Vladimir Putin is in alignment with this
    policy. It is a policy to create under the auspices of the
    BRICS nations--Brazil, Russia, India, China, and South Africa--
    to create alternatives to the Western system and they've
    created an alternative to our SWIFT trading system, to our
    development banks, to the World Bank, to the International
    Monetary Fund.
        They're preparing for a time in which China is the primary
    economic superpower of the world and they've been addressing
    that.
        And on the second question on investments, the mention of
    literally buying a passport, buying residence and so forth, we
    have a program similar to that in the United States called EB5,
    and the Chinese have been extraordinarily active.
        And I have a friend who is an EB5 attorney and he says, I
    question all of the people coming from China--I don't know if
    they're representing the state or representing themselves.
        And I point to an example that just recently happened. The
    Justice Department got sentencing on a Chinese national
    individual who came to the United States, attended LSU, got a
    Ph.D. at LSU and went to work as a model employee in a
    specialized rice company where they made special rice seeds,
    that on those rice seeds you could do certain type of
    experiments for biotechnology and so forth--very valuable rice
    seeds.
        There was a visiting delegation from China that came to
    tour the plant and to visit with him, and on their way out of
    the country, Customs tore open their suitcases and found that
    they had stolen millions of dollars' worth of these rice seeds.
        That was an investment of human capital that the Chinese
    made decades ago by sending a student here that went all the
    way through, got the Ph.D., and worked for quite some time for
    this rice company.
        And the Chinese--they have two things. They have a very
    long-term view in their investment process and what they want
    to achieve, and the second is it's always geostrategic--it is
    not an investment in order to get traditional returns on the
    dollar.
        Mr. Meeks. Let me just say, and then I am going to yield.
        That's one of the reasons why I was a huge supporter of TPP
    because it set some rules that we could still set, you know,
    with our allies, et cetera, that says these would be the trade
    rules in which we will continue to operate with, and I think
    that they would put some additional pressure on Russia.
        But, unfortunately, we pulled out of TPP. And I just have
    to ask one other thing. Based upon what I think Mr. Chang said,
    my curiosity was raised because I think you mentioned China
    specifically what they were doing in the EU.
        What--is anything different when--or how does countries
    outside of the EU, for example, Turkey or Switzerland, how do
    they deal with the Chinese and the Chinese investments?
        Mr. Le Corre. The Swiss have been told by the Chinese that
    they are the final destination of the Belt and Road Initiative.
    So have many other countries.
        I guess they are fairly relaxed about Chinese investments.
    As you know, the largest ever Chinese foreign investment has
    taken place in Switzerland.
        They bought a huge agribusiness company called Syngenta and
    the deal was finalized just last year--$46 billion U.S.
        So Switzerland, a neutral state in the middle of Europe, is
    actually also attracting investment. I guess everybody is after
    new investments.
        But, of course, Switzerland has a very special political
    system, hasn't got a real mechanism, and not being a member of
    the EU might actually, being a weakness in that particular
    case, as I was referring to the mechanism that is now being
    discussed.
        Mr. Rohrabacher. Mr. Chang looks like he really, really
    wanted to make a point.
        Mr. Chang. Maybe 1 minute, and that is for every large
    European acquisition there is almost always a U.S. subsidiary
    which gives the U.S. the right, under our legislation, to
    review it.
        We allowed and cleared the Kuka acquisition. But we didn't
    clear Aixtron. And, you know, going forward, this is one area
    where I think the United States can actually use some leverage,
    because in the case of Aixtron, it was December 2016 that the
    administration refused to permit that.
        It was in October of that year Germany withdrew its
    approval for the Aixtron acquisition but only because the Obama
    administration pushed it to withdraw the refusal--the
    permission.
        And so it seems to me that, you know, we've seen under the
    Trump administration the same attitude toward these types of
    investments. And so I think this is one area where even without
    a change of EU legislation the U.S. will have a lot of
    influence if we choose to use it by working with our European
    partners so that they themselves withdraw approvals for all
    sorts of deals.
        Mr. Cicilline. Thank you again to our witnesses.
        Your testimony had been very useful in, I think,
    understanding Chinese economic power and their willingness to
    advance their national interests by the use of these very
    powerful economic tools and what kind of challenge that
    represents to the West including the United States.
        You have described it as buying influence and a strategy to
    work with BRICS countries to really establish an alternate kind
    of international framework. And I think these--the issues that
    we are discussing today present very serious and complicated
    challenges for the West and for the United States and I think
    the one thing that's particularly important is that we need to
    have confidence that as we are navigating this challenge is
    that there are people in important positions making decisions
    that are decisions that we can have comments or in the best
    interest of the United States and in the national interest of
    our own position in the world.
