[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
CHINA'S MARITIME SILK ROAD INITIATIVE: IMPLICATIONS FOR THE GLOBAL
MARITIME SUPPLY CHAIN
=======================================================================
(116-37)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 17, 2019
__________
Printed for the use of the
Committee on Transportation and Infrastructure
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available online at: https://www.govinfo.gov/committee/house-
transportation?path=/browsecommittee/chamber/house/committee/
transportation
_____
U.S. GOVERNMENT PUBLISHING OFFICE
41-367 PDF WASHINGTON : 2020
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
PETER A. DeFAZIO, Oregon, Chair
SAM GRAVES, Missouri ELEANOR HOLMES NORTON,
DON YOUNG, Alaska District of Columbia
ERIC A. ``RICK'' CRAWFORD, Arkansas EDDIE BERNICE JOHNSON, Texas
BOB GIBBS, Ohio RICK LARSEN, Washington
DANIEL WEBSTER, Florida GRACE F. NAPOLITANO, California
THOMAS MASSIE, Kentucky DANIEL LIPINSKI, Illinois
MARK MEADOWS, North Carolina STEVE COHEN, Tennessee
SCOTT PERRY, Pennsylvania ALBIO SIRES, New Jersey
RODNEY DAVIS, Illinois JOHN GARAMENDI, California
ROB WOODALL, Georgia HENRY C. ``HANK'' JOHNSON, Jr.,
JOHN KATKO, New York Georgia
BRIAN BABIN, Texas ANDRE CARSON, Indiana
GARRET GRAVES, Louisiana DINA TITUS, Nevada
DAVID ROUZER, North Carolina SEAN PATRICK MALONEY, New York
MIKE BOST, Illinois JARED HUFFMAN, California
RANDY K. WEBER, Sr., Texas JULIA BROWNLEY, California
DOUG LaMALFA, California FREDERICA S. WILSON, Florida
BRUCE WESTERMAN, Arkansas DONALD M. PAYNE, Jr., New Jersey
LLOYD SMUCKER, Pennsylvania ALAN S. LOWENTHAL, California
PAUL MITCHELL, Michigan MARK DeSAULNIER, California
BRIAN J. MAST, Florida STACEY E. PLASKETT, Virgin Islands
MIKE GALLAGHER, Wisconsin STEPHEN F. LYNCH, Massachusetts
GARY J. PALMER, Alabama SALUD O. CARBAJAL, California,
BRIAN K. FITZPATRICK, Pennsylvania Vice Chair
JENNIFFER GONZALEZ-COLON, ANTHONY G. BROWN, Maryland
Puerto Rico ADRIANO ESPAILLAT, New York
TROY BALDERSON, Ohio TOM MALINOWSKI, New Jersey
ROSS SPANO, Florida GREG STANTON, Arizona
PETE STAUBER, Minnesota DEBBIE MUCARSEL-POWELL, Florida
CAROL D. MILLER, West Virginia LIZZIE FLETCHER, Texas
GREG PENCE, Indiana COLIN Z. ALLRED, Texas
SHARICE DAVIDS, Kansas
ABBY FINKENAUER, Iowa
JESUS G. ``CHUY'' GARCIA, Illinois
ANTONIO DELGADO, New York
CHRIS PAPPAS, New Hampshire
ANGIE CRAIG, Minnesota
HARLEY ROUDA, California
Vacancy
------
Subcommittee on Coast Guard and Maritime Transportation
SEAN PATRICK MALONEY, New York,
Chair
BOB GIBBS, Ohio RICK LARSEN, Washington
DON YOUNG, Alaska STACEY E. PLASKETT, Virgin Islands
RANDY K. WEBER, Sr., Texas JOHN GARAMENDI, California
BRIAN J. MAST, Florida ALAN S. LOWENTHAL, California
MIKE GALLAGHER, Wisconsin ANTHONY G. BROWN, Maryland
CAROL D. MILLER, West Virginia CHRIS PAPPAS, New Hampshire, Vice
SAM GRAVES, Missouri (Ex Officio) Chair
Vacancy
PETER A. DeFAZIO, Oregon (Ex
Officio)
CONTENTS
Page
Summary of Subject Matter........................................ v
STATEMENTS OF MEMBERS OF THE COMMITTEE
Hon. Sean Patrick Maloney, a Representative in Congress from the
State of New York, and Chairman, Subcommittee on Coast Guard
and Maritime Transportation:
Opening statement............................................ 1
Prepared statement........................................... 3
Hon. Bob Gibbs, a Representative in Congress from the State of
Ohio, and Ranking Member, Subcommittee on Coast Guard and
Maritime Transportation:
Opening statement............................................ 4
Prepared statement........................................... 5
Hon. Peter A. DeFazio, a Representative in Congress from the
State of Oregon, and Chairman, Committee on Transportation and
Infrastructure:
Opening statement............................................ 6
Prepared statement........................................... 7
Hon. Sam Graves, a Representative in Congress from the State of
Missouri, and Ranking Member, Committee on Transportation and
Infrastructure, prepared statement............................. 73
WITNESSES
Panel 1
Chad Sbragia, Deputy Assistant Secretary of Defense for China,
Office of the Secretary of Defense:
Oral statement............................................... 9
Joint prepared statement of Mr. Sbragia and Lieutenant
General Tuck............................................... 12
Lieutenant General Giovanni K. Tuck, Director for Logistics, J4,
Joint Chiefs of Staff:
Oral statement............................................... 11
Joint prepared statement of Lieutenant General Tuck and Mr.
Sbragia.................................................... 12
Carolyn Bartholomew, Chairwoman, United States-China Economic and
Security Review Commission:
Oral statement............................................... 17
Prepared statement........................................... 19
Panel 2
Jonathan E. Hillman, Director, Reconnecting Asia Project, Center
for Strategic and International Studies:
Oral statement............................................... 42
Prepared statement........................................... 43
Jeffrey D. Becker, Ph.D., Research Program Director, Indo-Pacific
Security Affairs, CNA:
Oral statement............................................... 47
Prepared statement........................................... 49
Kathleen A. Walsh, Associate Professor of National Security
Affairs, U.S. Naval War College:
Oral statement............................................... 58
Prepared statement........................................... 60
SUBMISSIONS FOR THE RECORD
Letter of October 17, 2019, from Scott N. Paul, President,
Alliance for American Manufacturing, Submitted for the Record
by Hon. Sean Patrick Maloney................................... 73
Joint Statement of Kathryn Waldron, Fellow, National Security and
Cybersecurity, R Street Institute and Kristen Nyman, Government
Affairs Specialist, National Security and Cybersecurity, R
Street Institute, Submitted for the Record by Hon. Sean Patrick
Maloney........................................................ 76
Statement of the United Steelworkers, Submitted for the Record by
Hon. Sean Patrick Maloney...................................... 78
APPENDIX
Questions from Hon. Sean Patrick Maloney to Chad Sbragia, Deputy
Assistant Secretary of Defense for China, Office of the
Secretary of Defense........................................... 81
Questions from Hon. Rick Larsen to Chad Sbragia, Deputy Assistant
Secretary of Defense for China, Office of the Secretary of
Defense........................................................ 81
Questions from Hon. Sean Patrick Maloney to Lieutenant General
Giovanni K. Tuck, Director for Logistics, J4, Joint Chiefs of
Staff.......................................................... 82
Questions from Hon. Rick Larsen to Lieutenant General Giovanni K.
Tuck, Director for Logistics, J4, Joint Chiefs of Staff........ 83
Questions from Hon. Anthony G. Brown to Lieutenant General
Giovanni K. Tuck, Director for Logistics, J4, Joint Chiefs of
Staff.......................................................... 84
Questions from Hon. Sean Patrick Maloney to Carolyn Bartholomew,
Chairwoman, United States-China Economic and Security Review
Commission..................................................... 84
Questions from Hon. Rick Larsen to Carolyn Bartholomew,
Chairwoman, United States-China Economic and Security Review
Commission..................................................... 85
Questions from Hon. Sean Patrick Maloney to Jonathan E. Hillman,
Director, Reconnecting Asia Project, Center for Strategic and
International Studies.......................................... 89
Questions from Hon. Rick Larsen to Jonathan E. Hillman, Director,
Reconnecting Asia Project, Center for Strategic and
International Studies.......................................... 89
Questions from Hon. Sean Patrick Maloney to Jeffrey D. Becker,
Ph.D., Research Program Director, Indo-Pacific Security
Affairs, CNA................................................... 90
Questions from Hon. Rick Larsen to Jeffrey D. Becker, Ph.D.,
Research Program Director, Indo-Pacific Security Affairs, CNA.. 91
Questions from Hon. Sean Patrick Maloney to Kathleen A. Walsh,
Associate Professor of National Security Affairs, U.S. Naval
War College.................................................... 92
Questions from Hon. Rick Larsen to Kathleen A. Walsh, Associate
Professor of National Security Affairs, U.S. Naval War College. 94
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October 11, 2019
SUMMARY OF SUBJECT MATTER
TO: LMembers, Subcommittee on Coast Guard and Maritime
Transportation
FROM: LStaff, Subcommittee on Coast Guard and Maritime
Transportation
RE: LHearing on ``China's Maritime Silk Road
Initiative: Implications for the Global Maritime Supply Chain''
_______________________________________________________________________
PURPOSE
The Subcommittee on Coast Guard and Maritime Transportation
will meet on Thursday, October 17, 2019, at 2:00 p.m. in 2167
Rayburn House Office Building to examine the 21st Century
Maritime Silk Road Initiative, one component of a formal global
development strategy promoted by the Chinese government to
enhance their trade networks. The Subcommittee will hear from
the Office of the Secretary of Defense, United States-China
Economic and Security Review Commission, Center for Security
and International Studies, Naval War College, and Center for
Naval Analysis about the impacts of this policy and strategic
implication for American maritime commerce.
BACKGROUND
In 2013, China unveiled the concept for the 21st Century
Maritime Silk Road Initiative (MSRI), the maritime component of
the Belt and Road Initiative (BRI) published in both Chinese
and English.\1\ The BRI is widely regarded as Chinese President
Xi Jinping's flagship project, and the MSRI is designed to
expand the nation's blue economy and enhance infrastructure
connectivity throughout Southeast Asia, Oceania, the Indian
Ocean, and East Africa with Chinese-financed port, road, and
energy infrastructure.\2\ The MSRI's three ``blue economic
passages'' (BEPs) include the China-Indian Ocean-Africa-
Mediterranean Sea BEP, China-Oceania-South Pacific BEP, and
China-Arctic Ocean-Europe BEP. As of April 2019, 126 countries
have signed on to the BRI.\3\
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\1\ The Silk Road Economic Belt and 21st Century Maritime Silk Road
became ``One Belt, One Road'' for short. In late 2015, the central
government issued guidelines on standardizing the English translation,
specifically demanding that ``initiative'' should now be used in
association with Belt and Road, whereas ``strategy,'' ``project,''
``program,'' and ``agenda'' should not be used. One Belt, One Road
became Belt and Road Initiative in English, but its Chinese name
remained ``Yidai Yilu.''
\2\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council of
Foreign Relations, April 23, 2018.
\3\ The Second Belt and Road Forum for International Cooperation,
``List of Deliverables of the Second Belt and Road Forum for
International Cooperation,'' [http://www.beltandroadforum.org/english/
n100/2019/0427/c36-1312.html] April 27, 2019.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 1_The MSRI will begin in Quanzhou in Fujian province, and visit
Guangzhou (Guangdong province), Beihai (Guangxi), and Haikou (Hainan)
before heading to the Malacca Strait. From Kuala Lumpur, the MSRI heads
to Kolkata, India then crosses the rest of the Indian Ocean to Nairobi,
Kenya (the Xinhua map does not include a stop in Sri Lanka, despite
indications in February that the island country would be a part of the
Maritime Silk Road). From Nairobi, the MSRI goes north around the Horn
of Africa and through the Red Sea into the Mediterranean, stopping in
Athens before meeting the land-based Silk Road in Venice. Reconnecting
Asia, CSIS, June 20, 2019.
Command of the maritime transportation system has long
acted as the stage on which great powers compete. Globally,
over 90% of commercial goods travel by sea. The infrastructure
facilitating their transport--ocean-going vessels, deep-water
ports, high-speed railways, and fiber optic cables--descend
from technologies that Western powers leveraged from the mid-
19th century through World War I to expand their access to
foreign markets. In some places along the BRI, China is
literally replacing and retracing colonial projects, building
railways in Africa and laying data cables under the sea.
The U.S. high seas presence (the Navy, Coast Guard, and
international commercial fleet) has for decades secured
American sea-power and access to materials and markets through
existing trade lanes and strategic straits. This hearing will
shed light on the degree to which the MSRI might co-opt the
global maritime transportation system for Chinese industrial,
commercial, and security gains, disable the remnant U.S.
international trading fleet by monopolizing the transport of
U.S. commerce, and destabilize both the U.S. Merchant Marine
and maritime supply chain.
THE BELT AND ROAD INITIATIVE
``Hard'' infrastructure projects occur mostly in the
following sectors: transportation (ports, roads, railways),
energy (pipelines, power grids, hydropower dams), and
information technologies and communications (fiber-optic
networks, data centers, satellite constellations). Rapidly
emerging as the third major element is a ``New Digital Silk
Road'' that will provide telecommunications and information
connectivity for both maritime and land routes. According to
official sources from within China's State-owned Assets
Supervision and Administration Commission, 80 Chinese state-
owned enterprises (SOEs) have undertaken over 3,100 BRI
projects since 2013.\4\ Of these, 288 projects are seaports and
another 136 are dry ports connected to the MSRI.\5\ Rapidly
developing Asian economies alone will require $26 trillion in
additional infrastructure investment by 2030 to maintain growth
momentum.\6\ Consequently, infrastructure investments, and the
strategic implications they carry, are likely to intensify in
the coming years.
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\4\ Nadege Rolland, A Concise Guide to the Belt and Road Initiative
[https://www.nbr.org/publication/a-guide-to-the-belt-and-road-
initiative/], National Bureau of Asian Research, April 11, 2019.
\5\ Reconnecting Asia Project, Mapping Continental Ambitions
[https://reconnectingasia.csis.org/], Center for Strategic and
International Studies.
\6\ Asian Development Bank, Meeting Asia's Infrastructure Needs
[https://www.adb.org/sites/default/files/publication/227496/special-
report-infrastructure.pdf], February 2017.
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The Chinese People's Liberation Army Navy (PLAN) is already
active in the Middle East and Western Indian Ocean and conducts
a wide range of peacetime operations to protect Chinese
maritime trade, assets, and personnel established, in part,
under the auspices of the MSRI.\7\ The development of BRI
infrastructure near key strategic straits for the U.S. and
other maritime trading states (e.g., the Strait of Hormuz, Bab
el-Mandeb Strait, and Suez Canal) has enabled the Chinese
commercial fleet to support PLAN operations in international
waters outside Chinese jurisdiction while development is
underway.\8\
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\7\ Jeffrey Becker et al., China's Presence in the Middle East and
Western Indian Ocean: Beyond the Belt and Road [https://www.cna.org/
CNA_files/PDF/DRM-2018-U-018309-Final2.pdf], CNAS, February 2019.
\8\ Ibid.
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The BRI also includes ``soft'' infrastructure, such as the
creation of special economic zones and the negotiation of free
trade agreements, currency swap agreements, and reduced
tariffs. China's early plans for the BRI envision the Silk Road
as a region of ``more capital convergence and currency
integration;'' a region where currency exchanges are fluid and
easy.\9\ China's currency, the renminbi, is becoming more
widely used in Mongolia, Kazakhstan, Uzbekistan, Vietnam, and
Thailand.\10\
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\9\ Shannon Tiezzi, ``China's `New Silk Road' Vision Revealed,''
[https://thediplomat.com/2014/05/chinas-new-silk-road-vision-revealed/]
The Diplomat, May 9, 2014.
\10\ Ibid.
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Skeptical scholars worry this may ensnare strategically
located developing countries ``in a debt trap that leaves them
vulnerable to China's influence.'' \11\ Echoing the same
criticism, former U.S. Secretary of State Rex Tillerson in
October 2017 described China's model of financing
infrastructure projects as ``predatory economics'' resulting in
``financing default and conversion of debt into equity.'' \12\
For example, Pakistan, a key BRI partner, asked the
International Monetary Fund earlier this year to help the
country out of a balance of payments crisis.\13\ In addition,
Malaysia in August 2018 abandoned more than US$20 billion worth
of Chinese-funded infrastructure projects, saying it could no
longer afford them.\14\
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\11\ Brahma Chellaney, China's Debt Trap Diplomacy [https://
www.project-syndicate.org/commentary/china-one-belt-one-road-loans-
debt-by-brahma-chellaney-2017-01?barrier=accesspaylog], Project
Syndicate, January 23, 2017.
\12\ Rex Tillerson, Defining Our Relationship with India for the
Next Century: An Address by U.S. Secretary of State Rex Tillerson
[https://csis-prod.s3.amazonaws.com/s3fs-public/event/
171018_An_Address_by_U.S._Secretary_of_State_Rex_Tillerson.pdf], Center
for Strategic and International Studies, October 18, 2017.
\13\ James Mackenzie, IMF board approves $6 billion loan package
for Pakistan [https://www.reuters.com/article/us-pakistan-imf/imf-
board-approves-6-billion-loan-package-for-pakistan-idUSKCN1TY2JW],
Reuters, July 3, 2019.
\14\ James Suokas, ``Chinese state enterprises undertake over 3,100
Belt & Road projects,'' [https://gbtimes.com/chinese-state-enterprises-
undertake-over-3100-belt-and-road-projects] GBTimes, October 31 2018.
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DUAL-USE INFRASTRUCTURE
Dual-use infrastructure projects are developments that
serve both commercial and military purposes. Through project
financing tools (i.e., guarantees and conditions, controlling
source funds, debt, etc.), design and construction standards,
technology transfer, and intelligence acquisition through
ownership and operation of infrastructure, states can advance
both economic and non-economic objectives.\15\ While the MSRI
to date is mostly an economic and political program with
military implications, dual-use facilities constructed under
the banner of the BRI could enable the PLAN to incrementally
expand operations regionally and globally to create potential
new risks for militaries operating in the Indian Ocean basin
and beyond.\16\ Securing MSRI routes would require the PLAN to
more regularly patrol the sea lanes that link China's far-flung
port investments.
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\15\ Jonathan Hillman, Infrastructure and Influence: the Strategic
Stakes of Foreign Projects [https://csis-prod.s3.amazonaws.com/s3fs-
public/publication/190123_Hillman_Influenceand
Infrastructure_WEB_v3.pdf], Center for Strategic and International
Studies Reconnecting Asia Project, January 2019.
\16\ Daniel Kilman and Abigail Grace, Power Play: Addressing
China's Belt and Road Strategy [https://s3.amazonaws.com/
files.cnas.org/documents/CNASReport-Power-Play-Addressing-Chinas-Belt-
and-Road-Strategy.pdf?mtime=20180920093003], Center for a New American
Security, September 2018.
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Observers of the BRI are skeptical that its partnerships
are anything more than market development for its cadre of
SOEs.\17\ As home to seven of the world's ten largest
construction companies, China used more cement between 2011 and
2013 than the United States did during the entire 20th century.
As such, China is motivated to invest in infrastructure
projects regardless of military application.\18\ Nonetheless,
the potential for MSRI infrastructure to obstruct strategic
U.S. overseas operations and create pinch-points in the
maritime supply chain remain a concern for some security
analysts.\19\
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\17\ Thomas Eder, ``Chinese companies are clearly the main
beneficiaries of BRI projects,'' [https://www.merics.org/en/china-
flash/chinese-companies-are-clearly-main-beneficiaries-bri-projects]
Belt and Road Forum, Mercator Institute for China Studies, April 24,
2019; China Power Team. ``How will the Belt and Road Initiative advance
China's interests?'' [https://chinapower.csis.org/china-belt-and-road-
initiative/] China Power, May 8, 2017, Updated May 29, 2019.
\18\ Jonathan Hillman, ``Five myths about China's Belt and Road
Initiative,'' [https://www.washingtonpost.com/outlook/five-myths/five-
myths-about-chinas-belt-and-road-initiative/2019/05/30/d6870958-8223-
11e9-bce7-40b4105f7ca0_story.html?utm_term=.e32b1fe47c0a] Washington
Post, May 31, 2019.
\19\ Kilman and Grace, Power Play, CNAS 2018.
------------------------------------------------------------------------
Design & Ownership &
Stage Finance Construction Operation
------------------------------------------------------------------------
Strategic Win political Set standards Collect
Objectives concessions intelligence
Reward Transfer Restrict access
supporters technology
Set standards Collect Adapt to
intelligence disruptions
Access resources Monopolize
skills &
technologies
Control
operations
------------------------------------------------------------------------
Figure 2_SOE Infrastructure Cycle that treats infrastructure investment
as statecraft. Jonathan Hillman, ``Infrastructure and Influence: the
Strategic Stakes of Foreign Projects,'' CSIS Reconnecting Asia Project,
January 2019.
CASE STUDY IN THE WESTERN HEMISPHERE
On the Pacific and Atlantic sides of the Panama Canal,
Hutchinson Whampoa, a Chinese marine terminal operator,
controls transshipment cargo bound for the United States and
other countries. Another Chinese entity, the Landbridge Group,
recently acquired the Margarita Island Port on the Atlantic end
of the canal, a move that will give the Chinese additional
influence on the movement of international trade through the
canal. A special declaration at the Community of Latin American
and Caribbean States (CELAC) Forum on the BRI identified that
``Latin American and Caribbean countries are part of the
natural extension of the Maritime Silk Route and are
indispensable participants in international cooperation of the
Belt and Road.'' \20\ Ye Cheng, the President of Landbridge
Group, noted, ``Landbridge's ports in Asia and Oceania together
with the Panama Colon Container Port (PCCP) on Margarita Island
will be efficiently connected to exploit maritime cooperation,
contributing to the economic development of all countries.''
The acquisition of these properties occur at the same time as
Panama shifts its stance toward China, expediting the Margarita
Port project award after signing a bilateral agreement.\21\
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\20\ See http://www.itamaraty.gov.br/images/2ForoCelacChina/
Special-Declaration-II-CELAC-CHINA-FORUM-FV-22.1.18.pdf.
\21\ Gabriel Alvarado, ``Beijing seeks to rapidly solidify its
position in Latin America amidst spat with Washington,'' Global
Americans, February 11, 2019.
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In line with China's BRI strategy, the plan for Margarita
Port is to capitalize on the doubling of the capacity of the
canal, which can now handle the New Panamax container ships
that can transport up to 14,500 TEU (twenty-foot equivalent
units). That work was completed in June 2016.\22\ The Margarita
Island Port is expanding its handling capacity to 11 million
TEU, adding a Liquid Natural Gas terminal and control center,
and deeper berths.\23\ This integrated development approach has
the potential to disadvantage other marine terminal operators
on either end of the canal and undermine competition from other
international carriers.
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\22\ See http://www.globalconstructionreview.com/news/chinese-firm-
starts-w7rk-1bn-panama7nian-meg7aport/.
\23\ Ibid.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 3_A poster for the PCCP. Image provided by anonymous source.
While the Margarita Island Port was purchased by a private
company, the state-owned China Communications and Construction
Corporation (CCCC) and its subsidiary, China Harbor Engineering
Company (CHEC), have performed the expansion work.\24\ In July
2018, CCCC and CHEC won a contract to build the fourth bridge
over the canal.\25\ CCCC also has a record of supporting the
Chinese military and Beijing's broader geostrategic interests
and is the same company that supplied dredging services for
China's island building efforts in the South China Sea.\26\
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\24\ Alvarado, ``Beijing seeks to rapidly solidify its position in
Latin America amidst spat with Washington,'' [https://
theglobalamericans.org/2019/02/beijing-seeks-to-rapidly-solidify-its-
position-in-latin-america-amidst-spat-with-washington/] Global
Americans.
\25\ Ibid.
\26\ Greg Torode and Brenda Goh, ``China's state firms cementing
lucrative role in South China Sea, new research shows,'' [https://
www.reuters.com/article/us-southchinasea-china/chinas-state-firms-
cementing-lucrative-role-in-south-china-sea-new-research-shows-
idUSKBN1KU0MJ?feedType=RSS&feedName=topNews.] Reuters, August 9, 2018.
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While developing nations across the Indo-Pacific have thus
far welcomed Chinese infrastructure investment, there are
growing questions about the economic viability of MSRI port
development projects and their potential dual-use as strategic
military installations or avenues for foreign policy and
leverage.\27\ The potential monopolization of the Panama Canal
by Chinese-owned entities, one crucial leg of the MSRI,
illustrates the additional strategic value of key trade nodes
in the Western Hemisphere and the potential for the Chinese to
create a choke point for U.S. maritime commerce.
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\27\ Daniel Kilman and Abigail Grace, Power Play: Addressing
China's Belt and Road Strategy, [https://s3.amazonaws.com/
files.cnas.org/documents/CNASReport-Power-Play-Addressing-Chinas-Belt-
and-Road-Strategy.pdf?mtime=20180920093003] Center for a New American
Security, September 2018.
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THE CHINESE MARITIME INDUSTRY AND COMMERCIAL FLEET
China continues to rely on international trade as an
important component of its economic growth. Roughly 20 percent
of China's GDP is derived from the export of goods and services
abroad.\28\ China now ranks as the world's largest trading
nation, with roughly 13 percent of all the world's exports and
about 10 percent of the world's imports.\29\ Moreover, roughly
90 percent of all world trade is carried by sea;
unsurprisingly, most Chinese sources state that a similar
percentage of Chinese trade is seaborne as well.\30\ The five
major Chinese carriers together controlled 18% of all container
shipping handled by the world's top 20 companies in 2015,
higher than the next country, Denmark (the home nation of
Maersk Line, the world's biggest container shipping group).\31\
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\28\ World Bank, ``Exports of Goods and Services (% of GDP),''
[https://data.worldbank.org/indicator/
NE.EXP.GNFS.ZS?locations=US&type=points&view=map] 2017.
\29\ World Trade Organization, ``Country Profiles--China,'' [http:/
/stat.wto.org/CountryProfile/
WSDBCountryPFView.aspx?Language=E&Country=CN] WTO--Trade Profiles,
2017.
\30\ International Chamber of Shipping, ``Shipping and World
Trade,'' [http://www.icsshipping.org/shipping-facts/shipping-and-world-
trade] 2017.
\31\ Kynge et al.,``Beijing's global power play: How China rules
the waves,'' [https://ig.ft.com/sites/china-ports/] Financial Times,
January 12, 2017.
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China's growing dual-use merchant marine fleet has been
developed according to regulations requiring certain civilian
vessels, including roll on/roll off (RORO) vessels, tankers,
and container ships, to be built to military specifications,
and can be requisitioned during wartime, natural disasters,
emergencies, or ``special circumstances.'' \32\
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\32\ Becker et al., China's Presence in the Middle East and Western
Indian Ocean: Beyond the Belt and Road [https://www.cna.org/CNA_files/
PDF/DRM-2018-U-018309-Final2.pdf], CNAS, February 2019.
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The MSRI is a linchpin in China's dominance of
international maritime trade and the trained labor to support
its operation. The largest global operational shipping
alliance, Ocean Alliance, principally comprised of Chinese
owned and/or Chinese government-controlled carriers except for
France's CMA CGM, is one of the three major carrier alliances
formed over the last four years. The number of U.S. flagged
vessels sailing in the international trade has dwindled from
183 ships in 1992 to 82 as of December 2017,\33\ mostly due to
policy changes limiting subsidies to only the vessels and labor
necessary to maintain sealift in times of war. Conversely,
China's investment in its national fleet has made China the
most prolific shipbuilding nation to date and dramatically
altered the dynamics of the global maritime trades. The
development of China's foreign trade, domestic and distant
water fisheries,\34\ and oceanographicfleets,\35\ which include
icebreakers, have enhanced Chinese expertise in vessel
construction (e.g., over 37% of global shipbuilding occurred in
China alone, the most of any nation, in 2017) \36\ and enabled
the expansion of a Chinese high seas presence globally.
---------------------------------------------------------------------------
\33\ U.S.-Flag Share of Foreign Trade (2005-2015) Based on Cargo
Weight [https://www.transportation.gov/content/state-us-flag-maritime-
industry]. Maritime Administration Analysis based on Census data.
\34\ Hongzhou, Zhang, ``China's Fishing Industry: Current Status,
Government Policies, and Future Prospects,'' [https://www.cna.org/
cna_files/pdf/China-Fishing-Industry.pdf] CNA China as a Maritime Power
Conference, July 2015.
\35\ Martinson, Ryan and Peter Dutton, ``China's Distant-Ocean
Survey Activities: Implications for U.S. National Security,'' [https://
dnnlgwick.blob.core.windows.net/portals/0/NWC
Departments/China%20Maritime%20Studies%20Institute/
China%20Maritime%20Report%20%
233_NOV%202018.pdf?sr=b&si=DNNFileManagerPolicy&sig=%2Fuy2RAjBuIGTqqfUw%
2BJ
%2BcPviM2cPLVTsqcXimocOjsw%3D] China Maritime Report, Volume 3 (2018).
\36\ United Nations Conference on Trade and Development, ``Ships
built by country of building, annual, 2014-2017,'' [https://
unctadstat.unctad.org/wds/TableViewer/tableView.aspx?
ReportId=89493] UNCTAD, Division on Technology and Logistics, based on
data supplied by Clarkson Research Services, Accessed July 15, 2019.
---------------------------------------------------------------------------
Powered by the world's largest shipbuilding industry,
China's armed forces comprise three major organizations, each
with a maritime subcomponent that is already the world's
largest such sea force by number of ships.\37\ By 2020, China's
maritime armed forces (``gray-hulled'' Navy units, ``white-
hulled'' Coast Guard, and ``blue-hulled'' Maritime Militia) are
projected to have a total of 1,300 ships to operate near-shore
and worldwide.\38\
---------------------------------------------------------------------------
\37\ Andrew Erikson, ``Maritime Numbers Game: Understanding and
Responding to China's Three Sea Forces,'' [http://apdf-magazine.com/
maritime-numbers-game/] Indo-pacific Defense Forum, January 28, 2019.
\38\ Ibid.
---------------------------------------------------------------------------
IMPLICATIONS FOR U.S. MARITIME INDUSTRY
1. LInternational commercial standards will come under
pressure as China races to execute infrastructure projects and
moves to create a new legal architecture associated with BRI.
2. LRestricted access to important maritime chokepoints and
supply routes: China relies heavily on access to seaborne
energy imports and maritime trade, the majority of which
transit maritime chokepoints located in the Middle East and
Southeast Asia.
3. LRestricted access to maritime infrastructure: A larger
Chinese military and civilian presence in the region also means
that the U.S. Navy is likely to face greater competition for
access to ports, airfields, and other infrastructure.
4. LCompetition and risk: Non-Chinese companies will
compete for BRI contracts on an uneven playing field and
participate in projects on Beijing's terms. China will attempt
to externalize some of the financial risk associated with BRI
projects by inviting Western investors.
5. LIncreasing militarization of maritime routes:
International straits in the Arctic, South China Sea, and
elsewhere might escalate geopolitical tension.
WITNESS LIST
PANEL I
LLieutenant General Giovanni K. Tuck, Director for
Logistics, J4, Joint Chiefs of Staff
LMr. Chad Sbragia, Deputy Assistant Secretary of
Defense for China, Office of the Secretary of Defense
LMs. Carolyn Bartholomew, Chairwoman, United
States-China Economic and Security Review Commission
PANEL II
LMr. Jonathan E. Hillman, Director, Reconnecting
Asia Project, Center for Strategic and International Studies
LDr. Jeffrey Becker, Research Program Director,
Center for Naval Analysis
LMs. Kathleen Walsh, Associate Professor of
National Security Affairs, Naval War College
APPENDIX A: MAP OF COUNTRIES FORMALLY ENDORSING THE BRI (CNAS, 2019).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
CHINA'S MARITIME SILK ROAD INITIATIVE: IMPLICATIONS FOR THE GLOBAL
MARITIME SUPPLY CHAIN
----------
THURSDAY, OCTOBER 17, 2019
House of Representatives,
Subcommittee on Coast Guard and Maritime
Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:06 p.m. in
room 2167, Rayburn House Office Building, Hon. Sean Patrick
Maloney (Chairman of the subcommittee) presiding.
Mr. Maloney. Let me begin by apologizing to our
distinguished panelists, and to all of you who have been
waiting for an hour. We were detained by a vote on the House
floor and by a commemoration and memorialization of the service
and life of our colleague, Elijah Cummings, who, as you all
know, passed away overnight.
And I would also like to begin our hearing today just
acknowledging our bipartisan shock and sorrow at the passing of
one of this subcommittee's most valued members and a former
chairman, Congressman Cummings. He was a great leader on this
subcommittee, and a steadfast champion of our Coast Guard and
of the U.S. merchant marine. His contributions to this body and
to the House of Representatives cannot be understated. Truly,
his leadership will be sorely missed. I know I speak for every
member on this subcommittee in extending our deep condolences
to his wife, Maya, his three children, and their entire family.
We have placed flowers in Elijah's spot here on the dais.
And I just want to say, on a personal note, if you ever
spent time with Congressman Cummings you knew you were just
dealing with a deeper humanity than you encountered in a lot of
people in this business. And there was something that I think
all the Members were feeling today when they learned the news
that we have just lost something very important in this body,
and something that we all should aspire to.
So with those remarks, good afternoon. Welcome. I apologize
again for beginning late. We will try to move it along. And I
know we will be joined by other Members who are still leaving
the House floor.
But I would like to extend a welcome to this afternoon's
hearing, which will take stock of China's Maritime Silk Road
Initiative and its implications for the United States maritime
industry and military readiness.
This hearing comes at a critical moment in our relationship
with the People's Republic of China, where we once found a
willing international partner, or thought we did. We now face
an increasingly aggressive and confrontational adversary.
Just last week, in fact, I and my bipartisan, bicameral
congressional delegation from a different committee were denied
visas to visit the U.S. Embassy in Beijing. This unprecedented
step of barring a United States congressional delegation from
the country occurred for one reason only: our planned visit to
Taiwan. Chinese officials stated clearly that if we canceled
our visit to Taiwan, the visas would be issued. When we made
clear that canceling the delegation stop in Taiwan was not an
option, the officials demanded that I issue a statement
endorsing Beijing's version of the One China policy,
delegitimizing Taiwan's political existence, and further
isolating the island's 24 million people. I declined.
This incident is emblematic of the challenges the United
States and private businesses and industries such as the NBA,
the Apple Corporation, and Hollywood studios now face in
confronting China's bullying and intimidation tactics which
grow out of China's regional and global ambitions.
Moreover, as a Nation, we find ourselves at a fork in the
road as to the best course to ensure American access to
efficient, reliable, and secure global maritime commerce in
this new geopolitical context.
The Maritime Silk Road Initiative is one component of an
expansive foreign policy promoted by China, referred to as the
Belt and Road Initiative. This overarching strategy intends to
reshape the global economic and security landscape and seascape
through Chinese investments in global infrastructure, including
maritime infrastructure.
Command of the maritime transportation system has long
acted as the stage on which great powers compete. Now,
globally, over 90 percent of commercial goods travel by sea,
and the competition is rightly intense. The infrastructure
facilitating the transport of maritime commerce, oceangoing
vessels, deepwater ports, high-speed railways, and fiber optic
cables descend from technologies Western powers once leveraged
in the 19th and 20th centuries to expand their access to
foreign markets.
Today the Maritime Silk Road Initiative mimics these
strategies, for example, by building railways and naval ports
in Africa, or laying transatlantic data cables. In some
locations new MSR projects are literally replicating former
colonial projects.
The Maritime Silk Road, or MSR Initiative, is a strategic
economic policy and security initiative intended to promote the
Chinese workforce, build bilateral ties, foster dependence, and
ensure near exclusive access to foreign ports for Chinese-
controlled or affiliated vessels employing Chinese-built
technologies, 5G just being the most obvious example.
Through MSR projects, China can advance both economic and
security objectives simultaneously. These projects act as
``dual-use infrastructure,'' developments that serve both
commercial and military purposes. China deploys many different
tools to cajole or coerce the cooperation of foreign states,
including project finance tools like loan guarantees and
conditions, or the control of source funds and debt service
obligations.
In addition, design and construction standards, technology
transfer requirements, and intelligence acquisition through
ownership and operation of infrastructure enable China to gain
favorable access and control of the Marine Transportation
System.
The stakes are high. In an economically interconnected
world, foreign-financed infrastructure investments can fuel
both development and strategic competition. The MSR is a
linchpin of China's dominance of international maritime trade,
and the development of trained labor to support its operations.
China's investment in its national fleet has made China the
most prolific shipbuilding nation to date, dramatically
altering the dynamics of the global maritime trades. In fact,
the five major Chinese carriers alone controlled 18 percent of
the global volume of container shipping in 2015. At the same
time, we in the United States have allowed our U.S.-flag fleet
in the foreign trades, our maritime workforce, and our domestic
commercial shipbuilding capacity to erode to their lowest
points since before the Second World War. As a result, we have
critically undermined our military readiness and a secure
sealift capability.
The prospect of being unable to mobilize, support, and
supply our Armed Forces for a sustained conflict, whether in
the Taiwan Strait, the Middle East, or anywhere else in the
world, should concern every Member of this body. And it is my
experience this is an area of genuine bipartisan agreement and
concern.
The number of U.S.-flag vessels sailing into international
trade has dwindled from 183 ships in 1992 to just 82 ships as
of December 2017, while over 3,000 Chinese-flagged vessels
operate in the international trade today. In a world economy
increasingly powered by maritime commerce and bluewater
presence, we cannot continue to allow the United States
deepwater fleet to decay on our watch.
This hearing will shed light on the degree to which the
Maritime Silk Road Initiative might co-opt the global maritime
transportation system for Chinese industrial, commercial, and
security gains, disable the remnant U.S. international trading
fleet by monopolizing the transport of U.S. commerce, and
destabilize both the U.S. merchant marine and maritime supply
chain.
[Mr. Maloney's prepared statement follows:]
Prepared Statement of Hon. Sean Patrick Maloney, a Representative in
Congress from the State of New York, and Chairman, Subcommittee on
Coast Guard and Maritime Transportation
Good afternoon, and welcome to this afternoon's hearing to take
stock of China's Maritime Silk Road Initiative and its implications for
the United States' maritime industry and military readiness.
This hearing comes at a critical moment in our relationship with
the People's Republic of China. Where we once found a willing
international partner, we now face an increasingly aggressive and
confrontational adversary. Just last week, I and my bipartisan
Congressional delegation were denied visas to visit the U.S. Embassy in
China.
The unprecedented step of barring a U.S. Congressional delegation
from the country occurred for one reason only--our planned visit to
Taiwan. Chinese officials stated that if we cancelled our visit to
Taiwan the visas would be issued.
When we made clear that canceling the delegation's stop in Taiwan
was not an option, the officials demanded that I issue a statement
endorsing Beijing's version of the ``one China policy'' delegitimizing
Taiwan's political existence and further isolating the island's 24
million people. I declined.
This single incident is emblematic of the numerous challenges the
United States now faces in confronting China's regional and global
ambitions.
Moreover, as a Nation we find ourselves at a fork in the road as to
the best course to ensure American access to efficient, reliable and
secure global maritime commerce in this new geopolitical context.
The Maritime Silk Road Initiative, or ``MSR'', is one component of
an expansive trade policy promoted by China referred to as the Belt and
Road Initiative. This overarching strategy intends to reshape the
global economic seascape through Chinese investment in foreign maritime
infrastructure.
Command of the marine transportation system has long acted as the
stage on which great powers compete. Now, globally, over 90 percent of
commercial goods travel by sea, and the competition is intense.
The infrastructure facilitating the transport of maritime
commerce--ocean-going vessels, deep-water ports, high-speed railways,
and fiber optic cables--descend from technologies Western powers once
leveraged in the 19th and 20th centuries to expand their access to
foreign markets. Today, the MSR mimics these strategies, for example,
by building railways in Africa or laying transoceanic data cables. In
some locations, new MSR projects are literally replacing colonial
projects.
The MSR is a strategic economic policy, intended to promote the
Chinese workforce, build bilateral ties, foster dependence, and ensure
near-exclusive access to foreign ports for Chinese controlled or
affiliated vessels employing Chinese-built technologies, such as 5G.
Through MSR projects, China can advance both economic and non-
economic objectives simultaneously. These projects act as ``dual-use
infrastructure,'' developments that serve both commercial and military
purposes.
China deploys many different tools to cajole or coerce the
cooperation of foreign states, including project finance tools like
loan guarantees and conditions, or the control of source funds and debt
service obligations. In addition, design and construction standards,
technology transfer requirements, and intelligence acquisition through
ownership and operation of infrastructure, enable China to gain
favorable access and control of the marine transportation system.
The stakes are high: In an economically interconnected world,
foreign-financed infrastructure investment can fuel both development
and competition. The MSRI is a linchpin in China's dominance of
international maritime trade and the development of trained labor to
support its operation.
China's investment in its national fleet has made China the most
prolific shipbuilding nation to date, dramatically altering the
dynamics of the global maritime trades. In fact, the five major Chinese
carriers alone controlled 18 percent of the global volume of container
shipping in 2015.
At the same time, we in the United States have allowed our U.S.
flag fleet in the foreign trades, our maritime workforce, and our
domestic commercial shipbuilding capacity to erode to their lowest
points since before the second World War. As a result we have
critically undermined our military readiness and a secure sealift
capability.
The number of U.S. flagged vessels sailing in the international
trade has dwindled from 183 ships in 1992 to 82 as of December 2017,
while over 3 thousand Chinese flagged vessels operate in the
international trade today. In a world economy increasingly powered by
maritime commerce and blue-water presence, we cannot continue to allow
the United States deep-water fleet to decay on our watch.
This hearing will shed light on the degree to which the MSRI might
co-opt the global maritime transportation system for Chinese
industrial, commercial, and security gains, disable the remnant U.S.
international trading fleet by monopolizing the transport of U.S.
commerce, and destabilize both the U.S. Merchant Marine and maritime
supply chain.
Mr. Maloney. I would now like to call on the ranking
member, Mr. Gibbs, for his opening remarks.
Mr. Gibbs. Thank you, Chairman Maloney, and I also concur
with you that I am sorry to hear of the passing of former Coast
Guard and Maritime Transportation Subcommittee Chairman Elijah
Cummings. As chairman, he shepherded through Congress in 2010
the Coast Guard Authorization Act, which made significant
improvements to the Coast Guard's acquisition program, and
enhanced its maritime safety efforts.
When the Coast Guard frustrated him, he would eloquently
use the chairman's seat to ensure that no witnesses ever left
the subcommittee unclear of where he stood. As a member of the
Committee on Oversight and Reform, I came to appreciate the
passion he devoted to his chairmanship.
I pray for his family, friends, and staff, that they find
peace and strength in his memory and legacy.
China has developed an industrial policy to align with its
foreign policy, and it has now expanded that policy outward
through efforts to control the means of conducting
international maritime trade, the same means used to project
military force.
China has developed an extensive shipbuilding and
industrial base, and controls the third largest container line
in the world. The Maritime Silk Road Initiative builds on those
capabilities by financing port, road, and energy infrastructure
in 126 countries in the Pacific Basin and routes to Europe.
There are two concerns about these investments: first, the
dual commercial and military uses of these assets; second, the
debt incurred by these countries will tie them to China in ways
that will facilitate China's international pursuits, and
potentially inhibit U.S. overseas operations.
The U.S.-flag fleet has retreated from the world stage.
Only remnants remain, which survive to provide sealift capacity
for the Department of Defense. However, for even that small
fleet to be useful, it has to have access to port facilities
throughout the world. I look forward to hearing from the
witnesses today whether the access to such ports is jeopardized
by China's efforts to extend its influence through the Maritime
Silk Road Initiative.
I am also interested in China's efforts to gain a foothold
in the Arctic. China has declared itself an Arctic-adjacent
country, and has built two research icebreakers in the last
decade. The United States, an actual Arctic nation, is only now
beginning an icebreaker recapitalization program. In contrast
to the Chinese Maritime Silk Road Initiative, after 5 years
neither of the last two administrations have managed to produce
a legislatively mandated national maritime strategy. Perhaps
today's hearing will prompt MARAD to meet the latest statutory
deadline next February for this plan.
Mr. Chairman, thank you for holding this hearing today, and
I yield back.
[Mr. Gibbs' prepared statement follows:]
Prepared Statement of Hon. Bob Gibbs, a Representative in Congress from
the State of Ohio, and Ranking Member, Subcommittee on Coast Guard and
Maritime Transportation
First, let me note how sorry I was to hear this morning of the
passing of former Coast Guard and Maritime Transportation Subcommittee
Chairman Elijah Cummings.
As Chairman, he shepherded through Congress the 2010 Coast Guard
Authorization Act, which made significant improvements to the Coast
Guard's acquisition program and enhanced its marine safety efforts.
When the Coast Guard frustrated him, he very eloquently used the
Chairman's seat to ensure that no witness ever left the Subcommittee
unclear of where he stood.
In this Congress, I served on the Committee on Oversight and
Government where I came to appreciate the passion he devoted to his
chairmanship.
I pray for his family, friends, and staff, that they find peace and
strength in his memory and legacy.
Turning to today's topic, China has developed an industrial policy
to align with its foreign policy and has now expanded that policy
outward through efforts to control the means of conducting
international maritime trade--the same means used to project military
force.
China has developed an extensive shipbuilding industrial base and
controls the third largest container line in the world. The Maritime
Silk Road Initiative builds on those capabilities by financing port,
road, and energy infrastructure in 126 countries in the Pacific basin
and on routes to Europe.
There are two concerns about these investments: first, the dual
commercial and military uses of these assets; second, that the debt
incurred by these countries will tie them to China in ways that will
facilitate China's international pursuits and potentially inhibit U.S.
overseas operations.
The U.S.-flag fleet has retreated from the world stage. Only a
remnant remains to provide sealift capacity for the Department of
Defense. However, for even that small fleet to be useful it has access
to port facilities throughout the world. I look forward to hearing from
the witnesses today whether the access to such ports is jeopardized by
China's effort to extend its influence through the Maritime Silk Road
Initiative.
