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    COUNTERING CHINA: ENSURING AMERICA REMAINS THE WORLD LEADER IN ADVANCED
                          TECHNOLOGIES AND INNOVATION

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                                     HEARING

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                                SUBCOMMITTEE ON
                             INFORMATION TECHNOLOGY

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                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 26, 2018

                                   __________

                               Serial No. 115-107

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                  Committee on Oversight and Government Reform

                      Trey Gowdy, South Carolina, Chairman
    John J. Duncan, Jr., Tennessee       Elijah E. Cummings, Maryland,
    Darrell E. Issa, California              Ranking Minority Member
    Jim Jordan, Ohio                     Carolyn B. Maloney, New York
    Mark Sanford, South Carolina         Eleanor Holmes Norton, District of
    Justin Amash, Michigan                   Columbia
    Paul A. Gosar, Arizona               Wm. Lacy Clay, Missouri
    Scott DesJarlais, Tennessee          Stephen F. Lynch, Massachusetts
    Virginia Foxx, North Carolina        Jim Cooper, Tennessee
    Thomas Massie, Kentucky              Gerald E. Connolly, Virginia
    Mark Meadows, North Carolina         Robin L. Kelly, Illinois
    Ron DeSantis, Florida                Brenda L. Lawrence, Michigan
    Dennis A. Ross, Florida              Bonnie Watson Coleman, New Jersey
    Mark Walker, North Carolina          Raja Krishnamoorthi, Illinois
    Rod Blum, Iowa                       Jamie Raskin, Maryland
    Jody B. Hice, Georgia                Jimmy Gomez, Maryland
    Steve Russell, Oklahoma              Peter Welch, Vermont
    Glenn Grothman, Wisconsin            Matt Cartwright, Pennsylvania
    Will Hurd, Texas                     Mark DeSaulnier, California
    Gary J. Palmer, Alabama              Stacey E. Plaskett, Virgin Islands
    James Comer, Kentucky                John P. Sarbanes, Maryland
    Paul Mitchell, Michigan
    Greg Gianforte, Montana
    Michael Cloud, Texas
    Vacancy

                         Sheria Clarke, Staff Director
                        William McKenna, General Counsel
         Troy Stock, Information Technology Subcommittee Staff Director
                 Sarah Moxley, Senior Professional Staff Member
                        Sharon Casey, Deputy Chief Clerk
                     David Rapallo, Minority Staff Director
                                     ------

                     Subcommittee on Information Technology

                           Will Hurd, Texas, Chairman
    Paul Mitchell, Michigan, Vice Chair  Robin L. Kelly, Illinois, Ranking
    Darrell E. Issa, California              Minority Member
    Justin Amash, Michigan               Jamie Raskin, Maryland
    Steve Russell, Oklahoma              Stephen F. Lynch, Massachusetts
    Greg Gianforte, Montana              Gerald E. Connolly, Virginia
    Michael Cloud, Texas                 Raja Krishnamoorthi, Illinois

                               C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on September 26, 2018...............................     1

                                   WITNESSES

    Mr. John Neuffer, President and CEO, Semiconductor Industry
      Association
        Oral Statement...............................................     4
        Written Statement............................................     6
    Mr. Dean Cheng, Senior Research Fellow, Asian Studies Center,
      Davis Institute for National Security and Foreign Policy, The
      Heritage Foundation
        Oral Statement...............................................    12
        Written Statement............................................    14
    Ms. Sarah Cook, Senior Research Analyst, East Asia, Freedom House
        Oral Statement...............................................    20
        Written Statement............................................    22
    Mr. Rob Atkinson, President, Information Technology and
      Innovation Foundation
        Oral Statement...............................................    35
        Written Statement............................................    37

    COUNTERING CHINA: ENSURING AMERICA REMAINS THE WORLD LEADER IN ADVANCED
                          TECHNOLOGIES AND INNOVATION

                                  ----------

                         Wednesday, September 26, 2018

                      House of Representatives,
                Subcommittee on Information Technology,
                  Committee on Oversight and Government Reform,
                                                       Washington, D.C.
        The subcommittee met, pursuant to call, at 10:05 a.m., in
    Room 2247, Rayburn House Office Building, Hon. Will Hurd
    [chairman of the subcommittee] presiding.
        Present: Representatives Hurd, Issa, Cloud, Kelly, and
    Krishnamoorthi.
        [Audio malfunction in hearing room.]
        Mr. Hurd. Welcome, everyone. We do not have an echo, so
    let's try that again.
        The Subcommittee on Information Technology will come to
    order, and without objection, the chair is authorized to
    declare a recess at any time.
        Good morning. For more than 40 years, the U.S. has
    encouraged China to develop its own economy and take its place
    alongside the U.S. as a central and responsible player on the
    world stage, but China does not want to join us. They want to
    replace us. More importantly, China has not been playing fair.
    They coerce American companies into entering into joint
    ventures with Chinese companies with close links to the
    Communist Chinese Government as the price for market access.
        The United States Trade Representative, which led a seven-
    month investigation into China's intellectual property theft,
    recently found that Chinese theft of American IP currently
    costs between $225 billion and $600 billion annually.
        The Chinese have not been secretive about their ambitions
    and their goals. Chinese President Xi made it clear upon taking
    office that his dream for China is, and I quote, ``the great
    rejuvenation of the Chinese nation.'' Critical to Xi's vision
    of a rejuvenated China's dominance is manufacturing, modern
    advanced technology.
        In 2015, China's State Council introduced the Made in China
    2025 initiative with the aim to modernize the Chinese economy
    and become the world leader in manufacturing. Made in China
    2025 focuses on promoting breakthroughs in critical sectors of
    the Chinese economy, and of the sectors this hearing will focus
    primarily on next-generation IT, a topic that this subcommittee
    has been exploring for three and a half years. A next-
    generation IT includes the hardware that make up today's
    technology and the networks that support communications.
    Examples include 5G networks, semiconductors, cloud computing,
    artificial intelligence, blockchain, and quantum computing.
        As we explore these issues, we cannot lose sight of the
    many abuses the oppressive Chinese Government perpetuates on
    its citizens. In China today Uighur Muslims are sentenced to
    years in prison for praying. Mothers and fathers are shipped to
    reeducation camps for practicing Falun Gong and never heard
    from again. The communist Chinese Government oversees one of
    the strictest online censorship regimes in the world, and the
    Human Rights Watch recently stated the broad and sustained
    offensive on human rights that started after President Xi
    Jinping took power five years ago shows no sign of abating. The
    U.N. estimates as many as 1 million Chinese citizens are
    currently quarantined in concentration camps.
        The Communist Party that runs the Chinese Government is an
    oppressive regime with an abysmal human rights record. As
    Americans, we believe everyone has a right to life, liberty,
    and the pursuit of happiness. The millions of men, women, and
    children living under the oppressive Chinese regime in China
    deserve better from their government. Our nation faces a great
    challenge rising from the East, but we have met greater
    challenges before, and I am confident we can meet this one.
        And I am also looking to explore how we do other things
    than tariffs. How do we put a regime in place that deals with
    the practices that we know China is doing? They are stealing
    our technology. They are forcing intellectual transfer. Alibaba
    is treated like a U.S. company in the U.S., but are American
    companies treated like Chinese companies in China? No. We know
    China prevents investment in key future sectors, but we allow
    Chinese investment in those sectors here in the U.S.
        I think there are other tactics we can be taking other than
    tariffs in order to deal with and ensure America and American
    companies specifically stay the leaders in innovation, and I am
    looking forward to exploring these issues today. And as always,
    I am excited to explore these issues with the one and only, my
    friend and colleague, Robin Kelly from the great State of
    Illinois.
        I thank our witnesses for being here today and look forward
    to hearing from them innovative solutions to ensure that
    America remains the world leader in advanced technologies and
    innovation.
        Mr. Hurd. And now, it is my pleasure to recognize the
    ranking member of the subcommittee, Ms. Kelly, for her opening
    statement.
        Ms. Kelly. Thank you, Mr. Chairman, and thank you for
    calling today's important hearing. And I too want to welcome
    the witnesses.
        China is mounting a serious challenge to the United States
    for global leadership in technology and innovation. China's
    success so far is attributed to two policies: China uses
    pressure tactics on American companies requiring them to
    transfer technology to Chinese firms as a condition of doing
    business in the Chinese market; and China's making world-
    leading investments in research and development. In fact, for
    the first time Chinese investment in R&D will surpass U.S.
    investment next year. Together, these policies have transformed
    China into America's chief global competitor in advanced
    technology.
        Unfortunately, this administration's response has been to
    start a trade war with China with few results to show for it.
    Tariffs will not stop China from making huge investments in
    research and development, but tariffs are hurting Americans.
    Farmers are already feeling the effects. Soybean farmers in my
    home State of Illinois, which we are number one in soybean, are
    losing out on contracts in China, and workers have been laid
    off as a result.
        American shoppers will soon feel the effects. A recent
    study by the National Retail Federation estimates that the most
    recent round of tariffs will cost U.S. consumers $6 billion in
    higher costs for products like furniture and luggage. The
    Consumer Technology Association estimates that tariffs on
    technology products will cost Americans another $3 billion for
    devices such as modems.
        On top of the counterproductive tariffs, the Trump
    Administration's immigration policies are damaging our own
    ability to compete for the talent we need to remain a lead in
    technology innovation. The Administration recently announced
    that it was rescinding employment authorization for technology
    workers' spouses under the H-4 visa program. That sends a clear
    message that highly skilled immigrants who come to work for
    American technology companies are not welcome.
        And President Trump has not led the major increases in R&D
    investment and education funding that are necessary to stay
    ahead of China's commitments. Over the past three years, China
    has outspent the United States by approximately $24 billion on
    investments in telecommunications infrastructure. China is
    planning to invest an additional $400 billion over the next
    five years to win the race to deploy 5G wireless technology for
    cell phones. The United States is falling behind. China has
    already deployed 350,000 cell sites for 5G, while the U.S. has
    only deployed 30,000. Overall, while the U.S. remains a leader
    in spending on research and development, China is expected to
    surpass the U.S. in total research spending by the end of this
    year.
        China is also catching up to the United States in
    education. According to the National Science Foundation, China
    now awards nearly as many doctorates in science and engineering
    as the United States. Expanding STEM education is key for
    America to remain a leader in innovation in the global economy.
    To that end, I have introduced today's American DREAM Act to
    incentivize college graduates with degrees in a STEM field to
    teach for five years. This legislation would help the United
    States build the pipeline necessary to educate the next
    generation of innovators in science and technology.
        President Trump has gotten the U.S. into a trade war with
    China, which is harming American farmers and businesses. This
    trade war lacks a clear strategy with no end in sight. The
    United States should be investing in research and in education
    to preserve America's global leadership in technology and
    attract the best talents from around the world.
        Again, thank you, Mr. Chairman, for the opportunity to
    discuss this extremely important topic with our panel. Thank
    you.
        Mr. Hurd. Thank you, Ranking Member. And I agree;
    education, immigration, two ways we can solve this problem.
        And now, it is a pleasure to introduce our witnesses. Our
    first, Mr. John Neuffer, president and CEO of the Semiconductor
    Industry Association. Thank you for being here. Mr. Dean Cheng,
    senior research fellow, Asian Studies Center, Davis Institute
    for National Security and Foreign Policy at The Heritage
    Foundation. Say that three times fast. Ms. Sarah Cook, senior
    research analyst for East Asia at Freedom House; and Rob
    Atkinson, president of the Information Technology and
    Innovation Foundation.
        And welcome to you all. And pursuant to committee rules,
    all witnesses will be sworn in before you testify, so please
    stand and raise your right hand.
        [Witnesses sworn.]
        Mr. Hurd. Thank you. Please let the record reflect that all
    witnesses answered in the affirmative.
        In order to allow time for discussion, please limit your
    testimony to five minutes. The entire written statement has
    been made part of the record. And thank you for your
    submissions. A reminder, the clock in front of you shows
    remaining time. When it is yellow, you have 30 seconds. When it
    is red, your five minutes are up. Please remember to press the
    button to turn your microphone on before speaking.
        And now, it is a pleasure to recognize Mr. Neuffer for your
    opening remarks.