        And it's why I just want to start by saying how ironic and
    disturbing at the same times it is that this hearing is
    happening at the moment that we just learned about revelations
    related to the President's actions in China.
        And, of course, I am referring to the President's very
    extraordinary steps as it relates to a Chinese company, ZTE,
    that was found to conspire to sell American technology to
    hostile regimes in Iran and North Korea.
        The Commerce Department had banned American firms from
    selling parts or providing services to ZTE. But President Trump
    inexplicably reversed these restrictions on May 22nd and
    announced an agreement with Beijing to lift the ban on ZTE in
    an effort to protect Chinese jobs, which I didn't know was
    actually an objective of the President.
        We then learned just 3 days before this announcement that
    the South China Morning Post reported that the Chinese
    Government would be providing $500 million in loans for an
    Indonesian theme park to be built by a state-owned Chinese
    company and that that would include several Trump-branded
    properties--a residential development, shops, a hotel, and golf
    courses.
        So I guess my first question is am I correct in my
    conclusion that this becomes particularly vexing for the United
    States if we don't have confidence that those in government are
    making decisions that are in the best interests of the American
    people and the national interest of the United States and in
    fact may be done for the benefit of the Chinese company that
    provides some financial benefit to a company of the
    President's. That's just a yes or a no.
        Mr. Le Corre.
        Mr. Le Corre. Well, my understanding is that this Congress
    has been very convinced that the rules should be implemented
    with regard to what you were referring with ZTE and Huawei,
    these companies that have breaking the rules by selling
    technologies to North Korean and Iran, which would just be fair
    enough when you think about the situation with Iran at the
    moment, which is another sort of transatlantic rift, so to
    speak.
        I do believe that most of this Congress is in favor of
    implementing this regulation.
        Mr. Cicilline. I guess by question is does that action by
    the President undermine our effort to respond to this growing
    challenge from the economic power of China and their use of it
    to buy influence and change national policies in the West?
        Mr. Le Corre. I certainly would agree with the fact that
    Chinese influence around the world had been a lot about money
    and about throwing money at projects and because it controls a
    lot of cash really.
        The state--the party, they are at the helm of the system
    that is really allowing them to send these state-owned
    companies to build projects and that can happen pretty quickly.
        And even the private companies--usually receive green
    lights and receive money from a Chinese fund/bank which is
    always a stakeholder. There's no such think as a private bank.
        So yes, in that respect I would agree with you.
        Mr. Chang. I can't speak to motivation on ZTE but there are
    two things which I think are important about that for the U.S.
    Congress.
        So, for instance, ZTE is the fourth largest maker of
    telecom equipment in the world. The first largest that I
    mentioned is Huawei Technologies.
        We sanctioned ZTE last year and we ended up with a plea
    deal because they were violating Iran and North Korea
    sanctions.
        About 3 weeks ago, if I am correct, the Justice Department
    opened a criminal investigation against Huawei for violating
    those same sanctions both with regard to Iran and North Korea.
        And so the issue is going to be what we do with regard to
    ZTE because there hasn't been any final disposition yet with
    regard to relaxing the sanctions.
        What we do or don't do with regard to ZTE will very much
    affect the way I am sure Huawei approaches Justice Department
    action against them, and that's going to be critical for us.
        Second thing is we are talking now, because of the
    withdrawal from the Joint Comprehensive Plan of Action--in
    other words, the Iran Nuclear Deal--we are talking about
    increased sanctions on Iran.
        Secretary of State Pompeo, who was before Congress--the
    House--today talked about the toughest set of sanctions ever
    imposed on a country.
        Well, ZTE is an Iran sanctions case. And so if they were
    to, for instance, reverse or relax that 7-year ban on exports
    of American technology and products to ZTE, which was imposed
    by the Commerce Department last month--if we were to relax the
    sanctions on ZTE, what message would that send to Iran?
        So those are two things which I am sure Congress is going
    to look at. And as I mentioned, you know, the President has
    talked about relaxing sanctions on ZTE. So has Commerce
    Secretary Wilbur Ross.
        But they haven't done anything yet, and I am sure that it's
    the pressure from Congress and from others that is going to
    affect the decisions that the Commerce Department ultimately
    makes.
        Mr. Cicilline. Thank you.
        I just want to return, Mr. Le Corre, you made reference to
    the impact that Chinese purchase of Lajes airbase would have. I
    wonder if you'd just speak a little bit about what you think
    the impact of just the increased Chinese presence in the Azores
    means for U.S.-Portuguese relations and also are there other
    examples where you think the Chinese investments have had a--
    have been successful in impacting the national policy of the
    countries they're investing in, particularly in the area of
    human rights or rule of law.