I am also interested in China's efforts to gain a foothold in the
Arctic. China has declared itself an Arctic adjacent country and has
built two research icebreakers in the last decade. The United States--
an actual Arctic nation--is only now beginning an icebreaker
recapitalization program.
In contrast to the Chinese Maritime Silk Road Initiative, after
five years, neither of the last two administrations has managed to
produce a legislatively mandated National Maritime Strategy. Perhaps
today's hearing will prompt MARAD to meet the latest statutory
deadline, next February, for this plan.
Mr. Maloney. I thank the gentleman for his remarks.
I would also like to ask unanimous consent at this time to
insert statements from the United Steelworkers, the Alliance
for American Manufacturing, and the R Street Institute into the
hearing record.
Without objection, so ordered.
[The information is on pages 73-79.]
Mr. Maloney. At this time I would like to recognize the
chairman of the full committee, Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman, and I certainly
support your spirited remarks and observations at the beginning
of the hearing, so I won't restate a number of those arguments
or concerns.
But before I make a brief statement, let me just say that
my colleague of many years, Elijah Cummings, died last night.
We have a little something here to remember him. I will just
tell one story. There are a lot of stories about Elijah.
The Coast Guard screwed up the 110s. They were going to
section them and make them longer, and the design didn't work.
And we were trying to get to the bottom of what went wrong, how
it could have gone that badly wrong, because this was a very,
very, very expensive mistake. And Elijah began a hearing at 10
o'clock in the morning with a number of panels of experts and
witnesses and the Coast Guard, and a lot of participation by
Members during the day.
Then it got to dinner time and, yes, there is still more
witnesses and a few people left here. And then, by 11 o'clock
at night it was me and Elijah and Jim Oberstar still sitting
here. And by midnight it was just Elijah. And I think shortly
after midnight the hearing adjourned, and that brought about
very significant reforms in the acquisition process at the
United States Coast Guard and with the icebreaker's new
coordination with the Navy.
So that was just one of many, many difficult issues he
dealt with, drilled into, and resolved. He will be greatly
missed.
So let me just say briefly--and I regret I can't stay,
because I think this is an extraordinarily important hearing
for this committee--that I have, unfortunately, because of the
delay of the votes and commitments after this I can't avoid.
But the U.S. has always been referred to as a great maritime
nation.
If you think back to Captain Alfred Mahan and his theories,
which were backed up by Teddy Roosevelt, we had to guarantee
access to international markets as a maritime-dependent nation,
and it required three things: a vibrant merchant fleet to carry
American products to new markets, a great highway of the high
seas; a battleship navy to deter or destroy our rivals who
might attack our maritime ships; and a network of naval bases
abroad.
Now, unfortunately, post-World War II, with the
globalization--liberalization, so-called--of trade, the rise of
the IMO and the chase around the world to the least regulation
and the cheapest possible, most abusable labor in the merchant
marine industry, most of requirement number 1 is gone, the
vibrant merchant fleet.
We still are set on requirement number 2, we do have the
most powerful navy, but the Chinese are building quickly to
challenge that. Some of our naval assets, given new missile
systems and others, may have become more vulnerable in the
future. So not quite as big of a given.
And then, China has essentially adopted the policy and
theories of Teddy Roosevelt and Captain Mahan with their very
own principle of sea power to construct its own Maritime Silk
Road. In addition to which they are building bases or ports in
diverse nations around the world, and they are doing it in ways
that are truly despicable. Often the construction is
substandard. Often it is done under an extortionate agreement
to the host country. But it is always done to the advantage of
China.
Little notice has been taken of this, their growing
dominance as they aggregate the merchant fleets to try and
dominate our ports here. We finally got some minor action in
the last Congress on that front, and some action out of MARAD,
but more needs to be done.
So I think this is an incredibly important hearing. As
Mahan once wrote, ``Those who rule the waves rule the world.''
I don't think that has changed an awful lot these days, and we
can't forget that.
So thank you, Mr. Chairman.
[Mr. DeFazio's prepared statement follows:]
Prepared Statement of Hon. Peter A. DeFazio, a Representative in
Congress from the State of Oregon, and Chairman, Committee on
Transportation and Infrastructure
Chairman Maloney, thank you for scheduling this afternoon's hearing
to assess China's Maritime Silk Road Initiative and the implications
for our national and economic security.
As our country and China recalibrate our relationship in the
beginning of the 21st century, nothing could be more important. Allow
me to provide some context to squarely frame the irony of how we got to
where we are today, and the challenges before us if we seek to reclaim
our mantle as a great maritime power.
First, a little history. In 1890, Captain Alfred Thayer Mahan, a
lecturer in naval history and the president of the United States Naval
War College, published The Influence of Sea Power upon History, 1660-
1783.
In this seminal thesis, Mahan argued that British control of the
seas paved the way for Great Britain's emergence as the world's
dominant military, political, maritime and economic power.
Mahan and some leading American politicians of the time such as
Theodore Roosevelt believed that these lessons could be applied to U.S.
foreign policy, particularly in the quest to expand U.S. markets
overseas.
To ensure that the U.S. Government could guarantee access to new
international markets, the principal of Sea Power required three
elements:
A vibrant merchant fleet, which could carry American
products to new markets across the ``great highway'' of the high seas;
An American battleship navy to deter or destroy rival
fleets; and,
A network of naval bases abroad capable of providing
logistical support for an enlarged, global navy, and maintaining open
lines of communications between the United States and its new markets.
This policy, wholly adopted, resulted not only in the creation of
Roosevelt's ``Great White Fleet'', but elevated the status of the
United States as a global maritime and economic power.
For much of the first half of the 20th century, policymakers abided
by the need to maintain both naval power and a globally competitive
merchant marine.
But starting in the later part of the 20th century, globalization
and the liberalization of trade began to undermine Sea Power's
prevalence in U.S. maritime policy. Today, Sea Power has come to mean
maintaining the world's most powerful navy, but paying little attention
to the maintenance of a vibrant merchant fleet.
The irony I referred to earlier is the fact that the Chinese
Government has co-opted our very own principal of Sea Power to
construct its Maritime Silk Road Initiative. China is using Sea Power
to guide its rapid and unrelenting technological development, and is
using expansion of its own maritime and shipbuilding industries to
brazenly advance its own security interests, both economic and
sovereign, abroad.
That is why this hearing is so important. The Chinese are literally
beating us at our own game, and few people seem to care or even notice
what this means for our national and economic security.
We can no longer remain ignorant, and I believe this hearing is a
vital first step to pry open everyone's eyes. Mahan once wrote, ``those
who rule the waves, rule the world.'' I look forward to hearing from
our witnesses this afternoon to better understand the dynamics of that
competition, and what we need to do to win it.
Mr. Maloney. And I thank the gentleman. I would like to now
introduce our panel of witnesses.
First we are joined by Mr. Chad Sbragia, Deputy Assistant
Secretary of Defense for China in the Office of the Secretary
of Defense; Lieutenant General Giovanni K. Tuck, Director for
Logistics J4, for the Joint Chiefs of Staff; and Ms. Carolyn
Bartholomew, Chairwoman of the United States-China Economic and
Security Review Commission.
Thank you all for being here today. I apologize again for
keeping you waiting. I know you are busy, but we appreciate it.
We know you have prepared statements, I have reviewed those
statements, and thank you. They are excellent. Without
objection, our witnesses' full statements will be included in
the record. And since we have that written testimony, and it
has been made part of the record, we do request that you limit
your oral testimony to 5 minutes to allow maximum time for
Members' questions.
With that, thank you again. Mr. Sbragia, you may proceed.
TESTIMONY OF CHAD SBRAGIA, DEPUTY ASSISTANT SECRETARY OF
DEFENSE FOR CHINA, OFFICE OF THE SECRETARY OF DEFENSE;
LIEUTENANT GENERAL GIOVANNI K. TUCK, DIRECTOR FOR LOGISTICS,
J4, JOINT CHIEFS OF STAFF; AND CAROLYN BARTHOLOMEW, CHAIRWOMAN,
UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
Mr. Sbragia. Chairman Maloney, Ranking Member Gibbs,
distinguished members of the subcommittee, thank you for this
opportunity to testify. Before I begin, and to echo the
comments already made, please allow me to express my
condolences on the passing of Representative Cummings. We
recognize his historic place in this chamber, and his
longstanding service, including in this subcommittee. Our
thoughts and prayers are with his family at this time.
As for the business in front of us today, China's Maritime
Silk Road is exactly the type of issue in which we need to
communicate across traditional lines of effort because of the
unique challenge that China presents--echoing your comments. We
welcome the chance to do so at this hearing.
My remarks are going to focus on China's strategy and how
the Department of Defense is supporting the whole-of-Government
competitive response. China's leaders certainly believe that
they can and must contend for global leadership in a ``new era
for socialism with Chinese characteristics,'' heralded most
authoritatively at the 19th Congress of the Communist Party of
China in October of 2017.
In the maritime domain this means building China into a
maritime great power, which the Chinese Communist Party made an
official national priority at its 18th party congress as early
as 2012.
In 2017, President Xi Jinping linked this maritime great
power status to China's goals for national rejuvenation by
2049. Maritime great power status includes access to resources,
a developed maritime economy, and protection of perceived
maritime rights and interests. This is well-served by China's
One Belt, One Road and Maritime Silk Road Initiatives, which
focus on policy coordination and building transportation
infrastructure globally to expand developmental ties to China.
In this context, while we do not oppose China's
contributions to high-quality development based on
international standards, we must recognize that China is also
competing for strategic advantage. While in the past China's
leaders have disavowed any direct connection between OBOR, or
the One Belt, One Road, and the People's Liberation Army, or
their security interests, there is clear evidence that this is
changing.
For example, China's 2019 national defense white paper
identified the need to build China's far seas forces and a need
for overseas logistical facilities. In January of this year
President Xi Jinping called for the completion of a security
system for OBOR to ensure the security of major overseas
projects.
In July, China's Defense Minister openly declared that
China is willing to deepen military exchanges in cooperation
with Caribbean and Pacific Island countries under the framework
of OBOR.
Finally, as an example, the PLA Navy has recently argued
for a long-term strategy to obtain bases overseas, using
methods such as constructing, purchasing, and long-term leasing
of foreign ports. Lieutenant General Tuck will go into more
detail on the military implications of China's activities, but
I would like to quickly stress that OBOR projects could also
increase other countries' exposures to pressure, and affect the
security of digital infrastructure, as well.
Overlapping with China's Maritime Silk Road is the 21st-
century Digital Silk Road, in which Chinese companies are
building infrastructure in areas like 5G, fiber optic links,
undersea cables, and infrastructure connected to satellite
navigation.
For example, this past June, Huawei, a Chinese company,
announced an agreement with a Chinese container operator, the
sixth largest in the world, to establish a 5G innovation hub.
Because China lacks an independent judiciary, and the extensive
security vulnerabilities in Huawei products, we are concerned
critical sectors could be vulnerable as China links port
developments with its technology exports and its diplomatic
engagements.
So how are we responding to this challenge? DoD's response
is guided by our National Defense Strategy, which identifies
great power competition as our principal priority. Increasing
lethality and strengthening alliances and partnerships are
long-term undertakings for competing with China. And I am glad
to be leading a new office within the Defense Department
dedicated to assisting in this role.
Critically, the National Defense Strategy also states that
the Defense Department will support interagency approaches and
work by, with, and through our allies and partners.
The most important takeaway from our discussion is this: we
need economic, diplomatic, and security efforts to respond to
China's Maritime Silk Road activities. DoD supports this whole-
of-Government response in three ways.
The first is: we provide assessments to our interagency
counterparts to identify which of China's investments have
national security implications from the Maritime Silk Road.
Second, we work to deepen security partnerships and
underwrite stability, enabling economic and diplomatic tools to
succeed. We don't seek to counter China dollar for dollar here,
but to play to our strengths by promoting shared principles,
developing high-standard alternatives for acute needs, and
working with our allies and partners hand-in-hand.
Finally, we share best practices with other countries for
engaging with China's military. We encourage carefully scoped
defense engagements, hard discussions on the risks of China's
military presence, national security-based investment
screening, and a risk-based security framework for issues like
5G. This helps build long-term principles-based approaches to
address this risk.
We welcome the subcommittee's continued attention to this
issue, and look forward to your questions. Thank you.
[The joint prepared statement of Mr. Sbragia and Lieutenant
General Tuck follows Lieutenant General Tuck's oral statement.]
Mr. Maloney. I thank the gentleman.
General Tuck?
General Tuck. Good afternoon, Chairman Maloney, Ranking
Member Gibbs, and distinguished members of the committee. Thank
you for your invitation to be here today.
I would like to add my condolences on the passing of your
fellow committee member, Representative Elijah Cummings, an
icon who will be missed.
I appreciate your time and willingness to discuss China's
Maritime Silk Road Initiative, and the implications of the
global maritime supply chain. Our ability to project and
sustain power globally at a time and place of our choosing
remains our strategic comparative advantage, and it is
imperative to our ability to ensure the balance of power
remains in our favor. Logistics underwrites deterrence.
I will focus my comments today on the impact of China's
Maritime Silk Road Initiative to that of the Department of
Defense, specifically to the global transportation system and
logistics.
I will begin with just a comment on background and context
of where our maritime industry is today, impact to the National
Defense Strategy, and then what the future may look like and
our opportunities to shape it.
I would like to provide the context of today versus where
we were in the Gulf War, Chairman, where you started us today
in your conversation.
In 1990, we had hundreds of U.S.-flag ships. Depending on
what metric you are looking at, 400 or so, and 29,000-plus
mariners. Today, 82 is the number, sir, that you quoted, which
is accurate, for international trade. And if you take a look at
11,700 or so mariners, just under 12,000, that is a whopping
number less than what we had back just a few years ago.
So what does this dwindling fleet mean to the Department of
Defense? We rely very heavily on the commercial maritime sector
to transport a lethal and ready force and sustain our
operations. As the age of the sealift fleet continues to
increase, and the readiness continues to drop, fewer ships are
available to provide steady jobs for our mariners, and which
also impacts our shipyards.
Many of today's mariners are dual hatted, as you know, both
commercial mariners and reservists. The results of this
combination leaves some uncertainty as to whether a wartime
demand can be satisfied. The Maritime Administration estimates
the shortage of about 1,800 or so during sustained military
operations. And it will be impacting.
We are increasingly concerned, as we see China continue to
maneuver geopolitically, economically, militarily, pursuing its
goal to become the regional leader and a great power. In doing
so the Maritime Silk Road Initiative may affect our ability to
execute the National Defense Strategy in the future if we don't
change our trajectory, specifically our ability to project
power and sustain combat operations.
The expanding Chinese influence could limit our ability to
use ports, access ships, expose data, and the like.
Additionally, it could strain or change our relationships with
partners and allies.
The U.S. Transportation Command pays particular attention
to dozens of ports across the globe, monitoring potential
threats to the joint deployment and distribution enterprise. I
point you to the Port of Djibouti as just an example. The
strategic location, crossroads of shipping lanes of Africa,
Asia, and Europe, our military camp that is there--and the
Chinese have an operation there, as well. There is tension
between these two bases, and that is just one example that I
will leave you with.
One significant impact to DoD operations in cyberspace
domain is shipping data--support and subsequent IT systems are
at risk of being exposed, compromised, contributing to the
Chinese artificial intelligence industry.
Chinese influence can limit our footprint, reduce our
throughput, or jeopardize access. Our partners may not be able
to assist or work with us when we need them due to Chinese
influence.
So, given the picture, where to go from here? We need to
take a proactive approach and seek opportunities to shape our
future with the whole-of-Government approach.
To minimize the effects of the Maritime Silk Road
Initiative by China we really have to pay attention to
recapitalizing our sealift fleet, which is U.S. Transportation
Command's number-one priority; ensure sufficient workload for
U.S.-flag vessels; and create incentives to develop and retain
our mariners.
I truly appreciate your time today. Thank you for this
opportunity. I hope you will find this to be informative, and I
look forward to your questions.
[The joint prepared statement of Mr. Sbragia and Lieutenant
General Tuck follows:]
Joint Prepared Statement of Chad Sbragia, Deputy Assistant Secretary of
Defense for China, Office of the Secretary of Defense and Lieutenant
General Giovanni K. Tuck, Director for Logistics, J4, Joint Chiefs of
Staff
Introduction
Chairman Maloney, Ranking Member Gibbs, distinguished members of
the Subcommittee, thank you for your invitation to testify on China's
Maritime Silk Road Initiative, its implications for the Department, and
our contributions to a whole-of-government response. We appreciate the
opportunity to engage this Subcommittee on an important topic for
collaboration and information sharing in order to compete effectively
with China.
China's Strategy and the One Belt, One Road Initiative
China's leaders believe they can and must contend for global
leadership in a ``New Era for Socialism with Chinese Characteristics,''
heralded at the 19th Congress of the Communist Party of China in
October 2017. China's leaders have consistently sought to expand
China's comprehensive national power to achieve the Party's strategic
objectives by promoting what they see as the advantages of their
authoritarian model and reshaping the international order to their
liking.
China's leaders have set major economic and political milestones
for 2021, 2035, and 2049 in the lead up to the 100th anniversary of the
founding of the People's Republic of China. China's military ambitions
are linked to these milestones. By 2035, China's military leaders seek
to complete military modernization, and, by 2049, they seek to become a
``world-class'' military. In this regard, China's efforts are designed
with a clear purpose in mind: to displace the United States in the
Indo-Pacific region; to expand the reaches of China's state-driven
economic model; to reorder the region in its favor; and ultimately to
compete for global leadership.
President Xi Jinping's signature ``One Belt, One Road'' (OBOR)
initiative also serves these goals. Made public in 2013, this
initiative aims to use economic instruments to expand economic and
commercial ties to China by developing transportation infrastructure,
natural gas pipelines, hydropower projects, technology, and industrial
parks. The initiative has transformed since its announcement in 2013
from a regional economic initiative centered along China's periphery,
to an economic and foreign policy strategy that spans Asia, Africa,
Latin America, Europe, the Arctic, and even into the digital and space
domains.
Ultimately, China's leaders intend OBOR to facilitate greater
political, diplomatic, and even military connectivity between China and
other countries. Specifically, they seek to use OBOR to shape other
countries' interests to align with the Communist Party's and to deter
confrontation and criticism of China's behaviors that do not comport
with international rules and norms. China claims that more than 120
countries are participating in OBOR and has pressured other countries
and international organizations--including the United Nations--to
include language endorsing OBOR in policy documents.\1\
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\1\ https://www.bloomberg.com/news/articles/2019-09-11/china-s-
belt-and-road-plan-fuels-debate-over-un-s-afghan-mission
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Regrettably, some OBOR projects do not meet acceptable standards.
Although we welcome China's contributions to sustainable high-quality
development in accordance with international standards, too often OBOR
projects are characterized by corruption, lack of public oversight,
opaque and excessive lending, and nonviable projects that do not
adequately account for the needs of partnering nations' populations.
For example, China built a new wharf for Vanuatu at the cost of $100
million that failed to meet the specifications needed for visiting
cruise ships, resulting in more than a 50 percent decline in port usage
and negative impacts on the local economy.
China has also failed to perform risk assessments for some OBOR
projects and inflated project costs to the benefit of its state-owned
firms. Moreover, to facilitate the growth of China's statist economic
model, Chinese policy banks have overburdened some countries with debt
and jeopardized the economic viability of projects. In Kyrgyzstan, for
example, Chinese firms engaged in corrupt practices that inflated
project costs, forcing the Kyrgyzstan Government to launch a corruption
investigation. In the Maldives, China made a series of inflated loans
to the country's former administration that were so opaque that the
current Maldivian administration is still struggling to calculate the
more than $1.4 billion in debt it has inherited.
China's Maritime Initiatives Under OBOR
In 2017, China released a ``Vision of Maritime Cooperation under
the Belt and Road Initiative,'' which lays out three maritime corridors
and emphasizes the importance of maritime security cooperation. One of
these corridors extends from China through the Indian Ocean to Africa
and the Mediterranean Sea. Another corridor extends from China to
Oceania and the South Pacific, and the last corridor extends from China
to Europe and through the Arctic Ocean.
Today, China is the world's largest exporter of goods, and its
state-owned shipping firms carry more cargo than any other country. In
fact, six of the top ten container ports in the world are in China.
China's maritime industry, therefore, has extensive experience in port
operations, upon which China increasingly relies to develop the
Maritime Silk Road (MSR). China's commercial capabilities are matched
by its growing military emphasis on the maritime domain and increasing
demands on the People's Liberation Army Navy (PLAN).
In recent years, China's party-state regime has grown more vocal
about increasing China's role in the global maritime industry.
President Hu Jintao first declared at the 18th Party Congress in 2012
that the Communist Party of China should ``build China into a strong
maritime power.'' His successor, Xi Jinping, made the same declaration
five years later at the 19th Party Congress, adding that China needed
to ``pursue coordinated land and marine development,'' reflecting its
efforts to develop roads, railways, and economic zones to link ports
with inland resources and facilitate the transport of goods in China.
In April 2019, President Xi called for building a ``maritime community
of common destiny,'' describing maritime connectivity and development
of the ``blue economy'' as MSR objectives. This scheme is especially
notable across the Indo-Pacific and Africa. In Africa alone, China has
nearly 50 commercial port projects either complete or in various stages
of execution.
In addition to MSR, China has increased its activities and
engagement in the Arctic region since gaining observer status on the
Arctic Council in 2013. In January 2018, China published its first
Arctic strategy that promoted a ``Polar Silk Road'' and self-declared
China to be a ``Near-Arctic State.'' The strategy identifies access to
resources, securing Arctic sea lines of communication, and promoting an
image of a ``responsible major country'' in Arctic affairs as specific
interests, and highlights China's icebreaker vessels and research
stations as integral to its implementation.
Military Implications of OBOR and MSR
PLA Posture and Access
China is competing for access and influence at the global level.
This past August our office met with counterparts from China's military
for a brief on China's 2019 National Defense White Paper, which they
explained defines China's national defense aims to include
``safeguard[ing] China's overseas interests'' and identifies a need to
build its far seas forces and a need for ``overseas logistical
facilities.'' China's Science of Military Strategy, an official
military document published in 2013, indicates its military strategists
have also long been concerned with safeguarding China's maritime
industry and the ability of Chinese ships to transit strategic sea
lines of communication.
Although China's senior leaders for many years disavowed any direct
connection between OBOR and the PLA, Beijing has now explicitly linked
China's global development framework with its overseas military
ambitions. At a January 2019 Communist Party study session, Xi Jinping
called for completion of a ``security system'' for OBOR to ``strengthen
protection of [China's] interests and ensure the security of major
overseas projects,'' without elaborating on the PLA's role or how the
concept will account for the sovereignty concerns of partnering
countries. And in July 2019, China's Defense Minister openly declared
that ``China is willing to deepen military exchanges and cooperation
with the Caribbean countries and Pacific island countries under the
framework of OBOR.''
There are more signs China will seek to use OBOR to expand its
international military cooperation. China's policymakers may believe
that by leading with economic and technology exchanges in their
interactions with partnering countries, they can subsequently generate
opportunities for defense cooperation or military access. For example,
in 2017, the PLAN deployed its Navy Task Group 150 on a cruise from
Shanghai to Europe, not coincidentally along the pathway of the
Maritime Silk Road. Along the way, Task Group 150 made numerous
goodwill port calls and conducted at-sea exercises with OBOR partnering
nations.
Furthermore, it is becoming increasingly clear China is
aggressively seeking opportunities for military access and basing. The
PLAN has argued in its publications for a long-term strategy to obtain
bases overseas, using methods such as constructing, purchasing, and
long-term leases to obtain rights to foreign ports. The PLA already
opened China's first overseas military facility in Djibouti, and has
operated there since late 2017. International press reporting has
indicated China is seeking to expand its military basing and access in
the Middle East, Southeast Asia, and the western Pacific, and may be
considering additional locations in Africa. In the Arctic, civilian
research could also support a strengthened Chinese military presence.
Exposure to Influence
China's maritime infrastructure activities could also be leveraged
to exert political influence. OBOR is more than an economic
initiative--it is a strategic program with strategic implications for
partnering nations. Given China's demonstrated history of using
economic leverage to exact political retribution against other
countries, we are concerned these projects will increase partner
nations' concessions from or exposure to Chinese influence or pressure.
For example, the Chinese government is restricting trade and tourism
with Australia and Canada, and detaining Canadian citizens, in an
effort to interfere in their political and judicial processes. After
the Dalai Lama visited Mongolia in 2016, the Chinese government closed
its border with the land-locked country, effectively crippling
Mongolia's economy. Beijing consistently incentivizes and pressures
elites, usually in an opaque manner, to toe the CCP line on issues such
as Taiwan, Hong Kong, human rights, etc.
Technology Challenges
Alongside OBOR, President Xi has promoted the ``21st Century
Digital Silk Road,'' an initiative that includes cooperation in
frontier technology areas and building information and communications
technology infrastructure, particularly in developing countries. This
has overlapped with the MSR as Chinese state-owned shipping enterprises
seek to link their shipping operations and port developments with
Chinese technology exports. Huawei has also identified the
digitalization of ports as an emerging sector for its 5th Generation
(5G) telecommunications equipment. For example, in June this year,
Huawei announced an agreement with China Merchants Port Group (CMPort),
the sixth-largest container operator in the world, to establish a 5G
innovation hub. CMPort has stated the hub will demonstrate the
integration of Huawei 5G into port operations and predicted these
innovations would support the development of OBOR-affiliated ports in
foreign countries.\2\
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\2\ https://www.porttechnology.org/news/
chinese_port_and_huawei_to_develop_
5g_innovation_lab/; https://
lloydslist.maritimeintelligence.informa.com/LL1127403/Huawei-makes-
inroads-in-smart-ports; https://container-news.com/cmport-huawei-build-
5g-innovation-lab/
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The presence of Huawei 5G equipment in Chinese-operated foreign
ports would present new risks due to the inherent security
vulnerabilities associated with Chinese telecom vendors. Future 5G
networks will underpin critical infrastructure, including automated
systems that will support industrial and maritime infrastructure, and
systems that track shipping containers and products through the global
supply chain. The presence of low-assurance components--such as
equipment from Huawei or ZTE--would compromise the integrity of these
vital sectors.
Of particular concern are China's laws that compel Chinese
companies to cooperate with its security and intelligence services,
even when operating abroad. In addition, independent analyses have
identified extensive security vulnerabilities in Huawei products
compared to those of competitors.\3\ Maritime infrastructure reliant on
Chinese 5G services would therefore be vulnerable not only to Beijing's
influence, but also to any other State or non-State actor with basic
cyber capabilities. The presence of equipment from high-risk vendors in
our allied and partner 5G networks could also affect the means and
manner of U.S. information sharing.
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Lastly, China's ability to aggregate vast amounts of SOE-furnished
shipping data across entire regions or continents poses threats to the
competitiveness of global markets and maritime economies. Chinese
overseas port operations, working in concert from centralized data
stores and enabled by artificial intelligence and big data analytics,
could evolve to predict supply and demand at a scale beyond what we
currently understand.
Department of Defense Approach
The U.S. National Defense Strategy (NDS) states that DoD will
``support U.S. interagency approaches and work by, with, and through
our allies and partners'' to counter coercion by revisionist powers.
The challenges presented by China's expanding global access cannot be
solved primarily or exclusively in the military ``lane.'' The
Department therefore views our response as supporting a whole-of-
government approach, primarily through the first two lines of effort of
the NDS.
The first line of effort is preparing a more lethal and resilient
joint force. The NDS takes into account the scope and pace of our
competitors' ambitions and capabilities, and prioritizes investment in
modernizing key U.S. capabilities, including nuclear forces; space and
cyberspace capabilities; Command, Control, Communications, Computers,
Intelligence, Surveillance, and Reconnaissance (C4ISR); missile
defense; capabilities to strike diverse targets inside adversary air
and missile defense networks; smaller, dispersed, resilient, and
adaptive basing; and autonomous systems. The Secretary of Defense
designated the Chairman of the Joint Chiefs as the global integrator,
which allows him to work across the Combatant Commands to ensure a
lethal and resilient joint force is available at the right time, place,
and scale. Within the Office of the Secretary of Defense, the
Department established the Office of the Deputy Assistant Secretary of
Defense for China in June to drive alignment on our strategic
competition with China as we carry out NDS implementation.
The second line of effort is strengthening alliances and attracting
new partners, which the NDS identifies as a crucial and durable
asymmetric advantage no other country can match. This has been a key
focus in our support to the Indo-Pacific Strategy,\4\ as strengthening
and evolving U.S. partnerships into a networked security architecture
helps uphold a ``free and open'' order characterized by 1) respect for
sovereignty and independence of every nation, no matter its size; 2)
peaceful dispute resolution without coercion; 3) free, fair, and
reciprocal trade and investment; and 4) adherence to international
rules and norms. Select efforts include integrating NDS implementation
with Japan's National Defense Program Guidelines; implementing Major
Defense Partner status with respect to India; reinvigorating our
alliances with Thailand and the Philippines; pursuing access and
training opportunities in Singapore; investing in emerging partnerships
with Indonesia, Vietnam, and Malaysia; and enhancing our engagement in
the Pacific Islands to maintain access and promote our status as a
security partner of choice. DoD is also investing $521 million over the
next five years in programs like the Maritime Security Initiative to
build the capacity of our allies and partners in the region, including
developing partners' ability to conduct maritime security and maritime
domain awareness operations, and advancing interoperability with U.S.
forces. The United States is also working closely with Australia,
Canada, France, Japan, New Zealand, and the United Kingdom to enforce
UN Security Council Resolutions that seek to prevent North Korea from
exporting coal and importing refined petroleum in the maritime domain.
DoD is also engaging on these challenges beyond the Indo-Pacific
region, as seen by recent senior leader trips to Europe and the Middle
East, for example.
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To ``drill down'' on the subject of this hearing, there are three
specific ways the Department is responding to challenges presented by
China's Maritime Silk Road activities: evaluating access, supporting
targeted responses, and shaping high standards for engagement with
China's military.
Evaluating Access
First, DoD will continue to assess Beijing's efforts to contend for
influence and access globally, including by identifying where specific
investments have security implications. Importantly, the Department
does not view every one of China's expanding global activities as
problematic. Many countries have genuine economic development needs,
particularly for infrastructure, and U.S. policy does not oppose
China's investment activities as long as they respect sovereignty and
the rule of law, use sustainable financing, and operate in a
transparent and economically sustainable manner in accordance with
international standards. Instead, we promote the principles of a ``free
and open Indo-Pacific,'' where countries can determine their own
economic interests and needs. We are concerned, however, by actions
China's party-state has taken that are out-of-step with international
norms, diminish countries' sovereignty, or undermine U.S., allied, or
partner security. To that end, we have set up a framework for
evaluating where China's investments in ports and other infrastructure
could impact DoD equities, and have provided specific information to
our interagency counterparts, recognizing this is one variable in our
whole-of-government decision-making.
Targeted Responses
Second, and informed by our assessments, the Department has
supported interagency counterparts and our allies and partners to
respond in cases where there are acute needs. Our multilateral response
to China's state-driven initiatives has emphasized upholding shared
principles and promoting high standards for trade and investment. The
Department does not support a plan to counter China dollar-for-dollar
or emulate its state-backed approach and the accompanying costs to host
countries. Rather, DoD welcomes the development of new tools by our
interagency and Congressional counterparts to increase our
competitiveness: the Better Utilization of Investment Leading to
Development (BUILD) Act which doubled our development finance capacity;
targeted State Department initiatives like the Digital Connectivity and
Cyber Security Partnership and Infrastructure and Transaction
Assistance Network; and strengthened U.S. contributions to regional
institutions--we believe these are exactly the type of actions needed
to promote quality alternatives. Although DoD may not be the
appropriate Department to employ such tools, we provide support through
our own tools: deepening security engagements with allies and partners,
underwriting the stability needed for partnerships to thrive, and
providing timely assessments, as when DoD identified concerns about
potential Chinese investment in a deep water port in the Indo-Pacific.
Allies and partners have promoted high-standard alternatives as
well. Last year Australia worked to fund a military base for Fiji's
armed forces, for example. In September 2019, the European Union and
Japan signed a deal for a 60 billion-Euro fund to coordinate
infrastructure, transportation, and digital projects linking Europe and
Asia.
Shaping Engagement with China's Military
Finally, DoD shares our best practices with other countries for
engaging with China, and with China's military in particular. As
China's military is increasingly present around the globe and seeks to
build bases in other countries, we encourage hard discussions regarding
the risks associated with this presence. The Department stands ready to
assist any country in its assessments. The Department also continues to
engage with China to build a constructive, results-oriented defense
relationship focused on building the communications necessary to de-
escalate crisis and reduce risk to forces. DoD has worked to scope our
own engagements with the PLA carefully to avoid contact that would
constitute a national security risk while welcoming cooperation from
China on issues of mutual interest.
DoD has also joined interagency counterparts in promoting national
security-based investment screening mechanisms as a best practice for
evaluating offers that could compromise maritime and digital
infrastructure, and in advocating for a risk-based security framework
for 5G infrastructure contracts in particular. DoD specifically
emphasizes the defense risks presented by the lack of an independent
judiciary between China's vendors and its security and intelligence
services. Continued outreach on these issues will further deepen our
cooperation with allies and partners and build a long-term foundation
for addressing risks to our critical infrastructure.
Conclusion
Your Department of Defense will continue supporting these and other
whole-of-government actions to respond to China's efforts to influence
the maritime domain in ways that are inconsistent with U.S. national
interests and values. To that end, we will continue to field a Joint
Force that can compete, deter, and win in this increasingly complex
security environment. We welcome Congress's continued attention to
these vital issues.
Mr. Maloney. Thank you, General.
Ms. Bartholomew?
Ms. Bartholomew. Thank you. Thank you very much. And I join
everybody in condolences on the loss of Mr. Cummings. The arc
of his life really is an example of the promise of this country
and the best that we have to offer. He will be really missed.
Chairman Maloney, Ranking Member Gibbs, members of the
subcommittee, thank you for the opportunity to testify today.
It is an honor to appear before you and to serve on this panel
with such distinguished witnesses. The views in this testimony
are informed by the Commission's body of work. They are,
however, my own, and do not necessarily reflect the full U.S.-
China Economic and Security Review Commission.
Our Commission was created by the Congress in 2000 as China
acceded to the WTO to advise you on the national security
implications of the U.S.-China economic relationship, and to
make recommendations to Congress on our findings. Our 2019
report is in print. It has gone to press right now, and will be
released in November.
The Commission first discussed China's Belt and Road
Initiative in our 2015 annual report. Much has changed since
then.
The BRI is the signature foreign policy of General
Secretary of the Chinese Communist Party, Xi Jinping, and it
has become a pillar of China's expanding presence on the global
stage. Chinese leaders want to use BRI, of which the Maritime
Silk Road is a critical component, to revise the global
political and economic order to align with Chinese interests.
In my testimony I would like to situate China's Maritime Silk
Road activities in the bigger economic picture, focusing on two
key aspects: China's industrial policies for its shipping and
shipbuilding industries, and China's investment in ports around
the world.
First, on China's industrial policies. Like other
industries the Chinese Government has focused on and built,
China's shipping and shipbuilding firms benefit from industrial
policies to the detriment of U.S. companies. China's largest
shipping and shipbuilding companies are all state-owned
enterprises. A 2017 Harvard University study found evidence
that China had significantly subsidized shipyard costs, leading
to substantial misallocation of global production. Subsidies
for Chinese shipbuilding SOEs have harmed the U.S. shipbuilding
industry's ability to compete in the global market, and have
led to shipyard closings and a reduced U.S. vendor base over
the past several decades.
Second, to the very important issue of ports, China is the
world's largest exporter and second largest importer, so its
investment in ports helps facilitate China's global trade
footprint. Today at least two-thirds of the world's top 50
container ports are Chinese owned or invested, up from about
one-fifth almost a decade ago. China's investments include U.S.
ports such as Los Angeles and Seattle, and four Chinese SOEs
are among the world's leading port operators.
Chinese control of ports can be used as a form of market
creation through which China can leverage its port control to
strengthen their economic relationships with certain countries.
By owning and/or operating a network of logistical nodes across
Asia, Europe, and Africa, China can control a significant
portion of its inbound supply chain for essential commodities
and outbound trade routes for its exports. In the event of
conflict, China could use its control over these and other
ports to hinder trade access to other countries.
Additionally, Chinese port investment can translate into
increased political leverage. Chinese investments in the Port
of Piraeus in Greece, for example, have influenced Athens'
response to China's claims and activities in the South China
Sea and human rights abuses, with Athens blocking an EU
consensus in 2017 by refusing to endorse an EU statement
critical of China's human rights records in the U.N. Human
Rights Council.
Finally, control of ports could also allow for economic and
traditional espionage, as China can install surveillance
equipment in ports to monitor foreign companies and U.S.
military activity or that of our allies and partners.
Mr. Chairman, you mentioned standards. A couple of other
people have mentioned that. This is an issue that we think
people really need to be paying more attention to. It is really
critically important for the U.S. to participate actively in
standard-setting bodies, including the IMO and the ISO.
In the IMO, China is a 2018-2019 member of the Council,
which is the country body elected by the Assembly, and it
serves as the executive body of the IMO. It also serves the
Assembly's role between sessions of the Assembly, which
generally meets once every 2 years.
In the ISO, in addition to its leadership position on the
Technical Committee on Ships and Maritime Technology, China is
currently a member of the 20-member Council which is the core
governing body of the ISO. Membership on the Council rotates.
The U.S. is also currently a member.
In 2015 to 2017, the ISO president was from China, but
within the ISO, the Technical Committee on Ships and Maritime
Technology, ISO/TC8, is responsible for the standardization of
design, construction, structural elements, outfitting parts,
equipments, method and technology, and marine environmental
matters used in shipbuilding and the operation of ships,
comprising seagoing ships, vessels for inland navigation,
offshore structures, ship-to-shore interface, and all other
marine structures subject to IMO requirements. ISO/TC8's
Secretariat is China's Standardization Administration.
I have been reading recently ``The Guns at Last Light: The
War in Western Europe, 1944-1945,'' by Rick Atkinson, which
describes the extensive level of logistics that went into
preparing for D-Day. Our sailors, merchant marines,
longshoremen, and factory workers, as well as our soldiers,
were critical to that mission and to helping win the war. I
hope that we never face a task like that again. But I worry
that, if we do, we no longer have the manufacturing capacity,
the shipbuilding capacity, and the elements of the shipbuilding
industry that would be necessary to meet the challenge.
China has built its economy and its military power under
the U.S. security umbrella. It is gaining long-term economic
and strategic influence through subsidizing its shipping and
shipbuilding industries and investing in overseas ports. We
must develop and run a whole-of-Government approach to
addressing the challenges that it presents.
In my written testimony I have included a list of
recommendations the Commission has previously made on maritime
security, as well as a map illustrating the global scope of BRI
and China's quest for influence.
Thank you for the opportunity to testify, and I look
forward to any questions you may have.
[Ms. Bartholomew's prepared statement follows:]
Prepared Statement of Carolyn Bartholomew, Chairwoman, United States-
China Economic and Security Review Commission
Chairman Maloney, Ranking Member Gibbs, Members of the
Subcommittee, thank you for the opportunity to testify today. It is an
honor to appear before you and to serve on this panel with such
distinguished witnesses. The views in this testimony are informed by
the Commission's body of work. They are, however, my own and do not
necessarily reflect those of the full U.S.-China Economic and Security
Review Commission.
I. Overview of the Commission and its Study of BRI
The U.S.-China Commission was created by the Congress in 2000, as
Congress voted to grant China Permanent Normal Trade Relations (PNTR),
which paved the way for China's accession to the World Trade
Organization (WTO). We were established to advise Congress on the
national security implications of the U.S.-China economic relationship
and to make recommendations to Congress on our findings.
There are 12 Commissioners--six Democrats and six Republicans--
three each appointed by the House and Senate Democratic and Republican
leaders. Commissioners are backed up by an excellent professional
staff. We do an annual report to the Congress based on eight hearings,
meetings with government officials and other experts, outside research,
and, generally, one trip to the Indo-Pacific region. Our 2019 report,
which has 38 recommendations to the Congress on a range of economic and
national security issues, has gone to press and will be released on
November 14. I have included, as an attachment, a list of some of the
Commission's previous recommendations which may be of interest to the
Subcommittee's members (see Appendix 1).
The Commission first discussed China's Belt and Road Initiative
(BRI), originally called One Belt One Road (OBOR), in our 2015 Annual
Report in a section on China and Central Asia. Indeed, when BRI was
first introduced, most of its focus was on Asia. Much has changed since
then.
II. The History and Current State of the Belt and Road Initiative
The BRI, formally launched in 2013, is the signature foreign policy
of General Secretary of the Chinese Communist Party (CCP) Xi Jinping,
and has become a pillar of China's expanding presence on the global
stage. BRI is not a new concept. It is a culmination and rebranding of
previous policies and projects aimed at linking China with its trading
partners. It is, however, so important now that Chinese leaders call it
the ``Project of the Century'' and have written it into China's
constitution. The BRI marks the end of Deng Xiaoping's era of ``hide
your capabilities and bide your time'' and underscores China's move
onto the global stage, with economic, diplomatic, geopolitical, and
national security implications.
Chinese leaders want to use BRI to revise the global political and
economic order to align with Chinese interests. In a speech marking
BRI's fifth anniversary in August 2018, General Secretary Xi emphasized
that the initiative serves as a solution for China to participate in
global opening up and cooperation, improve global economic governance,
promote common development and prosperity,'' and build a ``community of
common human destiny.\1\
---------------------------------------------------------------------------
\1\ Xinhua, ``Xi Pledges to Bring Benefits to People Through Belt
and Road Initiative,'' August 27, 2018. http://www.xinhuanet.com/
english/2018-08/28/c_137423397.htm; Xinhua, ``Xi Jinping: Promote the
Successful Implementation of One Belt, One Road to Benefit the
People,'' August 27, 2018. Translation.
---------------------------------------------------------------------------
Broadly, BRI's land-based ``Belt'' crosses from China to Central
and South Asia, to the Middle East, and then to Europe. The sea-based
``Road'' connects China with South Asia, the Middle East, East Africa,
and Europe via sea lanes traversing the South China Sea, Indian Ocean,
Red Sea, Suez Canal, and Eastern Mediterranean.\2\ (See map in Appendix
2.)
---------------------------------------------------------------------------
\2\ National Development and Reform Commission, China's Ministry of
Foreign Affairs, and China's Ministry of Commerce, Vision and Actions
on Jointly Building Silk Road Economic Belt and 21st-Century Maritime
Silk Road, March 28, 2015.
---------------------------------------------------------------------------
China's ambitions for BRI are not confined to just two geographic
paths. China's vision for BRI includes Latin America and the Caribbean,
the Arctic, space, and cyberspace (the so-called ``Digital Silk
Road''). The most visible manifestations of BRI are economic and
official Chinese communiques focusing on economic objectives. But BRI
has clear strategic intent, including increasing China's influence over
global politics and governance.
According to the Chinese government, it has signed 171 BRI
cooperation agreements with 29 international organizations and 123
countries.\3\ Others estimate around 70 countries.\4\ The second Belt
and Road Forum took place in Beijing in late April. A reported 5,000
delegates, including leaders from 37 countries, delegations from more
than 150 countries and 90 international organizations, participated.
One-third of the participating heads of state were from Europe.\5\
---------------------------------------------------------------------------
\3\ China Daily, ``China has Signed 171 B&R Cooperation
Documents,'' March 7, 2019. https://eng.yidaiyilu.gov.cn/qwyw/rdxw/
81686.htm.
\4\ U.S.-China Economic and Security Review Commission, Hearing on
A `World-Class' Military: Assessing China's Global Military Ambitions,
written testimony of Isaac B. Kardon, June 20, 2019, 5.
\5\ Shannon Tiezzi, ``Who Is (and Who Isn't) Attending China's 2nd
Belt and Road Forum?'' Diplomat, April 27, 2019. https://
thediplomat.com/2019/04/who-is-and-who-isnt-attending-chinas-2nd-belt-
and-road-forum/.
---------------------------------------------------------------------------
III. The Economic Background on the Maritime Silk Road
The witnesses from the Department of Defense are focusing on the
national security implications of the Maritime Silk Road, a critical
component of BRI. I would like to situate China's Maritime Silk Road
activities in the bigger economic picture.
China is the world's largest exporter and second-largest importer,
so its investment in ports helps facilitate China's global trade
footprint. By owning and/or operating a network of logistical nodes
across Asia, Europe, and Africa, China can control a significant
portion of its inbound supply chain for essential commodities and
outbound trade routes for its exports. About 90 percent of the world's
trade is carried by sea.\6\ China's growing investments in ports
increases Beijing's ability to influence and control global supply
chains, which could affect the United States' ability to maintain
reliable cross-border trade volumes. China has focused its port
investments in countries where the interruption of its own trading
routes would be most costly, based on the amount of trade that would be
diverted, or the extra distance that would have to be traveled, if
shipping were interrupted.\7\
---------------------------------------------------------------------------
\6\ International Chamber of Shipping, ``Shipping Facts.'' http://
www.ics-shipping.org/shipping-facts/shipping-facts.
\7\ Economist, ``China's `Maritime Road' Looks More Defensive than
Imperialist,'' September 28, 2019. https://www.economist.com/graphic-
detail/2019/09/28/chinas-maritime-road-looks-more-defensive-than-
imperialist.
---------------------------------------------------------------------------
The Maritime Silk Road rebrands existing maritime policies and
directs investment toward key strategic blue economy sectors, which
include traditional marine industries (e.g., shipbuilding and
fisheries), emerging strategic industries (e.g., maritime engineering
and maritime renewable energies), and maritime services (e.g., maritime
transport and finance).\8\ According to a 2018 report from the European
Council of Foreign Relations,
---------------------------------------------------------------------------
\8\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 4, 10. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
Concretely, today the Maritime Silk Road consists of a set of
flagship projects in port infrastructure [e.g., Piraeus in
Greece, Hambantota and Colombo Port City in Sri Lanka, Gwadar
in Pakistan, and Djibouti], financial investment in port
management, and acquisitions of container management companies
across Europe, the MENA region, and east Africa.\9\
---------------------------------------------------------------------------
\9\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 14. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
The Chinese Communist Party (CCP) has repeatedly highlighted the
importance of its maritime economy and shipbuilding industry in recent
high-level meetings and policy documents, including the 13th Five-Year
Plan, the 19th Party Congress, and the Made in China 2025 Plan.