                           WITNESS STATEMENTS

                       STATEMENT OF JOHN NEUFFER

        Mr. Neuffer. Thank you. I work for a tech association, and
    I'm glad to see we're not the only ones with--that have
    technical difficulties with our equipment.
        Good morning, Chairman Hurd, Ranking Member Kelly, and
    members of this subcommittee. I'm John Neuffer, and I'm
    testifying on the behalf of Semiconductor Industry Association.
    Thanks for the opportunity to testify before this committee
    regarding one of the most pressing challenges facing the U.S.
    semiconductor industry today: How to maintain U.S.
    semiconductor technology leadership in light of the full-
    throated effort by China to compete with the U.S. in advanced
    technologies, especially in regard to those Chinese Government
    policies and practices that threaten our intellectual property
    and distort markets.
        Invented right here in America, semiconductors are the
    building blocks upon which U.S. technological leadership rests.
    They power virtually all modern electronics from communications
    to transportation to health care to energy to military systems.
    U.S. ship makers lead the world. We account for close to half
    of the $412 billion global semiconductor market. We are the
    Nation's fourth-largest exporter after aircraft, refined oil,
    and automobiles. We have a global trade surplus of over $6
    billion, and a bilateral trade surplus with China of over $2
    billion. Importantly, nearly half of our manufacturing
    operations are right here in America, spread across 19 States,
    not just in Silicon Valley. And the industry employs close to
    25,000 workers in the U.S. with well-paying jobs.
        So China is a critical market for our industry, to be sure.
    At the center of the world's electronics supply chain, China
    is, unsurprisingly, the leading destination for U.S.
    semiconductor exports. We are especially concerned with Chinese
    actions, policies, and practices that force the transfer or
    allow the outright theft of our technology. This includes the
    forced transfer of our technology as a condition of market
    access, which you've addressed this morning, the plethora of
    formal and informal requirements that force the disclosure of
    intellectual property, and persistent economic espionage to
    steal viable IP.
        In 2014, China is--set in motion a massive effort to
    indigenize its semiconductor ecosystem with the goal of
    becoming the global leader in all major segments of the
    industry by 2030. Core to this effort are substantial
    government subsidies. Altogether an estimated $90-$100 billion
    in government financial support has been earmarked to support
    the sweeping undertaking. Similarly, Chinese industrial
    policies in sectors such as solar, wind, and LEDs have led to
    major distortions in the marketplace and left lots of wreckage,
    so we know what that picture show looks like.
        To maintain U.S. leadership in the semiconductor industry,
    the U.S. Government must develop a comprehensive and adequately
    resourced competitiveness and innovation agenda. Other steps
    need to be taken. First, let's eliminate tariffs, the recently
    imposed tariffs on semiconductors. Slapping tariffs on our
    products only hurts U.S. semiconductor companies, while failing
    to address the real problems we're having with China. Chinese
    semiconductor companies don't even send their products to the
    U.S., so Chinese enterprises are not hurt by tariffs.
        Second, strengthen multilateral actions with U.S. allies.
    Multilateral pressure is one of the few tactics that has
    historically prompted China to change course in a positive
    direction.
        Third, strengthen protection of IP. Press harder on China
    to adopt policies and engage in stronger IP enforcement to
    prohibit and penalize state or state-owned enterprises from
    misappropriating trade secrets or proprietary technologies
    generally and especially through activities related to the
    hiring of overseas talent.
        Finally, help the U.S. run faster with increased Federal
    investment in research. While the U.S. has long been the leader
    in semiconductor R&D, Federal investment in this area is simply
    not keeping pace with nation-state competitors.
        The United States is at a critical juncture. It's facing
    intense global competition from China in multiple high-tech
    sectors, including semiconductors. While our nation continues
    to dominate leading technologies from semiconductors to
    aerospace, we must not be complacent. There are real near-term
    and long-term challenges that require closer collaboration
    between industry and government to ensure we retain our
    technological leadership in key technology arenas.
        Thank you.
        [Prepared statement of Mr. Neuffer follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Hurd. Thank you, sir.
        Mr. Cheng, you are now recognized for your opening remarks.

                        STATEMENT OF DEAN CHENG

        Mr. Cheng. Good morning, Chairman Hurd, Ranking Member
    Kelly, members of the subcommittee and committee. My name is
    Dean Cheng. I'm the senior research fellow for Chinese
    political and security affairs at The Heritage Foundation. My
    comments this morning are my own.
        My comments this morning are intended to provide some
    context for better understanding the Chinese approach to
    information and information technology. Three key aspects
    underlie the Chinese view of the world and in particular their
    approach to information and communications technology:
    comprehensive national power, the period of strategic
    opportunity, and the impact of living in the information age.
        Comprehensive national power is how the Chinese compare the
    world's various nations, how do they rack-and-stack Bolivia,
    Botswana, Brazil, the United States. It includes all aspects of
    national power, military capability, economic capacity,
    political unity, diplomatic respect, even cultural security.
        Science and technology writ large, but especially
    information technology, contributes to and affects all three
    aspects--all of these aspects of comprehensive national power.
    It improves the economy, enhances military effectiveness, and
    can even elevate cultural security and strengthen political
    unity. It's also important to recognize that in the Chinese
    context, scientists and the scientific community often have an
    outsized political impact, and I would point to the example of
    the Chinese scientist Qian Xuesen, who was a combination of J.
    Robert Oppenheimer, Albert Einstein, and Robert Goddard in the
    Chinese context and had an enormous political influence.
        The period of strategic opportunity is from the Chinese
    perspective the first two decades of the 21st century. It is a
    period marked by low probability of war and therefore an
    important moment for China to focus on national development, to
    elevate GDP, GDP per capita, level of national infrastructure,
    and, again, level of science and technology capacity.
    Exploiting the period of strategic opportunity is central
    because it will allow China to catch up with the rest of the
    world and will include both internal domestic efforts, as well
    as exploiting ties to the outside world.
        And here the fact that we live in the information age
    becomes central because the rise of the information age
    facilitates China's access to the rest of the world's R&D
    capacity but also provides a focus for China's internal
    development. The rise of the information age means that future
    power is going to be measured not simply in an industrial
    capacity, how many gigawatts of power do you produce, how many
    millions of tons of bauxite do you refine, but in terms of the
    ability to generate, to gather, to analyze, to exploit, and to
    transmit information more rapidly and more accurately both
    within China but around the world. And so within this context
    information and communications technology, ICT, plays an
    especially outsized role, given its impact as the basic metric
    for future power.
        It is--should therefore not be surprising then that China
    is focused on developing information, not just ICT as we tend
    to think of it, whether it's semiconductors or 5G, but
    ancillary and related aspects, software, social media, even
    space. Space is seen as a vital part of information technology
    because it is a central means of both transmitting and
    gathering information.
        Again, it should not be a surprise that for the Chinese of
    particular emphasis is so-called ABC: artificial intelligence,
    big data, and cloud computing. In each of these areas the
    Chinese are pushing their state champions. It should be noted
    these are not necessarily state-owned enterprises, but all
    Chinese companies at the end of the day are state-influenced,
    and therefore, may not be directly working for China but are
    certainly not going to say no the way Google has over Project
    Maven.
        The Chinese do see all of this information revolution as
    fundamentally altering the state of play among nations, much
    like HMS Dreadnought instantly made all warships around the
    world obsolete. The Chinese believe that ICT is providing an
    opportunity to in a sense reset the global balance of power.
        In this context, however, I do want to emphasize to the
    members of the committee that the Chinese are not simply
    stealing. This is not of course to say that they don't steal
    but that they have spent an enormous amount of effort and
    energy to promote indigenous innovation, and therefore, it
    would be a horrible mistake for us to believe that if we simply
    could curtail theft, that China will inevitably fall behind.
    You cannot look at the amount of sustained effort and
    investment and believe that China is going to allow itself to
    fall behind.
        Let me conclude then with just a couple of quick thoughts
    on solutions, one of which is that if the issue is about stolen
    technology, then we should perhaps treat Chinese companies as
    dealing in stolen goods. And we have an extensive legal array
    of measures to deal with that. If it is about information,
    however, then for China it is as much about information access
    as it is about the information goodness itself.
        Thank you very much.
        [Prepared statement of Mr. Cheng follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Hurd. Ms. Cook, you are now recognized for your opening
    remarks.

