[Senate Hearing 116-215]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 116-215

                       A NEW APPROACH FOR AN ERA 
                       OF U.S.	CHINA COMPETITION

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

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             MARCH 13, 2019
                               __________

       Printed for the use of the Committee on Foreign Relations



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                   U.S. GOVERNMENT PUBLISHING OFFICE
                    
40-644 PDF                WASHINGTON : 2020   





                 COMMITTEE ON FOREIGN RELATIONS        

                JAMES E. RISCH, Idaho, Chairman        
MARCO RUBIO, Florida                 ROBERT MENENDEZ, New Jersey
RON JOHNSON, Wisconsin               BENJAMIN L. CARDIN, Maryland
CORY GARDNER, Colorado               JEANNE SHAHEEN, New Hampshire
MITT ROMNEY, Utah                    CHRISTOPHER A. COONS, Delaware
LINDSEY GRAHAM, South Carolina       TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
JOHN BARRASSO, Wyoming               TIM KAINE, Virginia
ROB PORTMAN, Ohio                    EDWARD J. MARKEY, Massachusetts
RAND PAUL, Kentucky                  JEFF MERKLEY, Oregon
TODD, YOUNG, Indiana                 CORY A. BOOKER, New Jersey
TED CRUZ, Texas
              Christopher M. Socha, Staff Director        
            Jessica Lewis, Democratic Staff Director        
                    John Dutton, Chief Clerk        



                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Risch, Hon. James E., U.S. Senator From Idaho....................     1

Menendez, Hon. Robert, U.S. Senator From New Jersey..............     3

Talent, Hon. James M., Commissioner, U.S.-China Economic and 
  Security Review Commission, Washington, DC.....................     5
    Prepared statement...........................................     8

Mastro, Dr. Oriana, Assistant Professor of Security Studies, 
  Edmund A. Walsh School of Foreign Service, Georgetown 
  University, Washington, DC.....................................    16
    Prepared statement...........................................    19

              Additional Material Submitted for the Record

China's Technonationalism Toolbox: A Primer......................    12

The Build-Up of China's Military Forces in Asia..................    30

U.S. Senate PSI Staff Report on China's Impact on the U.S. 
  Education System...............................................    42

Response of Hon. James Talent to Question Submitted by Senator 
  Johnny Isakson.................................................    55

                             (iii)     
                             

 
                       A NEW APPROACH FOR AN ERA
                       OF U.S.-CHINA COMPETITION

                              ----------                              


                       WEDNESDAY, MARCH 13, 2019

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:19 a.m. in 
room SD-419, Dirksen Senate Office Building, Hon. James E. 
Risch, chairman of the committee, presiding.
    Present: Senators Risch [presiding], Rubio, Johnson, 
Gardner, Romney, Isakson, Portman, Young, Cruz, Menendez, 
Cardin, Shaheen, Coons, Murphy, Kaine, Markey, and Merkley.