A major goal of BRI is to open more markets for Chinese goods,
displacing goods and services currently provided by the U.S. and other
countries. While BRI is characterized as a boon to global development,
it is, in large part, designed to boost the competitiveness and
innovative capacity of Chinese companies. China's ``marine GDP'' (which
includes marine industries, services such as transport and tourism, and
exploitation of ocean resources) made up about 10 percent of its total
GDP in 2017, according to China's State Oceanic Administration.\10\ BRI
provides ripe opportunities to expand those activities.
---------------------------------------------------------------------------
\10\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 3. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf; Xinhua, ``China Focus: China's Maritime
Economy Expands by 7.5 Percent in Recent Five Years,'' January 21,
2018. www.xinhuanet.com/english/2018-01/21/c_136913316.htm.
---------------------------------------------------------------------------
IV. Chinese Investments in Ports and Related Infrastructure
Chinese state-owned enterprises (SOEs) play a major role in BRI
activities. China's largest shipping and shipbuilding companies are all
SOEs. Four Chinese SOEs are among the world's leading port operators:
COSCO Ports, China Merchants Ports, Shanghai International Port Group,
and Qingdao Port International.\11\ These companies are backed by
Chinese state-owned banks. For example, in 2017 state-owned China
Development Bank provided COSCO a $26 billion credit facility to
develop its shipping interests.\12\
---------------------------------------------------------------------------
\11\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 15. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
\12\ Costas Paris, ``China Shipping Giants Seek Control of
`Maritime Silk Road,' '' Wall Street Journal, April 7, 2017. https://
www.wsj.com/articles/chinese-shipping-giants-seek-control-of-maritime-
silk-road-1491557405.
---------------------------------------------------------------------------
The total amount of Chinese port investment is difficult to
determine because of the lack of transparency around deals. According
to estimates by London-based investment bank Grisons Peak, between mid-
2016 and mid-2017, Chinese investments in overseas ports reached $20
billion.\13\ Nearly two-thirds of the world's top 50 container ports
were Chinese owned or invested in by 2015, up from about one-fifth in
2010, according to research from the Financial Times.\14\ Chinese
investments in overseas ports have mostly been outside of the world's
top 25 container ports (ten of the top 25 container ports in the world
are in China).\15\ According to the Financial Times, of the top 10 port
operators worldwide, Chinese companies handled 39 percent of all
volumes, nearly double the next largest nation group (Singapore).\16\
---------------------------------------------------------------------------
\13\ James Kynge, ``Chinese Purchases of Overseas Ports Top $20
billion in Past Year,'' Financial Times, July 16, 2017. https://
www.ft.com/content/e00fcfd4-6883-11e7-8526-7b38dcaef614.
\14\ James Kynge, Chris Campbell, Amy Kazmin, and Farhan Bokhari,
``How China Rules the Waves,'' Financial Times, January 12, 2017.
https://ig.ft.com/sites/china-ports/.
\15\ World Shipping Council, ``Top 50 World Container Ports.''
http://www.worldshipping.org/about-the-industry/global-trade/top-50-
world-container-ports.
\16\ James Kynge, Chris Campbell, Amy Kazmin, and Farhan Bokhari,
``How China Rules the Waves,'' Financial Times, January 12, 2017.
https://ig.ft.com/sites/china-ports/.
---------------------------------------------------------------------------
Chinese port investments range from building the port to managing
and operating the port. They include:
Landlord ports: China Merchants Port Holding's 99-year
lease on Hambantota Port in Sri Lanka is an example of Chinese
ownership through a ``landlord port'' model. In this model, ``the port
authority acts as regulatory body and as landlord, while port
operations . . . are carried out by private companies.'' This model is
dominant in larger and medium-sized ports around the world.\17\ Under
the concession agreement, China Merchants Port Holding holds a 70
percent stake in the Sri Lankan joint venture running the commercial
operations of the port.
---------------------------------------------------------------------------
\17\ World Bank, ``Port Reform Toolkit: Alternative Port Management
Structures and Ownership Models.'' https://ppiaf.org/sites/ppiaf.org/
files/documents/toolkits/Portoolkit/Toolkit/module3/
port_functions.html.
---------------------------------------------------------------------------
Fully privatized ports: In fully privatized ports, the
ownership of port land is transferred from the public to the private
sector. In addition, ``some governments may simultaneously transfer the
regulatory functions to private successor companies.'' \18\ For
example, in 2016, COSCO acquired a 51 percent stake in the Piraeus Port
in Greece. The Greek government agreed to privatize the port in 2015 as
part of its bailout deal with the European Union. Piraeus is the only
port in Europe where a Chinese company owns the port authority.\19\
---------------------------------------------------------------------------
\18\ World Bank, ``Port Reform Toolkit: Alternative Port Management
Structures and Ownership Models.'' https://ppiaf.org/sites/ppiaf.org/
files/documents/toolkits/Portoolkit/Toolkit/module3/
port_functions.html.
\19\ Joanna Kakissis, ``Chinese Firms Now Hold Stakes in Over a
Dozen European Ports,'' NPR, October 9, 2018. https://www.npr.org/2018/
10/09/642587456/chinese-firms-now-hold-stakes-in-over-a-dozen-european-
ports; George Georgiopoulos, ``China's Cosco Acquires 51 Percent Stake
in Greece's Piraeus Port,'' Reuters, August 10, 2016. https://
www.reuters.com/article/greece-privatisation-port/chinas-cosco-
acquires-51-pct-stake-in-greeces-piraeus-port-idUSL8N1AR252.
China also has port investments in the Western Hemisphere. COSCO
has minor investments in U.S. ports, including at the ports of Los
Angeles and Seattle.\20\ In 2013, China Merchant Holdings acquired a 49
percent stake in commercial container operator Terminal Link, which
owns 15 container terminals around the world, including in Miami and
Houston.\21\ In April 2019, Hong Kong-based Orient Overseas sold its
ownership stake in the Long Beach Container Terminal to comply with an
agreement reached with CFIUS to mitigate national security concerns;
the agreement allowed COSCO to acquire Orient Overseas in July
2018.\22\ Panama Ports Company (a subsidiary of the Hong Kong-based
firm Hutchinson Whampoa Ltd.) operates the two main ports--Balboa and
Cristobal--located on either side of the Panama Canal. In addition,
Chinese firms are acquiring and constructing port facilities on both
sides of the canal.\\
---------------------------------------------------------------------------
\20\ Costas Paris and Joanne Chiu, ``China's Cosco Puts Long Beach
Container Terminal Up for Sale,'' Wall Street Journal, November 20,
2018. https://www.wsj.com/articles/chinas-cosco-puts-long-beach-
container-terminal-up-for-sale-1542736508.
\21\ Eleanor Albert, ``China's Global Port Play,'' Diplomat, May
11, 2019. https://thediplomat.com/2019/05/chinas-global-port-play/;
Journal of Commerce, ``CMA CGM Sells Stake in Ports Unit to China
Merchants,'' January 25, 2013. https://www.joc.com/maritime-news/
container-lines/cma-cgm/cma-cgm-sells-stake-ports-unit-china-
merchants_20130125.html.
\22\ Chester Yung, ``Cosco Shipping Units to Sell U.S. Long Beach
Container Terminal for $1.78 Billion,'' Wall Street Journal, April 30,
2019. https://www.wsj.com/articles/cosco-shipping-units-to-sell-u-s-
long-beach-container-terminal-for-1-78-billion-11556595995/; Costas
Paris and Joanne Chiu, ``China's Cosco Puts Long Beach Container
Terminal Up for Sale,'' Wall Street Journal, November 20, 2018. https:/
/www.wsj.com/articles/chinas-cosco-puts-long-beach-container-terminal-
up-for-sale-1542736508.
\\ For a map of Chinese firms' role in Panamanian port
construction and a full list of Chinese port projects in Latin America
and the Caribbean, see Katherine Koleski and Alec Blivas, ``China's
Engagement with Latin America and the Caribbean,'' U.S.-China Economic
and Security Review Commission, October 17, 2018, 26, 33-34. https://
www.uscc.gov/Research/chinas-engagement-latin-america-and-caribbean.
---------------------------------------------------------------------------
China's shipping giants see investment in the port terminal
business as an important source of growth. According to researchers
from the European Council on Foreign Relations,
Operating port terminals is a source of predictable and stable
return on investment for Chinese conglomerates, unlike
shipping, which depends on oil prices. As a result there is an
incentive for Chinese state-owned enterprises to expand into
business areas surrounding shipping, including investment in
port infrastructure and other logistical components of maritime
trade.\23\
---------------------------------------------------------------------------
\23\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 13-14. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
The chairman of COSCO Shipping said in a 2016 interview he expects
the company's investment in the port terminal business to significantly
increase in the coming years and become an important source of growth.
He added the port terminal business is more stable and often more
profitable than shipping because it has a fixed rate of return on
investment, generally between 8 to 10 percent.\24\
---------------------------------------------------------------------------
\24\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 14. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
---------------------------------------------------------------------------
Port investments can give Beijing significant economic leverage as
well as advance its geostrategic goals. Analysts have pointed to a
number of ports where China is invested and, if converted to include a
military presence or function, would significantly improve China's
ability to project naval power. Indeed, the requirements in China's
2017 National Defense Transportation Law to ``embed military in
civilian'' suggest commercial ports could be utilized by military
personnel if Beijing were to decide it was in its interests to do
so.\25\ Chinese investment in civilian ports can also pave the way for
military visits to rest crews, refuel, repair ships, or for joint
exercises--even if China does not have a base there.\26\
---------------------------------------------------------------------------
\25\ U.S.-China Economic and Security Review Commission, Hearing on
A `World-Class' Military: Assessing China's Global Military Ambitions,
written testimony of Isaac B. Kardon, June 20, 2019, 10; U.S.-China
Economic and Security Review Commission, Hearing on A `World-Class'
Military: Assessing China's Global Military Ambitions, oral testimony
of Isaac B. Kardon, June 20, 2019,132, 188; People's Republic of China
National Defense Transportation Law, 2017.
\26\ U.S. Department of Defense, Annual Report to Congress:
Military and Security Developments Involving the People's Republic of
China 2019, May 2019, 11. https://media.defense.gov/2019/May/02/
2002127082/-1/-1/1/2019_CHINA_MILITARY_POWER_REPORT.pdf.
---------------------------------------------------------------------------
We can already see examples of where Chinese control of ports can
be used as a form of market creation, through which China can leverage
its port control to strengthen their economic relationships with
certain countries. The ports in Hambantota, Gwadar, and Djibouti, for
example, all include plans for free trade zones. Those three ports, as
well as Piraeus and Colombo, also include plans for additional
investment in the transportation sector, including airports, additional
flight routes, roads, and railways.\27\
---------------------------------------------------------------------------
\27\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 16. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
---------------------------------------------------------------------------
Nearly two-thirds of global container traffic flows through
Chinese-owned or -invested ports. China has significant investments in
two of the world's top 30 busiest container ports by volume: Colombo,
at #24, with 7.05 million TEU,\=\ and Piraeus, at #30, with 4.91
million TEU. In the event of conflict, China could use its control over
these and other ports to hinder trade access to other countries.
Beijing could provide Chinese vessels preferential berthing rights,\28\
potentially leading to delays for U.S. companies getting goods in and
out of Chinese-invested or owned ports.\29\ It could also use control
over ports to set higher prices and dictate onerous terms of engagement
to trade partners.\30\
---------------------------------------------------------------------------
\=\ TEU (Twenty-Foot Equivalent) is a measurement of a ship's
carrying capacity.
\28\ Costas Paris, ``China Shipping Giants Seek Control of
`Maritime Silk Road,' '' Wall Street Journal, April 7, 2017. https://
www.wsj.com/articles/chinese-shipping-giants-seek-control-of-maritime-
silk-road-1491557405.
\29\ Tony Padilla, Senior Advisor, U.S. Department of
Transportation Maritime Administration, briefing to Commission,
Washington, DC, February 14, 2018.
\30\ Mathieu Duchatel and Alexandre Sheldon Duplaix, ``Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations, April 2018, 13-14. https://www.ecfr.eu/page/-/
Blue_China_Navigating_the_Maritime_
Silk_Road_to_Europe.pdf.
---------------------------------------------------------------------------
Chinese port investment can translate into increased political
leverage. Chinese investments in the port of Piraeus in Greece, for
example have influenced Athens' response to China's claims and
activities in the South China Sea and human rights abuses, with Athens
in 2017 blocking an EU consensus by refusing to endorse an EU statement
critical of China's human rights record in the UN Human Rights
Council.\31\
---------------------------------------------------------------------------
\31\ Reuters, ``Shanghai Port Teams up with Greece's Piraeus to
Boost Container Traffic,'' June 12, 2018; Thorsten Benner et al.,
``Authoritarian Advance: Responding to China's Growing Political
Influence in Europe,'' Global Public Policy Institute and Mercator
Institute for China Studies, February 2018, 16; Theresa Fallon, ``The
EU, the South China Sea, and China's Successful Wedge Strategy,''
Center for Strategic and International Studies Asia Maritime
Transparency Initiative, October 13, 2016.
---------------------------------------------------------------------------
Even if countries try to reduce their dependence on trade with
China in order to lessen their exposure to economic coercion, Chinese
ownership of ports worldwide could complicate these efforts. For
instance, companies moving operations to Vietnam could still be
susceptible to Chinese coercion if a Chinese company controls their
ability to ship their goods.\32\
---------------------------------------------------------------------------
\32\ Christopher R. O'Dea, ``How China Weaponized the Global Supply
Chain,'' National Review, June 20, 2019. https://
www.nationalreview.com/magazine/2019/07/08/how-china-weaponized-the-
global-supply-chain/.
---------------------------------------------------------------------------
Control of ports also could allow for economic and traditional
espionage, as China can install surveillance equipment in ports to
monitor foreign companies and U.S. military activity or that of our
allies and partners.\33\ Shortly after gaining control of the port of
Piraeus, for example, China replaced the network infrastructure of the
port with internet routers, firewalls, and switches for the data center
with technology from Huawei.\34\
---------------------------------------------------------------------------
\33\ Christopher R. O'Dea, ``How China Weaponized the Global Supply
Chain,'' National Review, June 20, 2019. https://
www.nationalreview.com/magazine/2019/07/08/how-china-weaponized-the-
global-supply-chain/.
\34\ Christopher R. O'Dea, ``How China Weaponized the Global Supply
Chain,'' National Review, June 20, 2019. https://
www.nationalreview.com/magazine/2019/07/08/how-china-weaponized-the-
global-supply-chain/.
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V. The Role of Industrial Policy in Advancing China's Shipping Industry
The Chinese economy is not a free market. It is a state-managed
economy with an industrial policy. The Chinese government is
transparent in its plans and goals. When it identifies strategic
sectors, it uses a whole-of-government approach to build them up. The
government's toolkit includes subsidies to boost domestic firms; tariff
and non-tariff barriers to limit foreign access to the Chinese market;
and acquisition, licit and illicit, of foreign technology to drive
domestic development. The Chinese shipping and shipbuilding industries
are the beneficiaries of this policy, to the detriment of the U.S.
industries.
Like other industries the Chinese government has focused on and
built, China's shipping and shipbuilding firms benefit from industrial
subsidies.\35\ The dominant firms in both industries have undergone a
wave of consolidations over the past few years. For example:
---------------------------------------------------------------------------
\35\ Myrto Kalouptsidi, ``China's Shipbuilding Industry: Measuring
the Effect of Industrial Policy,'' LSE Business Review, April 15, 2019.
https://blogs.lse.ac.uk/businessreview/2019/04/15/chinas-shipbuilding-
industry-measuring-the-effect-of-industrial-policy/.
Shipping: In 2016, China's two largest shipping
corporations, China Ocean Shipping Company (COSCO) and China Shipping
Group, merged into a new company, China COSCO Shipping Group. In 2018,
the China COSCO Shipping Group acquired Hong Kong-based Orient Overseas
(International) Limited,\36\ and is now the third-largest container
shipping company in the world, behind APM-Maersk (Denmark) and
Mediterranean Shipping Company (Switzerland).\37\
---------------------------------------------------------------------------
\36\ Brenda Goh. ``COSCO Shipping's Takeover of OOCL to Complete by
End-June: Vice Chairman,'' Reuters, April 3, 2018. https://
www.reuters.com/article/us-ooil-m-a-cosco-ship-hold-idUSKCN1HA0VB.
\37\ ``10 Largest Container Shipping Companies in the World,''
Marine Insight, July 8, 2019. https://www.marineinsight.com/know-more/
10-largest-container-shipping-companies-in-the-world/.
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Shipbuilding: In July 2019, China's two largest
shipbuilding corporations, China Shipbuilding Industry Corp. (CSIC) and
China State Shipbuilding Corp. (CSSC), announced plans to merge. This
merger would form the second's largest shipbuilding company, after the
planned merger of South Korea's Hyundai Heavy Industries Co. and Daewoo
Shipbuilding & Marine Engineering Co.\38\ In addition, the state-run
shipbuilding company China Merchants Industry Holdings Co. Ltd. (CMIH)
is reportedly in negotiations to merge the shipbuilding and marine
engineering operations of shipbuilding firms China International Marine
Containers (Group) Ltd. (CIMC) and AVIC International Holding Group
(AVIC INTL) under the CMIH umbrella.\39\
---------------------------------------------------------------------------
\38\ Costas Paris, ``Merger of Yards in South Korea, China Will
Control Global Shipbuilding,'' Wall Street Journal, August 1, 2019.
https://www.wsj.com/articles/merger-of-yards-in-south-korea-china-will-
control-global-shipbuilding-11564653601; Yujie Bai, Bao Zhiming, Jason
Tan, and Tang Ziyi, ``Exclusive: Three More Chinese Shipbuilders in
Merger Talks,'' Caixin, July 10, 2019. https://www.caixinglobal.com/
2019-07-10/exclusive-three-more-chinese-shipbuilders-in-merger-talks-
101437571.html.
\39\ Jon Grevatt, ``China's AVIC in Talks to Merge Shipbuilding
Business,'' Janes Defense Weekly, July 10, 2019. https://www.janes.com/
article/89813/china-s-avic-in-talks-to-merge-shipbuilding-business;
Yujie Bai, Bao Zhiming, Jason Tan, and Tang Ziyi, ``Exclusive: Three
More Chinese Shipbuilders in Merger Talks,'' Caixin, July 10, 2019.
https://www.caixinglobal.com/2019-07-10/exclusive-three-more-chinese-
shipbuilders-in-merger-talks-101437571.html.
A 2017 study by Myrto Kalouptsidi of Harvard University on the
impact of industrial subsidies in Chinese shipbuilding found evidence
that China had subsidized shipyard costs by between 13 and 20 percent
between 2006 and 2012.\40\ The study concluded Chinese government
subsidies in the shipbuilding industry ``have led to substantial
misallocation of global production.'' \41\
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\40\ Myrto Kalouptsidi, ``Detection and Impact of Industrial
Subsidies: The Case of Chinese Shipbuilding,'' VoxEU, September 9,
2017. https://voxeu.org/article/chinas-hidden-shipbuilding-subsidies.
\41\ Myrto Kalouptsidi, ``Detection and Impact of Industrial
Subsidies: The Case of Chinese Shipbuilding,'' VoxEU, September 9,
2017. https://voxeu.org/article/chinas-hidden-shipbuilding-subsidies.
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U.S. leadership in maritime engineering equipment and high tech
maritime vessels is under threat. Ocean engineering and high-tech ships
are one of the 10 target areas of Made in China 2025. There is evidence
that some of the U.S. companies are being targeted. In July 2019, Shan
Shi, a U.S. citizen originally from China, was convicted of stealing
trade secrets from a U.S. company by poaching employees of other
companies and enticing them to bring to his company data on syntactic
foam technology for the benefit of CBM-Future New Material Science and
Technology Co., Ltd., a Taizhou-based Chinese company. The U.S.
government alleged that Shan did so in order to benefit China as part
of China's plan to close its gap in buoyancy technology, which has both
military and commercial shipping uses.\42\
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\42\ U.S. Department of Justice, ``Texas Man Convicted of
Conspiracy to Commit Theft of Trade Secrets,'' July 29, 2019. https://
www.justice.gov/opa/pr/texas-man-convicted-conspiracy-commit-theft-
trade-secrets; Spencer S. Hsu, ``Houston Businessman Convicted of
Conspiring to Steal Trade Secrets, Acquitted of Economic Espionage for
China,'' Washington Post, July 29, 2019. https://
www.washingtonpost.com/local/legal-issues/houston-businessman-
convicted-of-conspiring-to-steal-trade-secrets-acquitted-of-economic-
espionage-for-china/2019/07/29/92418df2-b245-11e9-8f6c-
7828e68cb15f_story.html.
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While many of the traditional shipping financiers (largely European
banks) are scaling back their exposure, Chinese state-owned banks are
ramping up their investments.\43\ In 2008, no Chinese bank ranked in
the top 15 shipping lenders.\44\ As of 2017, Bank of China is the
world's largest shipping lender and China Eximbank the second largest,
with China Development Bank also ranking in the top 20.\45\ While entry
into the shipping industry was based on market factors, lending has
also been used to subsidize Chinese shipyards and expand China's
merchant fleet.\46\ Industry experts expect China will control about
half of the total financing market for the shipping industry by
2025.\47\
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\43\ [Ms. Bartholomew's prepared statement did not list a footnote
for reference no. 43.]
\44\ [Ms. Bartholomew's prepared statement did not list a footnote
for reference no. 44.]
\45\ [Ms. Bartholomew's prepared statement did not list a footnote
for reference no. 45.]
\46\ [Ms. Bartholomew's prepared statement did not list a footnote
for reference no. 46.]
\47\ [Ms. Bartholomew's prepared statement did not list a footnote
for reference no. 47.]
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VI. BRI and China's Promotion of its Technology Standards
BRI is intended to advance the adoption of Chinese technology
standards. BRI can create new barriers to U.S. exports and investment
to the extent that China is able to get participating countries to
accept Chinese technical standards, for example in high-speed rail,
telecommunication, and energy. If these efforts are successful, they
will create long-term reliance on Chinese intellectual property and
technology, while disadvantaging U.S. and other foreign companies.
It is critically important for the U.S. to participate actively in
standard-setting bodies, including the International Maritime
Organization (IMO) and International Organization for Standardization
(ISO). In the IMO, China is a 2018-2019 member of the Council, a 40-
country body that is elected by the Assembly (the highest governing
body, consisting of all members) and serves as the executive body of
the IMO. It also serves the Assembly's role between sessions of the
Assembly, which generally meets once every two years.\48\ In the ISO,
in addition to its leadership position on the Technical Committee on
Ships and Maritime Technology, China is currently a member of the 20-
member Council, which is the core governing body of the ISO. Membership
on the Council rotates (the U.S. is also currently a member).\49\ In
2015-2017 the ISO president was from China (the president is elected by
all member countries).\50\
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\48\ International Maritime Organization, ``Structure of the IMO.''
http://www.imo.org/en/About/Pages/Structure.aspx#2.
\49\ International Organization for Standardization, ``ISO
Council.'' https://www.iso.org/committee/55010.html; International
Organization for Standardization, ``ISO Structure.'' https://
www.iso.org/structure.html; ISO, ``ISO/TC8 Ships and Marine
Technology.'' https://www.iso.org/committee/45776.html.
\50\ International Organization for Standardization, ``Past
Principle Officers of ISO.'' https://isotc.iso.org/livelink/livelink/
fetch/-15620321/15620323/15620665/
ISO_past_Officers.pdf?nodeid=18595424&vernum=-2.
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Within the ISO, the Technical Committee on Ships and Marine
Technology (ISO/TC8) is responsible for the standardization of design,
construction, structural elements, outfitting parts, equipment, methods
and technology, and marine environmental matters, used in shipbuilding
and the operation of ships, comprising sea-going ships, vessels for
inland navigation, offshore structures, ship-to-shore interface and all
other marine structures subject to IMO requirements. ISO/TC8's
Secretariat is China's Standardization Administration.\51\
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\51\ ISO, ``ISO/TC8 Ships and Marine Technology.'' https://
www.iso.org/committee/45776.html.
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VII. Conclusion
Through the Maritime Silk Road, China is gaining long-term economic
and strategic influence by financing, building, operating, and owning
overseas ports. While doing so, it is edging out shipping companies
owned by U.S. allies and partners. China's increasing role in shipping
finance could result in other shipping companies to relocate to Asia.
Subsidies for Chinese shipbuilding SOEs have harmed the U.S.
shipbuilding industry's ability to compete in the global market, and
have led to shipyard closings and a reduced U.S. vendor base over the
past several decades.\52\
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\52\ U.S. House of Representatives Committee on Transportation and
Infrastructure, Hearing on U.S. Maritime and Shipbuilding Industries:
Strategies to Improve Regulation, Economic Opportunities and
Competitiveness, oral testimony of Mark H. Buzby, March 6, 2019.
https://www.transportation.gov/content/us-maritime-and-shipbuilding-
industries-strategies-improve-regulation-economic-opportunities.
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I have been reading The Guns at Last Light: The War in Western
Europe, 1944-1945. The prologue to this book by Rick Atkinson describes
the extensive level of logistics that went into preparing for D-Day. It
was astonishing. Our sailors, merchant marines, longshoremen, and
factory workers, as well as our soldiers, were critical to that mission
and, indeed, critical to helping to win the war. I hope that we never
face a task like that again. I worry that, if we do, we no longer have
the manufacturing capacity, the shipbuilding capacity, and the elements
of the shipping industry that would be necessary to meet the challenge.
The U.S. economy and the U.S. military are vulnerable to disruptions in
the global supply chain. We are, for example, 100 percent import-
reliant on 18 key mineral commodities, many of which are critical to
our defense industrial base.\53\
---------------------------------------------------------------------------
\53\ U.S. Department of the Interior and U.S. Geological Survey,
``Mineral Commodity Summaries 2019,'' February 28, 2019, 7-8. https://
prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/atoms/
files/mcs2019_all.pdf.
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China is clearly moving into a stronger position on the global
stage and is determined to remake global institutions to reflect its
interests and values. The Belt and Road Initiative is a major component
of its efforts and the Maritime Silk Road is an important component of
BRI. We must develop a whole-of-government approach to addressing the
challenges it presents.
Thank you for the opportunity to testify today. I look forward to
answering any questions.
appendix 1: u.s.-china commission recommendations on maritime security
2018
Chapter 3, Section 1: Belt and Road Initiative
Congress require the Director of National Intelligence to
produce a National Intelligence Estimate (NIE), with a classified
annex, that details the impact of existing and potential Chinese access
and basing facilities along the Belt and Road on freedom of navigation
and sea control, both in peacetime and during a conflict. The NIE
should cover the impact on U.S., allied, and regional political and
security interests.
2017
Chapter 2, Section 3: Hotspots along China's Maritime Periphery
Congress require the executive branch to develop a whole-
of-government strategy for countering Chinese coercion activities in
the Indo-Pacific coordinated through the National Security Council that
utilizes diplomatic, informational, military, economic, financial,
intelligence, and legal instruments of national power.
2016
Chapter 4: China and the U.S. Rebalance to Asia
Congress direct the U.S. Department of Defense to include
a permanent section in its Annual Report on Military and Security
Developments Involving the People's Republic of China on the role and
activities of China's maritime militia and the implications for U.S.
naval operations.
2015
Chapter 3, Section 2: China and Southeast Asia
Congress direct the U.S. Government Accountability Office
to prepare a report assessing the effectiveness of recent U.S. efforts
to enhance the maritime security capabilities of allies and partners in
Southeast Asia and identifying the remaining challenges and
opportunities.
Congress urge the Administration to enhance its support
for regional information sharing institutions focused on maritime
security in Southeast Asia.
2014
Chapter 2, Section 2: China's Military Modernization
Congress fund the U.S. Navy's shipbuilding and
operational efforts to increase its presence in the Asia Pacific to at
least 67 ships and rebalance homeports to 60 percent in the region by
2020 so that the United States will have the capacity to maintain
readiness and presence in the Asia Pacific, offset China's growing
military capabilities, and surge naval assets in the event of a
contingency.
2013
Chapter 2, Section 3: China's Maritime Disputes
Congress fund the U.S. Navy's shipbuilding and
operational efforts to increase its presence in the Asia Pacific to at
least 60 ships and rebalance homeports to 60 percent in the region by
2020 so that the United States will have the capacity to maintain
readiness and presence in the Western Pacific, offset China's growing
military capabilities, and surge naval assets in the event of a
contingency.
Congress fund Departments of Defense and State efforts to
improve the air and maritime capabilities of U.S. partners and allies
in Asia, particularly with regard to intelligence, surveillance, and
reconnaissance, to improve maritime domain awareness in the East and
South China Seas.
Congress urge the Department of Defense to continue to
develop the U.S.-China maritime security relationship in order to
strengthen strategic trust. The relationship should be within the
bounds of the National Defense Authorization Act for Fiscal Year 2000
(Public Law 106-65) and based on the principles of reciprocity and
transparency.
Congress fund U.S. Coast Guard engagement efforts with
coast guard and maritime law enforcement agencies in the Western
Pacific to increase understanding among civilian maritime bodies in the
Asia Pacific.
appendix 2: map of bri corridors and passages
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Devin Thorne and Ben Spevack, ``Harbored Ambitions: How China's
Port Investments are Strategically Reshaping the Indo-Pacific,'' C4ADS,
2017, 13. https://static1.squarespace.com/static/
566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/
Harbored+Ambitions.pdf.
Mr. Maloney. Thank you, Ms. Bartholomew. We will now
proceed to Member questions, observing the 5-minute rule. I
begin by recognizing myself for 5 minutes.
This question is a general question for the panel, but it
may be best directed at General Tuck.
Just back from the region, I know you have to think about
worst-case scenarios. In a situation where we had an active
conflict develop in the South China Sea, on the Korean
Peninsula, or on the island of Taiwan, and we had to move large
numbers of American forces to the region in a hurry, what would
that look like? What would you be up here telling us? What
would the realities of that challenge be, given the state of
our maritime infrastructure?
General Tuck. Sir, thanks. Thanks for the question. I think
what is different today when previously we could set the
conditions and arrive in a place like Saudi with hundreds of
thousands of troops, and actually just build up that
sustainment to do the things that we needed to do, now you are
talking about fighting a near-peer adversary. Dropping and
going to either fighting tonight or bringing a decisive force
into a highly contested environment. So that in and of itself
is going to present a challenge.
Mr. Maloney. Well, just so we are clear, this is not some
esoteric scenario. I mean we have all read, I assume, President
Xi's statements about Taiwan. We all understand the realities
of what is going on in the Korean Peninsula. This is a real
possibility. We see what is happening in Hong Kong.
So what does that look like? So we are talking about a
worst-case scenario. None of us wants or hopes to find
ourselves there. But in that event, when we turn and say, ``How
are we going to move these forces to that region in a hurry,''
what are we looking at?
General Tuck. Yes, so what you are looking to do is
mobilize the Department to be able to activate ships that
belong to the Maritime Administration, put them under the
Military Sealift Command. So a quantity of those ships that
reside in the Navy Sealift Command, added with the maritime
community on top of that, leveraging vessels that are in the
commercial sector, which you are going to have to need to do
this, and then have the mariner pool available to be able to do
this, and start sending all of these forces to a coast to get
on vessels and then start moving to where they are intended to
go.
Mr. Maloney. I appreciate that. And if you look at each of
those elements that you just specified, how would you describe
the status of each of those components of that response?
General Tuck. OK, so from----
Mr. Maloney. Are we ready? Are they robust?
General Tuck. So----
Mr. Maloney. Is it everything you could hope for? Or is it
something else?
General Tuck. Yes, sir. U.S. Transportation Command, just
within the last few weeks, activated 33 ships out of the Navy
Sealift Command, which was--Military Sealift Command, 6 of
those ships, 27 out of the Maritime Administration, to get them
out of a reduced status, put some port activity together, do
sea trials. And so we hadn't done something of that size and
magnitude in years, and it gave us an opportunity to take a
look at a scorecard and see how we did from a readiness
perspective. And we are still cranking through what that might
look like, from a report perspective, to be able to share that
information with our leadership.
But just the significance of doing something like that that
we hadn't done before, we are taking readiness very seriously,
as you know.
Then you transfer to the commercial industry. And I take a
look at the commercial industry, and I put them in, basically,
four bins. What strategic impact? What is the strategic value
of our commercial industry base? What is their readiness, their
performance? And then, lastly, if we needed to take a look at
cost, that would factor in.
But based on that, we take a look at the fact that in the
past we were really good at rotating forces in on top of
brigade combat teams. Now we are deploying brigade combat teams
across the globe. And so that muscle memory of what we used to
do early in the 1990s, we now have attained, and we are very
successful in that sphere.
Mr. Maloney. And what are the risks you see, then? Ms.
Bartholomew or Mr. Sbragia, feel free to weigh in.
But tell me about the risks, sir. What should we be focused
on here? And what kind of one-two-three investments would you
recommend if this committee were going to get active on that
subject?
General Tuck. So the risk is that we are operating on old
ships. And so Navy sealift recapitalization is very important.
The mariner pool that we have today is being used both in
commercial and in its Reserve capacity. So you are using both
sectors, if you will, with one pool to get that done. And so
that is important.
I think advocating for a maritime security program, and
funding it, and having the ability to not only resources but
signal to industry that we have a plan for you to keep these
ships viable, U.S.-flag ships, to be able to use at the time
and place that we need to is also critical.
But those are just three examples of where I think we
should put the weight of this committee.
Mr. Maloney. I thank the gentleman and I see my time has
expired. I am going to yield to Mr. Gibbs, but I appreciate
that the others may have something to say on that subject.
Go ahead, sir.
Mr. Gibbs. Thank you. You know, this is real--to me, it is
alarming testimony, what is happening. Because when you talk--
like Ms. Bartholomew, you talk about the economic and the
military, and those are intertwined. I have always said in this
country if we have a strong economy, a strong military, the
world is safer. But if one of those isn't there, there are
issues.
And then, of course, now, with the negotiations with China
and trade, this all kind of fits together into what is going on
in Hong Kong and, of course, Taiwan, as the chairman mentioned.
I guess to start off, General, thank you for your service.
But back in--what was it, 1991, when we kicked Saddam Hussein
out of Kuwait, we mobilized some of our maritime fleet to move
equipment over there. Correct? And I think you said in your
testimony we have gone from 400 ships down to 84, something
like that.
When we did that, how much capacity did we use of our
capacity to get that armament over to Kuwait, over to the
Middle East? And then what is our ability to do something like
that today?
General Tuck. So, sir, I will take your question as one on
scale.
What we were asked to do back in the 1990s was to support
an effort based on plans back then that were related to square
foot, square foot required to do day-to-day operations and
square feet required to surge. So far, if you take a look at
the plans today to do the things that we need to across the
globe, there is a certain amount of square feet that is
required to be able to move the U.S. military where it needs to
be. And right now, we have enough to do what we need to do. The
only difference in conversation between back then and now is
the inventory of capabilities that we have to be able to
prosecute the National Defense Strategy. It is much limited
today versus--and you know this--versus what we had back then.
And so, for us to shift from one combatant commander's
resources and move them to another part of the globe adds to
this discussion.
Mr. Gibbs. And, of course, our assets today on the maritime
side to do that, the assets--the ships are much older, right,
and that is an issue?
General Tuck. Yes, sir.
Mr. Gibbs. So we are really in a very precarious position,
right?
General Tuck. We really are. Some of the vessels are
approaching their end-of-use life. So the strategy would be you
are either going to extend some of these ships, you are going
to buy used to get some of them faster at a lower rate--not
taking away, hopefully, shipyard business, because you are
going to maintain and modify ships, so put the yards to use to
do that--and then buy new. And with this approach, I think we
can help the delta of the gap that we are seeing. But unless we
do something very soon, we are going to find ourselves just
widening the gap of capacity that we need.
Mr. Gibbs. And I know I am really concerned. I see the map
with all the countries that were--like, almost 130 countries--
where China has a foothold in there because they put
investments in there. And I know when you invest in a business
or create a partnership with a person to do a business, you
usually have some say-so, you have got some clout.
And so I guess, Mr. Sbragia, what are your concerns about
what is going on there, and what can we do, as a country, to
try to offset some of that, those initiatives that China is
doing?
And, obviously, they can do some of this because of their
system of government, it is easier for them to do it. But how
concerned are you, moving forward, if they stay on the same
track?
Mr. Sbragia. Thank you. That is a great question. I will
tell you I certainly refer you to the written statement that we
submitted, and then a little bit of my opening comments, as
well.
But to underscore Lieutenant General Tuck's comments, which
is, I think we understand China pretty well, that by 2050 they
have aspirations to achieve a world-class military. And when I
talk to them and ask them about what that means, their single
aspiration is to elevate their own status and capacity on a
global scale, even if they haven't figured out in quite detail.
What it does mean is that they will have a global military
where the U.S. essentially may have no safe harbors, to echo
General Tuck's comment, which is it will not look like it did
in the past. We will have to move across the space an entire
way that could be contested, both for ourselves and our allies,
from the start and in all domains, and we need to take that
seriously.
The challenge for the United States is to set conditions in
our favor, certainly both for deterrence and of necessity to
prevail. Our advocacy is internally, as we laid out, but
certainly here is, while we applaud this subcommittee
addressing this challenge, which is--it branches out across
multiple lanes, and you can't artificially bifurcate this issue
into one single element. It is going to take all of us working
together to do this.
Certainly I would call for further advocacy with our allies
and partners to make them aware of this, and understand that it
will need the whole-of-Government approach, and certainly for
us to deepen our exploration of areas about where they are
going to go, not just where they have been in the past, where
it is going to go in the future.
One case example is the Arctic. It was raised earlier
today. The DoD wrote a report on our Arctic strategy on June
29, 2019, this June, and it covers three things: building
awareness, enhancing operations, and upholding a rules-based
order. These are the types of areas that we have not had to
contend with in the past that we will have to orient on better.
Mr. Gibbs. I am out of time. I would just say in closing we
have got to be really careful to address this issue, because we
could be held hostage.
Mr. Sbragia. Yes.
Mr. Gibbs. And just economically and, of course,
militarily. I yield back.
Mr. Maloney. I thank the gentleman.
Mr. Larsen?
Mr. Larsen. Thank you, Mr. Chairman.
Ms. Bartholomew, thanks for helping us out today. Has the
Commission looked at whether or not any U.S. companies are
involved in either operation, technical advice, or in
construction on any BRI projects?
Ms. Bartholomew. I think we did a chart in our 2018 report.
We can provide for you some information.
Most of the U.S. companies that are involved in BRI
projects are involved as subcontractors. They are having a
tough time breaking into full contracting. Not surprisingly,
the Chinese Government is doing here what it does other places,
which is it is making these projects advantageous for Chinese
companies, bringing in Chinese workers, and making it difficult
for U.S. and other companies to get involved.
Well, our staff will get to your staff a list of the
companies.
Mr. Larsen. Yes, yes. And is the Commission report recently
or in the future? Do you have an opinion on whether U.S.
companies should participate at all?
Ms. Bartholomew. We probably would not come to a consensus
on that. We have not taken a position. I mean, our belief is
that U.S. companies should have opportunities around the world.
So I don't think that we would be saying that they shouldn't be
participating in those projects.
But what we are is disappointed that, if China is indeed
going to spend as much money as it says it is going to spend on
infrastructure, that our companies, which have a lot of
experience, should have opportunities to participate there.
Mr. Larsen. Yes, that was the opinion of the administration
when it sent a U.S. representative delegation in 2017 to China
to the first BRI conference, as well.
You mentioned Seattle and L.A. as two ports. There are
other ports, as well. The Chinese companies don't operate the
ports. They operate individual terminals at ports. So it is not
like they are operating an entire port.
Has the Commission developed or have you studied whether or
not these ports that have Chinese operators of individual
terminals have taken any steps at all to protect shipping data,
to protect communications, to do anything that causes the
concerns that we have heard from the panel today?
Ms. Bartholomew. We have not specifically looked at that as
something--we could certainly try to look into--I don't know
how much information the ports will actually share on some of
those things. I will express I know 5G was mentioned.
Mr. Larsen. Yes.
Ms. Bartholomew. Sort of the broader concern about where
Chinese technology is getting into communication systems----
Mr. Larsen. Yes.
Ms. Bartholomew [continuing]. And the data that they are
able to gather, and what they are able to do with that. I would
say that I certainly have a concern about that, although I
don't have any specific information to answer your question.
Mr. Larsen. Yes. Well, I guess one of my--it is nice to
point out a problem, but it would be better to hear some
solutions, as well, on that point.
Ms. Bartholomew. Absolutely. That is the case. I would also
say it would be good to make sure that we can try to prevent
these problems as much as we can.
Mr. Larsen. Yes, all right. On that point, with regards to
technology standards IMO and ISO--and this gets to the Huawei
issue, as well, and ZTE--about 35 percent of the standard-
essential patents for 5G are actually owned by Chinese-based
companies like Huawei or ZTE or state-owned enterprises. And
about 15 percent of those standard-essential patents are owned
by U.S. companies. So we are focused a lot on the name on the
box, as opposed to the guts inside the box.
And so if the standard-essential patents are owned by
Huawei, that piece will end up in a non-Huawei box because it
is a standard-essential patent. And so it gets into the
standard-setting issue.
And so the question I have for you is--it is, again, one
thing to point out that ISO and IMO--that there is a problem.
But what are we doing to show up and make the argument, and be
in the room when the votes are taken about what these standards
are going to be?
Ms. Bartholomew. Well, Mr. Larsen, I mean, I think you are
putting your finger on a very important point, which is to make
sure that we are showing up and that we are participating in
these.
One thing the Commission has done, not IMO- and ISO-
specific, is that we have done a database of where the Chinese
Government is involved in multinational organizations,
multilateral organizations, because they--it is a strategy,
right?
Mr. Larsen. Right.
Ms. Bartholomew. I mean, they are consistently putting
people into positions where they can help determine what
standards are going to be.
I recognize that the Huawei situation, the technology, it
is complicated stuff. You know, things are developed in
different places and they are manufactured in different places.
And it is complicated stuff. Our role is really to point out
some of the concerns about potential problems and, as I said,
to try to make sure that we prevent those. But----
Mr. Larsen. But to say--I am out of time. I would just say,
in conclusion, we are playing a lot of defense and not a lot of
offense here. And I would like to see us open up the other side
of that playbook. And that goes to everybody at the table.
Ms. Bartholomew. Yes.
Mr. Larsen. Thanks.
Ms. Bartholomew. Thank you.
Mr. Maloney. I thank the gentleman.
Mr. Gallagher?
Mr. Gallagher. Thank you. Whenever we talk about China, I
am always struck by what I perceive to be the level of
bipartisan consensus on this issue, which I think is remarkable
at a time when Congress is divided, I think, on the most
important strategic issue, not just of today, but perceivably
for the next two decades. There is a ton of bipartisan support
for a more realistic, if not aggressive, posture with respect
to Chinese influence, expanding influence around the world. And
so that is something we should continue to foster.
And thank you for holding this hearing, Mr. Chairman. That
gives me a lot of hope. Not to say we agree on everything.
Sometimes you guys are wrong about things and I am right. But I
just think that is a very, very good thing.
And looking at the map, you can't help but notice that the
BRI projects overlap with a lot of the key sea lines of
communication and maritime choke points. And the chairman sort
of referenced Mahanian theory earlier.
And I would just be curious, Lieutenant General Tuck, as a
professional logistician, if you were seeking militarily to
dominate and, if necessary, shut down the world's key trade and
military supply nodes, how similar would be the areas you would
want to control, compared to where the PRC is going with BRI?
General Tuck. Thanks for the question. We do share the same
concern that you just raised, sir, with respect to global choke
points. And just like was mentioned earlier, we just have to be
present there. Not just watching, but actually present.
So if you take a look at ports like the Suez, the Red Sea,
Panama Canal, Malacca Straits, where it is very vital to have
freedom of navigation, just from a rules order perspective and
international law, and so our partnerships with countries that
either are a part of the equation and our partnership there, it
is just going to be impactful and enormous for us to consider.
And this is now a whole-of-Government approach on how we
actually make sure that we have the access that we need.
And so I really think that working with our allies and
partners, which is part of the National Defense Strategy, is
key. We have to keep the conversation going. And if you are
thinking about just in our own hemisphere, working with the
folks south of Mexico, it is very vitally important.
So, from an interoperability--exercising mil-to-mil
dialogues, relationships, key leadership engagements, I think
they are going to remain pivotal in ensuring that we have
access to the areas that you have talked about. And so that is
a priority that, as I pay attention to working with combatant
commanders, to make sure that we do that, working with the J5
and how we interact with our embassies, our state
representatives out there to keep the dialogue going, and
fostering the development that we need to have with these
countries.
Mr. Gallagher. I appreciate that. One area where I always
feel like we give--we get a short shrift, maybe just because
CENTCOM and INDOPACOM take up most of our time, is AFRICOM. And
certainly we have seen the Chinese militarize their presence in
Djibouti. You know, going east of that, Gwadar may be the next
sort of port to follow.
But do you, Mr.--I apologize if I am mispronouncing this--
Sbragia, did I get that close enough? You are allowed to
correct a Member of Congress.
Do you expect to see the Chinese Government militarize
other ports and locations along the Belt and Road?
Mr. Sbragia. Yes, they--absolutely. It is very evident and
clear. I have talked to the Chinese military personally about
this issue. They have an aspiration to do so.
I did reference earlier about China's 2019 defense white
paper published by their State Council. I have had discussions
with them and their principal authors at both their Academy of
Military Science and National Defense University with oversight
of their Office of International Military Cooperation who was
the principal pen.
It was absolutely clear of what their intent is. It is to
not only take Djibouti, which--I think my personal view is best
viewed as a test case of how you start this practice, how you
do best practices, how do you set up a port, how you do
communications work, how do you do all the overseas command and
control functions. That is a first step, it is not the last
step. So you are going to see that come more often. And they
told us that directly.
Mr. Gallagher. Great.
Mr. Sbragia. Both in terms of an aspiration to do it, and
to further mature how they do those things.