                        STATEMENT OF SARAH COOK

        Ms. Cook. Chairman Hurd, Ranking Member Kelly, and members
    of the subcommittee, thank you. It is an honor to testify.
        Last fall, the Chinese Communist Party declared its
    aspirations for China to become a, quote, ``cyber superpower.''
    A September 2017 article in a top party journal lays out
    China's strategy for achieving this status and is surprisingly
    candid about the party's ambitions and motives, including, one,
    increasing domestic Chinese internet controls to ensure
    authoritarian longevity so that, quote, ``The party's ideas
    always become the strongest voice in cyberspace,'' end quote;
    two, using the technology sector as a foundation to secure
    China's economic health, including by enhancing the global
    influence of Chinese tech giants; and three, expanding
    information controls beyond China's borders in order to, quote,
    ``push China's proposition of internet governance toward
    becoming an international consensus,'' end quote.
        Prioritization and effective implementation of such
    strategies has emerged as a hallmark of Xi Jinping's leadership
    of the Chinese Communist Party. Xi has a sophisticated
    understanding of how the internet and social media applications
    function, and he's proven himself adept at closing previously
    existing loopholes in internet controls. Indeed, over the past
    year alone China has taken new strides in technological
    advancement, censorship, surveillance, and international
    expansion.
        The Communist Party's cyber ambitions directly and
    negatively impact U.S. companies. China is home to over 800
    million internet users, but many of the world's top technology
    and social media firms are banned or extremely constrained in
    their ability to provide services to them, including Facebook,
    Twitter, and Google. A 2016 survey by the American Chamber of
    Commerce found that 79 percent of U.S. companies reported that
    Chinese Government internet's restrictions hurt their
    businesses.
        Chinese technology firms have been at the forefront of the
    party's censorship and surveillance efforts, but American and
    international firms are increasingly implicated. The Chinese
    Government is adept at using the combination of its ability to
    block online services and allure of its enormous domestic
    market to extract concessions from foreign firms, including
    assistance with its censorship and surveillance system. Under
    China's new cybersecurity law, foreign companies operating in
    China are also increasingly at risk of becoming complicit in
    politicized arrests.
        As Chinese and foreign companies take more steps to appease
    the regime, the human toll will continue to mount. Censorship
    and surveillance on sensitive topics like Taiwan, Tibet,
    Xinjiang, and Falun Gong either whitewash or actually
    exacerbate large-scale human rights violations, including mass
    detentions, torture, and extrajudicial killings. Ironically,
    the complicit companies are also victims of the government's
    repression. They suffer from the arbitrary nature of Chinese
    regulatory decisions, reduced profit margins, and distrust
    abroad due to close Chinese Government ties.
        China and the Communist Party's cyberspace policies and
    strategies are complex and multilayered. They require an
    equally sophisticated response. I would urge the committee to
    consider the following recommendations: One, the United States
    should be proactive in developing its own capabilities and
    upholding international free speech and privacy standards. This
    should include developing a comprehensive 5- to 10-year
    national strategy on artificial intelligence.
        Two, the United States Government should encourage the
    business community to take a principled stance vis-?-vis
    Chinese Government internet controls. This should include
    reintroducing and passing the Global Online Freedom Act, which
    would designate internet-restricting companies and impose
    certain requirements on companies doing business in those
    places.
        And three, the United States should be proactive in
    challenging the very clear authoritarian foundations of the
    Communist Party's cyberspace strategy. A central pillar of this
    effort should be increasing both the scale and effectiveness of
    funding for countering censorship efforts specifically related
    to China. The Chinese Government is spending billions of
    dollars a year not only to keep Chinese people from freely
    accessing the internet but also to keep U.S. companies from
    offering services to the largest internet market in the world.
    Some of the first websites Chinese users visits after jumping
    the so-called Great Firewall are actually sites like Google,
    Facebook, and Twitter. Supporting Chinese internet users'
    ability to access these websites not only enhances internet
    freedom but also U.S. economic competitiveness.
        In this context, I urge the committee to investigate and
    report on whether current U.S. Government funding for internet
    freedom in China is being deployed in the most effective manner
    to address today's challenges. This would involve seeking
    information from the Broadcasting Board of Governors and the
    State Department on questions such as how much internet freedom
    funding has been allocated to China? How many users in China
    have benefited? Does this appropriately match the needs and
    demands of users, as well as U.S. interests in policy goals
    vis-?-vis China?
        Funding efforts to date have undoubtedly done much good,
    but there is reason to believe that an even greater impact
    could be achieved with a more efficient strategy, possibly
    without the need to even increase funding. American and
    international firms are caught between a rock and a hard place.
    The Chinese Communist Party has laid out its own plans and
    ambitions, and it shows every sign of implementing them to the
    fullest. The question is whether the United States, other
    democracies, and tech entrepreneurs will assert their own
    principles, including freedom of expression, with equal
    determination.
        Thank you.
        [Prepared statement of Ms. Cook follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Hurd. Mr. Atkinson, you are now recognized for five
    minutes.