           OPENING STATEMENT OF HON. JAMES E. RISCH, 
                    U.S. SENATOR FROM IDAHO

    The Chairman. I thank everyone for joining us here today.
    Today what we are going to do is, as the Foreign Relations 
Committee of the United States Senate of the 116th Congress, we 
are going to continue our review from a 30,000 or 50,000 foot 
level of observations about what the world looks like today and 
where we are headed as we journey into the 21st century 
further. We are, of course, approaching the end of the first 
quarter of the 21st century, and there are some things that 
have become evident. And that is what we are going to continue 
to focus on in these hearings.
    And today, of course, we are going to talk about China and 
where we have been and where we are headed as far as our 
relationship with China is concerned.
    After 20 years of helping China prosper economically and 
hoping they would emerge as a responsible partner on the world 
stage, it is time for U.S. policymakers to acknowledge this 
path was not the right path. But, of course, we have the 
advantage of hindsight now which we did not have when we 
started on this journey.
    Today, China steals our intellectual property and uses it 
to put our people out of work. It intimidates its neighbors, 
including close U.S. allies, while increasing its military 
capabilities in the South and East China Seas. China exports 
corruption and its authoritarian model across the globe. It 
uses cheap financing as a debt trap and has built a police 
state that the Chinese Communist Party uses to limit free 
expression that contradicts the party line.
    These are not the actions of a responsible stakeholder. 
Rather, it proves that the assumption that as China continued 
to rise, it would begin to mature into a responsible 
international actor was and is wrong.
    It is clear the Chinese Communist Party does not share the 
same values that the United States and our partners have. To 
them, life, liberty, and the pursuit of happiness are not 
aspirations to deliver to their people but values the Communist 
Party should fear and control.
    As we enter a new era of relations with China, we must be 
clear-eyed and honest about the challenges ahead. China is 
seeking to be a preeminent power in Asia, but its ambitions are 
broader. It is building naval bases in Africa, stealing the 
intellectual property of Western companies, subsidizing its 
companies overseas to gain economic and political leverage, and 
threatening military conflict with its neighbors.
    Given Chinese behavior over the past several years, 
economic, political, and military, some now believe conflict is 
inevitable. I do not think it is, at least not yet. But the 
relationship must be rebalanced in order to avoid future 
conflict and provide a sustainable way forward for both 
countries.
    The Trump administration has forced a new conversation on 
what the relationship will look like moving forward. Its trade 
policies show Beijing that business as usual is over. We will 
not stand for our ideas and technologies being stolen, and we 
will not stand for our people losing their jobs to unfair 
competition.
    The best example of this type of behavior comes from my 
home State of Idaho. Micron Technology, the second largest 
producer of semiconductors in the world, has had their 
intellectual property stolen by a Chinese company, patented in 
China, and then used to sue Micron in Chinese courts directed 
by the Chinese Government. To its credit, the Trump 
administration imposed sanctions for this action and brought 
criminal charges against those responsible.
    But economics is not the whole ball game. Chinese foreign 
policy is increasingly aggressive, and Chinese military 
activity in the region is on the rise. They have created and 
armed artificial outposts in the South China Sea, illegally 
claimed annexation of nearly the entire sea, and claimed 
territorial waters from sovereign countries like the 
Philippines, Vietnam, and Taiwan.
    As a side note, it is important to note that China and its 
victims in its maritime misadventures are all members of the 
Law of the Sea Treaty, which has been useless against China in 
this conflict.
    If China is allowed to control the western Pacific, it 
would present a major challenge to the free movement of goods 
across the globe, potentially allowing Beijing to hold the 
international trade system hostage.
    The territorial issues in the South and East China Seas 
need to be resolved according to internationally recognized 
norms, and we need to support all countries that wish to use 
and abide by this process.
    Let us be clear. China has no allies, only transactional 
partners and states too weak to push back. The strength of the 
United States is found in our alliances and partnerships. These 
partnerships are critical to protecting international laws and 
norms and push back on Chinese coercion and economic leverage 
around the world.
    Domestically if a Chinese citizen wants to prosper, the 
Communist Party requires them to surrender to surveillance 
state and party line. To those who refuse, they are subject to 
immense suppression tactics, such as imprisonment and forced 
disappearances of political prisoners.
    To whole groups the Communist Party opposes, such as the 
Uighurs and other ethnic minorities, the solution is even more 
simple: send them to reeducation camps. It is hard for China to 
be a responsible world actor if it violates the most basic 
human rights of its own people. Unfortunately, the Communist 
Party also does not realize that diversity actually encourages 
innovation and prosperity. U.S. policy must defend those who 
struggle for freedom.
    But it is not all lost yet. I believe there is still time 
to rebalance our relations and address the foundational 
problems impacting our relationship like the rule of law and 
trade that is free and fair. The Trump administration has 
already engaged in this process, but much, much more needs to 
be done.
    My hope is that China will take the opportunities at hand 
and itself change its own policies and commit to working with 
the rest of the world in order that all benefit and prosper 
under the rule of law, human rights, restrained military 
activity, and economic action that is free, fair, and absent 
corruption.
    With that, I will yield to the ranking member, Senator 
Menendez.