Mr. Gallagher. Well, I thank you for the work you are
doing.
And again, thank you for holding this hearing.
Mr. Maloney. I thank the gentleman.
Mr. Garamendi?
Mr. Garamendi. General Tuck, are you aware that the U.S.
Navy cannot fuel the fleet with American vessels?
General Tuck. I am sorry, sir, can you----
Mr. Garamendi. Are you aware that the U.S. Navy cannot fuel
its fleet with American vessels?
General Tuck. [No response.]
Mr. Garamendi. The answer is yes.
General Tuck. Yes.
Mr. Garamendi. You are aware, and the U.S. Navy cannot
provide fuel for its fleet with American vessels. OK? OK.
Are you aware that the U.S. is exporting oil and gas?
General Tuck. Yes.
Mr. Garamendi. OK. Are you aware that none of this fuel is
on American flagged and owned ships?
General Tuck. I am not.
Mr. Garamendi. The answer is none of the oil and gas is on
American--excuse me, none of the gas is on American-flagged
ships. Some of the oil is.
Are you aware that there is legislation that could take a
small percentage of that oil and gas and lead to the
construction of perhaps 50 American flagged, owned, and built
vessels?
General Tuck. Yes.
Mr. Garamendi. Thereby solving part of the problem that the
U.S. Navy has.
General Tuck. Yes, sir, I am.
Mr. Garamendi. Good. Then I would like to have the support
of TRANSCOM for that legislation. It is called the Energizing
American Shipbuilding Act.
General Tuck. I am aware of it, sir.
Mr. Garamendi. Good. So where is the support?
You have got a problem, you have got a very, very serious
problem. You don't have American ships that are under American
control to fuel the U.S. Navy. You have to rely on Chinese
ships to do it. So we have got a problem. I would appreciate
your insight into it.
And I suppose that the political appointees also ought to
be aware. Are you?
Mr. Sbragia. Congressman, there are clear aspects of that
that I am aware of. Not all of them.
Mr. Garamendi. Good.
Mr. Sbragia. Our job is to get busy figuring those out.
Mr. Garamendi. The bottom line here is we sit here and we
talk about these things forever--and we have for at least the
last half-dozen years, if not longer. I have yet to see this
administration step forward with a solution to the problem.
There is one at hand. It would simply require that a small
percentage of our exported oil and gas be on American-built
ships.
Also, it could lead to a significant reduction in the cost
of naval vessels. An example was given to me yesterday that
there was competition for a small naval vessel that didn't
exist before, but a new competitor entered the market. The cost
savings was 40 percent from what was anticipated.
If we were to build vessels in the United States--for
example, oilers and LNG vessels--we might have more competition
in our shipyards, with a reduced price to the U.S. Navy for its
kinetic vessels, which, by the way, can't get to where they
need to go because they don't have the fuel to get there.
So beyond that, a question having to do with the islands in
the Pacific, some of the little-known islands in the Pacific.
Is it true that the Chinese are building significant ports in
many of these obscure little-known islands out in the Pacific?
Any one of you want to answer that?
Ms. Bartholomew?
Ms. Bartholomew. Well, we know that they are dramatically
increasing their presence. I think there is one of the
islands--which is----
Mr. Garamendi. Let's see, there is--in Luganville in
Vanuatu.
Ms. Bartholomew. Yes.
Mr. Garamendi. Yes, we have that.
Ms. Bartholomew. Yes.
Mr. Garamendi. It is supposed to be for fishing, but it is
big enough for the largest Chinese ships.
Ms. Bartholomew. Yes.
Mr. Garamendi. Gee, what is that all about?
Ms. Bartholomew. Yes.
Mr. Garamendi. Any of you have any idea what that is all
about?
Ms. Bartholomew. I think we have to presume that we know
what it could be about.
I would say I have been in the region twice in the past 6
months, and certainly the Australians are engaging with the
United States in having a greater presence, generally, in the
Pacific Islands.
Mr. Garamendi. Do we have----
Ms. Bartholomew. And there is growing concern----
Mr. Garamendi. Is there an American strategy to deal with
this?
Ms. Bartholomew. I can't answer that. I am a congressional
advisory.
[To panelists:] Somebody--is there an American strategy to
deal with it?
General Tuck. So, sir----
Ms. Bartholomew. I think there is, actually.
General Tuck. The example that you quoted about China
building a wharf in Vanuatu, for instance, it is coming with
some problems.
But the one thing I can share with you is that the Pacific
Area Symposium for Logistics--senior officers--29 or 30
countries get together. They meet in the Pacific, annually.
These are the small countries that come, and we talk about
either bilat or multilat sharing of information of what the
Chinese might be doing and what we might be doing out there.
The reason why this is important to talk to you about, sir,
is because there are a lot of islands out there that want us to
come in and be a part of them versus them wanting to do
something elsewhere. And I think that----
Mr. Garamendi. And what are we doing----
General Tuck [continuing]. That is important for us to----
Mr. Garamendi [continuing]. To address their desire to be
partners?
General Tuck. [No response.]
Mr. Garamendi. I am out of time. The answer is little, if
anything. I am out of time. Thank you, I yield----
Ms. Bartholomew. Mr. Chairman, could I just clarify one
thing, which is there have been recent reports that the Chinese
are leasing the island of Tulagi from the Solomon Islands, and
it was an island that was important in our World War II Pacific
war. And a lot of people are very upset, both in the Solomon
Islands and elsewhere.
Mr. Garamendi. There is also a place called Subic Bay----
Ms. Bartholomew. Yes.
Mr. Garamendi [continuing]. That is about to be taken over
by a Chinese company.
Mr. Maloney. The gentleman's time has expired. I thank the
gentleman, thank the witnesses.
Mrs. Miller?
Mrs. Miller. Thank you, Chairman Maloney. The gentleman
from California has certainly altered some of my speaking, so
to speak.
I represent West Virginia. And trade is very important to
West Virginia because we export timber, coal, oil, and gas, and
we are always interested in fair trade. The presence of the
infrastructure development to me is very concerning.
Lieutenant General Tuck, what are the U.S. military's
concerns with the Chinese military showing so much force in
Southeast Pacific and the South China Sea?
General Tuck. Ma'am, thanks for your question. I mean, from
what we have been seeing for years--and you all have been
seeing it, too--they are trying to bolster their own regional
security, they are trying to bolster their own sphere of
influence.
And from--at least from the lens that I have seen as a
logistics officer for the joint staff, it is--again, I am going
back to rules-based order, international law, freedom of
navigation. I am responsible, at least in advising the chairman
on access basing and overflight or freedom of navigation. So
how do I--how do we best do this?
And I go back to--at least since you called out the South
China Sea, ma'am--the INDOPACOM Pacific strategy, which talks
about posture and presence, we have to be out there. And so
that is something that I would like to have resonated with this
committee.
It is about partnership capacity, to be able to have our
relationships that we have with not only our FVEY partners, and
it is not necessarily just the U.S., but it is Japan and India,
it is Australia and Vietnam. It is Vietnam and New Zealand. It
is those kinds of arrangements that are going to help areas
like the South China Sea maintain rules-based order, freedom of
navigation, so that commerce and economy can flow.
And then, last but not least is this idea of--that we all
know about--it is interoperability. Not only is it good for us
to partner when there is a humanitarian disaster that happens
in that part of the world to show that we can be trusted as a
partner by bringing our military assets to bear, and bringing
lifesaving skills or recovery efforts for places like Nepal and
the earthquake there, or Malaysia and the earthquake, or
tsunamis and the like, but that hand that we lend as a military
in times like that can lend incredible trust when it comes to
having to then demonstrate why it is important for us to be
present when it comes to freedom of navigation, and making sure
that commerce flows the way it needs to.
Mrs. Miller. And you called that partnerability?
General Tuck. I call it building partnership capacity.
Mrs. Miller. Partnership capacity. OK, thank you. Mr.
Sbragia, what steps has the Trump administration taken to drive
China to join the international community on trade standards
agreed to by members of the World Trade Organization? And have
these efforts been successful?
Mr. Sbragia. Congresswoman, that is a great question. I got
to tell you, that is a bit outside the scope of my expertise.
My concentration is on DoD issues. We are fully supportive and
participate across interagency efforts, and certainly advocate
to align those issues. But for trade issues, I am not the best
person to talk about----
Mrs. Miller. Would either of the other----
Ms. Bartholomew. I can try addressing that a little bit,
and preface it with the U.S. Ambassador to the WTO, Dennis
Shea, was a long-serving member of this Commission, so he is
very well steeped in the U.S.-China issues. And I think that
the administration is certainly trying to make some changes at
the WTO that would address the bigger challenges that China has
created there.
Mrs. Miller. Do you expect these ongoing negotiations to
continue?
Ms. Bartholomew. I can say that I hope that they continue.
It is very difficult to predict what is going to happen.
Mrs. Miller. OK. What role can Congress play in making sure
that the United States will continue to be prepared for world
conflicts and disasters?
Ms. Bartholomew. I am sure we would all have answers to
that. I would say that it is certainly important for us to
strengthen our relationships with friends and allies--in this
case, in the region, in Asia--but around the world, because we
are going to need to be able to work with them to address any
problems that might arise. To me that is one of the most
important things.
And again, traveling in Asia, it is one of the concerns
that we hear, that people aren't sure of our commitment. They
are not sure that they can rely on us. And I think they need to
be convinced that they can.
Mrs. Miller. Absolutely. Thank you. I yield back my time.
Mr. Maloney. I thank the gentlelady.
Mr. Lowenthal? The gentleman from California is recognized.
Mr. Lowenthal. It is hard to hear you all the way over here
in California.
I represent the Port of Long Beach. I live in Long Beach.
And I am the cochair of the PORTS Caucus. And so I hear--or my
staff probably more than even me--hear from ports across the
country. And one of the things I hear is the fear of increased
tariffs on the ship-to-shore cranes, the cranes that come from
China that all of our ports use.
So I am wondering maybe, Ms. Bartholomew, you can--what are
the implications of having us so reliant on Chinese equipment
for our ports? That is really, in my port, what is going on.
Not so much the terminal. It is the terminal, we had to sell--
China had to sell one of the terminals. But it is the reliance
on the equipment. Maybe you could talk to us about that, and
what that means.
And does China use leverage when they have that--you know,
is this an important tool that--because we are so dependent on
their equipment, their cranes?
Ms. Bartholomew. Well, I think we see the use of leverage
on other products. I can't say that I have seen it on the use
of cranes, but I think that having us dependent on sort of any
one source is a problem, especially when that source is a
country that doesn't necessarily see us as a friend.
But we have certainly seen them use economic leverage in
the tariff war that is taking place, the products that they
targeted in response to the President's tariffs. We are very
focused, and we see in their presence, sort of their BRI
presence and their presence in the ports, their willingness to
use their economic presence and economic power to achieve other
means, too, to achieve diplomatic means and political means.
Somebody mentioned Africa earlier. It is a little off of
what you are saying, but one of the concerns about Africa is
China's growing economic presence there. But their presence in
the communications system, they are training journalists, they
are running the 4G system, they look like they are going to
have an edge in the 5G system, and so they are creating an
environment where it is very difficult to oppose something that
they are saying or doing.
So for me it is a twofold thing. One is the influence that
they have, and two is the possibility that they could target
that sector and shut down work at our ports if they do that.
Mr. Lowenthal. That is right. I wonder if anybody else on
the panel has any thoughts about that. We are so reliant in our
ports on Chinese equipment now, cranes and large--do you see
this as a potential threat to the United States?
General Tuck. Sir, thanks for the question. Thanks for
allowing me to comment.
There was a time when all we needed to do in our country
was just really take a look at physical port security,
something that the Coast Guard is very well equipped to do. And
now you are talking about the resiliency of a port.
Mr. Lowenthal. Right.
General Tuck. The point that you perfectly raised. And the
cyber activity, the AI that could go with that, any amount of
technology that you throw at--including these mega-cranes that
you are referring to, sir.
And so there is some concern, absolutely, because the last
thing you want, as a person responsible for helping combatant
commanders be successful by moving large military forces to a
port to then put them on a conveyance and get them sailing in
terms of their equipment, is to have something happen at that
port where they don't actually leave. And so, without us even
getting close to getting out of town, we need to make sure that
we have mechanisms in place that can assure that power
projection.
And so any of these technologies that you mention, to
include automated systems that are right here in the State of
Virginia, could cause some alarm if we don't have the right
control mechanisms, the right SCADA ICS kinds of systems in
place that we can actually protect so that when we need them to
operate, they do operate the way that they are supposed to,
versus preventing us from doing the things we need to to get
out of town. So it is a concern, sir.
Mr. Lowenthal. Thank you. Any comments on that? Defense
worried about that? They have all the equipment in--our large
equipment in our ports.
Mr. Sbragia. I think it is an excellent question. I
certainly echo the other panel members. At the strategic level
it is important to make sure that you are measuring the costs
and implications of those kind of issues. In the past we just
haven't. I think that was raised. That is something that we
have to do.
Earlier the congressman raised about what we are doing
overseas, as well. Those are the same kind of practices that we
have to help, and the efforts that we are making now to help
our allies and partners out with as well. That is one of the
main efforts; it is not just domestic, it is with this larger
network. That is certainly part of our Indo-Pacific strategy
that we have, is to help do that.
It is assessing best practices, it is talking about what
the costs are. It is understanding to a greater depth and
degree than we have in the past about what the implications are
of this, and getting serious about it, and understanding that
this issue traditionally may be something that the military
wouldn't--or the Defense Department wouldn't pay that much
attention to. It is that we have to, and we have to share with
our colleagues across the departments and agencies to
understand what those implications are, and argue with them
about what the choices are that they can help make.
One of the reasons we are here today is to do that here.
Mr. Lowenthal. Thank you, and I yield back.
Mr. Maloney. I thank the gentleman. I am going to move to
the second panel.
But I do want to associate myself with the gentleman's
remarks and underscore how important that issue is. If there is
a future 9/11 coming, God forbid, it may be a cyber 9/11. If
there is a future Pearl Harbor coming, it may well be a cyber
Pearl Harbor. The dependency of U.S. logistics, operations,
port infrastructure, the technology, the physical equipment on
systems that may be produced or manipulated by our adversaries
is real.
We should be focused on it, and that is before you even
begin talking about the ships themselves that are under
different flags. And when you look at the totality of our
dependence and its vulnerability to the influence of our near-
peer competitors, it is alarming, indeed.
I want to thank the panel for your testimony, for your
service, the work you are doing. We appreciate it.
We are going to move to the second panel in the interest of
time. I know we have been keeping you waiting a long time, but
we do appreciate your presence here today. With that I would
like to introduce the second panel, give them an opportunity to
move to the witness table.
[Pause.]
Mr. Maloney. Well, moving now to our second panel, I would
like to welcome our panel of witnesses. We are joined today by
Mr. Jonathan E. Hillman, director of the Reconnecting Asia
Project for the Center for Strategic and International Studies;
Dr. Jeffrey Becker, research program director of the Center for
Naval Analyses; and Ms. Kathleen Walsh, associate professor of
national security affairs at the Naval War College.
Thank you all for being here today. We look forward to your
testimony.
Without objection, the witnesses' full statements will be
included in the record.
And as with the previous panel, we would ask that you limit
your oral remarks to 5 minutes so we can move to the Members'
questions.
And with that, Mr. Hillman, you may proceed.
TESTIMONY OF JONATHAN E. HILLMAN, DIRECTOR, RECONNECTING ASIA
PROJECT, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES;
JEFFREY D. BECKER, Ph.D., RESEARCH PROGRAM DIRECTOR, INDO-
PACIFIC SECURITY AFFAIRS, CNA; AND KATHLEEN A. WALSH, ASSOCIATE
PROFESSOR OF NATIONAL SECURITY AFFAIRS, U.S. NAVAL WAR COLLEGE
Mr. Hillman. Chairman Maloney, Ranking Member Gibbs, and
distinguished members of the subcommittee, thank you for the
opportunity to testify today.
Very briefly, I would like to just touch on four areas to
help frame the discussion here, drawing on some of the work
that we have been doing at CSIS, tracking China's activities.
So first, despite lots of hype about China's new overland
routes through its Belt and Road Initiative, the maritime
domain really is where the economic action remains and will
remain. And I am happy to get into that more in the discussion,
but I think that really does underscore the importance of the
hearing today.
Second, while the Belt and Road Initiative is vague by
design, I think it is very clear that China is increasingly
dominant across the maritime supply chain. And it is dominant,
not only as the last panel was pointing out, and as many of the
Members have mentioned, China is dominant not only in the
operational functions of that supply chain, but the production
activities that sit behind those operational functions. So
China has the world's largest shipping fleet in terms of number
of vessels. It has the world's largest container port operator.
It has the world's largest seafarer workforce. It also has the
world's largest shipbuilder. And it has the world's largest
port construction firms. It produces the most shipping
containers.
And certainly China's maritime rise is not an accident or
just a byproduct of the fact that it is a very large country.
But this is the result of longstanding state policies and
generous financial support. So in 2008 there were no Chinese
banks among the top 10 shipping finance providers in the world.
A decade later Chinese banks are first and second in the world.
Made in China 2025, which is often talked about in terms of its
investments in AI and semiconductors and those types of things,
also designates shipping technology as 1 of 10 priority
sectors. So, again, this is not at all an accident.
Third, you know, as many of the panelists mentioned before,
China's maritime rise has broad implications for U.S. economic
and strategic interests. And I think the U.S.-China trade war
has illustrated some of these risks that the U.S. has. Mr.
Lowenthal had mentioned, when the Trump administration proposed
tariffs on shipping cranes, ship-to-shore cranes, ports in
Baltimore, Virginia, and elsewhere asked for exemptions. And
that is because U.S. companies haven't made these cranes for
decades. And that all works in an environment in which the U.S.
and China are partners and cooperating. But when we are
shifting to a climate of increased competition, some of those
risks emerge.
And it is notable that a single Chinese company has 70
percent of the global market for those ship-to-shore grants.
And so something like ship-to-shore cranes can sound somewhat
obscure in the context of a national security discussion. But I
think it is not difficult to imagine how some of those maritime
capabilities would benefit China in the event of a conflict.
Surely China's massive shipbuilding industry also provides a
latent capacity that could be harnessed to support military
operations. Its network of ports, which includes lots of
activities near major choke points, could provide flexibility
to disrupt trade, as well as adapt to disruptions.
But I do think that the main challenges today exist in this
space between war and peace, often referred to as the grey
zone. And so China's maritime activities are enhancing its
intelligence capabilities. It is further complicating the
operating environment for U.S. military and diplomatic
operations overseas. And as we have seen, China also uses
infrastructure as a diplomatic tool to win political
concessions.
And, of course, I should also mention there are plenty of
Chinese maritime activities that are beneficial to the U.S. And
this is part of the challenge. Surely the world needs more
infrastructure, as long as that infrastructure is delivered
properly and at the right standards, and the United States
stands to benefit in terms of lower trade costs and growing
foreign markets. There are certainly reasons to be concerned
about whether China is meeting those standards through its Belt
and Road Initiative.
Finally, Congress does have a very important role to play,
and I think encouraging and shaping a more strategic response
to these developments. At the very least, China's Belt and Road
Initiative should be a wakeup call, both for U.S. policies at
home and abroad. At home, certainly, it makes sense to think
about building stronger and more resilient U.S. capabilities,
which will require investing in U.S. infrastructure, investing
in vessels to fill gaps in the U.S. fleet, supporting research
for advanced maritime technology, and also training the next
generation of U.S. mariners.
And abroad I think it is very important that the U.S. does
more than criticize the Belt and Road. It needs to put forward
its own positive economic vision. And I would be happy to talk
about that more, as well. Thank you.
[Mr. Hillman's prepared statement follows:]
Prepared Statement of Jonathan E. Hillman, Director, Reconnecting Asia
Project, Center for Strategic and International Studies
Thank you, Chairman Maloney, Ranking Member Gibbs, and
distinguished members of the subcommittee, for the opportunity to
testify today on China's Maritime Silk Road.
CSIS is tracking China's maritime activities with several
initiatives. The Asia Maritime Transparency Initiative (AMTI) monitors
developments in the East and South China Seas. The China Power Project
has examined Beijing's naval modernization.\1\ The Stephenson Ocean
Security Initiative has investigated China's fishing fleet.\2\ And the
Reconnecting Asia Project, which I direct, is a leading source for
facts and analysis on China's Belt and Road Initiative, including a
database of over 14,000 infrastructure projects.\3\
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\1\ China Power Team, ``How is China Modernizing Its Navy?'' China
Power, December 17, 2018, Updated October 2, 2019, https://
chinapower.csis.org/china-naval-modernization/.
\2\ Gregory B. Poling, ``Illuminating the South China Sea's Dark
Fishing Fleets,'' Stephenson Ocean Security Project, January 9, 2019,
https://ocean.csis.org/spotlights/illuminating-the-south-china-seas-
dark-fishing-fleets/.
\3\ ``Reconnecting Asia,'' Center for Strategic and International
Studies, accessed October 11, 2019, https://reconasia.csis.org/.
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Drawing from these and other resources, I'd like to focus on four
areas today. First, I'll put the origins of China's MSR into context
and explain what about it matters and what can be misleading. Second,
I'll describe China's increasing control of the maritime supply chain,
which is a better framework for thinking of its maritime rise. Third,
I'll summarize how these developments impact U.S. interests. Finally,
I'll outline three areas for Congressional action.
China's Maritime Silk Road: Advertising and Ambition
Six years ago, Chinese president Xi Jinping announced the
``Maritime Silk Road'' in a speech to the Indonesian parliament.\4\ A
month earlier, he announced the ``overland Belt'' in a speech at
Kazakhstan's Nazarbayev University. Collectively, these efforts became
``One Belt, One Road,'' which was eventually simplified in English to
the ``Belt and Road Initiative,'' or BRI. In the years since, the BRI
has captivated the world's attention, leading to excitement among
China's partners, concern among its competitors, and confusion across
the board.
---------------------------------------------------------------------------
\4\ Xi Jinping, ``Speech to the Indonesian Parliament,'' (speech,
Jakarta, Indonesia, October 2, 2013), ASEAN-China Centre, https://
reconasia-production.s3.amazonaws.com/media/filer_public/88/fe/
88fe8107-15d7-4b4c-8a59-0feb13c213e1/speech_by_chinese_president_xi_
jinping_to_indonesian_parliament.pdf.
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Despite plenty of hype about new overland routes, the economic
action will remain in the maritime domain. Chinese state media
advertise logos of camel caravans, and Chinese officials quote Marco
Polo, but overland connectivity across the Eurasian landmass remains
comparatively weak for longstanding reasons. China-Europe train
services, one of the most popular examples of overland improvement, are
growing, but they are fueled by Chinese subsidies and face structural
challenges.\5\ The vast majority of global trade, 90 percent by volume,
travels by sea.\6\ Put simply, overland trade is not making an epochal
comeback.
---------------------------------------------------------------------------
\5\ Jonathan E. Hillman, ``The Rise of China-Europe Railways,''
Reconnecting Asia, March 6, 2018, https://www.csis.org/analysis/rise-
china-europe-railways.
\6\ ``Shipping and World Trade,'' International Chamber of
Shipping, accessed October 11, 2019, https://www.ics-shipping.org/
shipping-facts/shipping-and-world-trade.
---------------------------------------------------------------------------
Like all aspects of China's BRI, the MSR has expanded since its
announcement. It received only a passing reference in Xi's speech,
which gave roughly as much attention to Indonesian folk songs. Chinese
officials scrambled to provide structure and fill in the details. In
2017, the Chinese government released a document that outlines three
``blue passages'' that run from China to Africa and the Mediterranean,
another to Oceania and the South Pacific, and a third through the
Arctic to Europe.\7\ As I will explain, China is also pursuing
activities beyond these routes, including much closer to the United
States.
---------------------------------------------------------------------------
\7\ ``Full text: Vision for Maritime Cooperation under the Belt and
Road Initiative,'' XinhuaNet, June 20, 2017, http://www.xinhuanet.com/
english/2017-06/20/c_136380414.htm.
---------------------------------------------------------------------------
The ``blue passage'' concept reveals the strengths and weaknesses
of China's BRI more generally. It gives the illusion of form and
structure to China's maritime activities. By going almost everywhere,
it ensures that no foreign partner or interest group within or outside
China will feel left out. The concept is just as flawed for management
purposes as it is savvy for advertising. Making everything a priority
means there are no priorities. It is not worth dwelling too much on
these ``passages.'' What they do offer, however, is a vivid
illustration of China's ambitions. As Washington talks about the Indo-
Pacific, Beijing is acting globally.
China's Control of the Maritime Supply Chain
The maritime supply chain is a better framework for examining
China's activities. China is increasingly dominant not only in
individual links of that supply chain, such as operating ports, but
also in production activities behind this chain, such as building ports
and manufacturing related equipment. This deeper maritime foundation
brings commercial advantages during peacetime and could offer strategic
advantages in the event of conflict.
China has the world's largest shipping lenders, ship builder,
shipping fleet (number of vessels), seafarer workforce, port
construction firms, and container port operator. It also dominates a
wide array of related maritime products and services, including having
the world's largest shipping container producer, dredging fleet, ship-
to-shore crane producer, and crane truck producer, among other areas.
Many of these superlatives only scratch the surface. Last year, for
example, China led the world in all three categories of shipbuilding
(largest orderbook, most newbuilding orders, largest number of
deliveries).\8\
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\8\ ``Shipbuilding Annual Review 2019,'' BRS Group, accessed
October 10, 2019, https://www.brsbrokers.com/assets/review_splits/BRS-
Review2019-01-Shipbuilding.pdf.
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China's maritime rise began well before the BRI was announced and
has been assisted by state subsidies. In 2008, there were no Chinese
banks among the top ten shipping finance providers.\9\ A decade later,
Chinese banks were the first and second largest in the world.\10\ Made
in China 2025, which aims to move China up the manufacturing value
chain, designates shipping technology as one of ten priority sectors.
Through this initiative, China aims to capture 50 percent of the global
market for high-tech ships and 80 percent of the critical systems and
equipment for those ships.\11\
---------------------------------------------------------------------------
\9\ Henri d'Ambrieres, ``Ship Finance and Its Possible Impacts on
Excess Capacity,'' (presentation to the OECD Council Working Party on
Shipbuilding, November 9, 2015) OECD, https://www.oecd.org/sti/ind/
Item%202.2%20HDA%20Conseil_-
%20Impact%20of%20Ship%20Financing_Final.pdf.
\10\ David Glass, ``Chinese Banks Top Lenders to Shipping,''
Seatrade Maritime News, September 17, 2018,http://www.seatrade-
maritime.com/news/asia/chinese-banks-top-lenders-to-shipping.html.
\11\ ``Unofficial USCBC Chart of Localization Targets by Sector Set
in the MIIT Made in China 2025 Key Technology Roadmap,'' The U.S. China
Business Council, accessed October 11, 2019, https://www.uschina.org/
sites/default/files/2-2-
16%20Sector%20and%20Localization%20Targets%20for%20Made%20in%20China%202
025.pdf.
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These commercial activities could prove useful in the event of
conflict. China's massive shipbuilding industry provides a latent
capacity that could be harnessed to support military operations.\12\
Its investments in shipping technology, especially higher-end vessels
and equipment, could make these capabilities more relevant to building
naval vessels.\13\ History is filled with examples of civilian vessels
and equipment being repurposed for strategic purposes. China is already
doing this in the South China Sea.\14\
---------------------------------------------------------------------------
\12\ Gabriel Collins and Michael C. Grubb, ``A Comprehensive Survey
of China's Dynamic Shipbuilding Industry, `` (2008) CMSI Red Books. 9.
https://digital-commons.usnwc.edu/cgi/
viewcontent.cgi?article=1000&context=cmsi-red-books.
\13\ Andrew S. Erickson, ``Chinese Shipbuilding and Seapower: Full
Steam Ahead, Destination Uncharted,'' Center for International Maritime
Security, January 14, 2019, http://cimsec.org/chinese-shipbuilding-and-
seapower-full-steam-ahead-destination-uncharted/39383.
\14\ Gregory B. Poling, ``Illuminating the South China Sea's Dark
Fishing Fleets,'' Stephenson Ocean Security Project, January 9, 2019,
https://ocean.csis.org/spotlights/illuminating-the-south-china-seas-
dark-fishing-fleets/. ``Reconnecting Asia,'' Center for Strategic and
International Studies, accessed October 11, 2019, https://
reconasia.csis.org/.; Andrew S. Erickson, ``Chinese Shipbuilding and
Seapower: Full Steam Ahead, Destination Uncharted,'' Center for
International Maritime Security, January 14, 2019, http://cimsec.org/
chinese-shipbuilding-and-seapower-full-steam-ahead-destination-
uncharted/39383.
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China's network of ports has strategic utility as well. The global
maritime network has four primary chokepoints, the closure of which
would seriously impair global trade, and Chinese firms are investing or
have ownership stakes in ports near all of them.\15\ This includes
activities closer to the United States. A Chinese firm owns and is
expanding Panama's largest port, which sits near the Caribbean end of
the Panama Canal.\16\ Another Chinese firm operates a port at the
Pacific end of the Panama Canal. If shipping is disrupted, China's
broader network of ports could provide more flexibility to adapt and
redirect trade.
---------------------------------------------------------------------------
\15\ James Kynge et al., ``How China rules the waves,'' Financial
Times, January 12, 2017, https://ig.ft.com/sites/china-ports/.
\16\ ``China's Landbridge Group Purchases Largest Panamanian Port;
Intends to Make it a Deep-Water Port,'' RWR Advisory Group, May 26,
2016, https://www.rwradvisory.com/chinas-landbridge-group-purchases-
largest-panamanian-port-intends-to-make-it-a-deep-water%DB%9D-port/.
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Implications for U.S. Interests
Over a century ago, the U.S. naval strategist Alfred Mahan
observed, ``Commercial value cannot be separated from military in sea
strategy, for the greatest interest of the sea is commerce.'' \17\
These days, Mahan is quite popular among Chinese strategists. Just like
the great powers that have come before it, China's maritime rise has
broad economic and strategic implications.
---------------------------------------------------------------------------
\17\ Alfred Thayer Mahan, Naval Strategy Compared and Contrasted
with the Principles and Practice of Military Operations on Land
(Boston: Little, Brown and Company, 1913), 302.
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To be sure, not all aspects of China's maritime activities are
harmful. The world's infrastructure needs are far greater than what the
BRI can provide, even in its most exaggerated form. Maritime projects
chosen wisely and delivered properly can lower transport costs, improve
productivity, and boost growth, all of which benefit the broader global
economy. Done poorly, these projects weigh developing economies down
with debt, stoke corruption, harm the environment, and ultimately
destroy more value than they create.
The United States has narrower commercial and economic interests at
stake as well, as the U.S.-China trade war is now highlighting. Earlier
this year, when the Trump administration proposed tariffs on ship-to-
shore cranes, ports in Baltimore, Virginia, and elsewhere objected.
That's because U.S. companies have not made these cranes for decades. A
single Chinese company, ZPMC, has captured an estimated 70 percent of
the global market.\18\ If China achieves its industrial goals through
Made in China 2025 and related efforts, the same could be said about a
wider range of high-value manufacturing in the future.
---------------------------------------------------------------------------
\18\ David J. Lynch, ``These Giant Cranes Show Why the Next Fight
in the U.S.-China Trade War Could Be So Damaging,'' Washington Post,
June 26, 2019, https://www.washingtonpost.com/business/economy/these-
giant-cranes-show-why-the-next-fight-in-the-us-china-trade-war-could-
be-so-damaging/2019/06/26/1e6f5d4c-975f-11e9-830a-
21b9b36b64ad_story.html.
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China also uses infrastructure projects for non-economic objectives
at odds with U.S. political interests.\19\ It can dangle the prospect
of financing to win political concessions, reward supporters, and gain
control over port operations. These challenges are acute in developing
economies, which often have few alternatives for investment, but are
hardly confined to them. Chinese financing incentivized Hungary and
Greece, for example, to weaken European Union statements on China's
human rights record. At China's annual meeting with Central and Eastern
European countries earlier this year, European participants proposed
over 20 ports for Chinese investment.
---------------------------------------------------------------------------
\19\ Jonathan E. Hillman, ``Influence and Infrastructure,'' Center
for Strategic and International Studies, January 2019, https://csis-
prod.s3.amazonaws.com/s3fs-public/publication/
190123_Hillman_InfluenceandInfrastructure_WEB_v3.pdf.
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China's maritime activities also enhance its intelligence
capabilities. Chinese firms are building more underseas cables, the
critical links through which the vast majority of international data
travels. Foreign ports have long been used as listening posts. Building
them provides opportunities to install surveillance equipment or design
backdoors for access. Modern ports, of course, are highly networked,
and Chinese firms often provide IT systems as part of the overall
package. These activities further complicate the operating environment
for U.S. military vessels and U.S. government supply chains.
Djibouti illustrates the challenge. Just miles from U.S. Africa
Command headquarters, China has established its first military base on
foreign soil. It also operates a multipurpose container terminal, is
building a free trade zone, and has delivered other projects, including
a big-ticket railway and telecommunications. Djibouti's debt is now
dangerously high, and most of it is owed to China. Several U.S.
officials and Members of Congress have warned against the prospect of
China acquiring control of the Doraleh Container Terminal, which was
nationalized in 2018 and is a critical hub in East Africa's trade.
Ultimately, understanding the impacts of Chinese maritime projects
on U.S. interests requires looking closely at individual projects. Not
every project is economically important or strategically important.
Some projects are built mainly for the short-term benefit of local
elites and Chinese state-owned enterprises. It is also worth noting
that China's vulnerabilities can grow with its global activities,
especially in terms of protecting trade routes, bases, and ships.\20\
All of this underscores the value of a case-by-case approach.
---------------------------------------------------------------------------
\20\ Zack Cooper, ``Security Implications of China's Military
Presence in the Indian Ocean,'' Center for Strategic and International
Studies, April 2, 2018, https://www.csis.org/analysis/security-
implications-chinas-military-presence-indian-ocean.
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Recommendations
Congress has a vital role to play in addressing these challenges.
Three types of action it should consider include:
1. Develop a global database of infrastructure projects. After the
9/11 terrorist attacks, the U.S. Department of Homeland Security was
charged with mapping critical infrastructure globally. While non-state
actors still present threats to critical infrastructure, China poses a
different set of challenges as a leading financer, builder, and
operator. The United States needs a comparable effort to map and track
foreign infrastructure projects, especially maritime assets. This
database would help the U.S. government pool intelligence, separate
benign projects from harmful projects, set priorities, and use its
resources more effectively, in concert with partners and allies.
2. Invest in U.S. maritime capabilities. China's rising control of
the maritime supply chain, combined with pressure on the U.S.-China
economic relationship, should encourage a closer look at potential U.S.
vulnerabilities in these areas. Building stronger and more resilient
U.S. capabilities will require investing in vessels to fill gaps in the
current fleet, supporting research for advanced maritime technology,
and training the next generation of U.S. mariners. Investing in U.S.
capabilities also means supporting efforts to improve maritime and
transportation infrastructure more broadly here at home.
3. Champion a U.S. global economic vision. Despite six years of
missteps and broken promises, China's BRI remains attractive to much of
the world because it speaks to the needs of most countries,
particularly developing and emerging economies. This underscores the
power of a positive economic vision. The United States needs to put
forward its own positive economic vision, one that is defined not as a
reaction to China, but on its own terms. Earlier this year, a CSIS Task
Force, led by former U.S. Trade Representative Charlene Barshefsky and
former U.S. National Security Advisor Stephen Hadley, proposed several
recommendations to do this, including expanding on the principles that
guide the ``Free and Open Indo-Pacific'' strategy.\21\
---------------------------------------------------------------------------
\21\ Charlene Barshefsky et al., ``The Higher Road: Forging a U.S.
Strategy for the Global Infrastructure Challenge,'' Center for
Strategic and International Studies, April 2019, https://csis-
prod.s3.amazonaws.com/s3fs-public/publication/
190423_Hadley%20et%20al_HigherRoads_report_WEB.pdf.
Mr. Maloney. I thank the gentleman.
Mr. Becker?
Mr. Becker. Chairman Maloney, Ranking Member Gibbs, members
of the subcommittee, thank you for this opportunity to share my
thoughts with you today on China's Maritime Silk Road and its
implications for the U.S. Navy and the global maritime supply
chain.
I just want to note briefly that the views I express today
are my own, and they are not those of CNA or the Department of
Defense.
As a result of China's Maritime Silk Road Initiative,
Chinese state-owned firms have spent billions of dollars on
maritime infrastructure. They now build and operate port
facilities around the globe. And this raises a number of
implications for the U.S. Navy and the U.S. Coast Guard.
As a result of these investments, China is likely improving
its ability to collect intelligence on U.S. ships and assets
operating in ports overseas. These investments are also
allowing China to develop the capabilities that could be used
later, such as the capability to interfere with U.S. Navy
repair or resupply operations, or the ability to deny U.S. Navy
access to certain ports altogether in times of crisis.
So first, just to provide some brief background, what are
the most common types of Chinese presence in overseas port
facilities? So fundamentally, Chinese state firms have expanded
their presence in three ways: constructing new port facilities
or upgrading existing infrastructure; purchasing stakes in port
terminal operators; and operating port facilities directly.
Second, Beijing has a record of using economic tools to
advance foreign policy objectives, and I see three tools in
particular that Chinese SOEs could use to influence activities
in overseas ports. One is China's foreign direct investment,
which Chinese SOE executives often argue can turn a foreign
country into the next economic miracle, just as FDI did for
China, for example. Another tool is debt. China has become a
major creditor to many emerging economies, and several may have
trouble servicing their debts in the near term.
And a third is bribery, and we have already seen examples
where Chinese executives have sought to channel money to
foreign government officials and their family members in
countries where they want to do business.
So using these tools, who might shine a target? Well,
first, as I just mentioned, we have already seen Chinese firms
attempt to influence national level leaders and their family
members with gifts of cash.
A second target would be officials that run overseas ports,
and this would include actors such as freight forwarding
companies, husbanding agents, port captains, or port
authorities. These are the individuals that know when ships
arrive, where those ships dock, what they carry, where they
store their cargo, and when that cargo gets picked up. So
Chinese officials could potentially obtain useful information
through these relationships.
A third would be local leaders that control access to the
area surrounding the port, and Chinese firms often seek to
develop these areas as part of a larger, all-encompassing
development model.
And all this brings me to my most important issue: What
might China do to affect U.S. Navy or U.S. Coast Guard port
operations overseas? Again, I see four issues.
First, I think it is worth noting that Chinese overseas
expansion may create challenges for the U.S. Navy, regardless
of whether or not this is China's intent. More Chinese commerce
and Chinese activity means that in some locations the U.S. Navy
or the U.S. Coast Guard may face more competition, with more
ships vying for limited facilities.
A second issue is that Chinese state firms may be able to
collect intelligence on the movement and the location of U.S.
Navy ships, ship maintenance requirements, combat readiness,
and the procedures that the U.S. Navy uses for repair,
resupply, and other activities while they are operating in
foreign ports. Moreover, as Chinese firms work with Huawei and
others on port IT infrastructure issues, this puts U.S. Navy
communications and other information at risk, as well.
Third, China could potentially pressure non-Chinese firms
to give U.S. Navy or U.S. Coast Guard ships lower priority than
they currently enjoy, thus slowing down services and
potentially throwing ships off their schedules. To be clear, I
don't have any examples of this happening to date, but given
China's importance to the maritime industry, firms that provide
services to the U.S. Navy may have enough commercial interests
in China to be sensitive to these types of overtures.
And then fourth, China could seek to restrict U.S. Navy
access to ports where Chinese SOEs have a large presence in
order to express their displeasure at U.S. activities.
However, I have to say I do find such an action to be
unlikely to date, primarily for two key reasons. First, it
would certainly make other countries sit up and take notice at
a time when countries are already concerned about ceding
sovereignty to China. Second, and perhaps most importantly,
U.S. Navy ships visiting these ports may provide intelligence
collection opportunities. So China has an interest in those
visits continuing.
Regardless, responding to China's growing role in overseas
maritime infrastructure will require careful consideration from
the U.S. Navy and the U.S. Coast Guard about where, when, and
how it operates in overseas ports in the future.
Thank you.
[Mr. Becker's prepared statement follows:]
Prepared Statement of Jeffrey D. Becker, Ph.D.,\\ Research
Program Director, Indo-Pacific Security Affairs, CNA
---------------------------------------------------------------------------
\\ The views I express in this testimony are my own and do
not reflect the views of CNA, any of its sponsors or affiliates, the
United States Navy, or the Department of Defense.
---------------------------------------------------------------------------
Chairman Maloney, Ranking Member Gibbs, and Members of the
Subcommittee: Thank you for this opportunity to share my thoughts with
you on China's Maritime Silk Road and its implications for the global
maritime supply chain.
Announced during a speech to the Indonesian parliament in October
2013, China's 21st Century Maritime Silk Road (MSR) is one half of Xi
Jinping's signature ``Belt and Road Initiative,'' a program aimed at
leveraging Chinese lending, investment, and technical expertise to
construct infrastructure projects around the world.\1\ Through these
projects, China seeks to connect trade paths across Europe and Central
Asia, and sea routes between Southeast Asia and Africa.
---------------------------------------------------------------------------
\1\ See Speech by Chinese President Xi Jinping to Indonesian
Parliament, Jakarta, Indonesia, October 2, 2013, https://reconasia-
production.s3.amazonaws.com/media/filer_public/88/fe/
88fe8107-15d7-4b4c-8a59-0feb13c213e1/
speech_by_chinese_president_xi_jinping_
to_indonesian_parliament.pdf. The other half of the Belt and Road
Initiative is the ``Silk Road Economic Belt'' which traverses Central
and South Asia, connecting them to Europe.
---------------------------------------------------------------------------
To be sure, Chinese state-owned enterprises (SOEs) had been
involved in overseas port development projects before Xi's announcement
of MSR in 2013. However, MSR has certainly accelerated this trend.
Chinese SOEs have spent billions on maritime infrastructure and now
build and operate port facilities around the globe.
For example:
China's port builders, such as China Communications
Construction Company, the parent company of two state-owned enterprises
(SOEs)--China Harbour Engineering Company (CHEC) and China Road and
Bridge Corporation--ranks third on Engineering News-Record's list of
the top 250 international contractors as of 2018.\2\
---------------------------------------------------------------------------
\2\ ``ENR's 2018 Top 250 International Contractors,'' Engineering
News-Record, August 2018, https://www.enr.com/toplists/2018-Top-250-
International-Contractors-1.
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According to People's Republic of China (PRC) Vice
Minister of Transportation Liu Xiaoming, ``China [has] invested and
constructed 42 ports in 34 countries and regions along the Belt and
Road Initiative.'' \3\
---------------------------------------------------------------------------
\3\ Liu Xiaoming, Promoting Pragmatic Cooperation in Sea Ports
Along the Belt and Road, presentation given at the `16+1' Coordinating
Secretariat Meeting on Maritime Issues, Szczecin, Poland, June 15,
2018.
---------------------------------------------------------------------------
Other analysts estimate that, in total, Chinese SOEs have
equity stakes or concession agreements to operate port facilities in
more than 70 ports worldwide.\4\
---------------------------------------------------------------------------
\4\ See for example, Isaac B. Kardon, Testimony before the U.S.-
China Economic and Security Review Commission Hearing on ``A `World-
Class' Military: Assessing China's Global Military Ambitions,'' June
20, 2019, p. 5.
The emergence of Chinese companies as global port terminal owners
and operators raises questions about the implications for the United
States Navy (USN), United States Coast Guard, or United States Naval
Ships (USNS) using those facilities. This issue received heightened
attention after the government of Djibouti announced in early 2018 that
it was terminating its agreement with the United Arab Emirates (UAE)
terminal operator, DP World, to operate the Doraleh Container Terminal
(DCT), effectively nationalizing the terminal.\5\ This raised concerns
that the Djiboutian government would eventually sign an agreement with
a Chinese firm to run that container terminal. In a March 2018 US House
Armed Services Committee hearing, General Waldhauser (Commander, US
Africa Command), articulated his concerns regarding the potential
implications of a Chinese firm taking over operations at the port, and
what that would mean for the USN, should the Chinese firm seek to
leverage that position to impose restrictions on USN vessels:
---------------------------------------------------------------------------
\5\ ``London Court Rules DP World Djibouti Contract `Valid and
Binding'--Dubai Government,'' Reuters, August 2, 2018, https://
uk.reuters.com/article/uk-emirates-dp-wrld-djibouti/london-court-rules-
dp-world-djibouti-contract-valid-and-binding-dubai-government-
idUKKBN1KN1Cl.
If the Chinese took over that port, the consequences could be
significant if there were some restrictions on our ability to
use that, because obviously the supplies that come in not only
take care of Camp Lemonnier and other places inside the
continent, it is a huge activity there . . .\6\
---------------------------------------------------------------------------
\6\ Travis J. Tritten, ``China May Try to Control Key US Military
Port in Africa, General Says,'' Washington Examiner, March 6, 2018,
https://washingtonexaminer.com/china-may-try-to-control-key-us-
military-port-in-africa-general-says.
My comments on China's MSR and its implications for the global
maritime supply chain focus on one aspect of this question in
particular, namely the growing role of China's SOEs in overseas ports,
and the implications of this trend for the United States and the U.S.
Navy. In doing so, I address three important questions to consider when
seeking to understand how China's growing role in overseas ports might
---------------------------------------------------------------------------
affect USN activities and operations:
What are the most prevalent forms of Chinese presence in
overseas maritime port infrastructure?
What tools might China employ when seeking to influence
activities in ports overseas, and what actors might China target to do
so?
What actions could Chinese state-owned enterprises
potentially take to adversely affect USN activities and operations in
overseas ports?
The remainder of my comments examines each of these three questions
in detail.
1. What are the most prevalent forms of Chinese presence in overseas
maritime port infrastructure?
In general, Chinese SOEs have expanded their presence in overseas
port facilities in three ways: by constructing new port facilities or
upgrading existing infrastructure, by purchasing ownership stakes in
port terminal operators, and by operating port facilities. Each of
these types of presence is examined below.
