[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
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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
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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:]
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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:]
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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:]
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----------
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
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