[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
        
        
        
        
        
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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:]
    
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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.]

                                     

                                     

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