Chinese construction of port infrastructure
Chinese SOEs build a wide range of maritime facilities,
constructing new terminals and upgrading existing infrastructure. In
some cases, Chinese firms win contracts through competitive tenders. In
Tanzania's Port of Dar-es-Salaam, for example, the World Bank provided
roughly $345 million to improve the port, and awarded CHEC a $154
million contract through open bidding to design and build a roll-on/
roll-off terminal and improve berths 1 through 7.\7\
---------------------------------------------------------------------------
\7\ World Bank, ``Dar es Salaam Maritime Gateway Project: Fact
Sheet,'' World Bank, July 2, 2017, www.worldbank.org/en/country/
tanzania/brief/dar-es-salaam-maritime-gateway-project-fact-sheet; World
Bank, ``Procurement Notices-Dar es Salaam Maritime Gateway Project,''
World Bank, 2014, http://projects.worldbank.org/procurement/
noticeoverview?id=OP00029170&lang=en
&print=Y; ``Tanzania Signs $154 Million Contract with Chinese Firm to
Expand Main Port,'' Reuters, June 10, 2017, https://www.reuters.com/
article/us-tanzania-ports/tanzania-signs-154-million-contract-with-
chinese-firm-to-expand-main-port-idUSKBN1910RU; ``Tanzania Inks Deal to
Expand Dar es Salaam Port,'' World Maritime News, 2017, https://
worldmaritimenews.com/archives/222503/tanzania-inks-deal-to-expand-dar-
es-salaam-port/.
---------------------------------------------------------------------------
In other cases, however, Chinese companies benefit through support
from the Chinese State and secure contracts because Chinese banks
provide loans that require buying and hiring from China. In China's
development of the Doraleh Multi-Purpose Port in Djibouti for example,
China's Export-Import (Exim) Bank, the only bank designated by the PRC
to offer government concessional loans and preferential export buyers'
credit (credit provided to foreign companies to buy Chinese goods and
services), provided credits to the China Merchants-Djiboutian joint
venture firm that developed the port.\8\ Not only did more preferred
credits make this deal more attractive to China Merchant's Djiboutian
partners, it also likely provided financial incentives to the China
State Construction Engineering Corporation, which built the port, and
the firm Shanghai Zhenhua, which supplied the ports' cranes.\9\
---------------------------------------------------------------------------
\8\ China Merchants Group, ``Djibouti Project (Jibuti Xiangmu: Xing
Gang Zhi lu, Shuzi Zai Tiaodong;),'' China Merchants Group, February 7,
2017, www.cmhk.com/main/a/2017/b07/a32755_32845.shtml.
\9\ Gao Jianghong, `` `Shekou Model 4.0' Arrives in Djibouti, China
Merchants `Flying Geese' Model Goes Abroad,'' (`Shekou Moshi 4.0' Luodi
Jibuti; Zhaoshangju Yanxing Chuhai;), 21st Century Business Herald,
July 5, 2017, http://epaper.21jingji.com/html/2017-07/05/
content_65726.htm.
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Partial Chinese ownership of port infrastructure
In addition to building, Chinese state-owned firms own an
increasing amount of maritime port infrastructure worldwide. Much of
this infrastructure is owned by two SOEs. The first, COSCO Shipping
Ports, was the world's fifth largest terminal operator by twenty-foot
equivalent unit (TEU) in 2017, and the third largest container ship
owner following the completion of its acquisition of Orient Overseas
Container Lines in 2018.\10\ COSCO has equity investments in 18 ports
located in 13 countries, including the US (Seattle and Long Beach).\11\
The second, China Merchants Port Holdings, was the world's sixth
largest terminal operator by TEU in 2017.\12\ The company has a
presence in 23 ports in 16 countries, including Taiwan.\13\
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\10\ Drewry Maritime Research, Global Container Terminal Operators
Annual Review and Forecast, 2018, p. 18; Michael Angell, ``Port Report:
Cosco Shipping Wraps Up First Year with Orient Overseas Intl. Results
Under Belt,'' Freight Waves, April 1, 2019, https://
www.freightwaves.com/news/maritime/port-report-cosco-ooil-2018-results.
\11\ COSCO Shipping Ports, Overseas Terminals, https://
ports.coscoshipping.com/en/Businesses/Portfolio/#OverseasTerminals;
COSCO Shipping Ports Limited, Annual Report 2018, March 2019, p. 33,
https://ports.coscoshipping.com/en/Investors/IRHome/FinancialReports/;
Lloyd's Maritime Intelligence, One Hundred Ports 2018, p. 12, https://
lloydslist.maritimeintelligence.informa.com/one-hundred-container-
ports-2018. As part of its purchase of Orient Overseas International
Ltd., COSCO Shipping acquired a container terminal in Long Beach,
California. However, COSCO sold the facilities to a consortium led by
Macquarie Infrastructure Partners in order to address U.S. security
concerns. See Jia Tianqiong and Han Wei, ``Cosco Unit to Sell U.S. Long
Beach Container Terminal,'' Caixin Global, May 1, 2019, https://
www.caixinglobal.com/2019-05-01/cosco-unit-to-sell-us-long-beach-
container-terminal-101410715.html.
\12\ Tim Power, ``The Rise of Chinese Global Terminal Operators,''
Drewry, July 12, 2017, https://www.drewry.co.uk/AcuCustom/Sitename/DAM/
008/Rise_of_Chinese_Global_
Terminal_Operators.pdf. A TEU is used to measure a ship's cargo
carrying capacity. The dimensions of one TEU are equal to that of a 20-
foot shipping container.
\13\ China Merchants Port Holdings, Annual Report 2018, March 2019,
p. 5, http://www.cmport.com.hk/enTouch/investor/Reports.aspx.
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When Chinese firms purchase ownership in a foreign port facility,
they often do so by establishing a joint venture company with the host
government, often through the local port authority. The host government
will continue to own the land and the core port facilities, but will
lease parts of the port to the joint venture (or the Chinese firm
directly) through a concession agreement--a contract in which a port
authority transfers operating rights to build, finance, own, and
operate a facility, returning it to the state after a specific time
period.\14\ Concession agreement lengths vary. While many are for 30
years, some are longer, particularly when large amounts of capital
investment are needed to give the company time to recoup its
investment. For example, in 2013, China Merchants acquired 23.5 percent
of Port de Djibouti SA, the joint venture between China Merchants and
the Djiboutian Ports Authority, which owns both the Doraleh Multi-
Purpose Port and the Port of Djibouti.\15\ The joint venture will
reportedly be in effect for 99 years.\16\
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\14\ Joseph Botham, ``Concession Choices,'' Port Strategy (2014),
http://hfw.com/downloads/HFW-Port-Strategy-Concession-choices-Article-
July-2014.pdf; Jeffrey Becker, Erica Downs, Ben DeThomas and Patrick
DeGategno, China's Presence in the Middle East and Western Indian
Ocean: Beyond Belt and Road, (Arlington: VA, Center for Naval
Analyses), February 2018, DRM-2018-U-018309-Final2, p. 86.
\15\ China Merchants Holdings, ``Acquisition of 23.5% Interests in
Joint Venture in Djibouti, Voluntary Announcement,'' Hong Kong Stock
Exchange, 2012, http://www.hkexnews.hk/listedco/listconews/SEHK/2012/
1230/LTN20121230025.pdf.
\16\ Gao Jianghong, `` `Shekou Model 4.0' Arrives in Djibouti.''
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Chinese firms operating port infrastructure
In other cases, Chinese firms not only own a stake in the port
terminal operator, but also operate the port, either directly or
through a joint venture partner in which they are the majority owner.
They are responsible for purchasing and maintaining cranes and other
container ship handling equipment, hiring labor, managing customer
relations, and running day-to-day terminal operations. Labor is likely
to be local, though foreign managers may be parties to the agreement
that allows the Chinese firm in question to operate the facility.\17\
---------------------------------------------------------------------------
\17\ Becker, et. al., China's Presence in the Middle East and
Western Indian Ocean: Beyond Belt and Road, p. 92.
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Chinese SOEs are now responsible for running port terminal
operations in multiple locations, including Sri Lanka, Pakistan, and
the UAE. For example, China Merchants owns 85 percent of the Colombo
International Container Terminal, and also operates it through a 99-
year lease.\18\ A Chinese state firm (China Overseas Port Holdings)
also manages the port of Gwadar directly, having taken the 40-year
concession from the Port of Singapore Authority (PSA) in 2013,
following PSA's decision to give up the lease.\19\ In 2016, a
subsidiary of COSCO Shipping Ports signed a 35-year concession
agreement with Abu Dhabi Ports to acquire the right to develop, manage,
and operate Khalifa Port Container Terminal no. 2.\20\ COSCO Shipping
Ports began operating that terminal in December 2018.\21\
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\18\ Sri Lanka Ports Authority, ``Agreements Signed to Construct
Colombo Port Expansion Project's South Container Terminal,'' Sri Lanka
Ports Authority, November 9, 2011, http://portcom.slpa.lk/
news_events_324.asp. Additionally, China Merchants is likely in charge
of the port's long-term development and strategic operations, given
that the CEOof Colombo International Container Terminals is Jack Huang,
who is also the deputy general manager (international)of China
Merchants Holdings (International), and that seven of the 10 of Colombo
International Container Terminal's board members are Chinese. See
Colombo International Container Terminals, ``Management/Executive
Committee,'' http://www.cict.lk/management-executive-commitee.php;
``Jack Huang-Director/CEO-Colombo International Container Terminals,''
LinkedIn, https://hk.linkedin.com/in/jack-huang-906b3617; Colombo
International Container Terminals, ``Board of Directors,'' http://
www.cict.lk/directors.php.
\19\ Ministry of Ports & Shipping and Gwadar Port Authority,
``Gwadar Port & CPEC: A Presentation to Parliamentary Committee on
CPEC,'' National Assembly of Pakistan, November 28, 2015, http://
www.na.gov.pk/cpec/sites/default/files/presentations/
Parliamentary%20Commitee
%20on%20CPECNew.pdf.
\20\ COSCO Shipping Ports Limted, ``Discloseable Transaction:
Concession Agreement in Relation to Khalifa PortContainer Terminal 2,''
Hong Kong Stock Exchange, September 28, 2016, http://www.hkexnews.hk/
listedco/listconews/SEHK/2016/0928/LTN20160928374.pdf.
\21\ ``COSCO, Abu Dhabi Ports Open New Terminal at Khalifa Port,''
World Maritime News, December 10, 2018, https://worldmaritimenews.com/
archives/266410/cosco-abu-dhabi-ports-open-terminal-at-khalifa-port/
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2. What tools might China employ when seeking to influence activities
in ports overseas, and what actors might China target to do so?
Potential tools of Chinese influence
Beijing has a track record of using the economic tools at its
disposal to advance its foreign policy objectives.\22\ Consequently, it
is not unreasonable to think that China might deploy those tools in
such a way as to influence national and local leaders with authority
over and access to ports. Potential sources of influence at China's
disposal to achieve this goal include investments, the provision of
funds through loans, cash gifts, and bribery. Each is discussed below.
---------------------------------------------------------------------------
\22\ See for example, Peter Harrell, Elizabeth Rosenberg, and
Edoardo Saravalle, China's Use of Coercive Economic Measures, Center
for a New American Security, June 11, 2018, https://www.cnas.org/
publications/reports/chinas-use-of-coercive-economic-measures; Evan A.
Feigenbaum, ``Is Coercion the New Normal in China's Economic
Statecraft?,'' Marco Polo, July 15, 2017, https://marcopolo.org/
coercion-new-normal-chinas-economic-statecraft/.
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Investment
One tool China may use to expand its influence in overseas port
facilities is the provision of foreign direct investment, which Chinese
SOE officials often tout as having the potential to dramatically reform
a country's future, just as China has done over the past four decades.
This approach is likely to be most effective when directed at officials
from countries where capital is scarce, such as Djibouti, the Maldives,
or Sri Lanka. One can see the appeal of this approach in statements
such as those made by the president of China Merchants Group, who
stated that ``we [China Merchants] are in the process of making the
country [Djibouti] the `Shekou of East Africa'--a hub for regional
shipping, logistics and trade,'' referring to the Chinese village of
Shekou in Shenzhen, which rose to become a global commercial logistics
hub.\23\ China's ambassador to Oman, Yu Fulong, argued that ``over the
past 30-plus years, China has developed a host of competitive
industries and with the help of the Belt and Road Initiative, Oman can
harness these strengths so as to promote a diversified economic
development.'' \24\
---------------------------------------------------------------------------
\23\ Deng Yangzi, ``CMG Wants to Make African Port of Djibouti `New
Shekou','' China Daily, March 7, 2017, http://www.chinadaily.com.cn/
bizchina/2017-03/07/content_28455386.
\24\ ``Oman Wants to Be China's Key Partner in Belt and Road
Initiative, China Envoy,'' Xinhua, July 1, 2015, http://
www.xinhuanet.com/english/2015-07/01/c_134373592.htm.
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Noticeably absent from these arguments, however, is any recognition
of the fact that both countries lack other factors that were critical
to China's success, including a large and educated workforce, easy
access to large markets, and a stable international regional
environment. Nonetheless, the promise to dramatically change the
trajectory of a country's development is undoubtedly attractive to
leaders of developing countries, and likely provides the Chinese
government with significant leverage in negotiating the terms of
investments.
Loans and debt traps
Another tool through which Beijing may seek to influence port
activities is using debt owed to Chinese financial institutions as a
bargaining chip. China has emerged as a major creditor to many emerging
economies, lending roughly $40 billion annually through its Exim Bank
and the China Development Bank.\25\ Countries such as Nigeria and Sri
Lanka, where Chinese SOEs own or operate port facilities, have been
among China's top borrowers over the past few years, accepting loans
from China to finance activities, including infrastructure development,
government operations, and debt payments.\26\ Other developing
countries where Chinese firms are currently undertaking massive
infrastructure projects, such as Kenya, Tanzania, and South Africa,
have been major borrowers from China as well. Over time, the
accumulation of debts may also provide China with opportunities to
expand its presence into port facilities in these countries as well.
---------------------------------------------------------------------------
\25\ David Dollar, ``United States-China Two-way Direct Investment:
Opportunities and Challenges,'' Journal of Asian Economics 50, June
2017, https://www.sciencedirect.com/science/article/pii/
S1049007817300830.
\26\ Ibid.
---------------------------------------------------------------------------
Several countries may have trouble servicing their debts in the
near term. According to a 2018 study published by the Center for Global
Development, 23 countries are at risk of debt distress as a result of
borrowing from China. These countries include Djibouti, whose port
infrastructure is important to USN logistics operations for Naval
Forces Africa and Naval Forces Central Command. These also include Sri
Lanka and the Maldives, both of which are USN partner nations in the
increasingly important Indian Ocean region, where the US has important
equities.\27\
---------------------------------------------------------------------------
\27\ John Hurley, Scott Morris, and Gailyn Portelance, Examining
the Debt Implications of the Belt and Road Initiative from a Policy
Perspective, Center for Global Development Policy Paper 121, March
2018, https://www.cgdev.org/sites/default/files/examining-debt-
implications-belt-and-road-initiative-policy-perspective.pdf. See also
Becker, et. al., China's Presence in the Middle East and Western Indian
Ocean: Beyond Belt and Road.
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Moreover, when the Djiboutian government nationalized the Doraleh
Container Terminal, the Chinese-Djiboutian joint venture Port de
Djibouti SA, which owned a stake in the container terminal along with
the Dubai firm DP World, could no longer meet the requirements of its
loan from China Merchants, the Chinese partner in the joint venture.
Therefore, in April 2019, it was reported that China Merchants will
provide Port de Djibouti SA with another $144 million in debt
refinancing, possibly further adding to its debt burden, and
potentially setting China Merchants up to expand its stake in Port de
Djibouti SA at a later date.\28\
---------------------------------------------------------------------------
\28\ Michael Angell, ``Port Report: China Merchants Rejiggers Debt
for Djibouti Free-trade Zone After Doraleh Container Terminal Seized,''
Freight Waves, April 30, 2019, https://www.freightwaves.com/news/
maritime/port-report-china-merchants-ports-djibouti.
---------------------------------------------------------------------------
China has employed various approaches when dealing with borrowers
who cannot repay their loans.\29\ In some cases, China has engaged in
loan forgiveness or loan restructuring in order to provide new loans to
allow borrowers to avoid default. Other times, China has conducted
debt-for-equity swaps, allowing Chinese firms to acquire equity stakes
in infrastructure projects that Chinese banks helped finance. For
example:
---------------------------------------------------------------------------
\29\ Ibid.
When the government of Djibouti could not provide its
share of the funding for the Ethiopia-Djibouti Railway, it sold a 10
percent stake in the joint venture that manages the railway to the
China Civil Engineering Construction Corporation.\30\
---------------------------------------------------------------------------
\30\ International Monetary Fund, Djibouti Selected Issues, IMF
Country Report No. 16/249, 2016, http://www.imf.org/external/pubs/ft/
scr/2016/cr16249.pdf; Zhang Yuxue, ``Why is Africa's First
Transnational Electrified Railway Using a Complete Set of `Chinese
Standards'?'' (Feizhou diyi tiao kuaguo dianqihua tielu weihe yong
quantao `Zhongguo biaojun';), Caijing, October 21, 2016, http://
www.caijingmobile.com/top/2016/10/21/288773_2_4.html.
---------------------------------------------------------------------------
In 2016, the Sri Lankan government proposed using debt-
for-equity swaps to reduce its debt burden, which allowed China
Merchants Group to purchase an 85 percent stake in the concession that
operates the Hambantota port.\31\
---------------------------------------------------------------------------
\31\ For Sri Lanka's proposal of debt-for-equity swaps, see Ben
Blanchard, ``Sri Lanka Requests Equity Swap for Some of Its $8 bln
China Debt,'' Reuters, April 9, 2016, https://www.reuters.com/article/
china-sri-lanka/sri-lanka-requests-equity-swap-for-some-of-its-8-bln-
china-debt-idUSL3N17B1BR.
---------------------------------------------------------------------------
In 2019, the Kenyan newspaper Daily Nation reported it
had obtained a leaked copy of the agreement between China and Kenya for
the construction of the Mombasa-Nairobi Standard Gauge Railway Project.
According to Kenyan media, the contract states that China could take
possession of the port of Mombasa should the Kenyan National Railway
Corporation default on its $2.2 billion repayments to China's Exim
Ban.\32\
---------------------------------------------------------------------------
\32\ William Niba, ``Will Kenya's Mombasa port be taken over by the
Chinese?,'' Radio France International, January 15, 2019, http://
en.rfi.fr/africa/20190114-kenya-mombasa-port-china-debt-default.
While Chinese SOEs employing debt-for-equity swaps such as these
still appear infrequently, the example of Hambantota, and the potential
for China to do something similar in Kenya, suggests that Beijing is
not opposed to employing this tool to obtain greater influence in
overseas ports.
Cash gifts and bribes
Chinese officials and executives have already sought to influence
foreign officials abroad with gifts of cash. China Harbour Engineering
Company (CHEC) is a case in point. The company has a history of
channeling money to foreign government officials and their families in
countries where it is doing or seeking to do business. For example:
In 2009, the World Bank barred the China Communications
Construction Company and all of its subsidiaries, including CHEC, from
engaging in any road and bridge projects financed by the World Bank
from January 2009 to January 2017 as a result of engaging in fraud
while working on a World Bank-funded road project in the
Philippines.\33\
---------------------------------------------------------------------------
\33\ World Bank, ``World Bank Applies 2009 Debarment to China
Communications Construction Company Limited for Fraud in Philippines
Road Project,'' World Bank, July 29, 2011, http://www.worldbank.org/en/
news/press-release/2011/07/29/world-bank-applies-2009-debarment-to-
china-communications-construction-compamy-limited-for-fraud-in-
philippines-roads-project.
---------------------------------------------------------------------------
Before the January 2015 presidential elections in Sri
Lanka, at least $7.6 million was transferred from CHEC's bank account
at the South African Standard Bank to affiliates of then Sri Lankan
President Mahinda Rajapaksa's presidential re-election campaign.\34\
While campaign contributions are not illegal, funding for a political
party from a foreign entity does constitute external interference in
local affairs, raising the possibility of charges of money
laundering.\35\
---------------------------------------------------------------------------
\34\ Maria Abi-Habib, ``How China Got Sri Lanka to Cough Up a
Port,'' New York Times, June 25, 2018, https://www.nytimes.com/2018/06/
25/world/asia/china-sri-lanka-port.html.
\35\ ``Chinese Firm in Sri Lanka Admits to Funding Rajapaksa
Foundation,'' Economynext, July 12, 2018, https://economynext.com/
Chinese_firm_in_Sri_Lanka_admits_
funding_Rajapaksa_family_foundation-3-11200.html.
---------------------------------------------------------------------------
In January 2018, Bangladesh's finance minister, Abul
Muhith, said that CHEC had been blacklisted for offering bribes to
government officials. According to Muhith, CHEC offered the bribes
after it secured a contract to expand a highway: ``They have already
got the contract. I think [they offered a bribe] only to please
[officials] so that they [the company] can misappropriate money.'' \36\
---------------------------------------------------------------------------
\36\ ``No Job for China Harbour in Future,'' The Daily Star,
January 17, 2018, https://www.thedailystar.net/frontpage/no-job-china-
harbour-future-1520917.
CHEC is not the only Chinese SOE involved in port activities
accused of bribing foreign officials and their families. In 2012, the
China Merchants Port Holdings' controlled joint venture with the Sri
Lanka Ports Authority in Colombo (Colombo International Container
Terminals) donated nearly 20 million rupees to a foundation run by
Pushpa Rajapaksa, who is the wife of Basil Rajapaksa, the younger
brother of former President Rajapaksa. A representative from the joint
venture stated that the donation was for housing for the poor. However,
the joint venture did not supervise how the cash was used after it was
donated.\37\
---------------------------------------------------------------------------
\37\ ``Chinese Firm in Sri Lanka Admits to Funding Rajapaksa
Foundation.''
---------------------------------------------------------------------------
Potential targets of Chinese influence
Given the tools described above, should Beijing seek to hinder USN
access to a port with a Chinese terminal operator, or affect its
activities while in port, Chinese officials would likely seek to
influence different actors at both the national and local levels within
the host country. The most obvious targets for such Chinese influence
would include national-level leaders and their families, local port
authority personnel, and local-level officials.
National leaders and their families
Chinese officials and business executives would likely try to
influence senior leaders, particularly heads of state who appreciate
China's role in building national infrastructure, especially after
overtures to other countries were rebuffed. For example, Djibouti's
president, Ismail Omar Guelleh, has stated that he views China as his
country's only long-term development partner, noting, ``the reality is
that no one but the Chinese offers a long-term partnership in
Djibouti.'' \38\
---------------------------------------------------------------------------
\38\ ``Ismail Omar Guelleh: Nobody Other Than the Chinese Offers a
Long-term Partnership in Djibouti (Ismail OmarGuelleh: Personne d'autre
que les Chinois n'offre un partenariat a long terme a Djibouti),''
Jeune Afrique, April 4,2017, http://www.jeuneafrique.com/mag/421096/
politique/ismail-omar-guelleh-personne-dautre-chinois-noffre-
partenariat-a-long-terme-a-djibouti/.
---------------------------------------------------------------------------
The Chinese might also target family members of national leaders,
especially if they also occupy leadership positions. Again, the example
of Djibouti is instructive. President Guelleh's daughter, Haibado
Guelleh, is his top economic adviser and a Chinese speaker. She is
responsible for implementing Djibouti's long-term development plan,
``Vision 2035,'' and likely plays a role in negotiating Chinese debt-
financed infrastructure projects.\39\ President Guelleh's half-brother,
Saad Omar Guelleh, is also the director general of Port de Djibouti SA,
a major source of income for the country and the presidency.\40\
---------------------------------------------------------------------------
\39\ ``Djibouti Legislative Elections,'' IHS Markit, March 8, 2018,
https://ihsmarkit.com/research-analysis/Djibouti-legislative-
elections.html.
\40\ ``Ismail Omar Guelleh Governs Family-style with Kadra, Naguib,
Saad and Co,'' Africa Intelligence, June 18, 2015, https://
www.africaintelligence.com/ion/insiders/djibouti/2015/06/19?ismail-
omar-guelleh-governs-family-style-with-kadra-naguib-saad-and-co/
108078596-be1; ``General Manager Message.''
---------------------------------------------------------------------------
Port authorities
Officials responsible for running local port authorities are also
likely to be targets of Chinese influence, should China seek to
influence port operations abroad. In general, a port authority decides
who enters and exits a port. It controls the pilots and tugs that
assist large ships when entering and leaving a port, allocates ships to
berths, and is responsible for port storage. In short, port authorities
know when ships, including USN and U.S. Coast Guard vessels, arrive at
port, where they dock, what they carry, where they store cargo, and
when that cargo gets picked up.\41\
---------------------------------------------------------------------------
\41\ Becker, et. al., China's Presence in the Middle East and
Western Indian Ocean: Beyond Belt and Road, p. 96.
---------------------------------------------------------------------------
Chinese officials could potentially obtain sensitive information
through relationships that state-owned Chinese port terminal operators
have established with local port authorities. For example, COSCO
Shipping Ports and AD Ports, a company established by the Abu Dhabi
government, are both stakeholders in a joint venture company that has a
concession to build, operate, and manage the Khalifa Port Container
Terminal no. 2 in the UAE.\42\ AD Ports is the port authority for 10
ports in total, including Fujairah Terminals.\43\ The U.S. Navy
stations roughly 5,000 military personnel at several facilities
throughout the UAE, including at Fujairah.\44\ Moreover, because
Fujairah lies outside the Persian Gulf, it serves as an important
logistics link should the Strait of Hormuz be closed. This strategic
positioning could make Fujairah an important target should China seek
to affect US activities in foreign ports.
---------------------------------------------------------------------------
\42\ COSCO Shipping Ports Limted, Concession Agreement In Relation
to Khalifa Port Container Terminal 2.
\43\ Abu Dhabi Digital Government, ``Abu Dhabi Ports,'' Abu Dhabi
Digital Government, https://www.abudhabi.ae/portal/public/en/
departments/adports; ``ADPC to Manage and Operate Zayed Port from
2014.''
\44\ ``The United Arab Emirates (UAE): Issues for U.S. Policy,''
Congressional Research Service Report, May 3, 2019, https://fas.org/
sgp/crs/mideast/RS21852.pdf, pg. 19.
---------------------------------------------------------------------------
Combined with the recent expansion in China-UAE relations,
including increased Chinese investment in the country, it is not
impossible to think that PRC state actors could potentially make use of
the established connections between COSCO Shipping and UAE port
authority personnel to obtain information on the movement of personnel,
supplies, and material related to USN personnel stationed in the
country.
Local leaders
In Sri Lanka and elsewhere, Chinese actors may also attempt to
single out not just national level leaders but also local government
officials. While local officials may not have the direct access to port
operations that officials within the local ports authorities do, they
do have the authority to provide Chinese actors with access to areas
surrounding the ports. Chinese firms, as part of MSR projects, are also
often seeking to develop port-adjacent regions into special economic
development zones as part of an all-encompassing ``port-zone-city''
development model. These port-adjacent areas could provide additional
opportunities for intelligence collection on activities within the
port.
Chinese investment in the city of Duqm, Oman, is one example that
may be worth monitoring in this regard. In an effort to diversify its
economy away from oil and natural gas, which account for roughly 60
percent of its exports, the government of Oman is seeking to develop
the city of Duqm into a commercial and logistics hub.\45\ In pursuing
this goal, Muscat has partnered with Oman Wanfang, a consortium of
private Chinese companies, to develop the China-Oman Industrial Park
within the Duqm Special Economic Zone (SEZ).\46\ According to Yahya bin
Said al Jabri, the chairman of the Special Economic Zone Authority in
Duqm, the SEZ will attract $10 billion of investment by 2022.\47\
---------------------------------------------------------------------------
\45\ Asian Infrastructure Investment Bank, Duqm Port Commercial
Terminal and Operational Zone Development Project.
\46\ Ibid.
\47\ ``Oman-China Deal for $10-bn Industrial City,'' Oman Daily
Observer, May 23, 2016; A.E. James, ``Chinese Firms Commit $3.1 Billion
Investment in Duqm Free Zone,'' Times of Oman, April 22, 2017, http://
timesofoman.om/article/107373/Oman/Chinese-firms-commit-$31billion-
investment-in-Duqm-free-zone.
---------------------------------------------------------------------------
Currently, no Chinese firms are involved in the operation of the
Port of Duqm, as the July 2015 joint venture between the government of
Oman and a Belgian consortium to manage the port for 28 years remains
in effect.\48\ However, Chinese firms under the Oman Wanfang consortium
are seeking to develop the surrounding areas, and, given the amount of
funding that could potentially be invested in the SEZ, this project
could provide China with leverage to gain a foothold in the port, or
cultivate influence among local-level government officials surrounding
the port facilities.
---------------------------------------------------------------------------
\48\ ``Overview,'' Port of Duqm, https://www.portduqm.com/About/
Port-of-Duqm.html.
---------------------------------------------------------------------------
3. What actions could Chinese state firms potentially take to adversely
affect USN activities and operations in overseas ports?
Given the influence that Chinese SOEs have accrued in port
facilities worldwide, how might China potentially influence USN port
operations and activities in overseas ports? The following section
identifies four ways in which this might occur.
Growing competition over access to facilities
First, it is worth noting that China's growing presence in overseas
ports may create additional challenges for the U.S. Navy regardless of
whether this is China's intent. China's MSR initiative has led to a
dramatic increase in both Chinese overseas investments and Chinese
citizens living and working in Asia, the Middle East, Africa, and
throughout the Indian Ocean region. As a result, these expanding
Chinese interests have led not only to an increased Chinese civilian
presence, but also to an increased military presence, as China's
military goes abroad to protect its national interests. This increased
Chinese civilian and military presence abroad means that in certain
locations, the USN is likely to face greater competition for access to
ports and port facilities, potentially making it more difficult for the
USN to gain access at certain times.
Port Khalifa may be one example where this may occur. In Port
Khalifa, COSCO began operating a new container terminal in December
2018 and has already stated that it is seeking to make it a regional
transshipment hub, diverting Chinese ships from other ports in the
region. Should COSCO be successful, the increased port traffic in and
around Port Khalifa could potentially create delays for USN ships
seeking to use those port facilities as well.
Collecting intelligence on USN assets operating in foreign ports
Another issue that cannot be avoided is the opportunity for the PRC
to improve its intelligence collection capabilities against USN assets
operating in foreign ports. Chinese SOEs, like COSCO and China
Merchants, are intimately tied to the Chinese state, and their
positions as port operators could allow them to collect intelligence on
the movement and location of USN ships and other assets, USN ship
maintenance requirements, ship combat readiness, and the tactics,
techniques, and procedures (TTPs) that the USN uses for repair,
resupply, and other activities while in foreign ports. Such concerns
are not without merit; as noted above, actors like China Harbour
Engineering Company have reportedly been accused of seeking to bribe
officials abroad. Moreover, when describing the negotiations for the
Hambantota port, Nihal Rodrigo, a former Sri Lankan foreign secretary
and ambassador to China, noted that intelligence sharing between China
and Sri Lanka was ``an integral, if not public, part of the deal.''
\49\ Mr. Rodrigo also characterized the Chinese position during the
negotiations as ``We [China] expect you [Sri Lanka] to let us know who
is coming and stopping here [Hambantota].'' \50\
---------------------------------------------------------------------------
\49\ Maria Abi-Habib, ``How China Got Sri Lanka to Cough Up a
Port.''
\50\ Ibid.
---------------------------------------------------------------------------
Moreover, as SOEs such as COSCO work with Huawei to replace and
redesign IT infrastructure in places such as the Greek port of Piraeus,
it puts USN communication and other information at risk as well.\51\
Finally, if Chinese SOEs are not positioned to obtain that information
directly, local actors at those ports may feel compelled to provide
China with privileged information in return for financial benefits or
outright bribes, or to avoid punitive Chinese actions. This information
would have multiple benefits, improving China's ability to counter
future USN operations, while allowing the People's Liberation Army
(PLA) to learn about USN TTPs, thus potentially improving the PLA
Navy's own operations.
---------------------------------------------------------------------------
\51\ See for example Piraeus Port Authority SA, ``Piraeus Port
Authority SA Assigns to Huawei Technologies SA the Project of
Modernizing Its Network Infrastructure,'' Hellenic Shipping News,
January 26, 2018, https://www.hellenicshippingnews.com/piraeus-port-
authority-sa-assigns-to-huawei-technologies-sa-the-project-of-
modernizing-its-network-infrastructure/; Christopher R. O'Dea, ``Asia
Rising: Ships of State?'' Naval War College Review: Vol. 72: No. 1,
Article 5, p. 83.
---------------------------------------------------------------------------
``Slow-rolling'' work for USN ships at Chinese-operated ports
Chinese firms could also affect USN operations directly,
potentially using their economic leverage to encourage firms providing
services to the USN at the port to slow down repair or resupply
operations, or to provide USN ships lower priority than they currently
enjoy. To be clear, I have seen no evidence of this to date. However,
given that seven of the top 10 busiest ports in the world by throughput
are in China, it is not unreasonable to think that a growing number of
firms that contract to conduct work for the USN at overseas ports may
also have commercial interests in China, or may subcontract portions of
that work to firms that do.\52\
---------------------------------------------------------------------------
\52\ Lloyd's Maritime Intelligence, One Hundred Ports 2018, p. 12.
---------------------------------------------------------------------------
Actively restricting USN access to port facilities
When might China seek to restrict USN or USNS access to ports
facilities run by Chinese SOEs? Hypothetically, if relations between
the two countries continue to deteriorate, China could seek to restrict
USN access as a response to a US action that it perceives as hostile--
such as a USN warship visit to Taiwan--or even as an escalatory step
should a serious crisis occur between the two countries in the East
China Sea, South China Sea, or elsewhere.\53\ Such an action would not
be taken lightly, as doing so would certainly mark the start of a much
more confrontational period in US-China relations with the associated
political and economic ramifications. Nor would it go unnoticed in
countries where concerns about ceding sovereignty as a result of
China's growing footprint continue to gain traction.
---------------------------------------------------------------------------
\53\ I am not aware, however, of Chinese analysts discussing this
as a possible tactic for use in the context escalation and crisis
control more. See for example Alison A. Kaufman and Daniel M. Hartnett,
Managing Conflict: Examining Recent PLA Writings on Escalation Control,
(Arlington: VA, Center for Naval Analyses), February 2016, DRM-2015-U-
009963-Final3.
---------------------------------------------------------------------------
China would likely face political pushback from the host country as
well. For example, while China may be best positioned to restrict U.S.
Navy access where it has significant economic leverage, such as
Djibouti, or controls port operations, such as Piraeus, both Djibouti
and Greece would have strong incentives to avoid being pulled into such
a confrontation. Djibouti, for example, would potentially stand to lose
some of the $130 million it earns annually from allowing US partners
and allies such as France, Japan, and Italy to operate in its
territory, should some of those countries decide to reevaluate their
presence there. Greece, meanwhile, could potentially be subject to
political and economic pressure from other NATO or EU member states.
Restricting USN access to port facilities would be even more
difficult in locations where Chinese firms are not the sole or majority
equity shareholder, as Chinese SOEs would face a range of actors at the
local level with incentives to avoid being pulled into a conflict. In
Port Said, Egypt, for example, where COSCO Shipping Ports owns a 20
percent stake in the Suez Canal Container Terminal, other parties to
the joint venture include the Dutch firm APM Terminals (the majority
shareholder and operator), the Suez Canal Authority, the National Bank
of Egypt, and private Egyptian investors. All would likely want to
avoid being drawn into the middle of a conflict between the US and
China.\54\
---------------------------------------------------------------------------
\54\ APM Terminals, ``About Us: Port Said,'' APM Terminals, http://
www.apmterminals.com/en/europe/port-said/about-us.
---------------------------------------------------------------------------
Finally, one may argue that China has an interest in continuing to
allow USN ships to frequent Chinese-controlled port facilities, as such
visits provide ample opportunities for intelligence collection. In the
near term, therefore, it may be more likely that the USN decides to
limit its visits to certain ports owned or operated by Chinese SOEs to
mitigate these growing operational security concerns. For example,
following the news that the Shanghai municipal government-owned firm,
Shanghai International Port Group, had won the concession to operate
the container terminal in the Israeli port city of Haifa for 25 years
beginning in 2021, Israeli media reported that US officials had
expressed concern about continuing U.S. Navy activities there, to
include a ``Sense of the Senate'' statement within the Senate's
National Defense Authorization Act for Fiscal Year 2020, stating that
the US Senate ``has an interest in the future forward presence of
United States naval vessels at the Port of Haifa in Israel but has
serious security concerns with respect to the leasing arrangements of
the Port of Haifa as of the date of the enactment of this Act.'' \55\
Former Chief of Naval Operations Admiral Gary Roughhead described
possible concerns by noting:
---------------------------------------------------------------------------
\55\ ``To Authorize Appropriations for Fiscal Year 2020 for
Military Activities of the Department of Defense, for Military
Construction, and For Defense Activities of the Department of Energy,
to Prescribe Military Personnel Strengths for Such Fiscal Year, and for
Other Purposes,'' S1790, 116 Cong., 1st Sess (2019), pp. 607.
The Chinese port operators will be able to monitor closely US
ship movements, be aware of maintenance activity, and could
have access to equipment moving to and from repair sites and
interact freely with our crews over protracted periods.
Significantly, the information systems and new infrastructure
integral to the ports and the likelihood of information and
electronic surveillance systems jeopardize US information and
cybersecurity.\56\
---------------------------------------------------------------------------
\56\ Quoted in Michael Wilner, ``U.S. Navy May Stop Docking in
Haifa After Chinese Take Over Port,'' Jerusalem Post, December 15,
2018, https://www.jpost.com/Israel-News/US-Navy-may-stop-docking-in-
Haifa-after-Chinese-take-over-port-574414.
As China's roles and presence in overseas port operations continue
to expand, the U.S. Navy is having to adapt to a more challenging
operational security environment; one in which it is more likely to
interact with Chinese military and civilian assets and personnel even
when calling on ports located in partner and ally countries. Moreover,
port investments by Chinese state-owned firms occurring today could
allow them to develop capabilities that the Chinese state could
leverage in the future, including the capability to hinder USN repair
and resupply operations, or potentially even restrict USN access to
select locations. Responding to these challenges will require careful
consideration about where, when, and how the U.S. Navy operates in
---------------------------------------------------------------------------
overseas ports.
Mr. Maloney. Thank you, Mr. Becker.
Ms. Walsh?
Ms. Walsh. Thank you, Chairman Maloney, Ranking Member
Gibbs, distinguished members of the subcommittee. I would like
to add my condolences to the earlier panel. I was hoping maybe
to get to meet Congressman Cummings. So my loss, as well as
yours.
This is an important topic, one that doesn't get as much
attention as I think it warrants, in my own view. So I commend
the committee for focusing on this topic.
I have to note, as well, these represent my personal views,
and not those of the U.S. Government, Department of Defense.
I will give you the bottom line upfront. The United States
and China are in a geostrategic and economic competition in
which development of the ocean economy, also referred to as a
maritime or blue economy, will play a critically important--and
particularly from a maritime, commercial, and naval technology
point of view--important role. This competition will determine
the future of the global maritime supply chain.
China has a comprehensive long-term strategy, vision,
policies, and plans to develop the ocean economy, both at home
and abroad. The United States does not.
The OECD in 2016 put out an important report on the ocean
economy in 2030, noting that the ocean economy makes a
significant contribution to the overall economy, saying that in
2010 the ocean economy contributed $1.5 trillion, and by 2030
estimating that $3 trillion will be value-added growth. This
important strategic sector is particularly important in an age
of global trade, investment, and innovation, maritime industry
expansion, demographic shifts towards coastal zones, climate
change, and an emerging and growing naval contest between the
United States and China.
How and where the ocean economy develops will determine the
future of the global maritime industry, affecting key aspects
such as infrastructure and transportation, where the source and
centers of maritime innovation will emerge, and which countries
will dominate in determining maritime law, policy, processes,
and, as mentioned earlier, technical standards, hardware,
software, and environmental measures and others, both on land
and at sea.
Two important global trends that I would like to focus on
here that are fueling development of the ocean economy
globally, and that are sure to impact the global maritime
supply chain are, first, the expanding numbers and types of
special economic zones, or SEZs, that include specialized
maritime industrial-themed development zones; and then
secondly, a related concept of developing maritime clusters, or
innovation ecosystems, that are designed to spur maritime,
industrial, and also blue economic growth, technological
innovation, and doing so in a more sustainable way.
China is at the forefront of both of these global trends.
The U.N. Conference on Trade and Development, in its annual
report on world investment, had a special section on special
economic zones because is, as UNCTAD put it, explosive growth
in the use of special economic zones around the world. China
alone accounts for over 2,500 of all the world's SEZs, nearly
half of the worldwide total, and then more than half of those
that are in developing countries.
China has also pioneered a new form of special economic
zone that is focused on enhancing maritime, both commercial and
naval, capabilities by establishing a specialized and pilot
blue economy development zone, the first being Qingdao, China,
but also now establishing these along China's long coastline.
Within the Qingdao blue economic development zone they also
have what they call Blue Silicon Valley, the idea being clearly
to advance innovation in the marine and maritime sector.
In addition, China's blue economy development zones are
strategically located with military and defense industrial
interests in mind. As you have noted, commonly understood,
China's long-term economic and technological development model
remains based on dual-use, combined, and what they call now
military-civil fusion of technology development and innovation
that is intended for both commercial and defense purposes. This
strategic approach applies to the maritime sector as well, and
will affect how and the degree to which U.S. and Chinese
maritime stakeholders can engage, whether in China or overseas,
and as part of the global maritime supply chain.
Under the Maritime Silk Road Initiative, China has expanded
its efforts to promote overseas SEZs, including overseas blue
economy zones and other blue cooperative programs. As noted in
the previous panel, in the recent New York Times article, for
instance, China has leased an entire province in the Solomon
Islands for development of a special economic zone, though it
is not clear what industrial or military purposes it plans to
use it for. But the vehicle is a special economic zone, which
is an important part of China's own development, and part of
the allure or attraction of Chinese foreign investment
overseas.
In mid-2017 Beijing announced a new ``Vision for Maritime
Cooperation'' which built upon the 2015 ``Belt and Road Action
Plan.'' I commend both of these documents to you, to the
committee; they are both in English, easy to understand. Note
that the maritime vision, in particular, has a whole litany of
development projects, including what it calls blue passages,
blue economic corridors, blue partnerships, blue carbon
programs--all, of course, with maritime themes--in addition to
overseas blue economic zones.
In cooperation, as their plan is, with neighboring regional
and international partners that stretch across almost all of
the globe, all of the Indo-Pacific, and stretching into the
Mediterranean, the Arctic, and, importantly, as well, into the
deep ocean. Thank you.
[Ms. Walsh's prepared statement follows:]
Prepared Statement of Kathleen A. Walsh, Associate Professor of
National Security Affairs, U.S. Naval War College \1\
---------------------------------------------------------------------------
\1\ These views are based in part on research conducted for a
forthcoming volume on strategic implications of China and the blue
economy, as well as ongoing research and presentations on this topic
dating back to 2013.
---------------------------------------------------------------------------
Mr. Chairman, Ranking Member and distinguished Members of the
Subcommittee, thank you for the opportunity to appear before you to
discuss the topic of China's Maritime Silk Road (MSR) initiative and
implications for the global maritime supply chain. This is an important
topic, but one that has not received as much detailed attention as it
warrants, in my view. So I commend the committee for its focus on this
topic. Please note that these remarks represent my personal views and
not official views of the U.S. government.
Taking a cue from military practice, here is the bottom line up
front: The United States and China are in a geo-strategic and economic
competition in which development of the ocean economy (also referred to
as the ``maritime'' or ``blue'' economy) will play a critically
important role, particularly in terms of maritime (both commercial and
naval) technology innovation advances. This competition will determine
the future of the global maritime supply chain.
The Ocean Economy
According to The Ocean Economy in 2030, a 2016 report by the
Organization for Economic Cooperation and Development (OECD): ``The
ocean economy makes a significant contribution to the economy--over
USD1.5 trillion in value-added in 2010. . .and by 2030, the ocean
economy is likely to more than double'' to an estimated $3 trillion.\2\
This growing strategic sector is particularly important in an age of
global trade, investment, and innovation, maritime industry expansion,
demographic shifts toward coastal zones, climate change, and an
emerging naval contest between the United States and China. How and
where the ocean economy develops will determine the future of the
global maritime industry, affecting key aspects such as infrastructure
and transportation, where the source and centers of maritime innovation
will emerge, and which countries will dominate in deciding maritime
law, policy, processes, and technical standards (on hardware, software,
environmental measures and more), both on land and at sea.
---------------------------------------------------------------------------
\2\ OECD. The Ocean Economy in 2030 (Paris: OECD Publishing,
2016).The ocean economy is sometimes also called the ``maritime'' or
``marine'' or ``blue'' economy. All of these terms include some degree
of maritime industrial development, technological innovation,
sustainable development, and environmental conservation as economic
elements and as parts of an ecosystem. According to the OECD, ``the
ocean economy represents the sum of the economic activities of emerging
ocean-based industries (i.e. renewable energy) and established ones
(i.e. capture fisheries), together with the goods and services of
marine ecosystems. . .'' OECD, ``The Ocean Economy and Innovation:
Promoting Sustainable Seas and Oceans with Innovation,'' STI in Focus,
Directorate for Science, Technology and Innovation (April 2017), http:/
/www.oecd.org/sti.
---------------------------------------------------------------------------
Two important global trends fueling development of the ocean
economy and sure to impact the global maritime supply chain are: 1) the
expanding numbers and types of Special Economic Zones (SEZs) around the
globe, including specialized maritime industrial-themed development
zones; and 2) the related concept of developing maritime clusters or
innovation ecosystems designed to spur ``blue'' economic growth and
technological innovation in more sustainable ways. China is at the
forefront of both global trends.
Global Expansion of Special Economic Zones Promoting Economic
Development
The United Nations Conference on Trade and Development (UNCTAD)
published its annual World Investment Report (WIR) 2019, which
emphasized the economic importance of special economic zones. The
report shows ``explosive growth in the use of special economic zones
(SEZs) as key policy instruments to the attraction of investment for
industrial development.'' \3\
---------------------------------------------------------------------------
\3\ United Nations Conference on Trade and Development (UNCTAD),
World Investment Report: Special Economic Zones (New York, NY: United
Nations Publications, June 2019), p. iv. (Hereafter WIR 2019).