                      STATEMENT OF ROBERT ATKINSON

        Mr. Atkinson. Thank you, Chairman Hurd and Ranking Member
    Kelly, members of the subcommittee. It's a pleasure to be here
    today.
        ITIF is a technology policy thinktank. We've long focused
    on the question of what we've termed innovation mercantilism
    from China. I won't go into the details of what that is. I put
    that in my written testimony. And let me say what should we be
    doing.
        Clearly, the avenue now is tariffs. I'm not going to say
    whether they're overall good or bad, but I think if we're going
    to use tariffs, we should use them strategically. Mr. Neuffer
    alluded to the fact that tariffs on semiconductors only hurt
    us, they don't help--they don't hurt the Chinese. We put
    tariffs on certain types of products or inputs where the
    American firm is competing against, say, a firm from Japan or a
    firm from Indonesia. They come into the country tariff-free.
    Our companies don't. If we're going to use tariffs, let's be
    strategic about it. Let's put some thought behind it and not
    just use it as a blunt instrument.
        I think more importantly, though, we need to think about
    how do we orient trade policy towards China in a results-
    oriented way. This is something people argued about with regard
    to Japan in the 1980s. One of the results we want from China--I
    say that by the way because I don't think a process-oriented
    process works with China. They're just too sophisticated, and
    any time we say don't do a particular process, they will figure
    out a new way to do it. I think we want a number of clear
    easily measured results: one, an end to coerced and forced tech
    transfer. We can measure that. We can say just no more.
        Secondly, a vast reduction of industrial subsidies as,
    again, Mr. Neuffer alluded to. They're not just in the
    semiconductors. They're in a vast array of technology
    industries way, way beyond what the OECD subsidy guidelines
    would allow; a reduction in IP theft and cyber theft, and much
    better U.S. market access.
        So how do we do that? I think it's clear that our best
    chance of doing that is a deep, deep coalition with our allies.
    We had meetings with the Japanese, with the European officials,
    with Korean officials. They all ask for one thing, for us to
    take the lead, but they all want to be part of that. And I
    think right now we're not doing that.
        We've seen that that process works back in--I'm going to
    guess 2012 or so. There was a Chinese policy called indigenous
    innovation product catalogs, very onerous, restrictive process.
    You couldn't sell to the Chinese if you were a European or
    American firm unless you gave them your technology. That's
    essentially it. And the Europeans, their Chamber of Commerce,
    our Chamber of Commerce, our government, their government, all
    banded together, and that pressure was enough to force the
    Chinese Government to back off and eliminate the indigenous
    innovation product catalog. So we've seen that that way of
    organizing pressure works.
        If we don't do that, though, what do we need to do? I think
    a big part of this is going to basically be making their
    ability to catch up more difficult. We're just going to have to
    throw roadblocks in the way while at the same time speeding up
    our catchup. And part of that has to be limiting their global
    market share and expanding our global market share. Technology
    industries is probably one of the most important things you can
    do because global market share means more revenues to then
    invest in R&D.
        And in that regard I would say that having a company like
    Google go into China is completely in the American interest
    even if they comply with Chinese law. We want to take market
    share away from Baidu. We want to give our companies more
    market share.
        What else can we do? I think we need a better and more
    comprehensive ability to understand what's going on. That's why
    we've supported the Senate Bill S. 2757, the National Economic
    Security Strategy Act, which would call for an economic
    strategy aligned with national security for the first time in
    our history. We would encourage the House to adopt something
    similar.
        We certainly would encourage the administration to take a
    hard line on Chinese investment. FIRRMA certainly helps on
    that. But you see this now. For example, there are Chinese-
    backed technology accelerators. There's one in University of
    Maryland, for example. These aren't out of the goodness of the
    heart of the Chinese Government. These are designed for one and
    one--only one purpose, to support new firms, new high-tech
    startup firms, and to take their technology across the ocean
    back to China.
        We need to have USTR bring a case before the WTO on subsidy
    disclosure, which they have not done. This is in--actually an
    area where the WTO might be able to actually act against
    Chinese interests as opposed to some other areas where it's
    much more difficult.
        I would work hard to ban Chinese access to our final--
    Chinese firm access to our banking system, our securities
    system. They don't give us that.
        We need to rethink antitrust. For example, right now, we
    have a regulation that our Justice Department exempts mergers
    at state-owned enterprises in China. There's no reason to do
    that. We should be holding them accountable for antitrust the
    way they have used their process against us.
        And finally, even with all the efforts we need to be taking
    to slow them down and put roadblocks in front of them for their
    unfair actions, we need to take stronger actions at home,
    increase R&D, EXIM Bank funding, better STEM talent, better R&D
    tax credit, and the like. Thank you very much.
        [Prepared statement of Mr. Atkinson follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Hurd. Thank you, sir.
        I would now like to recognize the gentleman from
    California, Mr. Issa, for his opening rounds of questions.
        Mr. Issa. Thank you, Mr. Chairman.
        And what wasn't said in this open hearing is much of what
    you know directly about China's espionage and their successful
    effort to gain huge amounts of technology by stealing it
    systematically over the last probably four Presidents, so this
    is a bipartisan problem.
        I am going to start with Mr. Neuffer. You said something--
    look, I come from your industry. We go back a long way. I
    watched us systematically sell out to the Chinese. I watched us
    systematically move our fabs to China. Now, I appreciate your
    discussion of exports, but exports and imports, we could net
    them and that statistic would probably disappear.
        But I think the important question is isn't one of the
    effects, positive effects of the tariff the fact that virtually
    every one of your member companies, if they are exclusively in
    China, are looking for a second location, either a U.S.
    location if they don't already have one, but even if they do,
    they are likely looking at the Philippines, South Korea, any
    number of other places.
        So I am not here to defend, and I would like a short answer
    of the fact, isn't it true that the current activity is causing
    your companies to second-guess having all or most of their fabs
    at least for some product lines in China?
        Mr. Neuffer. Great question. First of all, just as a
    percentage of our global production around the world, the
    amount of production we do in China is quite small.
        Mr. Issa. How many fabs does ----
        Mr. Neuffer. I don't know the ----
        Mr. Issa.--Intel have in California by the way?
        Mr. Neuffer. I don't know the ----
        Mr. Issa. The answer is zero. So I appreciate ----
        Mr. Neuffer. Well ----
        Mr. Issa.--your talking about Silicon Valley ----
        Mr. Neuffer. Well ----
        Mr. Issa.--but your industry left California for the most
    part because of unreliable sourcing of electricity and water.
    Isn't one of the challenges that we have to be more business-
    friendly in the U.S. for at least those two assets or we are
    not going to bring those fab plants back here?
        Mr. Neuffer. So, I agree that we need to be more business-
    friendly, and this is something that we've talked about a lot.
        Mr. Issa. Okay. Well, this administration is ----
        Mr. Neuffer. And ----
        Mr. Issa.--accomplishing that part, but could you just
    answer the short one? Isn't it true that your members are, as a
    result of the current situation with China, actively looking
    and moving if possible assets that they have been producing a
    China to at least have a second source outside of China?
        Mr. Neuffer. I'm not going to second-guess what's happening
    in the boardrooms ----
        Mr. Issa. Okay. Then if you are not ----
        Mr. Neuffer.--of my members, but my answer is ----
        Mr. Issa. But wait. No, I was talking about action. I just
    came back from Beijing.
        Mr. Neuffer. My answer is ----
        Mr. Issa. I was there for four days ----
        Mr. Neuffer. My answer is ----
        Mr. Issa.--and yes, they are.
        Mr. Neuffer. I don't think so.
        Mr. Issa. Okay. Well ----
        Mr. Neuffer. Yes.
        Mr. Issa.--unfortunately, your counterparts in China made
    it very clear to me that that is what is happening on the
    ground.
        You know, I am hearing that systematic tariffs don't work.
    I am going to ask a question. And I will go over to the other
    end and ask this question. You said in your opening comments or
    remarks that Google should go into China. I will paraphrase
    Ronald Reagan's quote when he was talking about people who gave
    him money, somebody questioned whether the contribution that
    Ronald Reagan got from some group tainted him. And he said
    people who give me money, I don't sign onto their values, they
    sign onto mine. Isn't it true that if Google goes into China,
    complies with Chinese regulations, effectively, they become a
    Chinese company? So is there really a net gain if you have to
    play by Chinese rules?
        And I will just give you the example. If I go into Africa
    and I ignore the Foreign Corruption Practices Act, don't I
    become an African company and essentially lose my U.S.
    identity?
        Mr. Atkinson. So, to be clear, what I intended to say if I
    didn't say it was I think we should support or not criticize
    Google if they want to go into China. If they want to go into
    China for ----
        Mr. Issa. But you said they should comply with--Ms. Cook--
    he said ----
        Mr. Atkinson. Yes.
        Mr. Issa.--specifically they should comply with the Chinese
    rules. In other words, they should change to fit an unfair
    trade partner. Ms. Cook, you seem to have a comment on that.
        Ms. Cook. I think in those ----
        Mr. Issa. Or Ms. Code, I am sorry. I am ----
        Ms. Cook. Oh, sorry.
        Mr. Issa. Or Cook. No, it is.
        Ms. Cook. Cook, yes.
        Mr. Issa. You can tell my glasses need to be put on.
        Ms. Cook. I think the question that--the issue Mr. Atkinson
    raised related to market share--and I think it--we're
    cheating--we're deceiving ourselves if we think that the
    Chinese Government, with its indigenous innovation policies,
    promoting global giants like Baidu is really going to let
    Google get any kind of serious ----
        Mr. Issa. Well, and let me ----
        Ms. Cook.--market share ----
        Mr. Issa.--ask a closing question ----
        Ms. Cook.--so you're compromising your values. Sorry.
        Mr. Issa. The Chinese premier at the World Economic Forum
    made a speech that any Republican would be proud of, talking
    about lowering the burden, tax cuts, and so on, but he also
    said that, in fact, his tax cuts were going to have to replace
    subsidizing, that he could not subsidize his economy back into
    working. Does anyone here really believe that they are going to
    stop the subsidies that are absolutely pushed toward their
    indigenous companies and even away from our companies if they
    are operating in China? Hopefully, this is an easy one, Mr.
    Atkinson.
        Mr. Atkinson. Their subsidies, I would argue, are WTO
    illegal, many of them. And if we brought a case ----
        Mr. Issa. We do have cases in the WTO and have for some
    time, along with the Europeans ----
        Mr. Atkinson. Not on--excuse me. Not on overall catalog
    subsidy disclosures. Under the WTO session agreement, they were
    supposed to do that every six months. They haven't done it.
        Mr. Issa. Okay. The chairman is going to take back the time
    because he should. I'm going to close just by saying that what
    I like about the WTO process is that it gives plenty of time
    for people to think about it because it is slow as can be.
    Thank you.
        Mr. Hurd. Thank you, Darrell.
        I would now like to recognize Ms. Kelly for her first round
    of questions.
        Ms. Kelly. Thank you, Mr. Chair.
        Mr. Atkinson, your organization released a report in March
    2018 on the impact of tariffs on United States economy. In your
    report you wrote ITIF estimates that a 10-percent tariff levied
    on Chinese information and communication technology imports
    would slow the growth of U.S. output by $163 billion over the
    next 10 years, and a 25 percent tariff would slow output by
    $332 billion. You argue that, and I quote, ``Applying tariffs
    would needlessly harm the U.S. economy.'' And then just last
    week the administration imposed tariffs on $280 billion of
    Chinese imports. How will last week's tariffs affect the U.S.
    economy?
        Mr. Atkinson. The--we haven't done a thorough analysis of
    all the tariff lines in that $250 billion, but clearly--I think
    it's important to differentiate between what are called
    producer goods and consumer goods. So if you put a tariff on
    shoes, let's say, the impact is someone has to pay more for
    shoes. If you put an impact on a machine or a piece of software
    or a device that a company or an organization uses or the
    Federal Government uses to become more innovative and more