        Mr. Le Corre. Right. Congressman, what I am worried about
    mainly is the lack of debate in Portugal about the issue of
    Chinese investment.
        This is a country with a GDP that's less than 2 percent of
    the EU's GDP. That is now opening the doors to more Chinese
    investments on the premises that in 2008 there was a financial
    crisis and that the troika, which is made of the European
    Commission, the European Central Bank, and the IMF recommended
    that the Portuguese privatize some of its public assets, which
    they did, and the deal was 5.5 billion euro.
        We are now reaching 9 billion euro of privatization. That's
    slightly more than was agreed, and I am fairly concerned about
    what was announced last week, that China Three Gorges--this
    state-owned electricity company was bidding or the entire EDP--
    the Electricidad of Portugal, which is the largest national
    grid company of that country--that would have huge
    consequences.
        That would have consequences not just for Portugal itself
    but for the European Union and possible for NATO.
        As far as U.S.-Portugal relationships, I am not really an
    expert. My impression is that the areas you mentioned, at the
    moment, are not open to Chinese investment and that the Chinese
    proposals are about putting together a kind of scientific
    maritime center, which has nothing to do with the military and
    that NATO has no plans to withdraw from their particular
    premises.
        Mr. Chang. With regard to the island of Terceira where Air
    Base Number Four, or Lajes, is located, I would be worried
    about Chinese investment into the port area because that would
    be a natural extension of the Belt and Road, and that would
    give them extraordinary influence on that island, which is
    going through very difficult times.
        This is something, though, that the U.S. Congress can do
    because this is a U.S. Air Force question. The reason why the
    Chinese are even thinking about getting into Terceira and to
    Lajes is because the U.S. Air Force is taking that down to what
    they call a ghost base.
        If that base is kept open, then the Chinese don't really
    have an opening into that island and into the air base. So this
    is a question of, I think, U.S. Air Force relations with
    Congress and what Congress can do to, you know, demand that the
    Air Force not permit the Chinese to take over that air base--
    10,800 feet of runway.
        Mr. Cicilline. I wish members of the Department of Defense
    were here to hear you. That's the argument we've been making
    for the last 5 years.
        So thank you.
        Mr. Rohrabacher. I want to thank our witnesses.
        Now what we'll have now is some closing remarks from Mr.
    Meeks and Cicilline, if you'd like closing remarks, no or yes.
    But whatever.
        And then I will have my own closing remarks.
        So Mr. Meeks, you are recognized.
        Mr. Meeks. Of course, when you're the chairman you can get
    the last word. [Laughter.]
        No, I just basically want to thank you for your testimony
    here. I think that it has been very insightful.
        I think we've got to think through everything. You know, I
    am one, to be quite honest with you, that understands that the
    world and the globe is much smaller today than it was.
        Everything--we talk about globalization and global trade
    and it's very important. I think we've got to make sure that we
    have rules and to the degree that those rules bring us
    together.
        So therefore it's important, I think, initially to work
    with our European allies, particularly, because we do have the
    same values and we come from the same bases. And so that's why
    I think that the emphasis should be to try to work with them as
    closely as we possibly can and see if we can come up--I believe
    in a rules-based system. I believe that, you know, that it's
    important to have a WTO and enforce those rules.
        And so when there's something that's outside of those
    rules, then we need to make sure that we enforce them and
    chastise whoever is out and the penalty may be that we don't do
    as much trade with them.
        But I do think that whether it's, you know, I would be
    hypocritical if I didn't say that when I first came into
    Congress I was focussed and I thought that we didn't need to do
    a permanent and normal trade relations with China.
        That doesn't mean that it should be something that's, you
    know, open ended and that where if they do something wrong we
    don't come back against them because, you know, I think that
    that helps when we trade.
        It helps us. It helps to have a more peaceful world.
    Likewise, I was an individual who thought that we needed to end
    Jackson-Vanik with Russia and we needed to make sure that we
    had--you know, try to have a better relationship with Russia
    also so that we can trade with them.
        But we just don't do it and ignore all--any of the bad
    things that they're doing and we've got to be extra mindful,
    though, of what their motives may be, particularly with certain
    items that could be--infiltrate our national security.
        So though we need to make sure that we are trading that
    does not mean we just put down our guards and say let's trade.
    We've got to keep those guards up because there are nefarious
    reasons at times that these countries will trade with us and/or
    allies because, you know, sometimes they may not be able to
    penetrate us but they'll try to penetrate, you know, one of our
    allies and it's the same result.
        That is, ultimately, why I believe that the only way that
    we can resolve this is with our allies in a unified manner and
    then we can deal with the--that's why I asked the country about
    Russia and China being together, in that regard. It's
    different, clearly. The economy is a different thing that
    they're trying to promote in regards to industry. But it is
    extremely important that we try to figure out these two. I
    don't think that an extreme to one side or the other is going
    to--is going to be successful. But we've got to make sure that
    we maintain our national security.