              STATEMENT OF HON. ROBERT MENENDEZ, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Menendez. Thank you, Mr. Chairman.
    Let me thank Senator Talent and Dr. Mastro for joining us 
today and helping us understand one of the biggest foreign 
policy challenges on our nation's agenda: dealing with the 
strategic challenge of a rising and perhaps risen China.
    When we consider the strategic challenge of China, the 
characterization does speak to a deeper truth. China is playing 
four dimensional chess across every element of national 
security: militarily, economically, diplomatically, and 
culturally.
    In the maritime domain, and in the South China Sea in 
particular, China's aggressive island-building campaign and its 
rejection of international law threaten not just regional 
stability but longstanding U.S. interests in the free flow of 
commerce, freedom of navigation, and diplomatically resolving 
disputes consistent with international law.
    Economically, I sincerely hope that the current U.S.-China 
trade negotiations will result in real structural reform. Over 
the past decade, we have seen a determined China bend the rules 
to its own benefit on trade and economic matters as it has made 
its way to be the world's second largest economy. But 
structural challenges remain: in China's often cyber-enabled 
theft of intellectual property rights; in its unfair advantages 
by manipulating market access; and in its underwriting of 
state-owned enterprises. And the entwined relationships between 
companies like Huawei and the Chinese national security 
apparatus raise serious questions.
    Diplomatically, China has fashioned a brand of 
international diplomacy often rooted in manipulative 
investment. More subtly, China's Belt and Road Initiative has 
seen its influence work its way across the world in port 
contracts and United Nations voting patterns. Overtly, China 
continues cooperation with North Korea where, after some 
initial toughening in 2017 and 2018, we once again see a 
lessening of pressure out of concern for regime stability.
    China has developed complex influence campaigns by 
traditional and non-traditional means. China may not manipulate 
social media the way we saw with Russian tradecraft in 2016, 
but its tentacles of influence are far-reaching. The launch of 
the Confucius Institutes on many U.S. campuses, a desire to set 
up party cells in U.S. businesses, and espionage targeted at 
universities pursuing high tech research all speak to the 
pervasive extent of China's united front efforts.
    And while we consider Chinese foreign policy endeavors, let 
us also point out that domestically Xi Jinping has overseen the 
emergence of a neo-Maoist authoritarian model and a total 
surveillance state. The government is pursuing a brutal 
crackdown on the Uighurs in Xinjiang, including the internment 
of an estimated 1 million people in camps subjected to, quote, 
``reeducation campaigns, forced labor, and total 
surveillance.''
    All of these dynamics make constructing an effective China 
policy uniquely challenging for U.S. policymakers.
    Now, I know it may surprise some of my colleagues, but I 
agree with President Trump when it comes to recognizing the 
scope of the challenge that China presents to the United States 
and to the entire international order. But I do not think the 
President has found the right approach.
    As others have noted, merely being more confrontational 
with China does not make us more competitive with China.
    So we have to ask, are there still opportunities for 
cooperation? What are the risks of the competition becoming 
conflict? 30 years ago, we debated whether or not China would 
rise to be a major power. 10 years ago, we wondered what sort 
of power China would be. Today, the book is not by any means 
closed. On the contrary, new pages and chapters are beginning 
to emerge. And I have to tell you, Mr. Chairman, the reading so 
far is not promising.
    We must be holistically strategic, leveraging all of our 
diplomatic tools. Slashing America's foreign affairs budget, as 
the Trump administration has yet again proposed, weakens our 
ability to effectively confront China's economic and diplomatic 
reach around the globe.
    As we contemplate a more competitive environment with 
China, we also need to pay attention to building, not 
destroying, our alliances and partnerships.
    I have repeatedly argued that core American values must be 
the centerpiece of our foreign policy. China's model is 
appealing, unfortunately, in all too many parts of the world. 
We must offer a better model.
    In celebrating the 40th anniversary of the Taiwan Relations 
Act and a strong partnership with Taiwan, we also celebrate the 
values of a flourishing democracy.
    So I look forward to hearing from our witnesses today on 
how to better understand the strategic and economic realities 
unfolding with the rise of China and how to best structure U.S. 
policy to safeguard our national interests and our values.
    The Chairman. Thank you, Senator Menendez.
    And with that, we will turn to our first witness, Senator 
Jim Talent, who is currently a commissioner on the U.S.-China 
Economic and Security Review Commission, a body that was 
established in part to review the national security 
implications of trade and economic ties between the United 
States and the People's Republic of China.
    Additionally, Senator Talent is a senior fellow at the 
Bipartisan Policy Center, as well as the Director of the 
National Security 2020 Project and visiting senior fellow at 
the American Enterprise Institute.
    Previously, Senator Talent served the people of Missouri 
here in Washington, DC for 14 years, first as a Member of the 
House of Representatives and then here in the United States 
Senate.
    With that, Senator Talent, welcome. Thank you for joining 
us today. We look forward to hearing from you.