    productive, we're going to slow down innovation and
    productivity. So there are a number of--there are a number of
    products in that new regime of the $250 billion that would do
    that, and the result would be slower productivity and
    innovation in the U.S. because of that.
        Ms. Kelly. Okay. And then you said that you weren't going
    to say--I am paraphrasing quotes--are good or bad but if used,
    they just need to be used strategically. And I am just back to
    the WTO. I have steel industry in my community, and they go to
    the WTO often to settle dumping or low prices and things like
    that. And I don't know; it seems like, in listening to them, I
    don't know. Maybe it is effective, but as someone said, it is
    so slow. But they are extremely frustrated. And what do you
    think in this field how, you know--do you think it would really
    be effective and efficient or--I don't get that impression from
    some of my steel people.
        Mr. Atkinson. Sure. This is why I argue we need to treat
    China differently with regard to trade policy. So must other
    countries we have a process-oriented trade policy. If they
    violate something, there's a judicial process called the WTO.
    There's negotiations. We go through that. Yes, it's a little
    bit slow. It generally works, and it deals with the fact that
    many countries, including the U.S., have some protection.
    There's policies for other reasons.
        China's different, and that's why really fundamentally I
    don't buy the notion that the WTO alone could solve this
    problem. I use that as one example of something we should do,
    but it's got to be part of a much broader arsenal if you will
    because the Chinese know how to play--they know how to play the
    WTO to their advantage. One of the key advantages they have is
    they don't have written rules and laws. So to go to the WTO and
    win, we point to a law in Argentina that says X, and we can win
    that case, but there's no law in China on tech transfers, and
    therefore, they deny it. It doesn't mean it doesn't happen. It
    happens through administrative guidance and forcing in a
    meeting that you had to do this, so harder to prosecute those
    in the WTO.
        Ms. Kelly. Okay. So we need a lot of tools in the toolbox.
        Mr. Neuffer, when President Trump announced tariffs last
    month, he included the semiconductors from China as one of the
    products, and you stated at that time, and I quote, that the
    semiconductors imported, like you said today, from China were
    hurting American chipmakers, not China's, and will do nothing
    to stop China's problematic and discriminatory trade practices.
    How do tariffs on imports from China hurt American chipmakers?
        Mr. Neuffer. Thanks for that question. I just want to set
    the record straight from a question from Representative Issa.
        Ms. Kelly. Yes.
        Mr. Neuffer. I just want to underscore that 50 percent of
    our production is still here in the U.S., and while most of the
    manufacturing in the U.S. started in California over the years,
    it's spread out through the country, like I said, in 19 States.
    Intel, for example has massive fabs in Oregon and Arizona ----
        Mr. Hurd. And Texas.
        Mr. Neuffer.--and New York and in Texas, exactly. So it was
    just a natural maturing of the industry.
        And I also want to state for the record that if you look at
    American companies' global fab production are--quite a small
    portion of that is done in China. Most of it is done in the
    U.S. and other parts of the world.
        As for your question--thank you. The reality is the tariffs
    on semiconductors only hit U.S. semiconductor makers and makers
    of our allies like Japan, Taiwan, and Korea. The
    semiconductors--most of our semiconductors we make that go to
    China, they go there for some backend low-value assembly test
    and packaging. Basically, you take these wafers, you chop them
    up, you test them, you put them in these little things with
    leads. That's low-value stuff that adds about 10 percent of the
    value.
        Some of those chips come back here. Some of them go to
    other parts of the world. It's the ones come back here that get
    hit with the tariff. Chinese semiconductor manufacturers sell
    almost all of their chips in China and none or almost no chips
    to the U.S. So while we applaud the administration's effort to
    try to shut down the forced tech transfer and shutdown the
    illegal theft of IP that we're having with China, this is just
    a very blunt tool, and the semiconductor industry has gotten
    caught in the dragnet. And it's us getting hurt by this, and
    there's--it's not building leverage on the Chinese to
    potentially draw them to the negotiating table to get other
    outcomes.
        Ms. Kelly. Are they aware of this, that it hurts? It
    doesn't help ----
        Mr. Neuffer. The administration ----
        Ms. Kelly.--in your particular ----
        Mr. Neuffer. I believe so.
        Ms. Kelly. Okay. One common stipulation for American
    companies doing business in China, as has been talked about, is
    forcing them to engage in joint ventures or technology sharing.
    What are the dangers of a Chinese company with connections to
    the Communist Party appropriating American technology through
    joint ventures or other business deals? And is there real
    concern that American technology could be reverse engineered
    for military use?
        Mr. Neuffer. Yes, so these are all real concerns for sure.
    Joint ventures, we do them all over the world. We do them here
    and we do them in China. And the thing to keep in mind is, you
    know, we have regimes in place through export control that
    ensure that sensitive technologies do not seep out into regimes
    like China. And our companies are very careful about adhering
    to those export control regimes.
        The other piece of this is IP has been the lifeblood.
    Intellectual property, process technology has been the
    lifeblood of the semiconductor industry. The leaders of these
    companies are obsessive with trying to ensure that IP stays in
    their companies because if it ends up outside of their
    companies, their business disappears. Thank you.
        Ms. Kelly. We all agree China must be held accountable for
    IP theft and other unfair trade practices, but it is very
    concerning that this trade war is escalating and causing real
    harm to Americans. Can the members of the panel describe what
    the effects of full-blown trade war would be for the technology
    industry in the United States? And whoever wants to start is
    fine.
        Mr. Atkinson. Sure. So I think there's only two things that
    can happen out of this. One is eventually the Chinese will
    give. They'll cry uncle and they'll come to the negotiating
    table. I am still--I don't want to say I am optimistic but I'm
    open-minded to that. I really think that's a possibility, so we
    don't know what's going to happen.
        The other possibility is they just dig their heels in and
    they say forget it, we're never going to do this. And then the
    question for the U.S. becomes do we really want to have a
    really bifurcated global trading system almost going back to
    the Cold War era where you had a communist block that traded
    with itself and a non-communist block. And I think the cost of
    that would be quite significant for the U.S. It would be in two
    kinds of costs. One would be transition costs, so companies
    would have to move their facilities out of China. And we should
    be realistic; the vast majority of them are not coming to the
    U.S. They went there for a reason, oftentimes cost, so they
    would go to places like Vietnam or, as Mr. Issa said, the
    Philippines or maybe India or places like that. So I don't
    think we're getting--it's not like we're going to get much
    back.
        The other thing would be companies are there for a reason,
    and so if they have to go somewhere else, the costs will go up,
    and that would end up, again, hurting our ability to be global
    leaders because some of those products we sell in third
    markets. And so there's very good research on this that shows
    that when U.S. technology companies sell overseas, even when
    they don't produce that, a lot of those benefits come back to
    the United States in the form of high-wage jobs of designers,
    of R&D folks, of marketing, of sales, and all of that. So we
    depend a lot in our economy on jobs that--where the
    manufacturing isn't here, and so if we lose some of that
    because we have to have higher prices over, let's say, the
    Japanese or the Germans or something, it could hurt U.S. jobs.
        Ms. Kelly. Thank you.
        Ms. Cook. Tariffs are a little bit outside of my usual area
    of expertise, but I think I would just mention that, you know,
    if we're looking at the cost of the Chinese Government's
    internet censorship, especially the Great Firewall imposes on
    the Chinese--on U.S. companies, they already actually--it's a
    huge act of protectionism essentially that costs billions and
    billions of dollars. I mean, the reason companies like Google
    consider sacrificing their values is because they think they're
    going to be able to get access to 800 million internet users.
    That's more--almost triple the population of the entire United
    States.
        So I think, you know, again, not trade wars and tariffs are
    necessarily the answer, but I think it is worth keeping in mind
    that the starting point right now in this sector of online
    services is that the Chinese Government has imposed an enormous
    and very costly restriction that has huge economic
    implications, not just human rights implications, on U.S.
    companies.
        So I think anything the U.S. could do--again, I'm not sure
    tariffs are necessarily the answer to counter that--is a good--
    including, you know, funding the scaling up of circumvention
    tools to allow more Chinese people to access the services
    without having to get the approval of the Chinese Communist
    Party gives leverage in other areas of negotiation as well and
    is--would--could be a very important investment of taxpayer
    money ----
        Ms. Kelly. Thank you.
        Ms. Cook.--so a little bit of a different perspective.
        Mr. Cheng. Like Ms. Cook, I am not a trade specialist, so--
    but I would suggest that there are several questions that need
    to be answered in order to address the Representative's
    question. For example, I think that when it turned out that
    banning sales of all U.S. inputs to ZTE would effectively kill
    that company, that came almost certainly as a surprise to
    Chinese decision-makers, probably to even some American
    decision-makers. It highlights the lack of clarity regarding
    actual vulnerabilities in Chinese companies.
        Now, let me emphasize this is not an argument for tariffs
    whatsoever. What it is an argument for is a desperate need for
    us to better understand how supply chains work in both
    directions. What are actual Chinese vulnerabilities whether in
    the IT realm or perhaps in the petrochemical realm, in land
    reclamation, which has applications for the South China Sea?
    Because it may well be that there are more Chinese
    vulnerabilities in less-identified key subsectors than is
    generally widely recognized.
        The other question that remains also unclear is the Made in
    China 2025 program, which is to say what happens if China
    actually succeeds? We are here concerned about the potential
    impact of American tariffs on the global trade system, and
    that's a very reasonable question. But do we think that if
    China succeeds in in truly becoming self-sufficient in key IT
    areas, that China will all of a sudden then say but we support
    a global trading system, or will they now be insulated like
    their information ecology and environment behind in an
    industrial equivalent of a Great Firewall to basically say now
    that we're safe, bye. Thank you very much.
        Ms. Kelly. Thank you.
        Mr. Neuffer. Can I take a shot at that ----
        Ms. Kelly. Sure.
        Mr. Neuffer.--that question? Thank you. So just, again, for
    us, tariffs on us is puzzling because Chinese company
    enterprise don't send semiconductors to the U.S., so there's no
    leverage built. The other thing I'd like to say is 80 percent
    of our sales are overseas, China and other markets. Our
    customers are overseas, like most American companies,
    multinational companies, so anything that depresses trade is a
    risk for us financially, commercially.
        We do hope that these tariffs draw the Chinese to the
    negotiating table so we can get some beneficial outcomes, but
    until we get to that point, we are all at risk of hurting our
    economies. And after that, we hope--if they come to the
    negotiating table, they get strong outcomes, you know, all
    great, but if they don't come to the negotiating table and we
    don't get strong outcomes, where do we go from here? So a lot
    of questions about this.
        One thing we have been looking at in particular is what
    these tariffs do to IT spend, so tech products become more
    expensive, so IT spend becomes more expensive. And if IT spend
    is depressed, given that tech products--what you call them,
    Rob? Super technology ----
        Mr. Atkinson. Super capital.
        Mr. Neuffer. Super capital. Tech products are super capital
    that drive growth throughout the entire economy. If the IT
    spend starts dropping, that has an exponential multiplier
    effect throughout the entire economy, and this is something
    we're worried about. Thank you.
        Ms. Kelly. Thank you. And I am done.
        Mr. Hurd. I just finished 38 town halls in five days, and I
    am in Cotulla, Texas, which is part of south Texas. Most people
    know Cotulla as part of the energy boom. And the first question
    I got was actually on China. And a young woman asked me--and I
    know this question is slightly outside of our talk today. I
    know we are talking about IT, but I promised this constituent
    that I was going to be with a bunch of smart people and I would
    ask this question. How did China become the manufacture of