---------------------------------------------------------------------------
As calculated in WIR 2019, worldwide (in 147 countries) there are
more than 5,000 SEZs, with 1,000 of these established in the past
decade and 500 more currently in planning stages.\4\ This growth has
taken place largely since the late 1990s, when there were less than
1,000 SEZs across the globe. China, alone, accounts for 2,543 of all
SEZs, or nearly half (47%) of the worldwide total and more than half
(53%) of those in developing countries (counting 13 planned zones but
not China's many smaller-sized industrial or science parks and some of
its more specialized zones within zones).\5\
---------------------------------------------------------------------------
\4\ WIR 2019., p. xii.
\5\ Ibid., pp. 135-143.
---------------------------------------------------------------------------
As the WIR 2019 notes, SEZs ``are widely used in most developing
and many developed economies. Within these geographically delimited
areas governments facilitate industrial activity through fiscal and
regulatory incentives and infrastructure support.'' \6\ The report
notes that the United States has 262 SEZs, which represents the highest
number among developed economies.\7\ In the United States, SEZs mainly
take the form of foreign trade or customs-free zones and ``are created
at the instigation of local organizations rather than the federal
Government''.\8\
---------------------------------------------------------------------------
\6\ Ibid., p. xii.
\7\ Ibid., pp. 152-3.
\8\ Ibid., p. 153.
---------------------------------------------------------------------------
The development of SEZs represents generally a top-down or
government-driven effort to foster industrial development and can be
effective in drawing domestic and foreign investment to economically
and strategically critical sectors. Establishing an SEZ provides no
assurance of economic success, but such zones can help spur investment,
industry and innovation that might otherwise be slow to develop or be
inefficiently dispersed or disconnected geographically.
The WIR 2019 notes that Beijing estimates its 156 high-tech
development zones (HTDZs), for instance, have ``contributed $1.42
trillion to China's GDP, or 11.5 per cent of the economy'' in 2017 with
high levels of research and development expenditures to total
production value as well as being responsible for a large fraction of
China's overall patent activity, though such Chinese economic data is
often suspect.\9\ What is clear is that China's economic rise over the
past 40 years is due in part to China's extensive and continually
experimental approach to SEZ development.
---------------------------------------------------------------------------
\9\ Ibid., p. 134.
---------------------------------------------------------------------------
For example, China has pioneered a novel form of SEZ focused on
enhancing maritime--including commercial and naval--capabilities by
establishing a specialized pilot Blue Economy Development Zone in
Qingdao, China in 2011. Qingdao is located on the Shandong Peninsula
southeast of Beijing and is the location of the PLA Navy's Northern
Theater headquarters. Within Qingdao's Blue Economy Development Zone,
planners also designated what they call a ``Blue Silicon Valley'' or
maritime industry-focused cluster aimed at advancing marine science and
technology.
Beijing has since approved additional Blue Economy Development
Zones along its long coastline, from Dalian (the northern port home of
China's first aircraft carrier) to Tianjin, Shanghai, Xiamen, coastal
sites in Hebei, Jiangsu, Zhejiang and Guangxi Provinces as well as
Zhanjiang in Guangdong Province--the purported starting point for
China's Maritime Silk Road and also headquarters of the PLA Navy's
Southern Theater headquarters.
In addition to being coastal centers for development of commercial
maritime industry, China's planned Blue Economy Development Zones noted
above are strategically located with military and defense industrial
interests in mind. As has become commonly understood, China's long-term
economic and technological development model remains based on a dual-
use, combined, ``military-civil fusion'' of technology innovation
intended for both commercial and defense purposes. This strategic
approach applies to the maritime sector as well and will affect how,
and the degree to which, US and Chinese maritime stakeholders can
engage, in China or overseas, as part of a global maritime supply
chain.
As in other countries, China's blue economy concept includes
promotion of sustainable maritime development and marine conservation
as part of an innovation ecosystem. But foreign researchers note that
marine environmental concerns as part of China's maritime and blue
economy development plans typically rank as a distant last priority
following innovation and industrial development goals, which Chinese
researchers also acknowledge. Yet, the ``blue'' sustainable development
component remains attractive to local officials as well as those in
developing countries open to or seeking Chinese assistance in
establishing blue economy development zones of their own.
In fact, bilateral government-government ``partnerships zones'' are
becoming popular among developing countries, including partnership
zones established with and by China. These zones complement China's own
China Overseas Cooperation Zones (COCZs), established as of 2006 and of
which 20 have been verifiably established, most (7) located in
Southeast Asia, with four each in Russia across across Africa, among
other locations.\10\
---------------------------------------------------------------------------
\10\ Ibid., p. 157.
---------------------------------------------------------------------------
China is a prominent actor, in fact, in developing overseas SEZs of
various sorts, including zones with maritime importance. The WIR 2019
notes that, ``The first instance of Chinese involvement in the
establishment of SEZs in Africa was in 1999, when China signed an
agreement with Egypt to develop an industrial zone in the Suez Canal
area. In 2006, as part of the implementation of its 11th five-year
plan, China announced the development of 50 SEZs overseas, seven of
which were to be in Africa. Subsequently, as Chinese investment and
interest in Africa deepened, plans were announced for several
additional zones to be built with Chinese support. For instance, China
signed an agreement with Djibouti in 2016 to build an FTZ [free trade
zone] as part of the Belt and Road Initiative; the first phase of the
zone was launched in 2018. This 10-year project, costing $3.5 billion,
is to create Africa's largest FTZ, spanning 4,800 ha. The zone will be
managed by a joint venture comprising the Government of Djibouti as the
majority shareholder and three Chinese companies: the China Merchants
Group, Dalian Port Authority and IZP. Involvement by Chinese
development companies has also been reported in Algeria, Angola,
Ethiopia, Kenya, Mauritius, Nigeria, Rwanda and Zambia, among others.''
\11\ It was not lost on the United States and other naval and maritime
powers that China also has built its first overseas military base (a
naval support facility) in Djibouti, next to a major port and not far
from the U.S. military's own base.
---------------------------------------------------------------------------
\11\ Ibid., pp. 149-150.
---------------------------------------------------------------------------
Under the Maritime Silk Road initiative, China has expanded its
efforts to promote overseas SEZs, including overseas Blue Economy Zones
and other ``blue'' cooperative programs, as discussed below.
US & International Ocean/Maritime Clusters of Innovation and
Sustainable ``Blue'' Economy Development
The comprehensive OECD study, The Ocean Economy in 2030, concludes
by recommending a focus for future SEZ development on sustainable
development, noting that ``the sustainable development agenda
increasingly drives MNEs' [multinational enterprises'] strategic
decisions and operations. . .'' \12\ The WIR 2019 report shares this
advice, noting that new SEZs focused on meeting sustainable development
goals (SDGs) represent a relatively new trend and promising development
model.\13\
---------------------------------------------------------------------------
\12\ OECD. The Ocean Economy in 2030, p. xiv.
\13\ WIR 2019, p. 205.
---------------------------------------------------------------------------
This dynamic has already begun to emerge in the maritime realm in
the form of ocean- or maritime-oriented innovation clusters, many of
which include emphasis on sustainable development efforts. According to
a World Ocean Council White Paper, there are already dozens of (over
40) ocean or maritime industry clusters in development around the
globe, including in the United States and China.
As defined by the World Ocean Council (WOC), ``Ocean/Maritime
Clusters are geographic concentrations of similar or related maritime
firms--such as shipping, seafood, marine technology, and/or port
operations--that share common markets, technologies, worker skill
needs, and are often linked by buyer-supplier relationships and operate
in close interactions with another directly and through multiple
networks.'' \14\ As noted, many of these clusters also include a focus
on sustainable development. Ocean/maritime clusters are often found
within or near SEZs.
---------------------------------------------------------------------------
\14\ Hansen, Eric Rolf, et al., Ocean/Maritime Clusters: Leadership
and Collabortion for Ocean Sustainable Development and Implementing the
Sustainable Development Goals. World Ocean Council White Paper,
Economic Transformations Group & World Oceans Council, 2018, p. 4.
---------------------------------------------------------------------------
These ocean or maritime industry clusters, whether planned (as in
China) or forming organically (as is often the case in the United
States), seek to enhance prospects for investment, industrial
development, and innovation in a fashion similar to that found in
Silicon Valley's networked cluster of ICT industry firms and related
organizations. This innovation ecosystem model concept promotes
continuous and sustainable (in this case, maritime) industry
development through establishment of formal and informal networks among
the area's varied stakeholders, setting up opportunities for both
competition and cooperation to ensure a thriving business environment,
both literally and figuratively.
The WOC maritime clusters report concludes, in fact, that, ``the
way forward is a focus on business growth and investment opportunities
for responsible, sustainable ocean use (sometimes referred to as the
`Blue Economy' and 'Blue Growth'), which considers the intersection of
ocean economic benefits, environmental health and societal value in
policies and best practices. . .Ocean/Maritime Clusters can lead ocean
sustainable development and realize economic benefits.'' \15\ In other
words, maritime clusters ought to focus not only on promoting industry
and innovation but also on more environmentally friendly, sustainable
development-oriented practices such that today's profits don't lead to
tomorrow's marine ecological disaster.
---------------------------------------------------------------------------
\15\ Hansen, et al., p. 3.
---------------------------------------------------------------------------
The development of innovative maritime clusters that also promote
environmental sustainability is an area in which the United States is
likely to be more competitive with other countries, particularly China
and developing economies, where environmental laws, regulations and
practices are less established or advanced. In this regard, US maritime
stakeholders could learn much from European countries, too, where
environmental policies are prompting innovative approaches to maritime
development and use of marine space. Yet, the United States presently
lacks a clear strategy for sustainable development of the maritime
sector, relying instead mainly on local and state leaders to foster
enhanced maritime trade through investment, innovation and
sustainability with only limited federal attention to the ocean economy
overall.
China, alternatively, in addition to having experimented with
development of SEZs for four decades, already has a vision and plans
for all of the above and is implementing its plans both domestically
and internationally, the latter as part of Xi Jinping's Maritime Silk
Road initiative. A European Council on Foreign Relations April 2018
study determined, for instance, that ``Europe should emulate China's
blue economy as an engine of growth and wealth and encourage innovation
to respond to well-funded Chinese industrial and R&D policies.'' \16\
In short, Beijing is ahead of the rest of the world in conceiving a
national and international strategy to leverage ocean/maritime/blue
economy opportunities and could reap significant, first-mover
commercial and defense industrial as well as technological advantages
as a result. If so, China's efforts could quickly shape the global
maritime supply chain in surprising and strategically complicated ways
for the United States and our allies, partners and friends across the
globe.
---------------------------------------------------------------------------
\16\ Mathieu Duchatel and Alexandre Sheldon Duplaix, Blue China:
Navigating the Maritime Silk Road to Europe,'' European Council on
Foreign Relations Policy Brief--Summary (ECFR/ECFR/255, April 2018).
---------------------------------------------------------------------------
China's Maritime Silk Road, Maritime Vision & Action Plan
In 2013, Xi Jinping introduced China's Maritime Silk Road as part
of a larger ``One Belt, One Road'' strategic initiative (see Figure 1,
bottom dotted line below).
Figure 1: ``1 Belt, 1 Road'': ``New Silk Road Economic Belt, 21st
Century Maritime Silk Road'' (Xinhua, 2013)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As explained by PRC State Councilor Yang Jiechi in 2015, ``The 21st
Century Maritime Silk Road will present a rich and colorful program of
cooperation. In addition to maritime transport and resource
development, it will involve research, environmental protection,
tourism, disaster reduction and prevention, law enforcement cooperation
and people-to-people exchanges on the sea. Not only will it look at the
development of the blue economy and building of oceanic economic
demonstration zones offshore, it will also build onshore industrial
parks, marine science and technology parks and training bases for
ocean-related personnel. Not only will we go utilizing the oceanic
resources, we will also protect well our oceanic environment. Not only
should we deliver a good life to our people along the coast, we should
also bring about an interconnected development of the hinterland and
coastal regions to achieve common prosperity.'' \17\ These are hefty
promises and ambitious plans. While it's unclear if China can achieve
these aims, it's fairly certain Beijing will try.
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\17\ China Ministry of Foreign Affairs, Press Release (March 28,
2015), http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1249761.shtml
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The inclusion of ``development of the blue economy'' in Xi's MSR
initiative is significant. Though China's blue economy development
efforts date back formally to the Hu Jintao era (2002-2012/13),
Beijing's initial enthusiasm for this development concept as a means of
spurring China's domestic maritime economy and dual commercial and
naval technology innovation efforts appeared to wane for a time,
becoming mired in bureaucratic rivalries or technology transfer
challenges and other matters. Xi's inclusion of the blue economy in the
MSR appears to have revitalized the idea as an attractive means of
promoting foreign direct investment and foreign maritime technology
transfer in China's blue economy development zones but also, perhaps
primarily, through China's development of overseas blue economy
development zones.
Where China has found it harder in some ways to continue to attract
US and other foreign ocean researchers, scientists, venture
capitalists, entrepreneurs, academics, businesses, and other innovative
actors to China, the MSR envisions China building a network of overseas
BE development zones along the MSR as a means of achieving the same
foreign technology transfers while emphasizing the opportunities such
zones also provide local overseas economies and communities, presenting
such development zones as a ``win-win'' deal.
In mid-2017, Beijing announced a new Vision for Maritime
Cooperation, which built on Xi Jinping's Belt and Road Action Plan
announced in 2015.\18\ These two documents, in particular, provide a
blueprint of China's plans to develop an integrated global maritime
industrial production, supply and technological development chain
across the MSR.
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\18\ See, respectively, ``Vision for Maritime Cooperation under the
Belt and Road Initiative,'' Xinhua News Agency (June 20, 2017), http://
news.xinhuanet.com/english/2017-06/20/c_136380414.htm; and One Belt One
Road Action Plan. Beijing: Xinhua News Agency, March 2015. Both
documents were available in English-language translations.
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China's vision and action plans clearly outline how Beijing seeks
to develop an overseas network of maritime industrial zones and
innovative maritime clusters that are integrated with China's domestic
maritime sector. This ocean economy network is being built, in part,
through development of what Beijing has termed ``Blue Passages", ``Blue
Economic [cross-border regional] Corridors,'' ``Blue Partnerships",
``Blue Carbon Programs", and the aforementioned ``Blue Economic Zones''
in cooperation with neighboring, regional and international
partners.\19\ These plans cover most of the globe, including all of the
Indo-Pacific, stretching into the Mediterranean through to the Artic
and into the deep ocean.
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\19\ Regional Economic Zones include, or instance, the Beibu Gulf
Economic Zone; there are thus far six Regional ``Blue'' (Economic)
Corridors (on land & sea), including the China-Pakistan Economic
Corridor (CPEC), Bangladesh-China-India-Myanmar, China-Indochina
Peninsula, New Eurasian Land Bridge, China-Mongolia-Russia, and China-
Central Asia-West Africa; ``Blue Partnerships'' exist with the European
Union and some island states; and various ``Blue Passages'' are
envisioned connecting China's domestic ocean economy to those
elsewhere, namely: China-Oceania-South Pacific, China-Indian Ocean-
Africa-Mediterranean Sea, and others (including one passage that seeks
to connect China to the Arctic).
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China has advanced also the related concept of building a digital
or ``Information Silk Road'' aimed at connecting maritime
infrastructure and networking blue development efforts along the MSR.
The 2015 Belt and Road Action Plan proposes, for instance, a range of
development programs: ``cross-border optical cables and other
communication trunk line networks'' (transcontinental submarine &
satellite); plans to ``form an infrastructure network connecting all
sub-regions in Asia'' as well as prioritizing facilities and network
``connectivity"; standardized transportation, maritime, customs,
logistics, info-technology and technical standards; promotion of
``green and low-carbon infrastructure construction and operation
management"; and the establishment of maritime cooperation centers and
other collaborative efforts in ocean engineering, exploration,
environmental protection industries, hydropower, and more.
Xi's 2017 Maritime Vision further advises that ``Countries along
the Road are encouraged to enhance cooperation through pairing sister
ports and forging port alliances. Chinese enterprises will be guided to
participate in the construction and operation of ports. Projects for
the planning and construction of submarine cables will be jointly
advanced to improve connectivity in international communications.''
Finally, the 2017 Vision also offers planning assistance in
promoting a full range of blue economy activities, noting: ``China is
prepared to provide technical assistance to countries along the Road in
drafting plans for sustainably utilizing marine resources. Enterprises
are encouraged to participate in marine resource utilization in a
responsible way. . .China will join in efforts by countries along the
Road in establishing industrial parks for maritime sectors and economic
and trade cooperation zones, and promote the participation of Chinese
enterprises in such endeavors. Demonstration projects for developing
the Blue Economy will be implemented and developing countries along the
Road will be supported in mariculture to improve livelihoods and
alleviate poverty. China will also work with countries along the Road
in developing marine tourism routes and high-quality tourism products,
and in setting up mechanisms for tourism information sharing.''
Thus, in the case of maritime competition, China's strategic
intentions under Xi's leadership are clear, and much of the PRC's basic
long-term development plans publicly available to assess. The challenge
for analysts and officials, therefore, lies more in determining
whether, why, how far, and how fast China might succeed--or not--in
implementing its ambitious plans. In conceiving its MSR initiative and
network of ocean/maritime/blue economy zones and clusters, China's
strategic head start provides a competitive advantage but one that will
not necessarily be maintained, particularly if the United States and
its allies and partners decide to implement a strategy and plan(s) of
our own to contend in this strategically critical space.
Given China's clear rejection under Xi's leadership of Western,
liberal-democratic values as well as the Trump administration's
adoption of tariffs as a means to compel change in Chinese trade and
investment activities, the growing geo-strategic and economic
competition between China and much of the rest of the developed world
is intensifying. It is unclear if the US and Chinese economies will be
``decoupled", as suggested by some White House officials. But the
intensifying strategic competition is, at the very least, likely to
complicate and slow future development of the global maritime supply
chain, which could evolve into separate industrial spheres of
influence. In that case, China's head start in terms of strategic
development of an ocean economy at home and abroad could prove more
challenging.
Advances in the Ocean/Blue Economy in the United States
In trying to understand China's innovation efforts and blue economy
endeavors, I have conducted a modest amount of research in the United
States and Europe to get a better idea of how these activities compare.
In the United States, my outreach efforts indicate that ocean and blue
economy activities remain largely local- or state-led initiatives
driven by area entrepreneurs and officials seeking to leverage existing
as well as emerging, start-up maritime enterprises and innovative
opportunities. This primarily bottom-up (rather than top-down driven)
approach to innovation is characteristic of how the United States
historically has developed innovative opportunities, networks and
clusters and represents an important comparative advantage. In this
respect, maritime innovation in the United States appears to be robust
and dynamic.
At the same time, however, as ocean/maritime/blue economies
continue to grow and expand around the United States, the federal
government can playing an important supporting role to local ocean/
maritime/blue innovation efforts by providing data and other
information on the totality of these local efforts, regular analyses of
these activities, and by providing some amount of funding to assist
local actors to better understand how they fit into the larger
picture--domestically and globally--as well as how they might find
opportunities to engage within and outside their region, whether
through business ventures, research collaborations, or federal R&D
opportunities.
The federal government also can play an important role in
collecting data to help officials better understand and leverage local,
regional and national economic centers of maritime innovation. Such
efforts are already taking place. Though often under the national
radar. For instance, local-level efforts to understand what
stakeholders already or potentially could be involved in regional
ocean/maritime/blue economy clusters are occurring and local parties
are working to connect stakeholders to one another through business,
academic and government-sponsored conferences, workshops, contact
lists, and more. In the absence of a national-level strategy, these
laudable local-level efforts are occurring in an often ad-hoc manner
and/or by parties with an interest in only a section(s) of the maritime
economy, which means opportunities are being lost. Also, information on
potential stakeholders as well as a systemic understanding and analyses
of strategic implications are likely to be incomplete.
Such local, ad-hoc, or area-specific efforts are also very unlikely
to provide national leaders with a clear understanding of how
competitive the United States is--or is not--in maritime development
and innovation vis-a-vis other countries, particularly China. If the
United States wishes to ensure the global maritime supply chain remains
one in which U.S. researchers, enterprises, policy, technologies and
standards play a leading and essential role, then a more strategic and
systemic approach is needed to understand changes to the global
maritime supply chain, and particularly the role played by ocean/
maritime/blue economy and innovation zones and clusters being formed
across the United States and internationally.
Recommendations for a Strategic Way Ahead
There is much that Congress can do to support the United States'
leadership in ocean science, maritime industry, blue technology, marine
conservation and sustainable maritime development, all of which will
impact the global maritime supply chain as well as Coast Guard and U.S.
Navy development and acquisition efforts. Below are a few ideas for the
Committee's consideration.
The United States needs a comprehensive strategy focused
on how to both facilitate and leverage development of the ocean or blue
economy at home and abroad.
The Trump administration in 2018 revoked the Obama-era
National Ocean Policy, replacing it with a brief Executive Order
focused on ``ocean-related matters'' that mentions in the body
``environmental'' interests and ``sustainable use'' substantively only
once, each, and ``innovation'' not at all.\20\ Under new, joint
leadership of the Office of Science and Technology Policy (OSTP) and
Council of Environmental Quality (CEQ), the latter initiative appears
to be a low priority for the current administration. This observation
is supported by the brief section on ``oceans'' in the White House
budget R&D memo that directs ``Departments and agencies should
prioritize new and emerging technologies and collaborative approaches
to efficiently map, explore, and characterize the resources of the U.S.
exclusive economic zone. . .[and] should also focus on processing and
making publically available data that characterize natural resources
and human activities and on R&D that improves understanding of and
supports effective responses to changes in the ocean system''.\21\ This
narrow scope and limited efforts effectively represent a strategic step
backward in meeting US national security, economic, technological and
sustainable development interests.
---------------------------------------------------------------------------
\20\ Executive Order 13840, entitled ``Ocean Policy to Advance the
Economic, Security and Environmental Interests of the United States",
was issued June 19, 2018 and overrides Obama-era policies establishing
the National Ocean Policy. See Executive Office of the President,
``Executive Order 13840,'' The Federal Register (June 19, 2018) 83
FR29431, pp. 29431-29434
\21\ Executive Office of the President, ``Memorandum for the Heads
of Executive Departments and Agencies on Fiscal Year 2021
Administration Research and Development Budget Priorities'' (August 30,
2019), https://www.whitehouse.gov/wp-content/uploads/2019/08/FY-21-RD-
Budget-Priorities.pdf.
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While the United States' advantage in innovation stems mainly
from local community and state-level, bottom-up, entrepreneurial
activities, a national strategy for development of the ocean or blue
economy can facilitate and help coordinate such efforts to ensure
local-level advances also serve national economic and defense
requirements.
Congress should continue to support ocean science
research and, if necessary, mandate a comprehensive ocean economy
strategy (per above) to guide national priorities. Ocean science,
technology engineering and math (O-STEM) educational support starting
at K-12 programs and carrying through to graduate education and federal
laboratory research, is essential, particularly where these programs
engage with other actors as part of ocean/maritime zones and clusters.
Congress can authorize executive departments and agencies
to develop and facilitate adoption of export control policies,
processes and expertise specific to the expanding and increasingly
global maritime industry sector.
Ocean science and research is by nature a global enterprise,
including work by and with Chinese scientists and researchers; maritime
innovation and technology development, however, must be carefully
protected in the face of decades of Chinese efforts to exploit foreign
technology transfers. US ocean/maritime/blue economy actors are
becoming increasingly engaged around the globe. At the same time that
we must find ways to leverage the maritime S&T and R&D that is taking
place around the country and across the globe, doing so involves
inherent risks, particularly when interacting with Chinese and other
foreign counterparts. That is not a reason not to engage, but cause to
do so strategically while taking care to protect intellectual property
and other U.S. assets--for instance, by applying hard lessons learned
in assisting emerging ocean/maritime/blue economy and innovation
clusters across the United States in establishing strong export control
and technology transfer expertise and corporate or university research
policies before problems arise.
Just as other countries seek to secure a presence in our
Silicon Valley in order to be on the ground where computer software and
other new technologies are being developed, the United States should
encourage an American presence in overseas ocean/maritime clusters and
blue economy zones so as to ensure US companies and researchers have
knowledge of, and familiarity with, what maritime industry developments
and ocean innovations are occurring elsewhere around the globe and in a
timely fashion; US federal R&D labs should also focus on understanding
what implications are arising from these emerging ocean/maritime
centers.
More specifically, Congress could support research--
particularly field research--aimed at gaining a deeper understanding of
whether, how effectively, and how quickly China's MSR network and
related maritime industrial and innovation plans are being implemented.
Many research institutions around the world are trying to
analyze and assess China's MSR. These laudable efforts exist far and
wide but are typically intermittent and generally lack a consistent,
long-term or comprehensive focus. Congress might usefully provide
funding for a public repository of such information and analyses, which
would aid US and allied research efforts into China's near- and long-
term MSR activities. Earlier this year, I recommended the U.S. Navy
establish (or support) a dedicated Blue Century Initiative Institute as
a research center and repository of information and analysis on the
developing concept of an ocean/maritime/blue economy in order to aid
its own strategic and innovative endeavors. Such a one-stop public
research institute and library also could serve--or be leveraged by--
the U.S. Coast Guard. If any such center were to be established, it
should include a focus on technological innovation but also on
sustainable development dynamics to ensure that any work takes into
account the full range of commercial and military maritime advances
that are possible as well as ensure a sustainable ecosystem of maritime
innovation develops to serve near- and long-term US economic and
national security interests.
At a minimum, Congress can support research specific to
development of blue technology. As this subcommittee noted in its May
2018 hearing, `` `Blue technology' is a term that describes a wide
swath of technologies and systems that support, sustain, and integrate
the U.S. and global ocean economy. Accordingly, systems and
technologies such as autonomous vehicles, sensors (both remote and in
situ), ocean observation platforms, and hydrographic services, among
many others fall under the term. The integration of advanced blue
technologies could improve operational efficiencies and the Coast
Guard's mission performance. . .improved understanding of the maritime
environment, and optimal deployment and use of conventional Coast Guard
assets (e.g., cutters, aircraft, small boats, etc.).'' \22\ Blue
technology holds promise far beyond traditional maritime industries
and, thus, represents a worthwhile focus for U.S. scientific research
funding.
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\22\ Subcommittee on Coast Guard and Maritime Transportation of the
Committee on Transportation and Infrastructure, ``Hearing on Blue
Technologies: Use of New maritime Technologies to Improve Efficiency
and Mission Performance'' (Washington, DC: Government Printing Office,
May 6, 2018), p. iv.
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Finally, as many before me have advised, Congress should
ratify the United Nations Convention on the Law of the Sea (UNCLOS) so
that the United States can be a constructive and driving force in
shaping critical decisions made or influenced at this important
international legal forum (and to which China is a member). If Congress
determines ratifying UNCLOS is not in the U.S. interest, then it is
advisable for the United States to initiate an alternative or follow-on
treaty or forum to address the future sustainability and use of the
world's oceans.
Thank you for your invitation. I stand ready to provide answers to
any questions you might have.
Mr. Maloney. I thank you, Ms. Walsh. I will now proceed to
Members' questions. Under the 5-minute rule I recognize myself
for 5 minutes.
Ms. Walsh, I am struck by your testimony. I agree
wholeheartedly with the point you are making. But can you tease
that out for me a little bit?
When you talk about the geostrategic and economic
competition, and you point out rightly the range and scope of
it, this is unlike the competition we have with other major
countries. Right?
I mean this is not the same as the global competition we
have with Japan, or the global competition we have with
Germany, or even the pressure on our manufacturing sectors or
other industries like shipbuilding that we might find with
other emerging economies or nations.
Talk about how it is different, and particularly how it
depends for its orientation, for its success to date, on the
authoritarian model that the Chinese have embraced, despite 30
years of economic policy and trade policy and wishful thinking
on behalf of American policymakers that the Chinese are moving
closer to our model, but instead, if anything, seem to be
accelerating away from it.
Can you just talk about how that competition is central to
what we see with the Maritime Silk Road, with One Belt, One
Road more broadly, with the Digital Silk Road, and with all of
its components?
Ms. Walsh. Sure. Thank you, Congressman, for your question.
I remember when I first saw the map of the Belt and Road. I
was shocked, honestly. I have studied China since 1990, so
quite a long time, and that is something I never thought I
would see from a Chinese paper or government product.
That said, I think that Xi Jinping's China is a very
different China than what we have seen in the past. I think
there was reason, I think, that we could engage with China in
the past. It was following along, or wanting to be part of the
international global order, which is based on, as you note, the
fundamental rule of law, of Western liberal democratic ideals.
I think Xi Jinping's China is fundamentally different.
And I think it has taken some time to understand that Xi
Jinping has a very different view of the international global
order. And I was one of the first, I think, to say China is a
revisionist power. Under Xi, China does want to remake the
international order in a more Chinese model approach. This is
fundamentally different, and much more concerning than the
China of the past.
This China of old has the same, you know, industrial
policies, 5-year plans, long-term plans. That hasn't changed.
But what has changed is that China wants to remake and revise
the international order, which gets down to that fundamental
difference between a Communist-led China, a Communist Party-led
China, and what the international community, U.S. and others,
have set up, which relies on the rule of law.
Mr. Maloney. And when you say revise and remake, another
word would be to displace the United States. What is your view
of that?
Ms. Walsh. I would agree with that now. I would not have,
you know, 7, 8 years ago, before Xi. I think that was a
different China. I think that we--our strategy may have fit
them, but I think our strategy has to adjust to a new and more
aggressive China.
Mr. Maloney. And so is it fair that we should--when we talk
about displacing, we are not just talking about displacing us
economically from a particular industry, or even from a
particular region. We are talking about displacing our global
economic model with a different one. Isn't that right? One led
by China.
And is it fair that we should understand the components of
One Belt, One Road, Maritime Silk Road, Digital Silk Road all
as component elements of a larger strategy to displace the
United States and its market-based, rules-based system with a
Chinese authoritarian model?
Ms. Walsh. Yes, I would agree with that. But I would also
caution, as I have before and with others, that this is Xi
Jinping's China. I am not convinced that this is going to be
China of the future, necessarily. It is the China we need to
deal with, obviously. We need a new strategy, but----
Mr. Maloney. Ms. Walsh, Xi Jinping has made clear that he
has no intentions of going anywhere. Isn't that fair? Do you
know something I don't about the next Chinese leader? Because I
think the next Chinese leader is Xi Jinping.
Ms. Walsh. All right. I would just caution----
Mr. Maloney. Isn't that right?
Ms. Walsh [continuing]. That, as a strategist, you want to
be prepared for the potential of change to happen. And if that
were to happen, we want to have that in mind if we were to
develop a long-term strategy----
Mr. Maloney. I couldn't agree more. In fact, that is why we
are holding this hearing, one of the reasons.
But you would agree that hope isn't a strategy, right?
Ms. Walsh. No----
Mr. Maloney. You would agree that we have something to say
about whether we are confronted with this China or the China we
had hoped for, the China we hope to see in the future.
Mr. Hillman, I only have a few seconds left, but I know you
made the point about cooperation with China. None of us wants a
purely confrontational relationship with the Chinese. Some of
us feel as though we are being pushed in that direction
aggressively, and we better be prepared for it. Is it possible
to cooperate our way through this global competition?
Are we overstating the risks of what we are talking about
here today?
Are we being too alarmist?
Mr. Hillman. So I think you do have to think through what
the risks are, and then you plan toward those. And so I don't
think that that has been alarmist at all. I think we are having
a healthy reassessment of what interdependence has meant for
us. And so I think looking at the maritime dimension of that
certainly makes sense.
I do think that there is more we can do, in terms of our
analysis, to separate things that are threatening from things
that are benign, or harmless, or sort of white elephant
projects. So to give you an example with ports, not every port
is some Trojan horse Chinese naval facility.
But being able to go through that takes--you need to have
information about who is involved and what the port looks like,
and there is an art to it. And, you know, our Government needs
to be doing more of that to separate these harmful activities
from the ones that are OK and can be encouraged.
Mr. Maloney. I thank the gentleman.
Mr. Gibbs?
Mr. Gibbs. Thank you. Ms. Walsh, you talked about how you
were surprised when you saw the map. I believe it is this map
[indicating a document], where there are 92 countries that have
formally endorsed the Belt and Road project. And, of course,
most of them are in Asia, some in Africa, a few in South
America.
But it is interesting when we talk about choke points, you
know, the Panama Canal, the Suez Canal, the Strait of Hormuz--
oh, the Persian Gulf, Panama, and those countries around the
Red Sea and, of course, in the Middle East are all colored red.
So they are all part of the Belt and Road project.
Obviously, today, our U.S. Navy, you know, keeps those
areas open. But I guess I am just thinking with the initiatives
that China is doing, they probably could cause havoc without a
military action, because they got their foot in the door. They
control--they make investments there. So it could be political,
it could be a mechanical thing, you know, the assets of the
infrastructure.
So, I mean, what is the course moving forward?
Ms. Walsh. Well, as my colleague said, I would advocate, as
you are talking about here, we need a comprehensive strategy to
deal with this.
China's hard power ports and capabilities that they are
building literally at sea and on land, that is hard power. We
know about their navy and commercial shipbuilding.
It is also soft power, which is the part I think you may be
getting at, too, which is, you know, you develop a special
economic zone. That is attractive to a lot of countries around
the world. You come in with money and infrastructure loans and
so on. The blue economy is an important soft power asset that
China has and we don't. That is something that countries will
want, its maritime industry, jobs, innovation, or at least
promised, and also sustainable industry and innovation. That is
a soft power tool that will expand that map, I expect.
And then finally, as you note, coercion. We have seen China
use economic coercion in the past. I expect they will continue
to do this. And once you have both the land-based assets and
control, and the willingness to use it, and then you expand
that out to sea, I think that is a whole different way of
looking at power and presence that we are not ready yet to deal
with.
Mr. Gibbs. Now, most of these countries that are on this
list are not really allies of ours. Some are: South Korea,
Israel, Jordan, Panama.
So, you know, I guess I am just kind of wondering what is
happening here. The carrot approach that China is using by
bringing in dollars, capital investment, they are just buying
into it, it doesn't matter? Or, you know----
Ms. Walsh. I think we need a holistic strategy. You know,
much of what I heard in the previous panel--and I often hear--
is whole-of-Government, but it really is a defense-oriented,
military-oriented allies and partners strategy. I think that is
insufficient.
I think it needs to be economic, diplomatic, innovative,
and, of course, also military, defense, security. But it is--
whole-of-Government is too simplistic. It has to be holistic.
To me that means we need a comprehensive strategy, and we need
somebody to run that, whether it is one person or one
institute, one organization to focus on this, because it is too
much for any of us.
Mr. Gibbs. I agree. And, you know, I am glad you held this
hearing, Chairman, just to bring this to light, because I don't
think most people really understand what is going on.
I think a lot of American citizens understand that China--
we have a lot of challenges with China and, you know, what we
are going through with the trade war. I think maybe President
Trump has got it right, that we have been financing a lot of
stuff in China, and now overseas. Maybe we get the trade done,
we get some equilibrium there, because this is not sustainable,
I think, for the future of our country, for our national
security. So----
Ms. Walsh. The first thing, though, we need to understand,
the scope and the details, I think, and having a way to do
that, so that officials and others can really understand, and
then come up with a strategy.
Mr. Gibbs. And I guess, just closing, right now we still
are the superpower. We project our power to promote peace
around the world--basically, the aircraft carrier groups. And I
know China is trying to build their capacity that way, too. So
I think that is a concern.
It is economic, like I said earlier, plus it is military.
Put the two together, and that is what makes it a strong force.
So we have to be prepared for that.
So I have nothing else. I yield back and I think we are
probably done.
Mr. Maloney. I thank the gentleman. Given the lateness of
the hour, we will be concluding.
I want to thank the panel. I also just want to underscore a
couple of closing points.
We saw recently, in fact, with respect to the Solomon
Islands, that they severed diplomatic relations with Taiwan,
further isolating Taiwan diplomatically. I think that serves a
pretty good example of how these issues get linked, and how it
becomes pretty impossible to resist other areas of Chinese
influence internationally when you are so interwoven, and how
dependent our participation in this competition is, on the
point Mr. Hillman made, that we assume a certain model of what
we are dealing with. I think you made this point as well, Ms.
Walsh.
I thank my colleagues on the other side of the aisle for
the bipartisan remarks today, because I want to close by
pointing out that a lot of us feel that, for 40 years, both
parties have participated in a bipartisan way with a strategy
towards China that is starting to show real limitations. Maybe
it is not forever. Maybe it is dependent on the current regime,
but it is real.
And I think we are beginning to see in a robust, bipartisan
way a reassessment on Capitol Hill. That is going to stretch
across a lot of different areas of jurisdiction, and the whole
of Government certainly sums it up.
But it is not just Government, is it? It is also the
American private sector. It is also the American not-for-profit
sector. It is also our academic institutions. Those are all
elements of the Chinese strategy. And we need to enroll those
sectors in our strategy, as well. We prefer to have them not
under the control of the Government, but the important role
they play is evident when you see the way China is executing on
its global strategy through all those areas and more.
So with that I want to thank the panel. I thank my
colleagues.
And I will ask unanimous consent that the record of today's
hearing remain open until such time as the witnesses provide
answers to any questions that may have been submitted to them
in writing. Not sure there were any, but if there are.
Further, I ask unanimous consent that the record remain
open for 15 days for any additional comments and information
submitted by Members or witnesses to be included in the record
of today's hearing.
Without objection, so ordered.
If no other Members have anything to add, then the
subcommittee will stand adjourned.
[Whereupon, at 4:53 p.m., the subcommittee was adjourned.]
Submissions for the Record
----------
Prepared Statement of Hon. Sam Graves, a Representative in Congress
from the State of Missouri, and Ranking Member, Committee on
Transportation and Infrastructure
Thank you, Chairman Maloney.
As a farmer and a Congressman whose district is bounded by the
Missouri and Mississippi Rivers, I understand the necessity of access
to international markets.
Since 90 percent of international trade moves by sea, access to
those markets requires access to maritime transportation.
China clearly understands the importance of controlling the levers
of maritime transportation and has set up a government-backed
initiative to ensure it can control trade through the Pacific basin and
between the Pacific and Europe.
As the Committee's Ranking Member and as a Member of the Armed
Services Committee, I am concerned that the trade network they are
establishing through ship construction and operation, and
infrastructure investment can also be used by China's military.
I looked forward to hearing from the witnesses about the impact of
China's Maritime Silk Road Initiative on U.S. maritime trade, as well
as the ability of China to project forces through the Pacific basin.
Mr. Chairman, thank you for holding this hearing today.
Letter of October 17, 2019, from Scott N. Paul, President, Alliance for
American Manufacturing, Submitted for the Record by Hon. Sean Patrick
Maloney
October 17, 2019.
Hon. Sean Patrick Maloney,
Chairman,
Subcommittee on Coast Guard and Maritime Transportation, U.S. House
Committee on Transportation and Infrastructure, 2331 Rayburn
House Office Building, Washington, DC.
Hon. Bob Gibbs,
Ranking Member,
Subcommittee on Coast Guard and Maritime Transportation, U.S. House
Committee on Transportation and Infrastructure, 2446 Rayburn
House Office Building, Washington, DC.
RE: Comments regarding the October 17th Subcommittee on Coast Guard and
Maritime Transportation's Hearing on China's Maritime Silk Road
Initiative: Implications for the Global Maritime Supply Chain
Dear Chairman Maloney and Ranking Member Gibbs:
The Alliance for American Manufacturing appreciates the opportunity
to submit these comments regarding the October 17th hearing on China's
Maritime Silk Road Initiative: Implications for the Global Maritime
Supply Chain. This hearing comes at a critical time, as the United
States wrestles with the economic and national security implications of
the deterioration of domestic manufacturing capacity in a wide range of
industries, including shipbuilding. At the same time, China's
increasingly aggressive posture abroad has focused increased attention
on its mercantilist policies and unfair trade practices that distort
markets and create global overcapacity, and the implications this has
for the U.S. economy and global security.
The American Shipbuilding Industry: American shipbuilding led the
world in the decades after World War II, and as recently as 1975 U.S.
shipyards built over 75 commercial vessels in a year. But a combination
of subsidized foreign competition and underinvestment by U.S.
policymakers led to steep reductions in production, falling to less
than five ships in 1990. The United States is now responsible for less
than a half of a percent of global commercial shipbuilding.\1\
---------------------------------------------------------------------------
\1\ Klein, A. (2015, September 1). Decline in U.S. Shipbuilding
Industry: A Cautionary Tale of Foreign Subsidies Destroying U.S. Jobs.
Retrieved October 14, 2019, from http://www.enotrans.org/article/
decline-u-s-shipbuilding-industry-cautionary-tale-foreign-subsidies-
destroying-u-s-jobs/.
---------------------------------------------------------------------------
Japan, South Korea and China have heavily subsidized their
shipbuilding industries for years, giving them a massive competitive
advantage over U.S. commercial shipbuilders. In recent congressional
testimony Mark Buzby, Administrator of the Maritime Administration,
stated that this has ``virtually eliminated the ability for U.S.
shipyards to compete in the global market,'' locking the shipyards that
produce large merchant-type ships ``into a downward spiral of
decreasing demand and an increased divergence between domestic and
foreign shipbuilding productivity and pricing.'' \2\
---------------------------------------------------------------------------
\2\ U.S. Maritime and Shipbuilding Industries: Strategies to
Improve Regulation, Economic Opportunities and Competitiveness: Hearing
before the Committee on Transportation and Infrastructure, Subcommittee
on Coast Guard and Maritime Transportation, House, 116th Cong. (2019)
(Testimony of Mark Buzby, Administrator, Maritime Administration).
Retrieved October 15, 2019, from https://www.transportation.gov/
testimony/us-maritime-and-shipbuilding-industries-strategies-improve-
regulation-economic.
---------------------------------------------------------------------------
Economic and National Security Concerns: This erosion of our
shipbuilding base has far-reaching implications for our national
security. In times of crisis, the Navy relies on a mix of government-
owned and commercial ships to assist with sealift activity. According
to a recent report by the Center for Strategic and Budgetary
Assessments, the Department of Defense is currently short 200,000
square feet of sealift capacity and would need another 1,900 mariners
to be able to undertake extended operations, while much of the existing
capacity is approaching obsolescence.\3\ Meanwhile, the commercial
fleet, long an asset that could be relied upon to assist the military
in times of need, struggles in the face of subsidized competition from
abroad. The continued deterioration of our domestic shipbuilding and
commercial shipping capacity threatens the ability of our commercial
fleet to step up in an emergency.
---------------------------------------------------------------------------
\3\ Walton, T., Boone, R., & Schramm, H. (2019). Sustaining The
Fight: Resilient Maritime Logistics For A New Era. Center for Strategic
and Budgetary Assessments. Retrieved October 11, 2019, from https://
csbaonline.org/uploads/documents/Resilient_Maritime_Logistics.pdf.
---------------------------------------------------------------------------
The erosion of commercial shipbuilding also contributes to concerns
about our defense supply chain. According to a 2018 Pentagon report,
our defense industrial base has lost over 20,500 firms since 2000. The
report highlights that manufacturers in the shipbuilding supply chain
``were among the hardest hit by the global shift in the industrial base
over the last 20 years.'' \4\ In some cases this has led to an alarming
lack of redundancy, forcing the Navy to rely on a single domestic
supplier for critical inputs. According to Mike Petters, President and
CEO of Huntington Ingalls Industries--the largest military shipbuilder
in the United States--over half of their suppliers are the sole source
of certain parts and services.\5\
---------------------------------------------------------------------------
\4\ Interagency Task Force in Fulfillment of Executive Order 13806.
(2018). Assessing and Strengthening the Manufacturing and Defense
Industrial Base and Supply Chain Resiliency of the United States.
Retrieved October 11, 2019, from https://media.defense.gov/2018/Oct/05/
2002048904/-1/-1/1/ASSESSING-AND-STRENGTHENING-THE-MANUFACTURING-AND-
DEFENSE-INDUSTRIAL-BASE-AND-SUPPLY-CHAIN-RESILIENCY.PDF.
\5\ Cameron, D. (2012, May 9). Shipbuilder warns Pentagon cuts
could hike costs. Retrieved October 15, 2019, from https://
www.marketwatch.com/amp/story/guid/C5E73647-2699-4A71-AAA4-
449036AC494D.
---------------------------------------------------------------------------
In addition to its national security significance, the American
maritime industry is an important driver of our economy. All told, the
industry supports 650,000 jobs and contributes over $150 billion to the
economy.\6\ But these figures belie the precarious position of our
commercial shipbuilding industry. According to the Eno Center for
Transportation, shipbuilding, which directly employed 180,000 workers
in 1980, was on track to employ as many as 250,000 Americans in 2013
had it maintained its share of the labor market. Instead, the rapid
movement of shipbuilding activity overseas has reduced employment to
110,000.\7\
---------------------------------------------------------------------------
\6\ U.S. Maritime Workforce Grows to 650,000. (2019, April 4).
Retrieved October 15, 2019, from https://www.maritime-executive.com/
article/u-smaritime-workforce-grows-to-650-000.
\7\ Maritime Administration. (2015). The Economic Importance of the
U.S. Shipbuilding and Repairing Industry. Retrieved, October 15, 2019,
from https://www.maritime.dot.gov/sites/marad.dot.gov/files/docs/
resources/3641/maradeconstudyfinalreport2015.pdf.
---------------------------------------------------------------------------
While this hurts the communities where shipyards are located, its
impact is felt all along the supply chain. Suppliers of everything from
steel to propulsion systems to a wide range of services sell to U.S.
shipbuilders. With that supply chain in mind, shipbuilding supports
nearly 290,000 jobs through indirect and induced activity, including
nearly 30,000 in manufacturing.\8\ For example, just last year the
largest container ship built in the U.S., the Daniel K. Inouye, was
completed. It used over 13,000 tons of steel plate in its structure,
all produced at ArcelorMittal plate facilities in the United States.\9\
---------------------------------------------------------------------------
\8\ ibid
\9\ Largest U.S. containership Daniel K. Inouye built with
ArcelorMittal USA plate. (2018, December 7). ArcelorMittal. Retrieved
October 14, 2019, from https://usa.arcelormittal.com/news-and-media/
our-stories/2018/dec/12-07-2018.