  STATEMENT OF HON. JAMES M. TALENT, COMMISSIONER, U.S.-CHINA 
    ECONOMIC AND SECURITY REVIEW COMMISSION, WASHINGTON, DC

    Senator Talent. Thank you, Mr. Chairman, and thanks to 
Senator Menendez and the committee for inviting me. I am pretty 
certain you asked me here basically because I am on the China 
Commission and have served there for 6 years.
    I will say a word about the commission. It was established 
in 2000 upon China's accession to the WTO. Its function is to 
review every year annually the economic and security 
relationship between the United States and China. We hold 
hearings. We produce papers. We produce an annual report that 
is like 550 pages long. It is very thoroughly documented. It 
has become a kind of standard reference I think in the field, 
and I am proud of the staff and the commission, particularly 
the longstanding members. It is very professional, and I 
recommend it to you as a resource.
    My views here are my own. My main message from the 
commission is that we are statutorily and functionally a 
creature and servant of the Congress of the United States. So 
anything we can help you with, any requests, I would encourage 
you or your staff to make it if we can help you in any way.
    My statement goes through the background that both the 
chairman and the ranking member covered. I will cover it very 
briefly. It is hard to be brief. I did serve in this body and 
some habits are hard to break, but I will do it.
    I think it is fair to say that for really 40 years after 
Richard Nixon visited China in 1972, our government pursued a 
policy of encouraging and assisting China in developing 
economically and participating in international affairs. And I 
think we have to be fair. There were reasons for believing that 
China's trajectory would be hopeful. They were introducing a 
number of the features of economic liberalization in their 
economy. There were and are voices in China, even after 
Tiananmen Square, arguing for political liberalization, and 
that was a period of time when many authoritarian regimes were 
becoming democracies. And so there was a reason for the 
prevailing view during the period, and many of you served in 
that period. I did.
    The logic was if the Chinese Communist Party wanted China 
to become wealthy--and it did--it would have to continue 
liberalizing its economy. There was a good chance that that 
would lead to political liberalization, and even if it did not, 
the discipline of participating in the world economic system 
would end up at least making China a responsible player in 
regional and world affairs. So, in other words, the prevailing 
view was that full participation in the world economic system 
would change China in the right direction.
    But I also think it is fair to say that what actually 
happened is that China, under the Chinese Communist Party, is 
changing the world trading system and is threatening the 
broader international order, as well as the interests and the 
security of the United States and its allies in the region.
    So my statement goes through two of the categories of 
methods that they have developed pretty systematically to do 
that. And I will refer to an attachment that I put in my 
statement I know Senators have. And by the way, Mr. Chairman, I 
understand I need to ask that the attachments be included in 
the record.
    The Chairman. It will be. Thank you.
    Senator Talent. China's techno-nationalism toolbox, which 
is a really good short resource for you and your staff about 
the tools that the CCP, the Chinese Communist Party, has 
developed to maximize the benefits it receives under the world 
trading system while pretty systematically avoiding its 
obligations.
    So those include massive subsidies to firms particularly in 
the sectors that are part of the Made in China 2025 project 
that lowers the cost of capital, enables them to compete not 
just effectively at home but capture markets abroad against 
competitors; forced technology transfer requiring joint 
ventures with Chinese firms as a condition of doing business 
and then getting the technology; foreign investment 
restrictions designed to grow domestic champions; 
discriminatory regulatory enforcement against Chinese firms.
    We heard testimony a couple years ago that over a 3-year 
period, the Chinese antitrust regulatory body filed like 24 
antitrust actions, all of them against foreign firms. There 
were like no Chinese firms that had any antitrust problems.
    China's specific tech standards that discourage foreign 
firms from entering. And then as the chair and the ranking 
member mentioned, outright theft of technology. It amounts to 
probably several hundred billion dollars a year.
    Now, again, to be fair, there are many countries that 
maneuver on the margin of the world trading system to get 