    millions of drugs that Americans take every day, right? And did
    they use predatory practices similar to those that we are
    seeing in the IT space? I would just welcome does anybody have
    a quick answer to that? Mr. Cheng, go ahead.
        Mr. Cheng. I am even less of a drug person than I am a ----
        Mr. Hurd. Tariff person?
        Mr. Cheng. Yes, sir. But my understanding--and this is
    without the benefit of having stayed at a Holiday Inn Express--
    is that China does produce a great deal of fentanyl. Fentanyl
    is a key component for opioids. Whether that was predatory or
    not is much less clear. My very, very limited understanding is
    that, as with these other technology areas, that it's a complex
    mix of domestic demand due to everything from changing views of
    what should be prescribed under what circumstances, legal
    coverage, all those things, to, you know, the Chinese taking
    advantage of a market that appeared without necessarily
    indulging in predatory practices.
        Mr. Hurd. Good copy. Ms. Cook, do you have any opinions?
        Well, the constituent of the 23rd thanks you for that
    question, Mr. Cheng.
        Project Maven, DOD contract to work with commercial
    companies to do artificial intelligence along moving video,
    recently, Google made a fairly large statement about not
    participating in this project because, ultimately, the
    information that they were going to potentially identify could
    lead to a terrorist being identified and eventually the U.S.
    Government doing with terrorists what we generally do, kinetic
    strike. The area that I haven't seen enough conversation on--
    now, you juxtapose that with Google's potential decision of
    getting involved in a search engine in China that violates, you
    know, freedom of expression, right, another value issue.
        The beneficiary of both of those decisions is China. You
    have an important American company involved on the pointy end
    of the spear when it comes to artificial intelligence breaking
    from Department of Defense, which arguably has the most data
    available to train algorithms. That is a strategic win for the
    Chinese. Have we seen--and we know that Chinese spy agencies do
    everything from stealing information and trying to influence.
        So my question is are we concerned or have we experienced
    or have we, you know, seen what I would call Chinese active
    measures when we talk about active measures using
    disinformation, influence operations? We talk a lot about how
    the Russians are doing this; why shouldn't China do this in our
    elections? But we don't talk enough about Chinese use of active
    measures when it comes to achieving a strategic goal like
    separate--driving a wedge between American companies and the
    U.S. Government. Opinions, thoughts, suggestions? I open it up.
        Mr. Atkinson, would you like to start us off?
        Mr. Atkinson. Yes, just a couple things to clarify. I
    actually believe that it is not in the Chinese interest to have
    Google come in. They're going to do whatever they want to do
    with information, blocking--doesn't make any difference whether
    there's a foreign company there or not, so I think that's in
    our interest, as I said before.
        There's a new book by a colleague of mine Darren Tromblay,
    who is now at GW who used to be in the FBI for many, many years
    in commercial counterintelligence. And this book is a--it just
    came out maybe four months ago, and it's a very good history of
    how foreign governments have used active measures against us,
    Russia, and China. And in that book there are many, many, many
    examples of how China is doing that. I can't say whether
    they've been doing that in the Google case that you alluded to
    with Project Maven, but they do that. And they use, you know,
    active measures, passive--and they use all sorts of measures to
    try to get our--to influence us and our companies to make
    decisions that aren't in our interest.
        Mr. Hurd. Ms. Cook, any opinion?
        Ms. Cook. I'm not privy to I think the kind of information
    that would address whether that happened in the Google case,
    but to echo Mr. Atkinson's comment, in general, the Chinese
    Communist Party uses a variety of measures to influence the
    United States, through media, through pressures to create
    censorship here in the United States, through various ways of
    recruitment and gaining access to information.
        And I think I would just comment that if you flip it on its
    head and you look at the area of artificial intelligence, it's
    one of the areas where Chinese companies are emerging at the
    forefront using very questionably ethical methods. A lot of the
    AI Chinese companies are heavily invested and have lots of
    government contracts in Xinjiang that's being--and their
    information is essentially being used to catch Muslims to send
    them to reeducation camps.
        They're able to use the massive amount of data they have
    access to to gain a more competitive edge internationally as
    well in the sense of both issues related to racial bias and
    artificial intelligence. They now have a contract with the
    Zimbabwean Government that will actually turn Zimbabwean
    citizens' data over to a Chinese company that will allow them
    to further improve their algorithms so they have access to
    Uighurs who ethnically look, say, Middle Eastern or central
    Asian, Chinese who look East Asian, and now Africans who--South
    sub-Saharan Africans that gives really potentially a
    competitive edge in an industry. They're anticipated to take a
    44-percent market share by 2023.
        One point is that one of those companies, a major investor
    is actually U.S. chipmaker QUALCOMM. So you have a situation
    where U.S. investors in general tend to reward problematic
    behavior like that because it can be very profitable but also
    where you have U.S. companies, potentially rather than
    investing in U.S. artificial intelligence firms to gain a
    competitive edge, are investing in a Chinese firm with very
    questionable, you know, practices.
        So I think some of the recommendations related to
    developing a comprehensive artificial intelligence strategy, as
    well as something like the Global Online Freedom Act that would
    hold companies to certain ethical standards, could be a way of
    pushing back both against other restrictions but also
    potentially, you know, suspicions and other ways in which the
    Chinese Government tries to gain influence in the U.S. tech
    environment.
        Mr. Hurd. And then, Ms. Cook, I would agree with you that
    we do need a national artificial intelligence strategy. Robin
    and I and our teams just put out a report this week
    highlighting, you know, some of the things that we have learned
    in our various hearings on artificial intelligence. I think you
    and I have done half of the hearings in Congress on artificial
    intelligence, and I believe that is important, as well as the
    need for a national strategy on quantum. I would say artificial
    intelligence right now is dumb, but the way it is going to get
    smart is once we achieve quantum. And I think these two things
    are connected, even though the science behind both are very
    different. So I agree.
        And this is why we do these things. The suggestion of the
    Global Online Freedom Act, hearing about this, getting this
    feedback on other initiatives that are out there is something
    that we are able to continue to sink our teeth and to go.
        And, Mr. Cheng, the previous question on, you know, Chinese
    active-- and I would even welcome the comments on--are U.S.
    companies prepared to defend against state-sponsored actors? I
    think I know the answer, having been in the private sector to
    help some companies do this, but are we seeing a recognition of
    all these, you know, issues that-- and Mr. Atkinson eluded to
    and probably that are mentioned in this book that was quoted.
    Mr. Cheng?
        Mr. Cheng. Sure. Three issues: one, the broader issue of
    Chinese influence operations ties into the Chinese view of
    political warfare. This is part of their doctrine. This is part
    of the specific missions assigned to the Chinese military. It
    includes a--so-called three warfares, public opinion warfare,
    which is a constant ongoing activity which is going on right
    now. It is not necessarily tied to a specific armed conflict,
    psychological warfare and legal warfare, manipulating both
    Chinese and foreign laws, regulations, treaties in order to
    achieve given political ends.
        One can imagine in the context of both public opinion and
    psychological warfare that the Chinese may well be inquiring of
    any foreign company, do you really think we will allow you into
    our markets if you are participating in a potential adversary's
    defense contracts? Whether or not that has occurred is not open
    to public, you know, open-source information. I would obviously
    defer to those who have access to far better data on that. But
    I simply throw out there the Chinese doctrine, which is
    publicly available, talks about the importance of employing the
    three warfares constantly against all potential adversaries.
        With the--on the issue of Google in China, I'm afraid I
    need to disagree with my fellow panelists. In the first place,
    the presence of Google in China would be a de facto endorsement
    of the Chinese information environment, that a company that
    specifically left after Chinese attack would then reenter would
    be spun in the context, again, of that public opinion warfare
    as proof of one of two things: Either China's market is so
    important that you will put up with almost anything we do to
    you; or two, that China's environment has improved to the point
    where you would voluntarily come back.
        As for the issue of market share, the Chinese in other
    areas have been very, very clear. There is a market share that
    they will allow you, and if you should pass that, then in that
    case, per Darth Vader in Empire Strikes Back, ``I am changing
    the terms of the deal. Pray I do not change them further.''
        And the way the Chinese go about this in terms of the issue
    of defending against attack too often takes pathways that we
    are--some take pathways that we are familiar with, direct cyber
    intrusion, et cetera, but particularly in the context of joint
    ventures and the things, they often involve, for example,
    staffing the H.R. department. If I decide who the joint venture
    hires, then in that case that creates a very different set of
    potential vulnerabilities.
        The other aspect here is whether or not companies
    themselves recognize--I think IT companies, ICT companies,
    semiconductor companies may well be aware of the
    vulnerabilities that are entailed. Banking companies are very
    much aware of the need to protect information. But it's the
    midsize company that feels it has to go into China that often
    has a small IT department to begin with that is far more likely
    to therefore say, well, but we do mid-level chemicals, we do
    paints, we do agricultural seedlings. Why would the Chinese
    attack us? I mean, obviously, you know, if we are a major
    defense contractor, of course they'll go after them, but why
    would they go after the makers of new headlamps? That--the
    Chinese have this voracious maw for all types of IPs, sometimes
    not recognized within the broader American corporate ----
        Mr. Hurd. Mr. Cheng, you have mentioned earlier about
    trying to understand real actual vulnerabilities of Chinese
    companies, and you used the ZTE example. And I agree with you.
    I think we should have gone forward and not allowed the U.S.
    components to be used in ZTE, and that would have sent a clear
    message to the Chinese that we are being serious. Do you have
    any examples--I know you said one of the things we need to do
    is actually understand that, and I am going to take that back
    to some of my friends to help ensure that we have a better
    understanding. But do you know of and can you ID a couple of
    current vulnerabilities in some of these Chinese companies that
    may be some items that this committee can take up or even other
    legislators take on and move with?
        Mr. Cheng. I don't know if this is within the purview of
    this committee, but let me give a different example. CCCC
    Dredging, CCCC is a Chinese state-owned enterprise. The
    Chinese, as they're doing South China Sea land reclamation,
    which of course has also been in the news, as they're building
    these new islands, it is not the Chinese military that's going
    out there, it's not the Chinese Ministry of Interior. They go
    to their own state-owned enterprises and say you, go and dredge
    up all the coral--it doesn't matter what the environmental
    impact is, dredge up thousands of tons of coral and build this
    new island. Many of those companies are using specialized
    dredging equipment that has not been manufactured in China, so
    therefore, they are going to European, American, foreign
    companies buying specialized equipment, dredger hoppers,
    equipment like that to basically destroy the environment of the
    South China Sea and build strategically important islands.
        Operating in a maritime environment, as any maritime
    engineer will tell you--also, I should note here I am not one
    of those either--is a very harsh environment. Things break.
    That means spare parts have to be purchased from abroad, which
    means CCCC Dredging is basically employing imported equipment
    to alter the situation in the South China Sea. Why we would
    allow that to continue given the strategic importance of that
    region is problematic in my opinion.
        A third area is basically speaking--and this goes directly
    to monetary issues--why do the Chinese list on foreign stock
    exchanges? They list on foreign stock exchanges for two
    reasons: one, obviously access to capital; but two, because it
    is a de facto, again, endorsement of the company. The Chinese
    play up the idea that if they are allowed to list on the New