---------------------------------------------------------------------------
China's Aggressive Moves into the Maritime Industry: While
commercial shipbuilding initially shifted from the U.S. to competitors
in other countries, China has moved rapidly to grow its footprint in
this sector. For years, we have seen the destructive impact of China's
state-led capitalism on our domestic manufacturing sector, and its
ripple effects on thousands of communities across our nation. Between
2001--when China entered the World Trade Organization--and 2017, 3.4
million U.S. jobs were lost or displaced because of our massive
bilateral trade deficit with China.\10\ This economic carnage has been
fueled by predatory trade practices and disruptive economic policies,
including heavy subsidization of state-owned enterprises and other
firms that Beijing has deemed strategically important for its own
security and economic interests.
---------------------------------------------------------------------------
\10\ Scott, R., & Mokhiber, Z. (2018). The China toll deepens.
Economic Policy Institute. Retrieved October 15, 2019, from https://
www.epi.org/publication/the-china-toll-deepens-growth-in-the-bilateral-
trade-deficit-between-2001-and-2017-cost-3-4-million-u-s-jobs-with-
losses-in-every-state-and-congressional-district/
---------------------------------------------------------------------------
China's state-led capitalism has led to leaps in global market
share and massive global overcapacity in a wide range of industries,
from steel to aluminum to solar panels. Shipbuilding is no exception.
Since 2000, when China accounted for about five percent of global
production, its shipbuilding sector has grown immensely, now accounting
for 43 percent of the global market.\11\ With the inclusion of ocean
engineering equipment and high-end vessels in its Made in China 2025
plan, the Chinese government has made clear its intention to continue
to use heavy intervention to support its shipbuilding and maritime
industries.
---------------------------------------------------------------------------
\11\ Colton, T., & Huntzinger, L. V. (2002). A Brief History of
Shipbuilding in Recent Times. Center for Naval Analyses. Retrieved
October 15, 2019, from https://www.cna.org/CNA_files/PDF/
D0006988.A1.pdf.
Moss, T. (2019, July 2). China to Weld Its Biggest Shipbuilders
Into Single State-Run Giant. Wall Street Journal. Retrieved October 15,
2019, from https://www.wsj.com/articles/china-to-weld-its-biggest-
shipbuilders-into-single-state-run-giant-11562067663
---------------------------------------------------------------------------
Conclusion: This is a critical time for our domestic shipyards. The
recent growth in U.S. energy exports offers a unique opportunity to
cultivate a vigorous shipbuilding industry to meet our maritime
commerce and security needs while also providing a boost to our
economy. It makes no sense to exchange one foreign dependency for
another, but that is precisely what is happening. Just as the shale gas
boom has reduced our dependence on foreign energy, we have grown almost
completely dependent on other nations for the ships necessary to export
liquefied natural gas (LNG). There is currently bipartisan legislation,
the Energizing American Shipbuilding Act, that would help reverse this
by requiring a portion of LNG and crude oil exports to be transported
on U.S.-built and U.S.-crewed vessels. Passage of this legislation
would be an important step to restoring the health of our commercial
shipbuilding sector.
Our competitors around the globe have invested heavily in their
shipbuilding industries. Decades of promises broken by China to reform
its state-led capitalism, to reduce industrial overcapacity and to
curtail unfair trade practices lay bare the increased need to
strengthen our own key industries. It is time we give serious
consideration to how we foster a robust and resilient shipbuilding
sector, ready to meet the demands of the modern maritime industry.
Strengthening our shipyards will not only bolster a neglected part of
our national defense, it will support thousands of shipbuilding jobs
and even more throughout the supply chain.
Thank you for the opportunity to submit these comments regarding
the Subcommittee on Coast Guard and Maritime Transportation's hearing
on China's Maritime Silk Road Initiative: Implications for the Global
Maritime Supply Chain.
Sincerely,
Scott N. Paul,
President, Alliance for American Manufacturing.
Joint Statement of Kathryn Waldron, Fellow, National Security and
Cybersecurity, R Street Institute and Kristen Nyman, Government Affairs
Specialist, National Security and Cybersecurity, R Street Institute,
Submitted for the Record by Hon. Sean Patrick Maloney
Chairman Maloney, Ranking Member Gibbs and members of the
subcommittee:
Thank you for holding this important hearing on China's Maritime
Silk Road Initiative: Implications for the Global Maritime Supply
Chain. This statement is offered by scholars from the R Street
Institute's National Security and Cybersecurity team who have studied
supply chain security extensively. The R Street Institute is a
nonprofit, nonpartisan public policy research organization whose
mission is to engage in research and outreach to promote free markets
and limited, effective government.
China's Belt and Road Initiative (BRI) is an ambitious
infrastructure development strategy to create a vast global
transportation and shipping network aimed at increasing Chinese
economic trade. First proposed by President Xi Jinping in 2013, the
21st Century Maritime Silk Road is the sea-based component of this
strategy ``. . .designed to extend from China's coast to Europe through
the South China Sea and the Indian Ocean in one route, and from China's
coast through the South China Sea to the South Pacific in the other.''
\1\ In practical terms, this has led to increased Chinese investment in
building and operating ports throughout the world.
---------------------------------------------------------------------------
\1\ National Development and Reform Commission, ``Vision and
Actions on Jointly Building Silk Road Economic Belt and 21st-Century
Maritime Silk Road,'' Ministry of Foreign Affairs and Ministry of
Commerce of the People's Republic of China with State Council
authorization, March 28, 2015. http://en.ndrc.gov.cn/newsrelease/
201503/t20150330_669367.html.
---------------------------------------------------------------------------
While many countries were initially eager to embrace Chinese
investment in their infrastructure, concerns over increased public debt
have led former partners to shelve development projects.\2\ But an
inequitable reaping of the economic benefits isn't the only reason some
countries are skeptical of the BRI. Indeed, China's development of a
modern, maritime silk road also has problematic cybersecurity
implications. The two main concerns are supply chain risks for ports
that dock U.S. ships and cyber risks that would derive from a Chinese
``digital silk road.''
---------------------------------------------------------------------------
\2\ Amanda Erikson, ``Malaysia cancels two big Chinese projects,
fearing they will bankrupt the country,'' The Washington Post, Aug. 21,
2018. https://www.washingtonpost.com/world/asia_pacific/malaysia-
cancels-two-massive-chinese-projects-fearing-they-will-bankrupt-the-
country/2018/08/21/2bd150e0-a515-11e8-b76b-d513a40042f6_story.html;
Nyshka Chandran, ``Fears of excessive debt drive more countries to cut
down their Belt and Road investments,'' CNBC, Jan. 17, 2019. https://
www.cnbc.com/2019/01/18/countries-are-reducing-belt-and-road-
investments-over-financing-fears.html.
---------------------------------------------------------------------------
Supply Chain Risks for Ports that Dock U.S. Ships
The first concern is that Chinese-built or -operated ports present
a national security risk for U.S. or NATO ships docked overseas. Just
last year, Shanghai International Port Group, a Chinese company,
announced plans to take over management of the Israeli port of Haifa.
American stakeholders quickly raised national security concerns over
the Chinese-Israeli deal. Former U.S. ambassador to Israel Dan Shapiro
stated that ``to have a Chinese company operate a port of a close ally
potentially poses a significant challenge and maybe a risk for US Navy
operations.'' \3\ Retired U.S. admiral Gary Roughead also pointed out
that Chinese port management could allow their intelligence agencies to
better anticipate U.S. naval activities. But ship movement isn't the
only information the Chinese could access: ``Significantly, the
information systems and new infrastructure integral to the ports and
the likelihood of information and electronic surveillance systems
jeopardize U.S. information and cybersecurity,'' Roughhead warned.\4\
The potential for hostile foreign governments to access proprietary and
sensitive military intelligence is of grave concern to U.S. domestic
security, and Congress would do well to address this supply chain
vulnerability.
---------------------------------------------------------------------------
\3\ Raphael Ahren, ``Has Israel made a huge mistake letting a
Chinese firm run part of Haifa port?'' The Times of Israel, Dec. 20,
2018. https://www.timesofisrael.com/has-israel-make-a-huge-mistake-
letting-achinese-firm-run-part-of-haifa-port/.
\4\ David Brennan, ``Chinese Deal to Take Over Key Isreali Port May
Threaten U.S. Naval Operations, Critics Say,'' Newsweek, Sept. 14,
2018. https://www.newsweek.com/chinese-deal-take-over-key-israeli-port-
may-threaten-us-naval-operations-1121780.
---------------------------------------------------------------------------
Physical access to ports is not the only maritime supply chain risk
involved. China's construction of a ``digital silk road'' might pose an
even greater risk to the U.S. supply chain. Just as the 21st century
version of the maritime silk road manifested itself as Chinese
investment in physical infrastructure, the digital silk road would
promote Chinese investment in digital infrastructure.
``Digital Silk Road'' Supply Chain Concerns
Recent speeches from Xi Jinping and other government officials have
pushed Chinese cybersecurity firms to invest in countries where BRI
development projects are underway.\5\ Their goal, according to Vice-
Minister of Information Technology Chen Zhaoxiong, is to build ``a
community of common destiny in cyberspace.'' \6\ A cyber community of
this magnitude fostered by China should raise alarms for anyone in
favor of protecting free speech. China's ``Great Firewall'' reveals the
Chinese Communist Party's (CCP) need to maintain operational control of
any cyber community.\7\ Authoritarian-leaning countries that embrace
Chinese investment in their ports, like Malaysia and Vietnam, may also
embrace China's exporting of its surveillance technology and policies
of authoritarian censorship and Internet control.\8\
---------------------------------------------------------------------------
\5\ Kieran Green, ``Securing the Digital Silk Road,'' Center for
Advanced China Research, Feb. 11, 2019. https://www.ccpwatch.org/
single-post/2019/02/11/Securing-the-Digital-Silk-Road.
\6\ Staff, ``China talks of building a `digital Silk Road,' '' The
Economist, May 31, 2018. https://www.economist.com/china/2018/05/31/
china-talks-of-building-a-digital-silk-road.
\7\ Bloomberg News, ``The Great Firewall of China,'' The Washington
Post, Nov. 5, 2018. https://www.washingtonpost.com/business/the-great-
firewall-of-china/2018/11/05/5dc0f85a-e16d-11e8-ba30-
a7ded04d8fac_story.html.
\8\ Ralph Jennings, ``Chinese Get Chances to Invest in Vietnam
Despite Political Rifts,'' Voice of America, Dec. 17, 2018. https://
www.voanews.com/east-asia/chinese-get-chances-invest-vietnam-despite-
political-rifts.
---------------------------------------------------------------------------
Countries more resistant to Chinese-style authoritarianism may also
struggle to contain the cybersecurity of their digital ecosystem as
Chinese software and hardware becomes more pervasive. The fear that
Chinese companies will incorporate backdoors into telecom systems for
CCP exploitation has already been a topic of fierce debate thanks to
the Huawei situation.
While certain U.S. policymakers may want to bar China from the
global digital system entirely, it is simply too late. The digital
fabric is too intertwined for any separation to be viable. Unlike the
United States, the rest of the world has not shown willingness to ban
Chinese companies. Therefore, without allied consensus, we must assume
there are no safe systems in cyberspace. Whether a given port is
attached to an ocean or a computer, policymakers must keep in mind that
China will be keeping a keen eye on everything flowing through it, be
it ships or information.
An outright ban-and-sanction plan is infeasible, at least in the
long term, in our digitally interconnected reality. The U.S. government
does, however, have certain recourses to mitigate supply chain cyber
risks.
Policy Recommendations
In order to address maritime supply chain risks, the United States
and its allies will have to carefully vet the arrangements they make
with regard to port operation and production. The United States should
promote economic competition, clearing any trade barriers that impede
American companies from bidding on international construction projects.
In countries where American companies do not have the capacity to make
competitive bids on construction projects, the United States should
look for alternative diplomatic opportunities to counterbalance China's
political influence and encourage allies to do the same. U.S.
policymakers should also continue to point out the strings attached to
Chinese investment. Finally, as ports become increasingly automated,
the United States should work with international standard-setting
organizations and local governments to ensure appropriate cybersecurity
controls are built into port cybersystems.
As a prescription for the larger supply chain issue at hand, the
government should consider implementing these strategies on a broader
scale. Promoting market competition will allow friendlier producers to
enter markets currently dominated by Chinese companies. One of the main
issues with Huawei, for instance, is that they are one of the only
companies on the path to providing 5G.
Another strategy is working with standard-setting organizations,
like the International Organization for Standardization, to limit
Chinese influence and ensure fair standard-setting, rather than
regulations that would benefit any one country's products or production
methods.
Collaborating with America's allies to collectively confront bad
actors is crucial to ensuring companies with bad practices face enough
pressure to change their behavior.
Regardless of the strategic path it chooses, one thing is certain:
The United States will have to take decisive action in order to prevent
China from gaining outsized influence over the global supply chain and
growing from its present nefarious state to an even more dangerous one.
We thank the committee for recognizing the importance of addressing
supply chain vulnerabilities. If we can be of any assistance to members
of the committee, please feel free to contact us or our colleagues at
the R Street Institute.
Statement of the United Steelworkers, Submitted for the Record by Hon.
Sean Patrick Maloney
Dear Chairman Maloney and Ranking Member Gibbs:
On behalf of the 850,000 members we represent, the United
Steelworkers (USW) appreciates the opportunity to submit these comments
in regard to the October 17th hearing on ``China's Maritime Silk Road
Initiative: Implications for the Global Maritime Supply Chain.'' This
hearing is an important step in highlighting the reduction of the
domestic maritime industry and the economic and national security
threat that looms from lack of investment in the commercial and naval
maritime industry.
Who we represent in the industry
The USW represents workers across various sectors and crafts in the
shipbuilding industry. Our members produce, build, and refurbish
vessels and vessel components that are crucial to our national economy
and security. From building and refurbishing Naval vessels at Newport
News Shipyard in Newport News, VA, to manufacturing engines for the
Coast Guard at Fairbanks Morse in Beloit, WI, to milling iron and steel
across the country, our members provide essential domestic manufactured
products throughout the supply chain.
American workers benefit when the country supports a domestic
shipbuilding industry that can compete globally. For example,
Fincantieri Bay Shipbuilding and The Interlake Steamship Company
recently cut the first piece of steel for the construction of a new
bulk material transport ship in Sturgeon Bay, WI. The steel was sourced
from ArcelorMittal's Burns Harbor steelworks location and represents a
complete life cycle for domestic material and manufacturing. It is the
company's first ship built since 1981 and the first bulk ship designed
and built for the Great Lakes since 1983.\1\
---------------------------------------------------------------------------
\1\ https://fincantierimarinegroup.com/8-14-2019/
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The shift of shipbuilding
America and its workers once led the world in shipbuilding. A
little more than thirty years ago the US was building most of the
world's fleets.\2\ Today, America ranks nineteenth in the world for
commercial shipbuilding, accounting for approximately 0.35 percent of
global new construction.\3\ This happened as other countries subsidized
shipbuilding while the US stood idle.
---------------------------------------------------------------------------
\2\ Associated Press, Shipyard Closing Reflects Decline of a U.S.
Industry, Los Angeles Times, August 8, 1985
\3\ https://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/
publications/maritime_trade_
and_transportation/2007/html/table_07_02.html
---------------------------------------------------------------------------
The playing field is no longer level and US shipbuilders are unable
to compete in a global market of subsidized builders. Foreign builders
who capitalized on state subsidies have seized market share at the
detriment of the U.S. industry. In 2007, South Korea had 37 percent of
global ship construction, Japan had 27 percent, and China had 21
percent. Today, China has 43 percent, Korea has 27 percent, and Japan
has 24 percent.\4\
---------------------------------------------------------------------------
\4\ https://www.brsbrokers.com/assets/review_splits/BRS-Review2019-
01-Shipbuilding.pdf
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With this shift in the global shipbuilding market, the American
workforce has sustained substantial losses. In 1980, there were
approximately 180,000 shipbuilding and repairing jobs.\5\ According to
the most recent US Economic Census that number has fallen 40 percent to
approximately 105,000.\6\ The economic impact of those job losses
reaches further than just the shipbuilders. The Department of
Transportation estimates that there have been roughly 400,000 indirect
jobs lost that supported the industry and its workers.\7\
---------------------------------------------------------------------------
\5\ https://www.princeton.edu/ ota/disk3/1983/8302/830206.PDF
\6\ https://www.marad.dot.gov/wp-content/uploads/pdf/
MARAD_Econ_Study_Final_
Report_2013.pdf
\7\ https://www.marad.dot.gov/wp-content/uploads/pdf/
MARAD_Econ_Study_Final_
Report_2013.pdf
---------------------------------------------------------------------------
China Growth and Implications for the domestic industry
As indicated above, the People's Republic of China has increased
its market share in the global shipbuilding industry over the last
couple decades. In a 2014 report, the Chamber of Commerce of the
European Union highlighted that the shipbuilding industry in China had
significant overcapacity issues. Much like other significant
manufacturing industries like steel, glass, paper, aluminum and fiber
optics this overcapacity impacts private industries ability to
capitalize and remain competitive.\8\
---------------------------------------------------------------------------
\8\ https://www.europeanchamber.com.cn/en/publications-
overcapacity-in-china
---------------------------------------------------------------------------
In the last year China's shipbuilding industry has gone through
significant mergers eliminating domestic competition, and now the 10
largest of China's remaining 117 shipyards built roughly three quarters
of the country's ships last year. Shipping technology, one of 10 high-
tech sectors covered by the government's Made in China 2025 industrial-
upgrade blueprint has seen significant consolidation in China but that
has not led to decreased production. Last year, two of the largest
Chinese state operated firms CSIC and CSSC together produced $74.4
billion in revenue and $1.1 billion in profit and are now slated to
merge.\9\
---------------------------------------------------------------------------
\9\ https://www.wsj.com/articles/china-to-weld-its-biggest-
shipbuilders-into-single-state-run-giant-11562067663?mod=article_inline
---------------------------------------------------------------------------
Similar to concerns by the Rail Security Alliance (RSA) regarding
the impact of China State Owned Enterprise (SOE) CRRC in the Australian
rail market, the domestic commercial shipbuilding industry could face
complete collapse without more aggressive intervention. RSA highlights
that in less than 10 years, CRRC effectively decimated the freight rail
sector, forcing the four domestic suppliers out of business and out of
the rail market which left only CRRC standing. Today, almost no
meaningful Australian passenger or freight rolling stock manufacturing
exists--CRRC's Australia footprint is almost exclusively that of an
assembler of Chinese-made parts and a financier of purchases from
CRRC.\10\
---------------------------------------------------------------------------
\10\ https://homeland.house.gov/imo/media/doc/Testimony-Olson.pdf
---------------------------------------------------------------------------
Implications on national security
Shipbuilding for the U.S. Navy and Coast Guard is the largest
single use of American steel for military and homeland defense with
steel making up about half of a warship's weight. A 100,000-ton
aircraft carrier, for example, requires about 48,000 tons of steel.\11\
---------------------------------------------------------------------------
\11\ http://archive.fortune.com/magazines/fortune/fortune_archive/
2002/07/22/326287/index.htm
---------------------------------------------------------------------------
The shrinking capacity of commercial shipbuilding has a lasting
effect on our national security and ability of the aging sealift fleet
to assist Navy in times of need. The reduced capacity leads to concerns
with the supply chain for military defense ship building and a lack of
innovation efforts in the industry. The Pentagon has reported a loss of
over 20,500 firms supplying manufacturing of shipbuilding components
since 2000.\12\ According to the Vice Chief of Naval Operations and
other Naval leaders, the current Naval fleet of 275 ships is overworked
and under maintained and an expansion of Naval shipbuilding is
needed.\13\ Without action, the Chinese will saturate and control the
shipbuilding market much like they have attempted and successfully done
in other industries.
---------------------------------------------------------------------------
\12\ https://media.defense.gov/2018/Oct/05/2002048904/-1/-1/1/
ASSESSING-AND-STRENGTHENING-THE-MANUFACTURING-AND-DEFENSE-INDUSTRIAL-
BASE-AND-SUPPLY-CHAIN-RESILIENCY.PDF
\13\ https://news.usni.org/2017/02/08/vcno-moran-navy-is-less-
ready-because-were-too-small
---------------------------------------------------------------------------
Conclusion
A vibrant and re-emerging American shipbuilding industry is vital
to the nation's security and workforce. It is time to seriously
consider policy and legislative solutions to invigorate competitive
domestic shipbuilding that meets the demands of merchant and military
needs given the uncompetitive advantages state owned enterprises in
China and elsewhere have in global maritime ship construction.
Investment in domestic shipbuilding will boost our economy, American
workforce, and national security. The USW urges the Committee to
undertake bipartisan efforts to address these industry issues
prioritizing the American worker, American manufacturing, and American
security and defense.
Appendix
----------
Questions from Hon. Sean Patrick Maloney to Chad Sbragia, Deputy
Assistant Secretary of Defense for China, Office of the Secretary of
Defense
Question 1. Do you believe that the number of mariners we currently
have (under 12,000) is enough to effectively surge and mobilize our
existing sealift fleet in a timely and efficient manner for the
duration of a conflict?
Answer. I believe we have enough mariners to maintain an initial
rapid sealift push; however, over the long term, I do not believe we
have sufficient numbers of mariners. The Maritime Administration
(MARAD) estimates the United States would require an additional 2,000
mariners in the case of an extended conflict. We continually work to
stress and test our capabilities. On September 16, 2019, the U.S.
Transportation Command ordered the largest Turbo activation of Sealift
Ships since 2003 to stress-test the ability to deploy quickly the cargo
ships required for a large-scale armed force deployment and materiel
movement. This no-notice exercise involved 33 vessels located on the
Atlantic, Pacific, and Gulf Coasts, 6 from the Navy's Military Sealift
Command (MSC) and 27 from the U.S. Department of Transportation's MARAD
Ready Reserve Force (RRF). (Reference the MARAD Administrator's
National Defense Transportation Association (NDTA) 2019 remarks). There
were no issues with crewing the ships for this short-duration exercise;
however, longer-term employment would be an issue.
Question 2. How significantly do mariners impact our national
security and execution of the National Defense Strategy?
Answer. Mariners are extremely important to our ability to execute
the National Defense Strategy. They are the ones who would crew the
ships that would deliver our lethal force around the globe at the time
and place of our choosing. Without them, we cannot project power,
respond to crisis, or sustain operations.
Question 3. What domestic agreements can we improve to ensure
access to required maritime capabilities and capacities, and what
foreign partners can we work closer with to further our maritime
access?
Answer. Continuing to support and strengthen the Jones Act is
essential to keeping our maritime fleet alive. We must look to expand
business opportunities for U.S. vessels to make them more commercially
viable. Additionally, ensuring compliance with cargo preference laws,
the Maritime Administration (MARAD) is currently working with the
Defense Logistics Agency and forward-based Military Service commands to
ensure they are in compliance with cargo preference laws. Another area
is continuing support for the development and retention of mariners,
such as the President's March 2019 Executive Order that allows military
mariners to transfer their time, training, and skills to commercial
positions.
Questions from Hon. Rick Larsen to Chad Sbragia, Deputy Assistant
Secretary of Defense for China, Office of the Secretary of Defense
Question 1. Can you expand on the relationship between the People's
Liberation Army (PLA) and ``One Belt, One Road'' (OBOR) and how it will
affect U.S. national security?
Answer. China is competing for access and influence at the global
level. This past August I met with counterparts from China's military
for a brief on China's 2019 National Defense White Paper, which they
explained defines China's national defense aims, including
``safeguard[ing] China's overseas interests.'' The White Paper
identifies a need to build China's far seas forces and a need for
``overseas logistical facilities.'' China's Science of Military
Strategy, an authoritative military document published in 2013,
indicates its military strategists have also long been concerned with
safeguarding China's maritime industry and the ability of Chinese ships
to transit strategic sea lines of communication. China's policymakers
may believe that by leading with economic and technology exchanges in
their interactions with partnering countries, China can subsequently
generate opportunities for defense cooperation or military access. For
example, in 2017, the People's Liberation Army (PLA) Navy deployed its
Navy Task Group 150 on a cruise from Shanghai to Europe, not
coincidentally along the pathway of the Maritime Silk Road. Along the
way, Task Group 150 made numerous goodwill port calls and conducted at-
sea exercises with One-Belt One-Road partnering nations.
Question 2. What is the Department of Defense doing to counter
partner nation's reliance and dependence on Chinese maritime
investments?
Answer. Allies and partners provide an asymmetric advantage China
cannot match, and are a key element of our National Defense Strategy.
We are working closely with our partners to share best practices,
understand implications and comprehensive costs, and provide high-
standard alternatives to Chinese maritime investments through
initiatives, including: (1) the Maritime Security Initiative, which
builds partners' ability to conduct maritime security and maritime
domain awareness operations and advances interoperability; (2) enhanced
engagement in the Pacific Islands, including Key Leader Engagements,
ship visits and shiprider agreements, financial support to Compact
States, and $7 million in Foreign Military Financing in 2018.
Question 3. What are the national security implications of the
Chinese port in Djibouti?
Answer. China is aggressively seeking opportunities for military
access and basing. The People's Liberation Army (PLA) Navy has argued
in its publications for a long-term strategy to obtain bases overseas,
using methods such as constructing, purchasing, and long-term leases to
obtain rights in foreign ports. The national security implications of
China's first overseas military facility in Djibouti, in operation
since late 2017, located on the Bab-el-Mandeb Strait in the Red Sea,
are threefold: the operational advantage for China's future use of
force in the region, use as a testbed to perfect its global deployments
and future basing, and the increased resource requirements on the
United States and partner nations to compete. International press
reporting has indicated China is seeking to expand its military basing
and access in the Middle East, Southeast Asia, and the western Pacific,
and may be considering additional locations in Africa. In the Arctic,
civilian research could also support a strengthened Chinese military
presence. China's maritime infrastructure activities can also be
leveraged to exert political influence over countries. China holds 80
percent of Djibouti's debt, increasing risk of China's outsized
influence over Djiboutian affairs.
Question 4. Do you believe the current number of U.S. mariners
(under 12,000) is enough to effectively surge and mobilize our existing
sealift fleet in a timely and efficient manner for the duration of a
conflict?
Answer. [See response to question 1 from Hon. Maloney above.]
Question 4a. follow-up: How significantly do mariners impact our
national security and execution of the National Defense Strategy?
Answer. [See response to question 2 from Hon. Maloney above.]
Question 5. What domestic agreements can we improve to ensure
access to required maritime capabilities and capacities, and what
foreign partners can we work closer with to further our maritime
access?
Answer. [See response to question 3 from Hon. Maloney above.]
Questions from Hon. Sean Patrick Maloney to Lieutenant General Giovanni
K. Tuck, Director for Logistics, J4, Joint Chiefs of Staff
Question 1. What are the implications of China expanding its
control and influence in and around ports frequented by U.S. flagged
ships? Specifically, emerging 5G infrastructure capabilities?
Answer. There are many implications, along with 2nd, 3rd and 4th
order effects. Access to ports can be limited or removed. Access to
ships can also become more costly, be reduced, or even eliminated.
Security of our data and systems are also at risk. Our data that
transits Chinese IT infrastructure and systems can be used to bolster
Chinese AI and decrease our competitive edge. Additionally, the Chinese
may be able to drive up market prices when they effectively own the
majority of the ports and ships, and container operations.
Question 2. What types of trade and security investments should the
U.S. make in the areas covered by China's Maritime Silk Road
initiative? How might these investments promote American commerce?
Answer. This question is not in J4's expertise to answer. Defer to
Commerce Department.
Question 3. Does the military have a role in a Whole of Government
approach to compete with China's Maritime ambitions?
Answer. Yes. While the Maritime Silk Road Initiative is primarily a
geopolitical and economic initiative, the military does play a role in
the area of competition. For the Chinese, it provides options for
increased PLA presence through extended sustainment nodes. For the
U.S., the challenge becomes political-military in nature--how do we
maintain access for force projection and sustainment. I meet quarterly
with the Whole of Government Logistics Committee to discuss ways we can
work together better. For the military's part, the DOD must maintain
sufficient capacity and capability to ensure we are able to execute the
NDS. The military can also continue freedom of navigation of the seas
and continue to use ports, and invest in our relationships with our
partner and ally nations.
Question 4. Do we have the critical capacity in the Pacific to be
able to address activity in the South China Sea?
Answer. The joint logistics enterprise must be postured with the
right capability and capacity at the right locations in order to
effectively support multi-domain and distributed operations.
USINDOPACOM is critically dependent on tactical airlift and sealift
capacity, which expands options for force design and maneuver.
Increased tactical airlift and sealift capacity further increase
survivability as it becomes more difficult for an adversary to counter
a highly maneuverable joint force. These tactical lift assets play just
as important a role as strategic lift assets in ensuring our ability to
create a resilient and agile logistics network. Significant and
sustained investment in munitions is needed to reduce risk to current
and future strategic readiness. Statement by Admiral Davidson,
Commander of USINDOPACOM before SASC, 12 February 2019.
Questions from Hon. Rick Larsen to Lieutenant General Giovanni K. Tuck,
Director for Logistics, J4, Joint Chiefs of Staff
Question 1. Can you expand on the relationship between the People's
Liberation Army (PLA) and ``One Belt, One Road'' (OBOR) and how it will
affect U.S. national security?
Answer. This question is not in J4's expertise to answer. Defer to
the Intel community.
Question 2. What is the Department of Defense doing to counter
partner nation's reliance and dependence on Chinese maritime
investments?
Answer. This question is not in J4's expertise to answer. Defer to
OSD.
Question 3. What are the national security implications of the
Chinese port in Djibouti?
Answer. A response was not received at the time of publication.
Question 4. Do you believe the current number of U.S. mariners
(under 12,000) is enough to effectively surge and mobilize our existing
sealift fleet in a timely and efficient manner for the duration of a
conflict?
Answer. I believe we have enough mariners to maintain an initial
rapid sealift push, however, over the long term, I do not believe we
have sufficient numbers of mariners. Maritime Administration (MARAD)
estimates we are short nearly 2000 mariners. We continually work to
stress and test our capabilities. On September 16, 2019, the U.S.
Transportation Command ordered the largest Turbo activation of Sealift
Ships since 2003 to stress-test the ability to quickly deploy the cargo
ships required for a large scale armed force deployment and materiel
movement. This no-notice exercise involved 33 vessels located on the
Atlantic, Pacific and Gulf Coasts, six from the Navy's Military Sealift
Command (MSC) and 27 from the U.S. Department of Transportation's MARAD
Ready Reserve Force (RRF). (Reference MARAD Administrator's NDTA 2019
remarks). There were no issues with crewing the ships for this short
duration exercise, however longer term employment will be an issue.
Question 4a. follow-up: How significantly do mariners impact our
national security and execution of the National Defense Strategy?
Answer. Mariners are the lifeblood that allow us to execute the
National Defense Strategy. They are the ones who crew the ships that
deliver our lethal force around the globe at the time and place of our
choosing. Without them, we cannot project power, respond to crisis, nor
sustain operations.
Question 5. What domestic agreements can we improve to ensure
access to required maritime capabilities and capacities, and what
foreign partners can we work closer with to further our maritime
access?
Answer. Continuing to support and strengthen the Jones Act is
essential to keeping our maritime fleet alive. We must look to expand
business opportunities for U.S. vessels to make them more commercially
viable. Additionally, ensuring compliance with cargo preference laws,
MARAD is currently working with DLA and forward based service commands
to ensure they are in compliance. Another area is continuing support
for the development and retention of mariners, such as President's
March 2019 Executive Order that allows military mariners to transfer
their time, training and skills to commercial jobs.
Questions from Hon. Anthony G. Brown to Lieutenant General Giovanni K.
Tuck, Director for Logistics, J4, Joint Chiefs of Staff
Question 1. The USGC recently announced that they are ``doubling
down on Oceania'' with plans to homeport three of its newest fast-
response cutters in Guam within the next two years. How is the USGC
maintaining readiness is its domestic focused missions as it devotes
more resources to overseas operations?
Answer. This question is not in J4's expertise to answer. Defer to
USCG.
Question 2. As the Coast Guard continues to expand operations
overseas, is it being properly reimbursed by the Department of Defense
for missions that fall primarily in the Department of Navy's
jurisdiction?
Answer. This question is not in J4's expertise to answer. Defer to
USCG.
Questions from Hon. Sean Patrick Maloney to Carolyn Bartholomew,
Chairwoman, United States-China Economic and Security Review Commission
Question 1. How, if at all, could federal agencies improve trade
and security programs and policies to promote American commerce in the
regions covered by China's Maritime Silk Road initiative?
Answer. It is vital that the United States take significant steps
to expand our presence in regions covered by China's Maritime Silk
Road. Those steps must be economic, diplomatic, security-focused, and
political. As China expands its global footprint, we must focus on
strengthening our relationships with allies, partners, and friends, and
further develop relationships with other countries.
I commend the Congress for its work in developing and passing the
BUILD Act, which is an important step toward strengthening and
modernizing U.S. international development finance. Fully funded, the
BUILD Act will notably more than double our development finance lending
capacity through the establishment of the new U.S. International
Development Finance Corporation. Congress should also reauthorize and
fund the Ex-Im Bank.
Additionally, the Commission recommended in our 2018 Annual Report
that:
Congress create a fund to provide additional bilateral
assistance for countries that are a target of or vulnerable to
Chinese economic or diplomatic pressure, especially in the
Indo-Pacific region. The fund should be used to promote digital
connectivity, infrastructure, and energy access. The fund could
also be used to promote sustainable development, combat
corruption, promote transparency, improve rule of law, respond
to humanitarian crises, and build the capacity of civil society
and the media.
Enhancing U.S. security commitments in the Indo-Pacific is another
important pillar of promoting U.S. commerce along the Maritime Silk
Road. To that end, the Commission recommends in our 2019 Annual Report
that:
Congress support the implementation of the Indo-Pacific
Security Initiative to align U.S. budgetary commitments with
national security objectives and build the confidence of allies
concerning U.S. commitment to security in the Indo-Pacific
region.
Question 2. To what extent do U.S. maritime security programs also
promote American commerce in the regions covered by China's Maritime
Silk Road initiative?
Answer. Security of sea lanes, including those in the Indo-Pacific,
is vital to U.S. commercial interests. In 2016, for example, more than
14 percent of U.S. maritime trade and an estimated one-third of all
global shipping passed through the South China Sea.\1\ U.S. maritime
security programs support an environment that enables American commerce
to be safely conducted abroad.
---------------------------------------------------------------------------
\1\ CSIS, ``How Much Trade Transits the South China Sea?'' October
20, 2019.
United States Maritime Administration Office of
International Activities: Maritime Administration's Office
International Activities works with U.S. carriers and shippers to
improve maritime transport relations abroad and to ensure U.S.
carriers' transport of U.S. international trade cargoes in a secure,
safe, and competitive transportation environment.\2\ The office
facilitates U.S. carriers' access to foreign trade cargoes and
``negotiates reciprocal foreign market access treatment for U.S.
carriers in international trade.'' \3\ The United States maintains
maritime agreements with two countries along the ``Maritime Silk
Road,'' China and Vietnam.\*\ \4\
---------------------------------------------------------------------------
\2\ U.S. Department of Transportation, ``Office of International
Activities.'' https://www.maritime.dot.gov/economic-security/office-
international-activities.
\3\ U.S. Department of Transportation, ``Office of International
Activities.'' https://www.maritime.dot.gov/economic-security/office-
international-activities.
\*\ The U.S.-China Maritime Agreement addresses U.S. carriers'
rights to open branch offices throughout China and assures China of
continued open access to U.S. markets. Likewise, the agreement between
the United States and Vietnam allows U.S. carriers to open wholly owned
subsidiaries in Vietnam, thus eliminating the Vietnamese monopoly of
maritime trade in the region and strengthening economic relations. U.S.
Department of Transportation, ``Office of International Activities.''
https://www.maritime.dot.gov/economic-security/office-international-
activities.
\4\ U.S. Department of Transportation, ``International
Agreements.'' https://www.maritime.dot.gov/economic-security/
international-agreements.
---------------------------------------------------------------------------
Maritime Security Program (MSP): MSP provides the U.S.
military access to privately owned U.S.-flag ships ready to support the
logistic needs of the U.S. government should a crisis occur abroad. The
14 U.S. commercial shipping companies currently participating in MSP
are provided $4.99 million per ship to make their designated ships
available to the U.S. government in times of war or national
emergency.\5\ MSP currently has access to 60 cargo ships among the 14
U.S. commercial shipping companies. U.S.-flagged ships participating in
MSP carry about two percent of U.S. foreign trade.\6\
---------------------------------------------------------------------------
\5\ U.S. Government Accountability Office, DOT Needs to
Expeditiously Finalize the Required National Maritime Strategy for
Sustaining U.S.-Flag Fleet, August 2018, 1. https://www.gao.gov/assets/
700/694006.pdf; U.S. Department of Transportation, ``Maritime Security
Program.'' https://www.maritime.dot.gov/national-security/strategic-
sealift/maritime-security-program-msp.
\6\ U.S. House of Representatives Sub-Committee on Coast Guard and
Maritime Transportation, Hearing on State of the United States'
Merchant Fleet in Foreign Commerce, written testimony of David T.
Matsuda, September 29, 2010. https://www.transportation.gov/testimony/
state-united-states%E2%80%99-merchant-fleet-foreign-commerce-0.
---------------------------------------------------------------------------
Maritime Security Initiative (MSI): MSI--established by
the 2016 National Defense Authorization Act (NDAA)--builds the maritime
capacity of U.S. partners to enhance information-sharing,
interoperability, and multinational maritime cooperation.\7\ Under the
2019 NDAA, MSI was renamed the Indo-Pacific MSI and extended through
December 2025, and its scope was expanded to include South Asia.\8\ As
part of MSI, the United States engages in military domain awareness
activities with partners around the world--including the Philippines,
Vietnam, Indonesia, Malaysia, Thailand, India, Sri Lanka, and
Bangladesh--to monitor risks to their maritime interests while
promoting freedom of navigation and maritime commerce.\9\
---------------------------------------------------------------------------
\7\ U.S. Department of Defense, Indo-Pacific Strategy Report:
Preparedness, Partnerships, and Promoting a Networked Region, June 1
2019, 49. http://www.airforcemag.com/DocumentFile/Documents/2019/
DOD%20Indo-Pacific%20Strategy%20Report.PDF.
\8\ U.S. Department of Defense, Indo-Pacific Strategy Report:
Preparedness, Partnerships, and Promoting a Networked Region, June 1
2019, 49. http://www.airforcemag.com/DocumentFile/Documents/2019/
DOD%20Indo-Pacific%20Strategy%20Report.PDF.
\9\ U.S. Department of Defense, Indo-Pacific Strategy Report:
Preparedness, Partnerships, and Promoting a Networked Region, June 1
2019, 49. http://www.airforcemag.com/DocumentFile/Documents/2019/
DOD%20Indo-Pacific%20Strategy%20Report.PDF.
---------------------------------------------------------------------------
Questions from Hon. Rick Larsen to Carolyn Bartholomew, Chairwoman,
United States-China Economic and Security Review Commission
Question 1. What U.S. companies have been or are currently involved
in either operation, technical advice, or in construction on any BRI
projects, as contractors or subcontractors?
Answer. The Commission covered BRI's implications for U.S. economic
interests in its 2018 Annual Report (Chapter 3, Section 1, ``Belt and
Road Initiative,'' see attached under ``U.S. Economic Interests''). The
report found that several major U.S. companies are participating in BRI
projects (see table below) but that opportunities for U.S. and other
foreign companies may dwindle in the long term as Chinese companies
become more competitive in sectors currently dominated by Western
multinationals. Although Beijing has been careful to emphasize BRI's
openness to foreign companies, the initiative does not provide a level
playing field for U.S. and other foreign companies to compete with
Chinese firms. Most Chinese-financed BRI projects are not open tender
and are awarded to Chinese contractors, relegating foreign companies to
partnering with Chinese companies as subcontractors.
Select U.S. Firms Participating in BRI \\
------------------------------------------------------------------------
Firm Participation
------------------------------------------------------------------------
AECOM..................................... Partnerships in engineering,
(Engineering, procurement, and procurement, and
construction). construction (EPC): In May
2017, AECOM signed a
memorandum of understanding
with Chinese construction 3-
D printing company WinSun.
Under the agreement, the
companies will explore
opportunities to
collaborate on 3D printing
for building design and
construction projects,
particularly in the Middle
East, for a three-year
period.\1\
In January 2018, AECOM was
selected by China
Communications Construction
Company to provide site
supervision services for
the stations, viaducts,
tunnels, and depots of the
East Coast Rail Link
project in Malaysia.
Black & Veatch............................ Partnerships in EPC: In
(Engineering, procurement, and October 2017, Black &
construction). Veatch and China Tianchen
Engineering Corporation
(TCC) signed a memorandum
of understanding to
cooperate on developing
gas, chemical, and
fertilizer infrastructure
projects throughout Asia,
including in Indonesia,
Thailand, Vietnam,
Singapore, Burma,
Bangladesh, Pakistan,
Kazakhstan, and
Tajikistan.\2\
Caterpillar............................... Supplying construction
(Engineering, procurement, and machinery: In 2016,
construction). Caterpillar released a
white paper on its ``vision
and commitment for the
shared success of [BRI]''
in which the company
outlined potential areas of
cooperation with Chinese
companies in BRI countries,
including partnering on
infrastructure projects and
providing project finance.
In September 2017
Caterpillar CEO Jim Umpleby
said the company ``[is]
working with Chinese SOEs
in 20 [BRI] countries on
projects ranging from
roads, ports, mines and oil
fields.'' This includes
supplying machinery,
training, and maintenance
services to China
Communications Construction
Company for the renovation
of the Zhrobin-Bobruisk
expressway in Belarus,
which was completed in July
2016.
In November 2017,
Caterpillar and Chinese SOE
China Energy Investment
Corporation signed a five-
year strategic cooperation
framework agreement
outlining future agreements
for mining equipment sales
and rentals, technology
applications and product
support provided by
Caterpillar.
Financing: Caterpillar is
providing project finance
for Chinese companies to
boost BRI sales, according
to company executives. The
company does not disclose
data for such lending.
Fluor..................................... Partnerships in EPC: Lu
(Engineering, procurement, and Yaming, general manager of
construction). Fluor China, noted in a May
2017 interview with an
energy industry publication
that Fluor and a Chinese
EPC company were recently
awarded a project for a gas-
fired power plant in the
Middle East. ``We're also
working on a project in
Indonesia that has been
fueled by [BRI] and we have
a number of very exciting
prospects in the pipeline
in other countries. All of
these projects have Chinese
investment or use Chinese
financing,'' he said.
Information on these
projects is not available
on the company's website or
in other news reports.
Honeywell................................. Partnerships in EPC: In May
(Engineering, procurement, and 2017, Honeywell signed a
construction). partnership agreement with
China's Wison Engineering
Ltd. to jointly provide
methanol-to-olefin
technologies and EPC
services to customers
outside of China,
particularly in countries
included in BRI.\3\
General Electric (GE)..................... Supplying power equipment:
(Engineering, procurement, and In 2016, GE received $2.3
construction). billion in orders for
natural gas turbines and
other power equipment from
Chinese EPC firms to
install overseas, including
in Pakistan, Bangladesh,
Kenya, and Laos. In 2014,
GE received $400 million in
orders from Chinese firms
for equipment to install
overseas. According to GE
China CEO Rachel Duan,
``Africa is the market
offering the greatest
market potential for GE and
Chinese EPC firms, followed
by the Middle East, South
Asia, Southeast Asia, and
Latin America.''
Financing: In November 2017,
GE Energy Financial
Services and China's Silk
Road Fund signed a
cooperation agreement to
launch an energy
infrastructure investment
platform to invest in power
grid, renewable energy, and
oil and gas infrastructure
in BRI countries.
Separately, Jay Ireland,
CEO of GE Africa, said in
2016 that the company had
set up a $1 billion
infrastructure fund to help
finance projects in Africa.
According to Mr. Ireland,
one-third of Chinese EPC
companies' equipment orders
with GE in 2016 were
destined for projects in
Africa.
Citigroup................................. Financial services:
(Financial services) Citigroup provides a range
of financial services
(i.e., mergers and
acquisitions, cash
management, trade finance,
and hedging) to Chinese
firms and multinational
corporations operating in
58 BRI countries.
In June 2015, Bank of China
launched the first public
bond issue to fund BRI
projects, raising $3.55
billion. Citigroup was one
of four global financial
services companies that led
the deal alongside Bank of
China. In April 2018,
Citigroup signed
memorandums of
understanding with Bank of
China and China Merchants
Bank to strengthen
cooperation on supporting
clients' investments and
projects related to BRI.
Goldman Sachs............................. Financing: In September
(Financial services) 2016, Goldman Sachs--along
with Bank of China, DBS
Bank, and Standard
Chartered--formed a working
group to support the
development of a
standardized ``Silk Road
bond'' that can be traded
internationally to help BRI
countries tap a wider
source of funds.
------------------------------------------------------------------------
\\ Updated as of October 2018.
\1\ AECOM's move is part of a trend for large infrastructure firms to
acquire specialist additive manufacturing technology. AECOM, ``AECOM
Signs Memorandum of Understanding with Winsun to Collaborate on 3D
Printing for Building Design and Construction,'' May 18, 2017; Global
Construction Review, ``Aecom Forms Alliance with Chinese 3D Printer
WinSun,'' May 19, 2017.
\2\ TCC Vice President Deng Zhaojing said in the company's press
release, ``Black & Veach's reputation and experience in the global
contracting and oil and gas sectors will help TCC create compelling
international EPC solutions for our clients. This partnership is one
that will allow us to continue to expand our operations in other parts
of the world in line with China's One Belt, One Road Initiative.''
Black & Veatch, ``Black & Veatch and China's TCC to Target Gas,
Chemical and Fertilizer Projects,'' October 12, 2017.