advantages for themselves. But I do think this is the first 
time we have seen an economy of this size so systematically 
attempt to evade the obligations of the system. And I think it 
amounts to a subversion or an attempted subversion of the 
system, and the WTO procedures, which do not anticipate that, 
are inadequate to deal with it.
    China has used this growing wealth, among other things, for 
a massive buildup of its armed forces. I am bumping up against 
the 5-minute limit. So I will refer to my statement on that. 
That has empowered them, as the chair and the ranking member 
mentioned, in a series of provocative and aggressive actions in 
their near seas. The committee is as familiar with that as I 
am.
    Now, what I do want to say is that fortunately the Obama 
administration in 2011 reacted I think pretty quickly and 
decisively to the provocations with its pivot or rebalance 
policy. In form, that was a redirection of American foreign 
policy towards Asia. In fact, it was a signal that the era of 
wishful thinking about Chinese intentions was over, and the 
administration followed it up by shifting additional forces to 
the region, to the extent we had them to shift--you cannot 
shift ships that you do not have--firming up our alliances, 
highlighting, for example, Chinese cyber espionage.
    And the Trump administration, I agree, has extended and 
deepened the strategic shift embodied in the rebalance. The 
National Security Strategy names great power competition as the 
primary goal of American foreign policy, or an object of it, 
and names China appropriately as the greatest challenge. And 
the administration has also canvassed and reinvigorated the 
economic tools that it is using to leverage against the Chinese 
illicit actions.
    I do want to say I am very proud of the role Congress has 
played in the last 3 years as a former Senator and former 
Member, lifting the defense sequester, strengthening CFIUS, 
passing the BUILD Act, which was a miracle that you guys 
accomplished. I think it is a tremendous foundation going 
forward. And then ARIA, the Asia Reassurance Initiative Act, 
which I think foreshadows many more good things to come. So you 
do not get many compliments, but I want to give you one.
    So I will just close with three things.
    First, I think the right way to think of where we are now 
is in a time of transition that is similar to the 1945-1955 
time frame, not in the sense that we are entering a Cold War. I 
do not think we are, and I do not think we want to think of it 
that way. But it was during that period of time that, on a 
bipartisan basis, the Congress and the executive through two 
administrations built the architecture of tools, doctrine, and 
institutions that successive administrations used in the Cold 
War for the 40 years thereafter. And I see what is happening 
now as the same thing albeit applied to a different kind of 
challenge.
    Second, there are reasons--and my statement goes through 
them--why the Chinese Communist Party is doing what it is 
doing. Those are powerful reasons rooted deeply in their 
thinking. They are not going to voluntarily and fundamentally 
change policy. We can expect this to continue in more or less 
this form unless and until costs and consequences are imposed 
which channel them in a different direction.
    Third, it is important to keep in mind our competition is 
not with the Chinese people. The problem here is not the pride 
of the Chinese people in their history or their culture or 
their aspirations for the future. The problem is the way in 
which the Chinese Communist Party is defining its ambitions for 
China and the methods it is using to achieve those ambitions.
    And finally, I would remind you all--there is a formula 
that I find helpful to think of that influences the product of 
intention and capability. Intention is relatively easy to 
change. You all have changed intention, going back to the 
rebalance and pivot. And I do not think the intention is 
changing back when I listened to the statements of the chairman 
and the ranking member. Capability is not easy to change. And 
the truth of the matter is that we allowed too many of the 
tools of influence to atrophy over the years and failed to 
build up others that were appropriate to this challenge.
    So what you are doing now really is thoughtfully but 
vigorously and quickly considering the tools that we are going 
to need going forward and putting them into place. And I would 
encourage you to think of your work in that way. I know the 
committee is going to be at the epicenter of it, and I am very 
encouraged by what you have done.
    And again, the commission stands ready to help you, as do I 
personally in any way that I can.
    [The prepared statement of Senator Talent follows:]