    York Stock Exchange, then they have fulfilled U.S. SEC
    requirements. The bizarre part is that sometimes these
    companies are partly state-owned enterprises, which have an
    opacity to them. But again, they are nonetheless at times
    allowed to list on our stock exchanges.
        Mr. Hurd. Mr. Neuffer, we are going to get back to in round
    two, but I'm going to defer now and recognize Robin Kelly for a
    second round of questions.
        Ms. Kelly. Thank you. Something that has always been a
    concern to me--and part of it is when I go back to my district
    and I visit my companies. They always talk about the lack of a
    qualified workforce. And can you guys talk about this in that
    arena, that because of immigration or because of lack of
    investment in education or training and those kind of things,
    how--I know we feel it now, but it seems like we are going to
    feel it even more in the future. I don't mean to look at you
    but you ----
        Mr. Neuffer. Can I start? Thank you.
        Ms. Kelly. Yes.
        Mr. Neuffer. So a couple of things. First of all,
    electrical engineers drive the semiconductor industry. These
    are the guys--electrical and chemical engineers, these are the
    guys who make semiconductors. A lot of these young kids coming
    into this profession like to go off and make the coolest app
    and work for big internet companies, so there's a bit of a
    problem there. But a bigger problem is that we don't--our
    government does not have big enough emphasis on promoting STEM
    education and our immigration policy is broken so that we can't
    get the numbers of STEM employees from overseas that we need.
        And if you go to any semiconductor company, there are
    dozens if not hundreds of job openings for STEM applicants. So
    there needs to be a remedy. These are huge, systemic problems
    and riven with controversy, but until we get to the bottom of
    this, our industry, the semiconductor industry is at risk
    because you've got to have the talent to build these incredibly
    innovative semiconductors and stay at the tip of the technology
    spear. Thank you. Yes.
        Ms. Kelly. I am on the board of trustees of the college I
    graduated from, and then I am on an advisory from the other
    college I graduated from, and it is amazing. When I was at the
    graduation for one of the colleges, the lack of international
    students in engineering. I mean, it was unbelievable the change
    in both colleges. We talked about how they just haven't been
    getting the applications.
        Mr. Neuffer. Interesting.
        Mr. Cheng. When it comes to foreign students, one source
    that you probably do not have a shortage of is Chinese. China
    represents probably one-third of the current foreign student
    population of the United States, many of which are in STEM. The
    problem is that many of these students, the question becomes
    what is that they are coming here to study? They are studying
    STEM obviously, but are they staying ----
        Ms. Kelly. Right.
        Mr. Cheng.--or are they here particularly focused on
    programs which will have dual use and military benefit and then
    going home?
        We have seen a generational shift within the context of
    Chinese students. In the past, many of them tended to stay
    here. This is also true abroad, that is to say in Europe and
    elsewhere, but more and more of those students seem to be going
    home. Whether that's due to economic opportunities at home or
    due to pressure is much less clear.
        I certainly would not disagree that this country needs more
    engineers and more STEM students in general, but I would
    highlight that simply because you are getting an education in
    the STEM field does not any longer mean that you are in fact
    getting STEM education. There are professors who apparently are
    teaching math courses whose focus is on the fundamental
    underlying racism and sexism of math. Now, how that will help
    produce better electrical and aerospace engineers is beyond me,
    but I do think that if we are going to focus on STEM, that we
    need to be focused on actually producing people who can produce
    5 nanometer circuit wafers, who can produce better rocket
    engines for Blue Origin or ULA, who can produce, you know,
    better systems engineering and quantum computing and not
    necessarily engaged in whether or not, you know, a focus on
    math is somehow giving way to some of our worst historical
    habits.
        Ms. Kelly. Thank you.
        Mr. Atkinson. Thank you. I just also would be remiss if I
    didn't use this opportunity to thank you both for this
    excellent report that you both released I guess yesterday on
    AI. We at ITIF really applaud it and think it's exactly in the
    right direction, so thank you.
        Ms. Kelly. Thank you.
        Mr. Atkinson. I just want to quickly come back to the prior
    comment from Congressman Hurd. I think one of the challenges
    with this--and I--one of the challenges with this issue is we--
    our--I don't want to say complete but pretty serious lack of
    knowledge in the U.S. Government, we don't know the answer to
    your question, and we should know that. And it's partly because
    we simply don't have an institutional home for that level of
    global supply chain analysis, and I think we have to have that.
        Congresswoman, with regard to your question, I actually
    think this is a much easier solution than people think. It
    tends to be framed as how do we convince a bunch of fourth-
    graders to somehow like STEM. We've done a lot of research on
    this. We've come up with a fairly comprehensive strategy. There
    are lots of kids who like it. We don't give them enough of the
    right opportunities.
        So one of the things that we've proposed and supported,
    more specialty math in high schools, particularly in
    disadvantaged communities. They play an incredibly effective
    role in getting kids who might not otherwise be into that. They
    go to college--a good example of that is the San Antonio Math
    and Science High School--sorry, the Dallas Math and Science
    High School, 90 to 95 percent Hispanic and black students,
    almost 100--in fact, I think their rate of getting AP exams--5s
    on the AP exams exceeds most high schools in the country right
    now.
        Secondly, at college level, we know that one of the big
    problems is colleges could take more and have more students go
    through that, but they intentionally limit the slots in
    commuter science and engineering. They force people to leave
    the discipline who want to stay and are good students, and
    that's a budget issue and an incentive issue. And I think the
    Federal Government can provide more incentives to get
    universities to focus on--University of Washington, a good
    example, the C.S. department head I talked to, I asked him how
    many slots they could add without reducing ability-- without
    quality? He said we could double the number of Washington State
    students in our C.S. department, but we aren't given the budget
    to do it.
        Ms. Kelly. We actually started a STEM academy in my
    district just with my office exposing sixth, seventh, and
    eighth graders to different things that they could do with a
    STEM career, but of course it is hard to keep up because we are
    just a little office, but I know we piqued the interest and
    just trying to give opportunity and broaden their horizons, so
    thank you. Thank you.
        Mr. Hurd. Picking up on the issue of education, roughly 40
    percent of the people that are actually in STEM education, in
    master's and Ph.D. programs in the United States, are Chinese.
    And so my question is the United States has benefited from the
    brain drain of every other country for the last couple decades.
    Let's continue that. When you are at 3.8 percent unemployment,
    that means every industry needs people, whether it is
    agriculture or artificial intelligence.
        When you are at multiple quarters of 4 percent growth, of
    rising wages, you know, rising average income, the thing that
    can stall the economy is not having the proper workforce to
    take advantage of these opportunities. Two ways to do that,
    grow our own, we have talked about that, something that we have
    got to continue to do, but it is also through immigration. And
    you have people that are coming here and getting Ph.D.'s,
    master's, and they are having difficulty in getting the right
    visa in order to stay here and continue to work for U.S.
    companies.
        And so my question is, is the opportunity of having a smart
    person from somewhere else stay here and start a company here
    and be involved here, does that outweigh potential
    counterintelligence concerns about this being something
    directed by the Chinese Government? Who would like to start
    that out? Mr. Atkinson, let's go ahead and go with you.
        Mr. Atkinson. I don't think we know the answer to that
    honestly. You're right on both sides of that. The Chinese
    students who come here, get a STEM graduate degree, and then
    stay are of value to the U.S. economy and to our innovation
    system.
        I think one thing we could do and should do more is I think
    our universities tend to have a blind eye towards threats.
    There's a famous case at Duke University where they--Chinese
    students came, enrolled in the Ph.D. program, and essentially
    took the cloaking--this was Defense Department--the cloaking
    technology, they took it. And this was a few years ago, and so
    the--Duke wasn't aware of it and they hadn't thought about it.
    We need to make sure--through the FBI counterintelligence
    efforts, we need to make sure that every university has
    procedures and processes in place to at least limit that so
    they're aware of it.
        Mr. Hurd. So going on that, Mr. Atkinson, I am going to ask
    a broader question. Look, when you look at the amount of
    venture capital that has been deployed in Chinese companies,
    the amount of Chinese capital being deployed in let's call it
    broader Silicon Valley, do those companies recognize the
    national security threat of the investments that is coming from
    potential Chinese investors?
        Mr. Atkinson. No.
        Mr. Hurd. There it is.
        Mr. Atkinson. The lion's share have no concern or interest.
    They--you know, they just want the money.
        Mr. Hurd. Ms. Cook? I know there are two questions there --
    --
        Ms. Cook. Yes, I ----
        Mr. Hurd.--answer them both, one, either.
        Ms. Cook. I would just go back to Mr. Cheng's previous
    point about the way the Chinese Government looks at foreign
    political influence. It doesn't always necessarily separate the
    kind of military counterintelligence or things that we would
    look at as being more aggressive with softer forms of
    influence. And I think from that perspective a lot of the
    Chinese students here are victims themselves in many ways of
    pressures, of consular officials sitting in on meetings of the
    Chinese student associations at U.S. universities. If you look
    especially at the ----
        Mr. Hurd. You are saying Chinese ----
        Ms. Cook. Consular officials well ----
        Mr. Hurd.--officials in the United States at a U.S. student
    group ----
        Ms. Cook. At a meeting, so--yes, for ----
        Mr. Hurd.--with Chinese students at a U.S. university?
        Ms. Cook. Yes. So it ----
        Mr. Hurd. Okay.
        Ms. Cook.--might not be the full meeting. It might be
    just--certainly--well, one specific anecdote that I heard from
    a Chinese student, this was a number of years ago. This is
    getting a little more attention now related to elections within
    a university and one of the women who was trying to stand for
    election at this Chinese student's scholar associations happen
    to practice Falun Gong. And the consular officials basically
    went around the table of the specific officers or students and
    applied other pressures basically to pressure the students in
    that association not to elect her.
        And other ways in which--there's been a series of articles
    and investigations recently, especially in foreign policy I
    think, about the way the diplomatic--the Chinese diplomats
    influence Chinese student associations in the United States.
    Some of it's with funding. Some of it is with actual like
    reporting requirements and things like that. And again, these
    students--this is not without force behind it. I mean, I think
    we have to--again, it's very tricky because a lot of times the
    students are themselves--they have family in China, and the
    Chinese Government is very adept at pressuring family to get
    people abroad to do things. And so I think that's a threat to
    the safety and well-being of the Chinese students in American
    universities that our American universities aren't dealing
    with.
        But also it comes back to this bigger question of the way
    in which the Chinese diplomats and Chinese officials exert
    pressure on individuals here in the United States and potential
    actions that the U.S. Government could do because the same
    diplomats will also go and pressure an advertiser who they see
    advertising in the local dissident Chinese newspaper in New
    York City or will go and threaten the--a journalist who has
    family back in China who's working for Radio Free Asia or
    things like that. And the U.S. Government has been--in some
    cases there's real evidence about this and there isn't a strong
    response. There isn't a demarche. There isn't--I mean, these
    are violations of diplomatic conventions.
        So, I mean, I think that--again, this question of the way
    in which the Chinese embassies and consular officials are able
    to have communication, exert pressure on Chinese students
    ultimately can have very important counterintelligence
    ramifications because it's not necessarily that Chinese
    students are coming here ahead of time deciding to try to steal
    technologies. They can--the Chinese Government has the avenues
    and the power to put them and their families under tremendous
    pressure.
        Mr. Hurd. Sure.
        Ms. Cook. So being able to find a way in the United States