\3\ According to Honeywell's press release, ``The agreement combines
Honeywell UOP's advanced technologies with Wison's strong EPC service
capability, allowing them to help customers further improve olefin
production capacity while reducing energy consumption and production
costs.'' Honeywell, ``Wison Engineering to Collaborate with Honeywell
UOP on International Methanol to Olefin Projects,'' May 25, 2017.
Source: Various; compiled by Commission staff:
Citigroup, ``Citigroup Continues Momentum for Supporting Clients on
Belt and Road Initiative,'' April 20, 2018; William Hennelly,
``Caterpillar's Tractors Helping Power Belt and Road,'' China Daily,
March 10, 2018; Rajesh Kumar Singh and Brenda Goh, ``Caterpillar
Drives Sales on China's New Silk Road,'' Reuters, March 4, 2018;
AECOM, ``AECOM to Provide Site Supervision Services for Malaysia's
East Coast Rail Link Project,'' January 8, 2018; Reuters, ``General
Electric, China's Silk Road Fund to Launch Energy Investment
Platform,'' November 9, 2017; Caterpillar, ``Caterpillar and China
Energy Investment Corporation Establish Strategic Cooperative
Relationship,'' November 8, 2017; Alun John, ``Want a Job in
Kazakhstan or Elsewhere on New Silk Road? Citi Might Have a Role for
You,'' South China Morning Post, September 25, 2017; Matthew Miller,
``Citigroup Targets Belt and Road to Boost China Revenue,'' Reuters,
September 22, 2017; The Oil & Gas Year, ``Fluor Flourishes in China,''
May 17, 2017; Keith Bradsher, ``U.S. Firms Want in on China's Global
`One Belt, One Road' Spending,'' New York Times, May 14, 2017; Jing
Shuiyu, ``Recovering Caterpillar Set to Fly with Its Chinese
Partners,'' China Daily, April 25, 2017; Yang Ziman, ``Caterpillar
Seeks to Deepen Ties with Chinese Companies,'' China Daily Asia,
December 9, 2016; Cai Xiao, ``GE Reaps Belt and Road Dividend,'' China
Daily, October 25, 2016; Brian Spegele, ``GE Rides the Coattails of
China's Global Dream,'' Wall Street Journal, October 16, 2016; Liz
Mak, ``Global Bankers Pledge Expertise to Foster Standardized Silk
Road Bond,'' South China Morning Post, September 9, 2016; Caterpillar,
``The Belt and Road Ahead: Caterpillar's Vision and Commitment for
Shared Success,'' 2016; Frances Yoon, ``Update 1--Bank of China Raises
USD 3.55 Bn for Silk Road Push,'' Reuters, June 25, 2015; Jennifer
Hughes, ``Bank of China Set for Four-Currency Bond Sale,'' Financial
Times, June 23, 2015.
Question 2. How could the U.S. participate in standard-setting
bodies like the International Maritime Organization (IMO) and
International Organization for Standardization (ISO) to mitigate the
global adoption of Chinese technology standards? How can the U.S. be a
significant voice in this conversation?
Answer. The best way for the United States to have a voice is to be
present. The U.S. approach to standard setting is industry-led, while
China has a more top-down approach. The U.S. government often supports
and coordinates with private sector-led initiatives, but because U.S.
companies do not receive subsidies from the U.S. government to
participate in standard setting, U.S. perspectives can be
underrepresented. The American National Standards Institute (ANSI), a
non-profit organization, is the sole U.S. representative to the
ISO.\10\ The National Institute of Standards and Technology (NIST),
which is part of the U.S. Department of Commerce, provides input to
ANSI activities and in April 2019 signed a MOU with ANSI reaffirming
the importance of a coordinated national strategy to support the
development of standards.\11\
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\10\ American National Standards Institute, ``ISO Programs
Overview.''
\11\ American National Standards Institute, ``ANSI and NIST Sign
New Memorandum of Understanding.'' May 3, 2019.
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In the 2019 Annual Report, the Commission recommended that
Congress direct the National Science Foundation, in
coordination with other agencies, to conduct a study on the
impact of the activities of Chinese government, state-sponsored
organizations, or entities affiliated or supported by the state
in international bodies engaged in developing and setting
standards for emerging technologies. The study should examine
whether standards are being designed to promote Chinese
government interests to the exclusion of other participants.
Question 3. Can you elaborate on the benefits of U.S. federal
investment in the infrastructure of overseas ports or encouraging U.S.
companies to invest in international ports?
Question 3a follow-up: What role can the federal government play in
these efforts?
Answer. The Overseas Private Investment Corporation (OPIC) and the
new Development Finance Corporation encourage U.S. companies'
investments in overseas infrastructure projects, including ports, by
providing financing through loans and guaranties. In May 2019, for
example, OPIC announced plans to invest $50 million in a new marine
terminal in the Port of Poti in Georgia. Most recently, the premier of
Malaita province in the Solomon Islands said the United States has
pledged to support the development of a port in the Solomon Islands,
exemplifying how U.S. investment in overseas ports can both support the
infrastructure development needs of partner countries as well as
advance U.S. interests in the Indo-Pacific.
In addition to providing development finance, Washington can work
with allied and partner countries to ensure the procurement processes
for overseas port projects are open, transparent, fair, and align with
international best practices, such as the provisions of the WTO
Government Procurement Agreement.
Question 4. To what extent do U.S. maritime security programs also
promote American commerce abroad?
Answer. Security of sea lanes, including those in the Indo-Pacific,
is vital to U.S. commercial interests. In 2016, for example, more than
14 percent of U.S. maritime trade and an estimated one-third of all
global shipping passed through the South China Sea.\12\ U.S. maritime
security programs support an environment that enables American commerce
to be safely conducted abroad.
---------------------------------------------------------------------------
\12\ CSIS, ``How Much Trade Transits the South China Sea?'' October
20, 2019.
United States Maritime Administration Office of
International Activities: Maritime Administration's Office
International Activities works with U.S. carriers and shippers to
improve maritime transport relations abroad and to ensure U.S.
carriers' transport of U.S. international trade cargoes in a secure,
safe, and competitive transportation environment. \13\ The office
facilitates U.S. carriers' access to foreign trade cargoes and
``negotiates reciprocal foreign market access treatment for U.S.
carriers in international trade.'' \14\ The United States maintains
maritime agreements with two countries along the ``Maritime Silk
Road,'' China and Vietnam.\*\ \15\
---------------------------------------------------------------------------
\13\ U.S. Department of Transportation, ``Office of International
Activities.'' https://www.maritime.dot.gov/economic-security/office-
international-activities.
\14\ U.S. Department of Transportation, ``Office of International
Activities.'' https://www.maritime.dot.gov/economic-security/office-
international-activities.
\*\ The U.S.-China Maritime Agreement addresses U.S. carriers'
rights to open branch offices throughout China and assures China of
continued open access to U.S. markets. Likewise, the agreement between
the United States and Vietnam allows U.S. carriers to open wholly owned
subsidiaries in Vietnam, thus eliminating the Vietnamese monopoly of
maritime trade in the region and strengthening economic relations. U.S.
Department of Transportation, ``Office of International Activities.''
https://www.maritime.dot.gov/economic-security/office-international-
activities.
\15\ U.S. Department of Transportation, ``International
Agreements.'' https://www.maritime.dot.gov/economic-security/
international-agreements.
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Maritime Security Program (MSP): MSP provides the U.S.
military access to privately owned U.S.-flag ships ready to support the
logistic needs of the U.S. government should a crisis occur abroad. The
14 U.S. commercial shipping companies currently participating in MSP
are provided $4.99 million per ship to make their designated ships
available to the U.S. government in times of war or national
emergency.\16\ MSP currently has access to 60 cargo ships among the 14
U.S. commercial shipping companies. U.S.-flagged ships participating in
MSP carry about two percent of U.S. foreign trade.\17\
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\16\ U.S. Government Accountability Office, DOT Needs to
Expeditiously Finalize the Required National Maritime Strategy for
Sustaining U.S.-Flag Fleet, August 2018, 1. https://www.gao.gov/assets/
700/694006.pdf; U.S. Department of Transportation, ``Maritime Security
Program.'' https://www.maritime.dot.gov/national-security/strategic-
sealift/maritime-security-program-msp.
\17\ U.S. House of Representatives Sub-Committee on Coast Guard and
Maritime Transportation, Hearing on State of the United States'
Merchant Fleet in Foreign Commerce, written testimony of David T.
Matsuda, September 29, 2010. https://www.transportation.gov/testimony/
state-united-states%E2%80%99-merchant-fleet-foreign-commerce-0.
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Maritime Security Initiative (MSI): MSI--established by
the 2016 National Defense Authorization Act (NDAA)--builds the maritime
capacity of U.S. partners to enhance information-sharing,
interoperability, and multinational maritime cooperation.\18\ Under the
2019 NDAA, MSI was renamed the Indo-Pacific MSI and extended through
December 2025, and its scope was expanded to include South Asia.\19\ As
part of MSI, the United States engages in military domain awareness
activities with partners around the world--including the Philippines,
Vietnam, Indonesia, Malaysia, Thailand, India, Sri Lanka, and
Bangladesh--to monitor risks to their maritime interests while
promoting freedom of navigation and maritime commerce.\20\
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\18\ U.S. Department of Defense, Indo-Pacific Strategy Report:
Preparedness, Partnerships, and Promoting a Networked Region, June 1
2019, 49. http://www.airforcemag.com/DocumentFile/Documents/2019/
DOD%20Indo-Pacific%20Strategy%20Report.PDF.
\19\ U.S. Department of Defense, Indo-Pacific Strategy Report:
Preparedness, Partnerships, and Promoting a Networked Region, June 1
2019, 49. http://www.airforcemag.com/DocumentFile/Documents/2019/
DOD%20Indo-Pacific%20Strategy%20Report.PDF.
\20\ U.S. Department of Defense, Indo-Pacific Strategy Report:
Preparedness, Partnerships, and Promoting a Networked Region, June 1
2019, 49. http://www.airforcemag.com/DocumentFile/Documents/2019/
DOD%20Indo-Pacific%20Strategy%20Report.PDF.
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Questions from Hon. Sean Patrick Maloney to Jonathan E. Hillman,
Director, Reconnecting Asia Project, Center for Strategic and
International Studies
Question 1. How, if at all, could federal agencies improve trade
and security programs and policies to promote American commerce in the
regions covered by China's Maritime Silk Road initiative?
Answer. China's Belt and Road is a web of bilateral arrangements,
including trade deals. Rather than replicate this approach, the United
States needs to start thinking multilaterally and regionally about
trade. The United States should also make environmental sustainability
a higher priority in its ``Free and Open Indo-Pacific'' strategy. This
is a priority issue for countries in the region and one in which U.S.
companies have a comparative advantage over Chinese companies.
Question 2. How can the United States leverage its existing
maritime infrastructure to compete with Chinese State-Owned
Enterprises, and where do we need to make significant investments?
Answer. The United States should continue to maintain and invest in
its own port facilities, including roads, railways, and other
supporting infrastructure. The American Society of Engineers gave U.S.
ports a C+ rating in its most recent review. Exact estimates vary, but
most underscore the need for additional investment to maintain and
modernize navigation channels and build road and rail connections.
Questions from Hon. Rick Larsen to Jonathan E. Hillman, Director,
Reconnecting Asia Project, Center for Strategic and International
Studies
Question 1. Mr. Hillman, you've discussed how a closer look at
China's control of the maritime supply chain might provide a better
sense of China's maritime strategy. Where else in China's foreign
policy should we look to better understand their intentions?
Answer. Another key area that deserves further examination is the
nature of the relationships between Chinese companies and the Chinese
communist party. A more granular understanding of specific companies,
and their relative influence and obligations, would be helpful in
shedding light on China's intentions. CSIS will be pursuing research in
this area in the coming months, including in the maritime domain.
Question 2. In your testimony, you highlight China's leadership in
all three categories of shipbuilding (largest orderbook, most
newbuilding orders, largest number of deliveries) last year. What can
the federal government do to improve U.S. shipbuilding capacity to
compete with China in the global market?
Answer. I have not yet studied this area in great enough detail to
offer policy advice.
Question 3. What are some ways the U.S. can ensure our military and
commerce remain undeterred by ongoing development of Chinese state-
owned enterprises?
Answer. Two examples of positive proactive U.S. action are the
airport in Greenland that could have become a Chinese facility and
instead was financed by Greenland, and the renegotiation of a port
project in Myanmar that resulted in the scope of work being reduced and
the overall cost dropping from $7.3 billion to $1.3 billion. In the
first case, the U.S. worked closely with a NATO ally, and in the second
case it provided technical assistance to a developing country. The
United States could build on these examples in other geographies, in
coordination with partners and allies.
Question 4. Can you elaborate on your proposal to establish a
federal database of global infrastructure projects, particularly
maritime assets? How would this database inform the United States'
infrastructure development, national security and economic strategy on
China?
Question 4a follow-up: How else can the U.S. expand current efforts
to increase transparency around Belt and Road Initiative projects?
Answer. This database would give the United States more accurate
picture of ground reality and help it set strategic priorities. Many
projects are announced but not completed. Not all projects are
threatening to U.S. interests. There are certain types of
infrastructure and certain geographic areas that we cannot allow China
to dominate, given our own national security and economic interests.
Using this database, the United States could conduct an internal
assessment to identify those projects that are vital to U.S. economic
and security interests. Resources could be mobilized to counter malign
projects, while projects that pose little or no risk to U.S. interests
could be encouraged and allowed to proceed.
Questions from Hon. Sean Patrick Maloney to Jeffrey D. Becker, Ph.D.,
Research Program Director, Indo-Pacific Security Affairs, CNA
Question 1. Noting the Chinese strategy of building port facilities
on either end of the Panama Canal, are there other strategic straits
where the Chinese have adopted a similar strategy?
Answer. Chinese maritime investments in Panama have been increasing
for decades. For example, the Hong Kong-based firm Hutchinson Ports now
owns a majority stake in the company that manages and operates both the
port of Cristobal on the Panama Canal's Atlantic side and the port of
Balboa on the Canal's Pacific side.\1\ Moreover, in 2017, the state-
owned China Communications Construction Company began work to expand
the Panama Colon Container Port at Margarita Island on the Canal's
Atlantic side.\2\ The Chinese firms Shanghai Gorgeous and Landbridge
Group wholly own and finance the company that will operate it upon
completion.\3\
---------------------------------------------------------------------------
\1\ ``Hutchinson Ports PPC--Cristobal,'' Hutchinson Ports--Our
Ports, https://hutchisonports.com/en/ports/world/panama-ports-company-
port-of-cristobal-ppc-cristobal/.
\2\ GCR Staff, ``Chinese Firm Starts Work on $1bn Panamanian
Megaport,'' Global Construction Review, June 12, 2017, http://
www.globalconstructionreview.com/news/chinese-firm-starts-w7rk-1bn-
panama7nian-meg7aport/.
\3\ Panama Colon Container Port, ``About Us,'' https://
www.pccp.com.pa/pccp/index.php/quienes-somos/pccp. My thanks to Chris
Cairns in helping to prepare this information.
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In addition to Panama, however, Chinese state firms have built a
similar type of presence in maritime infrastructure along many of the
world's more important maritime chokepoints. For example, at the
Malacca Strait, through which transits most of China's import oil, the
Chinese state-owned firm COSCO Shipping Ports operates port facilities
at Singapore's Pasir Panjang terminal, while Hutchison Ports operates
facilities at Malaysia's Port Klang.\4\ COSCO also owns a stake in the
port terminal operator which operates Port Said at the northern
entrance to the Suez Canal, while the Chinese firm China Overseas Port
Holdings Company both owns and operates the Port of Gwadar in Pakistan,
which is roughly 600km east of the Strait of Hormuz.\5\ Meanwhile
China's first overseas military base, located in Djibouti, sits on the
strategically important Bab El Mandeb Strait, while the Chinese state-
owned China Merchant Port Holdings operates the Doraleh Multipurpose
Port, which is located adjacent to China's base.\6\
---------------------------------------------------------------------------
\4\ ``Our Ports--Westports Malaysia,'' Hutchinson Ports, https://
hutchisonports.com/en/ports/world/westports-malaysia-westports/;
Jeffrey Becker, Erica Downs and Ben DeThomas, China's Presence in the
Middle East and Western Indian Ocean: Beyond Belt and Road, (Arlington,
VA: Center for Naval Analyses, February 2019), https://www.cna.org/
CNA_files/PDF/DRM-2018-U-018309-Final2.pdf, pp. 88.
\5\ Becker, Downs and DeThomas, China's Presence in the Middle East
and Western Indian Ocean, pp. 88.
\6\ Erica Downs, Jeffrey Becker and Patrick deGategno, China's
Military Support Facility in Djibouti: The Economic and Security
Dimensions of China's First Overseas Base, (Arlington, VA: Center for
Naval Analyses, 2017), https://www.cna.org/cna_files/pdf/DIM-2017-U-
015308-Final3.pdf.
Question 2. What is the likelihood that one of these ports run by a
Chinese SOE is going to become the next overseas Chinese naval base
(i.e. the next Djibouti)?
Answer. The Chinese military has been given responsibility to
protect China's growing overseas interests, including its growing
reliance on imported oil from the Middle East, its overseas foreign
investments, and the growing number of Chinese citizens living abroad.
However, the Chinese military will need to improve its ability to
operate far from Chinese home ports to protect those interests, and
this is difficult to do without having dedicated overseas military
facilities.
It is difficult to know with exact certainty the location of
China's next overseas base. However, as these overseas interests
continue to expand, it is very likely that China will seek to establish
additional overseas facilities that will improve its ability to protect
those interests.
For example, China may seek to replicate the benefits from its base
in Djibouti by establishing a second base on the eastern side of the
Indian Ocean in locations such as Cambodia or Myanmar.\7\ China has
long had strong military and economic ties to the Cambodian government,
and while Cambodia's constitution prohibits the presence of foreign
military bases in Cambodian territory, ties between the two militaries
have grown more exclusive in the past few years.\8\ In 2016, China and
Cambodia conducted their first-ever bilateral military exercise (Golden
Dragon). The following year, the Cambodian government cancelled their
annual Ankor Sentinel bilateral exercise with the United States, which
was to be the 8th iteration of the exercise. In November 2018 U.S. Vice
President Pence reportedly sent a letter to Cambodian Prime Minister
Hun Sen, expressing U.S. concerns over the possibility that China may
establish a base in the country.\9\
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\7\ See for example, Li Jian, Chen Wenwen and Jin Jing, ``Overall
Situation of Sea Power in the Indian Ocean and the Expansion in the
Indian Ocean of Chinese Sea Powers (Yinduyang Haiquan Geju yu Zhongguo
Haiquan de Yinduyang Kuozhan; [Chinese characters omitted]),'' Pacific
Journal 22, no. 5 (2014), 74-75, http://www.cssn.cn/zzx/wztj_zzx/
201406/t20140630_1235402.shtml.
\8\ Article 53, Constitution of the Kingdom of Cambodia 1993 (rev.
2008), Constitute, https://www.constituteproject.org/constitution/
Cambodia_2008?lang=en.
\9\ Joshua Lipes and Sovannarith Keo (translated), ``Cambodia's PM
Hun Sen Denies Reports of Plans For Chinese Naval Base,'' Radio Free
Asia, November 19, 2018, https://www.rfa.org/english/news/cambodia/
base-11192018155126.html.
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Other potential locations for China's next overseas military
facility include Sri Lanka, where the Chinese state firm China
Merchants Port Holdings owns a majority stake in the concession
agreement to operate the port of Hambantota, or the Pakistani port of
Gwadar, where the Chinese firm China Overseas Ports Holding Company
owns the rights to directly operate the port for a period of 40
years.\10\
---------------------------------------------------------------------------
\10\ Becker, Downs and DeThomas, China's Presence in the Middle
East and Western Indian Ocean, pp. 88.
Question 3. How, if at all, could federal agencies improve trade
and security programs and policies to promote American commerce in the
regions covered by China's Maritime Silk Road initiative?
Answer. While important, policy recommendations to promote American
commerce are beyond my area of expertise.
With regard to security programs, I believe that the threat of PRC
intelligence collection on U.S. Navy and Coast Guard activities and
operations in Chinese-operated overseas ports is an important and
growing concern, and both the U.S. government and military may wish to
take additional steps to mitigate these concerns. For example, while
the current process for vetting firms providing logistics services to
the U.S. Navy and Coast Guard in foreign ports focuses predominately on
cost, it would also be prudent to have providers vetted with an eye
towards assessing the extent to which such firms have ties to the
Chinese Party-State or military, and the potential implications of
those relationships.
Despite this new operating environment, however, it is important
that the U.S. Navy and Coast Guard continue to operate globally and
conduct port visits, engagement activities, and other aspects of
maritime diplomacy, which remain important to their missions.
Questions from Hon. Rick Larsen to Jeffrey D. Becker, Ph.D., Research
Program Director, Indo-Pacific Security Affairs, CNA
Question 1. How can the United States leverage its existing
maritime infrastructure to compete with Chinese State-Owned
Enterprises, and where do we need to make significant investments?
Answer. While I agree that this is an important question, I believe
this question is beyond my area of expertise to answer.
Question 2. Your written testimony details the impact of the
significant investment by Chinese SOEs in global maritime
infrastructure, particularly in port construction and operations. How
can the U.S. work multilaterally to pressure China to open up maritime
industries and put constraints on state owned enterprises?
Answer. It is important to recognize that not all Chinese
investments in overseas maritime infrastructure constitute a risk to
U.S. national security. Treating all investments as risks merely drains
vital resources. When Chinese firms operate in a transparent manner
consistent with international legal rules and norms, many investment
projects have the potential to satisfy demand in underserved locations.
The first step, therefore, is to identify which Chinese investment
projects may constitute a risk to U.S. national security, or a risk to
the security of U.S. partners or allies. Such risks may arise as a
result of the project's location, the role of certain Chinese firms
with a history of engaging in corruption, or a lack of transparency
regarding the details of the project.
Identifying which projects are of critical concern will allow the
U.S. government to concentrate its efforts on what is most important,
and avoid wasting resources.
Second, any successful effort will require careful coordination and
cooperation with U.S. partners and allies. The United States will need
to work with like-minded partner nations by sharing information
regarding projects of concern, and providing high quality investment
alternatives, as well as professional legal and technical advice to
countries involved in Belt and Road projects to help improve
transparency and legal accountability within the process.
Question 3. Could China restrict U.S. Navy access to ports operated
by Chinese state firms?
Answer. If relations between the two countries continue to
deteriorate, China could potentially seek to restrict USN access as a
response to a U.S. action that it perceives as hostile, or even as an
escalatory step should a serious crisis occur between the two countries
in the East China Sea, South China Sea, or elsewhere.\11\ Doing so,
however, would carry a number of costs for China. Such an action would
certainly be noted in other counties where concerns about ceding
sovereignty to China as a result of its growing footprint continue to
gain traction. China would likely face political pushback from the host
country as well. For example, while China may be best positioned to
restrict U.S. Navy access in locations where it has significant
economic leverage, such as Djibouti, or controls port operations, such
as Piraeus, both Djibouti and Greece would have strong incentives to
avoid being pulled into a U.S.-China confrontation.
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\11\ I am not aware, however, of Chinese analysts discussing this
as a possible tactic for use in the context escalation and crisis
control more. See for example Alison A. Kaufman and Daniel M. Hartnett,
Managing Conflict: Examining Recent PLA Writings on Escalation Control,
(Arlington: VA, Center for Naval Analyses, February 2016), DRM-2015-U-
009963-Final3.
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Finally, one may argue that China has an interest in having USN
ships continue to frequent Chinese-controlled port facilities, as such
visits provide ample opportunities for intelligence collection.
Questions from Hon. Sean Patrick Maloney to Kathleen A. Walsh,\1\
Associate Professor of National Security Affairs, U.S. Naval War
College
---------------------------------------------------------------------------
\1\ The views expressed here are those of the author alone and do
not represent official views of the US Government, Department of
Defense, US Navy or Naval War College.
---------------------------------------------------------------------------
Question 1. How, if at all, could federal agencies improve trade
and security programs and policies to promote American commerce in the
regions covered by China's Maritime Silk Road initiative?
Answer. The most immediately useful way to promote US trade and
commerce but in a way that also addresses US national security concerns
would be to establish, or support establishment of, a resource for up-
to-date information and objective analysis on China's Maritime Silk
Road (MSR) initiative. Such information is currently available broadly
from various private-sector resources such as think tanks, research
organizations, foundations, and academia in the United States and
abroad.\2\ What is missing, however, is an easily accessible,
comprehensive, and single up-to-date database of information on MSR
initiatives that is provided in a way that would best serve US
industries' needs, particularly in the maritime and broader ``blue''
sectors.
---------------------------------------------------------------------------
\2\ In addition to CSIS' Reconnecting Asia Program, other public
databases that are or have been offered in the past include those by
the Council on Foreign Relations, American Enterprise Institute (China
Global Investment Tracker), the East West Institute, and the Mercator
Institute for China Studies (MERICS), among others. However, to my
knowledge, none of these focus exclusively on the Maritime Silk Road
and maritime concerns, opportunities and costs specifically nor at the
level of detail likely of interest to the US maritime industry.
---------------------------------------------------------------------------
For instance, if a US enterprise is interested in possibly
investing in or establishing a presence near an MSR project(s) or
maritime cluster overseas, where might they get such information?
Oftentimes companies will seek such assistance from Commerce or State
Department programs, guidance and expertise. But such information is
commonly available mainly at the country or regional level; such a
large, long-term, cross-country initiative as the MSR likely makes
gaining such information a difficult and extensive endeavor, one made
more difficult due to the necessary reliance on the PRC government for
MSR data, program information and policies. Having access to a trusted,
US Government-vetted, open source resource on the MSR and its
implications (both risks and opportunities) for US businesses could
provide a value-added, one-stop electronic resource for enterprises of
any size, anywhere seeking global, regional or country-level investment
or trade opportunities while at the same time providing readily
accessible information on the potential risks involved as well as ways
to counter those risks (e.g., technology transfer and intellectual
property protections and export control best practices). Making such
information readily available to firms of any size and anywhere around
the country who are potentially interested in the MSR (or MSR-related
enterprises seeking to invest in the United States' maritime or blue
sectors) could promote US trade and commerce but in a more security-
conscious manner. (This sort of information public service is the basis
for the initiative mentioned in my testimony with a specific focus on
supporting the emerging ocean or blue economy.) Such an MSR-specific
data and information resource would be useful in the event that the MSR
begins to fulfill Beijing's ambitions or, alternatively, if the MSR
fails (saving US firms from investing in or with failed, failing or
too-risky programs).
A related, if less ambitious, idea is to mandate a US federal
agency or agencies provide an annual report on the MSR that details
issues such as maritime developments across the MSR, outlining any
barriers to US trade and investment along the MSR or challenges faced
broadly by US firms seeking to participate, providing indications of
progress toward development of new maritime technology, standards,
infrastructure and innovation (e.g., 5G as applied to maritime industry
sectors), an assessment of financial tools, risks and costs (i.e., MSR-
related leases, loans, and specifics on debt), indications (or lack
thereof) of China's development and export of its blue economy concept
through its various announced ``blue'' passages, corridors, carbon
programs, etc., as well as an overview of environmental impacts from
MSR development, among other potentially useful input to an annual
assessment related to development of the MSR and conducted over time.
Question 2. How can the United States leverage its existing
maritime infrastructure to compete with Chinese State-Owned
Enterprises, and where do we need to make significant investments?
Answer. If issues arising from the development of the blue economy,
from ocean science, and development of offshore wind energy (the main
areas that have come up in my research on the blue economy) reflect the
broader maritime sector, then US maritime infrastructure is in
important ways out of date and currently lacking modern capabilities
while at the same time is being challenged by the growing and costly
impact of climate change. Leveraging existing, aging maritime
infrastructure is likely to be an insufficient approach to deal with
growing competition from China and elsewhere in maritime and blue
endeavors, meaning that significant investment in maritime
infrastructure (e.g., ports, shipbuilding facilities, ocean science
facilities, etc.) and the expertise to build and sustain it are
essential for continued development of the ocean/blue/maritime economy
in the United States.
At the same time, the United States' existing maritime
infrastructure, while in need of significant investment to modernize
ports, rails, bridges, highways, telecommunications, etc., nevertheless
serves as a competitive advantage vis-a-vis China and other developing
countries in terms of already existing, being geographically clustered,
market driven and increasingly connected intellectually and
innovatively through emerging ocean or blue economy development
efforts. Federal, state and local investments in the hardware (modern
infrastructure programs) are likely to enhance and accelerate the
equally important ``software'' that drives maritime innovation
clusters--the collaborative and synergistic sharing and pursuit of new
ideas, innovations, and scientific invention that can come from a
cluster of ocean science, technology, engineering, research, commercial
enterprises, and environmental interests. Similar to how Silicon Valley
formed around a leading university (Stanford), drew on the nearby
community of scientists, researchers, engineers and businesses to drive
innovation, and was supported in part by federal government programs,
funding, and requirements, the maritime/ocean/blue sector has begun to
expand cross-maritime community collaboration and form new networks or
clusters of cooperation, development and innovation on maritime
concerns. These bottom-up behaviors reflect the strength of the United
States' market economy but can be assisted by government (such as
through continued STEM funding), particularly if expanded and geared
more specifically to ocean-, maritime-, and new blue-themed science,
technology, engineering and environmental science careers.
Lastly, it is important that the United States modernize its
maritime infrastructure (in both hard and soft terms) in order to
ensure that we do not become overly dependent on ``Chinese technology,
standards, equipment or engineering knowhow'', the establishment of
which is the aim of China's own Made in China 2025 strategy and has
long been an objective of PRC science and technology development
strategy and policies.
As explained by the OECD, ``The strategy Made in China 2025 aims to
encourage Chinese technology, standards, equipment and engineering
knowhow, which can also be adopted within the BRI in competition with
advanced economies trying to do the same thing: i.e. to win business
and lock-in future projects through sound benefit/cost outcomes.'' \3\
---------------------------------------------------------------------------
\3\ OECD, ``China's Belt and Road Initiative in the Global Trade,
Investment and Finance Landscape,'' OECD Business and Finance Outlook
2018 (Paris: OECD, 2018), p. 22. https://www.oecd.org/finance/Chinas-
Belt-and-Road-Initiative-in-the-global-trade-investment-and-finance-
landscape.pdf.
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If the United States is to remain a leader in technology and
standard development in the broader maritime sector (both commercial
and military/naval), significant investment is necessary in maritime
infrastructure to ensure US science, technology, engineering, defense
and business interests are involved in developing and innovating high-
tech standards and intellectual property that exceeds, or at the very
least is competitive with, PRC-developed technology standards,
engineering and equipment. Because both the United States and the
People's Republic of China rely on commercial-sector technology
advances to serve defense technology requirements (and vice versa),
development of a modern maritime industry is a critically strategic
area of competition worthy of federal R&D investment.
While playing a distinct role from that of the PRC Government, the
US government nevertheless has an important role to play in ensuring
that maritime infrastructure is modernized and continues to provide
opportunities for more competitive and capable maritime science,
technology, engineering and commerce, all of which serves the national
innovation and defense enterprise.
Questions from Hon. Rick Larsen to Kathleen A. Walsh, Associate
Professor of National Security Affairs, U.S. Naval War College
Question 1. I'm eager to hear more about the application of
maritime clusters and blue technology development. As you may know,
Washington state have a robust cluster, called Washington Maritime
Blue, that fosters productive collaboration and competition for ocean
economy companies and agencies.
a.What are some ways the public sector benefits from investment in
maritime clusters?
Answer. I have had the opportunity to discuss development of
Washington state's Maritime Blue cluster with experts and plan to
conduct field research following an event tentatively scheduled there
next July. As such, I am somewhat familiar with Washington state's
efforts to develop a Maritime Blue cluster and am impressed by the
program's aims and progress made to date. This is an initiative that is
worth monitoring and is likely to serve as a model for other states or
regions.
As indicated in my answers above, one of the most important
benefits to the public sector from investment in maritime clusters is
likely to be to the defense enterprise (in the maritime case, mainly
naval development). Where maritime clusters emerge and promote
opportunities for innovation and invention, this will serve US defense
interests by enhancing scientific, technological and engineering
knowhow, maritime or naval capabilities, and through development of
leading edge products, standards, and practices applicable on the
water, underwater and above the water. This emphasis on investment in
maritime development will aid the United States in its strategic
competition with a rapidly capable Chinese/PLA Navy, China's economic
challenge, as well as with high-tech developments across the MSR.
The development of maritime clusters also is likely to promote
jobs, support more advanced technical skills (leading to higher paying
jobs), expand university programs, and open new trade and investment
opportunities. Where maritime clusters are able to develop an
innovation ecosystem, the whole is likely to be larger than the sum of
the parts, providing a sustainable cycle of development, which serves
the public's interest overall.
An important element of an ocean or blue economy is the concept of
an ecosystem. In the United States, we have learned the lesson that it
pays (literally and figuratively) to consider the environment when also
pursuing for-profit endeavors; sustainable development serves long-term
industry interests, market development, as well as innovation by
ensuring the environment not only does not repel families and visitors
where environmental hazards and damage exist but, in fact, serves to
promote business by attracting more people (i.e., investors, tourists,
academic researchers, students and others) to a particular geographic
region known as an environmentally pleasant place to live, work or
visit. Thus, to the extent that maritime clusters are successful in
developing and promoting more innovative but also sustainable and
conservation-oriented policies, practices and technologies, the general
public will be served by having a cleaner environment and drinking
water while US industry will gain a competitive advantage in domestic
and global markets. Having learned this hard lesson ahead of other
countries still in the throes of fast-paced economic development
provides the United States with a head start and competitive advantage
in pursuing more sustainable, environmentally friendly and profitable
approaches to economic, particularly maritime, development.
Question 2. In your testimony, you detail the Trump
Administration's lack of a focused blue technology and blue economy
plan following last year's rollback of the National Ocean Policy,
established under President Obama. What are the consequences of the
administration's inaction, particularly as China continues to increase
investments in this field?
a. What would it take to make the U.S. blue economy more robust and
able to compete with the Chinese?
b. Could you propose some strategies or areas of investment in the
ocean economy sector that could leverage areas of expertise in our
federal agencies?
Answer (2a.-2b.). Despite the federal government reversal on
pursuing a national strategy to develop the ocean/blue economy under
the Trump administration, regional, state and local efforts continue.
The lack of a national strategy, however, means that these local
efforts are not well coordinated, could prove wasteful or redundant,
and likely are missing out on opportunities that having a national
strategy and focused federal effort can illuminate and support.
The Trump administration recently has taken initial steps toward
supporting ocean/blue economy development by hosting a November 2019
White House meeting on ocean science research and development (R&D).
But this initiative has come three years into a first term and, in my
view, represents the minimum that is required to address US ocean and
maritime interests. In the absence of an influential US interagency
policy process and development of a national strategy coordinated with
US allies and partners around the globe, the United States is missing
opportunities for development and ceding influence over international
ocean/blue/maritime development matters to other powers, particularly
China. As China prioritizes maritime/ocean/blue economy development as
a strategic industry sector with civil and military applications, the
United States' efforts to do the same are lacking and rely largely on
local officials, funds, resources and political will. Without clear and
consistent strategic guidance, established programs or sustained
financial support as well as collective expertise from the federal
government (beyond programs administered by the National Oceanographic
and Atmospheric Administration [NOAA] and the Naval Undersea Warfare
Center), the effect is akin to engaging in a major competition with one
arm tied behind our back.
In addition to supporting a public service information database on
the ocean/blue economy and/or MSR (addressed above) that would be
designed to provide critical and timely information on what the United
States, China and other states are doing to develop their ocean/
maritime/blue economies, the federal government can sustain and expand
funding programs for ocean science research, exploration, technology
development and engineering, and related educational and training
programs to promote ocean/maritime/blue development, innovation and
careers. Given the relative newness of the blue economy concept and
importance of maritime innovation clusters to the local, state and
national economies, government support for research into these new
aspects of maritime development (that promote blue and innovative,
industrially and environmentally sustainable solutions) should be a
priority so that we better understand these dynamics and how to
leverage them to achieve improved outcomes. Non-partisan, government-
sponsored public reports on what efforts across the United States and
beyond have worked or have failed and why would be a valuable public
service; trusted information and analysis on China's ocean/blue/
maritime and MSR-related development efforts and their importance for
US and allied trade, commerce and security interests is essential and
could serve to counter China's influence by providing accurate, timely
and comprehensive information on its activities. For instance, if
China's various ``blue'' initiatives connected to the MSR do not
enhance marine conservation but, instead, exacerbate environmental
concerns, this information will be essential to US businesses and
others with a potential interest in participating (or not) in the MSR.
Given the United States' long history and experience in fostering
technology innovation, as maritime innovation clusters and the ocean/
blue economies develop, federal agencies could usefully provide data
indicators and a collection of case studies and best practices that
other states, regions or countries might use in developing their own
ocean/blue economies and maritime innovation clusters by building on
market-based dynamics (in contrast to China's more statist, top-down,
SEZ-model approach to development). To the extent that we can document
the reasons for the success (or failure) of any US innovative and
sustainable maritime/ocean/blue economy development efforts or those of
other states, we can share those insights with allies, partners,
friends and others around the world while also influencing development
of this strategically vital sector at home and abroad.
Question 3. Is ratification of UNCLOS still a strategic imperative,
and what would you say to our colleagues in the Senate to convince
them?
Answer. Yes, ratification of UNCLOS is a strategic imperative given
the opportunity costs incurred by not being at the table as the
People's Republic of China attempts to re-interpret the customary
maritime law upon which the UNCLOS was drafted as well as re-
interpreting UNCLOS provisions in ways that enhance PRC maritime claims
(i.e., Exclusive Economic Zone or EEZ boundaries) at the expense of
freedom of navigation in the Indo-Pacific region and around the globe.
Despite denials, it is clear that the People's Liberation Army Navy
(PLAN) operates as if China's claim of a made-up Nine-Dash Line
encompassing almost all of the South China Sea is a sovereign maritime
boundary, in contravention of UNCLOS.\4\ But without having a seat at
the table at which these matters are addressed and potentially re-
interpreted by the convention's now largest United Nations Security
Council power (PRC) puts the United States and also our allies,
partners and friends at a disadvantage--in trying to enforce the rules
and their interpretation in an international convention to which we are
not a formal party. An added impact and opportunity cost is the United
States' and others' (parties other than China), capability to conduct
ocean scientific research in the South China Sea region, given the
risks, uncertainties and exorbitant costs that would be involved in
doing so.
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\4\ It is through discussions over several years with Chinese
academics, researchers and military experts that it has become clear to
me that the PLAN effectively treats the Nine-Dash Line as a sovereign
maritime boundary.
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China is also leading an effort attempting to change the long-
accepted understanding under UNCLOS and maritime customary law of what
constitutes territorial and international waters and states' rights
therein, in order to claim sovereign rights out to 200 nautical miles
of an EEZ and, for instance, to exclude foreign military access near
China's shores. Such an interpretation if applied globally would cover
and close off much of the world's maritime area and make international
trade and security based on freedom of navigation principles difficult
to maintain. Yet China does not apply this revisionary interpretation
to maritime areas beyond the South China Sea, presumably because that
would constrain China's own access in other parts of the world, such as
along the US coastline, in the Arctic, and elsewhere. It would be more
effective for the United States to counter this sort of inconsistent
stance on the part of a powerful UNCLOS member if we were also a member
of the Convention and upheld its principles as a member of good
standing.
Beyond maritime boundary re-definitions, China and other states are
pursuing claims to the seabed, as allowed under UNCLOS. As a non-party,
the United States is not engaging in this internationally sanctioned
arena of exploration and resource extraction and therefore has limited
impact on the rules, practices and restrictions that govern this
activity. As modern science, technology and engineering allow greater
exploitation of the seabed, this issue is likely to become of greater
interest and possible concern than in the past.
US ratification of UNCLOS has long been recommended by US military
leaders due to US interests in the maritime domain and in the principle
of freedom of navigation that is essential to global trade and
security. To the extent that the United States Senate has concerns with
regards to any particular provision(s) in the Convention, it is likely
that these can be addressed as part of the ratification process. In
short, it is better for the United States to be inside the Convention
working to ensure UNCLOS works for US interests and those of our
allies, partners and friends than to remain nearly isolated on the
outside complaining about what China and other UNCLOS members decide.
As more time passes, the risk increases of China being successful in
reinterpreting key provisions in which the United States has an
interest, as do our allies, partners and friends.
Question 4. Are Chinese telecommunications firms such as Huawei or
ZTE involved in port construction projects? If so, does this create any
additional concerns for national security?
Answer. I do not know, offhand, if either Huawei or ZTE is involved
in port construction projects and would have to research this question,
but I certainly would like to know. This is one of the reasons why I
have recommended (see first answer to Representative Maloney and
testimony) a one-stop MSR-focused (or broader ocean/blue economy)
database that would provide such answers to anyone, anywhere, at any
time interested in knowing this sort of basic, generally publicly
available information along with information on what concerns the US
government has, any export policies or sanctions that might apply, and
best practices on how to deal with IPR and technology transfer
concerns, etc. Informed investing, decisionmaking and policymaking is
in the US interest for commercial, technology and security reasons and,
in the Information Age, certainly can be facilitated to better serve
these interests.
Were Huawei, ZTE or other Chinese telecom enterprises to be
involved in port construction projects along the MSR, in the United
States or elsewhere outside the PRC, this could pose potential trade
and security risks. US Government concerns based on investigations
about these firms' technologies, products, policies, practices and
their connections to and cooperation with the Chinese Communist Party
mandates make these companies' involvement in strategically vital port
facilities potentially worrisome in terms of raising concerns about
technology transfers, espionage, unfair competition and possible state
subsidies.
In addition, the strategies and plans related to China's MSR vision
(see Appendix) indicate that overseas SEZs, industrial parks, other
types of development zones, etc. (places and bases) are expected to be
connected to and networked with the Chinese Mainland via
telecommunications hardware and software, likely provided by these (and
perhaps other) Chinese enterprises. According to China's 2017 Vision
for Maritime Cooperation:
``China will join in efforts by countries along the Road in
establishing industrial parks for maritime sectors and economic
and trade cooperation zones, and promote the participation of
Chinese enterprises in such endeavors . . .
Efforts are needed to strengthen international maritime
cooperation, improve shipping service networks among countries
along the Road, and to jointly establish international and
regional shipping centers. Countries along the Road are
encouraged to enhance cooperation through pairing sister ports
and forging port alliances. Chinese enterprises will be guided
to participate in the construction and operation of ports.
Projects for the planning and construction of submarine cables
will be jointly advanced to improve connectivity in
international communications . . .
Information networks will be improved in countries along the
Road by jointly building a system with broad coverage for
information transmission, processing, management and
application, a system for information standards and
specifications, and a network security system, thus providing
public platforms for information sharing.''--2017 Vision for
Maritime Cooperation (full text in Appendix)
The 2015 Action Plan also outlines specific initiatives aimed at
connecting Chinese and MSR maritime facilities, ports, energy
infrastructure, and regional, transcontinental submarine optical
cables:
``Facilities connectivity is a priority area for implementing
the Initiative. On the basis of respecting each other's
sovereignty and security concerns, countries along the Belt and
Road should improve the connectivity of their infrastructure
construction plans and technical standard systems, jointly push
forward the construction of international trunk passageways,
and form an infrastructure network connecting all sub-regions
in Asia, and between Asia, Europe and Africa step by step. At
the same time, efforts should be made to promote green and low-
carbon infrastructure construction and operation management,
taking into full account the impact of climate change on the
construction.
With regard to transport infrastructure construction, we should
focus on the key passageways, junctions and projects, and give
priority to linking up unconnected road sections, removing
transport bottlenecks, advancing road safety facilities and
traffic management facilities and equipment, and improving road
network connectivity. We should build a unified coordination
mechanism for whole-course transportation, increase
connectivity of customs clearance, reloading and multimodal
transport between countries, and gradually formulate compatible
and standard transport rules, so as to realize international
transport facilitation. We should push forward port
infrastructure construction, build smooth land-water
transportation channels, and advance port cooperation; increase
sea routes and the number of voyages, and enhance information
technology cooperation in maritime logistics. We should expand
and build platforms and mechanisms for comprehensive civil
aviation cooperation, and quicken our pace in improving
aviation infrastructure.
We should promote cooperation in the connectivity of energy
infrastructure, work in concert to ensure the security of oil
and gas pipelines and other transport routes, build cross-
border power supply networks and power-transmission routes, and
cooperate in regional power grid upgrading and transformation.
We should jointly advance the construction of cross-border
optical cables and other communications trunk line networks,
improve international communications connectivity, and create
an Information Silk Road. We should build bilateral cross-
border optical cable networks at a quicker pace, plan
transcontinental submarine optical cable projects, and improve
spatial (satellite) information passageways to expand
information exchanges and cooperation.''--2015 Vision & Actions
on Jointly Building Silk Road Economic Belt and 21st-Century
Maritime Silk Road (a.k.a. Belt and Road Action Plan (full text
in Appendix, document 2)
As such, US technology and security concerns raised by such Chinese
companies could expand to third-party states (including potentially
allies and partners) and across the region, thereby becoming much more
difficult to counter or protect against. Moreover, to the extent that
the MSR is successful in developing, connecting and networking overseas
development zones, the technology hardware and software as well as
communications channels that are used could become the regional and
global standard; this outcome is more likely if Chinese
telecommunications firms and products dominate MSR-related contracts,
investments, and trade and if US firms are excluded from competing or
ill-prepared to do so.
appendix: 2 prc government documents
1. Vision for Maritime Cooperation under the Belt and Road Initiative
(June 2017) [http://english.www.gov.cn/archive/publications/2017/06/20/
content_
281475691873460.htm]
2. Vision and Actions on Jointly Building Silk Road Economic Belt and
21st-Century Maritime Silk Road (March 2015) (a.k.a. Belt and Road
Action Plan) [http://en.ndrc.gov.cn/newsrelease/201503/
t20150330_669367.html]
Note: each highlighted by Walsh for relevant maritime/blue economy
matters of interest.
[The two PRC Government documents in the appendix to Ms. Walsh's
responses to questions for the record are retained in committee files.
Ms. Walsh has also provided web links to these documents; see above.]