        Thank you, again.
        Mr. Rohrabacher. And finally, again, thank you very much,
    each and every one of you, and some parting thoughts.
        I mentioned earlier how Herbert Walker Bush had launched us
    in the wrong direction by his inaction at Tiananmen Square and
    how that has to be looked at as one of the great, I would say,
    cowardly acts that has resulted by a U.S. President--that has
    resulted in creating a worse world.
        Let me just note that WTO happened under Bill Clinton, and
    Bill Clinton actually kind of snuck that through because I
    remember we--several of us were demanding a human rights
    element to WTO and in fact we didn't get that.
        And in fact what's happened now we've had WTO and that's
    one of the reasons why I personally--Mr. Meeks and I disagree
    on approaches to how to solve problems and that's why he's a
    Democrat and I am a Republican and that's a good thing about
    our country that we are good friends nevertheless.
        But let me just note that it's the WTO that has--when we
    talk about the emergence of China and Chinese power, we are not
    talking about the power of Chinese people. We are talking about
    the Chinese elite dictatorship, this clique that rules China
    with an iron fist.
        That's who we are talking about that has emerged, and WTO
    is now--under WTO, all these things that we've heard today have
    happened under that trade organization and that's why some of
    us are very suspicious of going with multilateral trade
    agreements rather than bilateral trade agreements where we can
    then go to China, as the President has done, and feel very
    forceful in trying to approach the issues as he sees fit.
        Let me just say that ZTE, they, I would say, alarm bells
    that we have just heard going off may well be justified. We
    will see. But I notice there have been a lot of alarm bells
    about President Trump that turned out, when all was said and
    done, we turned out--some of the things he was doing actually
    came to our benefit and he has a different approach, a
    different way.
        I think it's very possible that this--his--what he's doing
    with ZTE may be part of a bigger scheme that he's trying to
    actually accomplish, and I won't be criticizing him until we
    see if that's the case, because he may want to do more than
    just have a 1-day headline on something.
        Maybe he has something in mind that will take a few months
    of making a few maneuvers in order to accomplish.
        Trump knows how to prioritize his goals and that's--and so
    right now, of course, there are a lot of other things. Maybe
    he's made some understandings with help here. Maybe ZTE is what
    he's giving them to get help with something else that might be
    very important to us.
        So with that said, and let me just note, again, about the
    WTO and what's happened since we have gotten into WTO and
    permitted China to be part of the World Trade Organization,
    we've had this--everything today has been under that auspices.
        And so it's permitted, and what we have witnessed here,
    however, is an unholy alliance between Western capitalists, who
    have only one value that makes them decide what they're going
    to do, and that's how much money they're going to put in their
    pocket.
        And we have had this unholy alliance between Western
    capitalists, whether they're in Europe or the United States,
    and these people who control with an iron fist the people of
    China, and that is something that I think that we would hope
    that we would be on the side of the people of China and not on
    the side of their oppressors.
        And one last note that I wanted to make on that was that--
    let's see if I've got it written down here for myself--I had
    really an important point that I wanted to take. It's because
    your testimony was so inspiring but I may--oh no, the EB6 and
    EB5 programs. If the EB5 program represents money, wealth,
    that's coming from China, being taken out of China as not part
    of the elite scheme but instead as a way for individuals to
    extract wealth and bring it here, then it's good. It's not a
    bad thing. If you have people who want to escape in China and
    they happen to be able to have carved out a couple million
    dollars for their family and it's--it makes us stronger and it
    weakens the regime, that's I think when we are trying to talk
    about that.
        However, if it is part of an EB5 program, it's part and
    parcel of this scheme that you have outlined today, which is
    basically utilizing all economic deals as in a way of expanding
    the government's control or the government's influence here and
    abroad, then that would be a bad thing.
        So I think that we have to take a look at that program very
    closely because it may well represent people who are conducting
    their own small revolution against the system rather than some
    manipulation of the system itself of our capitalist system,
    because these may not be--these people may not be in control--
    be controlled by the People's Liberation Army or the clique in
    Beijing.
        So with that said, I think we've had a wonderful discussion
    and I want to thank all of the witnesses. This has been very
    enlightening and provoked some really good discussion.
        And Mr. Meeks, it's always a pleasure being here with you
    and we've got--I think we are going to do some great things
    with this committee and thank you all for being here.
        And this hearing is adjourned.
        [Whereupon, at 3:59 p.m., the subcommittee was adjourned.]

                                A P P E N D I X

                                  ----------

             Material Submitted for the Record

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]