    to actually enforce our laws and stop that type of behavior has
    both national security implications and student welfare
    implications for the Chinese students as well.
        Mr. Hurd. Ms. Cook, you and many of your panelists have
    commented on something that I have seen. The U.S. intelligence
    community views intelligence differently than the Chinese view
    intelligence. And I would say using our vernacular, the
    intelligence bar for China is significantly lower than what it
    is for us, and therefore, even though the Chinese believe they
    are involved in intelligence operations, people on the U.S. I
    do not believe it is intelligence operations because that is
    not how we see or view that. And that is a disconnect from
    being able to have the information and collection on some of
    these behaviors of Chinese diplomats in our country, and so
    highlighting this is important.
        Mr. Cheng?
        Mr. Cheng. So, several points, sir. With regards to the
    very different view of what intelligence constitutes, we have
    interesting examples of ship visits to China where a series of
    fourth-graders each went up to American sailors and asked
    interesting questions, not like what's it like to be an
    American sailor, but what is the sonar frequency of your
    dipping sonar, a fourth grader, who would then promptly go back
    to the schoolteacher who led them and say, oh, the sailor said
    it was this. And after about four questions along these lines,
    the American sailors are finally told you should stop answering
    their questions, that these are not just innocent questions
    from fourth-graders.
        I do want to emphasize here that there is a danger of
    course in viewing every Chinese student as a potential agent --
    --
        Mr. Hurd. Sure.
        Mr. Cheng.--that we do not want to go to a point where we
    are simply concluding based on ethnicity or ----
        Mr. Hurd. Sure.
        Mr. Cheng.--national origin that people are ----
        Mr. Hurd. And thank you for making that point, and I would
    add--and correct me if I am wrong--not all Chinese investment
    is necessarily a, you know, indication that this is going to
    lead to some draconian issue in the motherland.
        Mr. Cheng. No, I would agree with that as well because
    there is absolutely a profit motive also at work. Chinese
    entrepreneurs, like entrepreneurs everywhere, want to make
    money, want return on investment. That being said, of course,
    the government is more than happy nonetheless--and it has a
    vast array of tools--to pressure students, entrepreneurs,
    venture capitalists to pony up information, whether it's on
    projects that a professor--you know, an advisor's working on or
    whether it's new technologies that you're investing in.
        This goes to a broader CFIUS-related issue. CFIUS of course
    is vital, but CFIUS is a gatekeeper. It is our guard at the
    perimeter. And the problem, whether it's Confucius Institutes,
    whether it is students working for professors on advanced
    projects at universities, whether it is venture capital in
    Silicon Valley, the Route 128 corridor in Massachusetts, or
    outside Austin, all has the same issue, which is if you've made
    it past that, there is much less internal policing if you will.
    It's not that CFIUS is bad or is not enough--it's that CFIUS is
    not enough but it--we should not be adding to CFIUS' burden. We
    probably need a new approach to thinking about what happens --
    --
        Mr. Hurd. So do you think FIRRMA was adding more burden to
    CFIUS or was that a move in the right direction? This is the
    legislation we recently passed in order to give CFIUS deals
    over transfer of critical technology--of potential investments
    in critical technology.
        Mr. Cheng. I think the idea behind it is vital and
    essential, sir. I have to admit that I'm not sure whether or
    not making CFIUS the party responsible is the best approach,
    not without expanding its staffing ----
        Mr. Hurd. Sure.
        Mr. Cheng.--and purview, but that--you--I think that that
    effort identified a key shortcoming, not in CFIUS per se but in
    our broader technology defense if you will.
        The last aspect here is simply to note that the issue of
    active interference within universities, we have seen this by
    Confucius Institutes, we've seen this by Chinese agents. You
    know, the previous administration admonished the Chinese about
    the improper activity of various officials. That was at best
    tepid but it was at least a first step. We do need, in terms of
    reciprocity, making very clear to the Chinese that their
    actions will have serious consequences, not just an
    admonishment, but whether it means PNG to officials, whether it
    means curtailing their activities and where they can travel,
    much like we have the--still imposed on Russian officials and
    counterparts.
        But again, going to the broader information-related issues,
    not just IT, why is it that the Chinese can limit the presence
    of VOA and other reporters to one or two--to cover an entire
    country the size of the United States, but there can be a good
    dozen Xinhua bureaus with freedom of travel across the United
    States?
        Mr. Hurd. Mr. Neuffer, staff is getting uncomfortable,
    which always means we have been going on too long, so let me
    end. And this is a question for all of our panelists. You got
    one more?
        Ms. Kelly. Just one.
        Mr. Hurd. I am going to yield to my friend, Ms. Kelly.
        Ms. Kelly. It just takes a one-word answer from each of
    you. I know we are talking about China, but what country is
    behind China? With the concerns we have about China, what other
    country would you say we need to be concerned about? If there
    are two, that is fine, but ----
        Mr. Atkinson. India.
        Mr. Hurd. Ms. Cook?
        Ms. Cook. I think still probably Russia for the issues that
    we're looking at, Russia and Iran.
        Ms. Kelly. Okay.
        Mr. Cheng. I'd agree with Ms. Cook, Russia and Iran.
        Ms. Kelly. Okay.
        Mr. Neuffer. And I'll say Russia and India to mix it up.
        Ms. Kelly. Okay. Thank you. I am just curious. Thank you.
        Mr. Hurd. So, Mr. Neuffer, and we will start with you and
    we will end. Mr. Atkinson, you can have the last word, so make
    it good. One statement on something else we can be doing other
    than tariffs, Mr. Cheng has given us several. Don't allow
    Chinese companies on the New York Stock Exchange. We have Ms.
    Cook's comments about reintroducing and passing the Global
    Online Freedom Act. What is something that I can turn to our
    teams and say, hey, can we get this done? What do we need to do
    to make this happen? That is what I am looking for, something
    short, something tight. All of our staffs' pencils are
    sharpened and ready. Mr. Neuffer?
        Mr. Neuffer. Excellent. One, as Rob said, it's not the only
    solution but we should be driving more of our problems into the
    WTO. It takes time, but we usually win in in that fora, and the
    Chinese respect and are desperate to keep the WTO alive these
    days.
        Two, let's get more regional trade agreements. The TPP was
    very important for our industry. We were sad it didn't go
    forward, and it plays a very important role of setting a model
    for how China and others should behave in the trade arena.
        Three, we need to be embracing our allies much more often
    and much more deeply, as Mr. Atkinson says.
        I've been involved in a number of very contentious issues
    with China, and we worked with our allies very closely and were
    able to push China back.
        Mr. Hurd. Okay.
        Mr. Atkinson. China does not like to be isolated. And
    three, we have to have a very, very strong affirmative agenda,
    and that affirmative agenda for us needs to focus on peddling
    faster, and to pedal faster, we need this U.S. Government
    investing more heavily in basic research, in tech and our
    sector.
        Mr. Hurd. Good copy. Mr. Cheng, you are now--and you don't
    have to repeat the ones you have already said because I have
    gotten those down.
        Mr. Cheng. Okay. On the issue of stolen technologies, we
    should be treating stolen technology like stolen technology,
    which is to say you are trafficking in stolen goods; we will
    therefore punish you for doing so. That opens the door then to
    RICO, to basically criminal conspiracies, which then places the
    onus on American subsidiaries and their executives to
    demonstrate that they are not engaging in the trafficking of
    stolen goods, which puts them then on our side. I want these
    people to be doing good business. There's nothing wrong with
    competition. But if you are trafficking in stolen goods, then
    it's not just, you know, your company that will be punished.
    You're going to lose that nice house, the three cars, and the
    horse.
        Mr. Hurd. And we know a few people that are pretty good at
    handling RICO cases.
        Mr. Cheng. Yes, sir. The other thing is just an area of
    importance, the Internet of Things. If you're worried about
    artificial intelligence, if you're worried about that that is a
    giant data swamp, and the IT security associated with IOT at
    this point is beyond primitive, I mean, pretty much
    nonexistent. We need to be thinking about setting standards. We
    need to be thinking about also limiting the amount of data flow
    from IOT, your coffeemaker, your refrigerator, back to China.
        Mr. Hurd. Great. Thank you. Ms. Cook?
        Ms. Cook. I think we need to and I think we actually can
    punch quite a big hole in the Great Firewall. We work with
    circumvention-tool developers to get some of our content on
    censorship that we translate into Chinese to Chinese users, and
    we see--we get from the data millions of people every--in a
    week's span, and that's just one tool accessing it.
        Another tool that's on actual mobile phones which are
    becoming more--which is the main way Chinese people work, also
    they get to a landing page and content related from Freedom
    House, content from Radio Free Asia, Voice of America, but also
    of course Google, Google ads, Facebook, those are the first
    places people go.
        And the U.S. Government has invested tens of millions of
    dollars in internet freedom projects around the world, and if
    you look generally, you know, working on circumvention tools
    isn't necessarily the answer in every country because the
    tactics are different, and even in China it goes through waves,
    but right now, there is a real demand after VPNs have been
    taken off of Apple's iPhone store, the--I spoke to before this
    hearing a number of circumvention-tool developers who have
    received U.S. funding in the past but for various reasons it
    seemed to indicate a level of--a certain degree of
    mismanagement, to use their words. They're not being used as
    effectively.
        There is emphasis in some cases on developing new tools as
    opposed to scaling up tools that are being effective and could
    be scaled up more widely, and so what we--that's why I would
    urge the committee--and I can connect the staffers to relevant
    people--to take a look, to speak to people at the BBG, people
    at the State Department specifically regarding the China
    portion because for other countries that don't have a firewall,
    you need other solutions.
        But in China, I think there's a real question how this
    funding has been disbursed, whether it could be--should be
    increased but could be managed and get to people more
    effectively because if--you know, one of the developers was
    saying that these Chinese companies are spending billions of--
    like the amount of money per user on censoring people, if he
    had even the fraction of that, he can actually provide, again,
    access to so many more people.
        And so think about what alternative future would be if you
    have innovation in that area. And one of the ideas he said was
    don't just have separate circumvention apps. Have
    circumventions programmed into existing apps. Then you've got
    Chinese users going and visit--Google doesn't have to
    compromise its values because you've got a least a certain
    market share of Chinese users jumping the firewall. And again,
    this is--you know, I think there are reasons to believe why
    this could be possible from a technological perspective without
    an enormous expense necessarily on taxpayers. So that--I think
    that's what we would urge to really look at.
        Mr. Hurd. That's good copy and very helpful. Mr. Atkinson,
    you have the final word. Make it tight, make it good.
        Mr. Atkinson. I can make it tight; I don't know about the--
    making it good. We issued a report last year where we laid out
    a very comprehensive nontariff agenda. There's a whole lot of
    ideas in there. Let me address three quickly.
        One, enact a regime where Chinese entities who seek
    technology licenses in the U.S. have to essentially get that
    license on the same terms that they force our companies to
    license in China, so reciprocity around technology licensing. I
    would just limit and end most U.S.-China S&T cooperation. I
    don't see any reason why we have any cooperative agreements
    with the Chinese when it comes to science and technology.
        And third, I would build a--I would spend more money on
    customs enforcement. There's a lot of Chinese counterfeit goods
    that still get in this country, and that's a good way to make
    them suffer pain. They go to make--produce the product, they
    send it all the way over there, and then we burn it or throw it
    in the ocean, and that sends them a very clear message so ----
        Mr. Hurd. That was very good. Thank you.
        And I want to thank all the witnesses for appearing before
    us today. The hearing record is going to remain open for two
    more weeks for any member to submit an opening statement or
    questions for the record.
        And if there is no further business, without objection, the
    subcommittee stands adjourned.
        [Whereupon, at 11:43 a.m., the subcommittee was adjourned.]

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