             Prepared Statement of Senator James M. Talent

    Mr. Chairman, Senator Menendez, and Senators, thank you for 
inviting me to share my views regarding the U.S.-China relationship. 
It's my understanding that the Committee intends to hold a series of 
hearings on this subject. I congratulate you on that.
    The Committee's remit of course extends to every aspect of 
America's global foreign relations. But you are right to focus on U.S.-
China affairs. The United States and China have the two largest 
economies and the two most powerful armed forces in the world; the two 
countries are in an era of competition, and the way that competition is 
conducted will have a decisive impact on the future security and 
prosperity of both countries, and indeed of the world, in the 21st 
Century.
    I should say a word about the U.S.-China Commission on which I have 
served for the last 6 years. It was created by Congress in 2000 to 
provide oversight over the impact China's WTO accession would have on 
our economy and national security. It's a standing bipartisan 
Commission whose mandate is to hold hearings, produce papers, and 
publish a comprehensive Annual Report with recommendations to Congress 
for legislative action.
    The Commission is a creature and servant of the Congress. While the 
views expressed in this testimony are my own, I speak on behalf of the 
Commission when I say that we stand ready to assist you or your staff 
in any way or in response to any request.
                               background
    For 40 years after Richard Nixon's visit to Beijing in 1972, 
successive administrations and Congresses facilitated the rise of 
China, granting it diplomatic recognition, providing China access to 
the American market and to America's technology and educational system, 
and assisting the Chinese as they sought full participation in various 
international organizations and bodies. The initial reasons for this 
policy were largely geo-political; successive administrations wanted to 
play the China card in the Cold War against the Soviet Union.
    By the time the Berlin Wall fell, China had fully emerged from the 
Mao era and, for over 10 years, had been pursuing a new economic model 
which Deng Xiaoping had called ``socialism with Chinese 
characteristics.'' In the process, the Chinese state had relinquished a 
significant degree of direct control over the economy and introduced 
many of the features of a market system.
    By the end of the 1990s, China was urgently petitioning to be 
admitted to the WTO; that hinged on being granted Permanent Normal 
Trade Relations (PNTR) with the United States. The Clinton 
administration supported that change, and Congress approved it in May 
of 2000. I was serving in the House at the time, and I supported the 
administration's policy.
    Many Senators will no doubt remember the vigorous debate over PNTR, 
particularly in the House. There were many vocal opponents, but the 
view that prevailed was that if the Chinese Communist Party (CCP) 
wanted China to grow economically, it would have to pursue further 
economic liberalization and continue the progress towards a market 
based system. While after Tiananmen Square it seemed unlikely that the 
CCP would ever voluntarily relinquish its control over the country, the 
belief was that economic liberalization in China would lead inevitably 
to greater political freedom in the country, or at minimum that full 
participation in the world trading system would make China a 
responsible player in the broader international order.
    In other words, the dominant view at the time in our government, 
and for years afterwards, was that participating fully in the world 
trading system would change China. But it's fair to say that the 
opposite happened--that China has succeeded in changing the world 
trading system.
    Over time, Beijing developed a comprehensive set of policies that 
enabled it to enjoy the benefits of the system while evading many of 
its obligations. These include: enormous subsidies to Chinese firms in 
key sectors that lower the cost of doing business and enable them to 
control domestic markets and capture markets abroad, forced technology 
transfer as a condition of doing business in China, subterfuges to 
avoid Beijing's commitments to liberalize its import regime, regulatory 
discrimination against foreign firms, foreign investment restrictions 
to keep out competition, and massive outright theft of vital 
technology.
    The U.S.-China Commission has prepared a very useful summary of the 
tools which the CCP has developed and used to gain wealth through 
illicit methods. It's a short paper called ``China's Technonationalism 
Toolbox: A Primer''. I have attached it to this testimony and recommend 
it as a resource for Senators and staff.
    It's certainly true that there is a great deal of legitimate 
competition and innovation by Chinese firms. No one should discount the 
energy and dynamism of the Chinese people. It's also true that many 
countries regularly try, on the margins, to game the WTO rules for 
their own benefit. But that does not change the fact that Beijing has 
purposely developed and implemented a comprehensive set of policies 
that, taken together and given the size and influence of the Chinese 
economy, constitute an unprecedented threat to both the spirit and the 
letter of the world trading system.
    As China grew in economic power, the CCP was also engineering a 
massive, 25 year buildup of the People's Liberation Army (PLA). That 
effort has borne fruit over the last decade. Here are some features of 
the build-up.

   The PLA Navy is now larger than the navy of the United 
        States, with modern multi-mission vessels, and far larger than 
        the portion of the U.S. fleet assigned to the Indo-Pacific. 
        China continues to build more ships annually than the United 
        States, and its shipbuilding capacity is the largest in the 
        world.

   The PLA has the world's largest inventory of sophisticated 
        cruise and ballistic missiles capable of hitting sea or ground 
        targets at great distances.

   The PLA is upgrading and growing its arsenal of nuclear 
        missiles.

   The PLA Air Force has over 2,000 capable fighters, has 
        introduced fifth generation fighters, and is developing a 
        stealthy long range bomber capable of delivering nuclear 
        weapons.

   The PLA has developed effective anti-satellite capability 
        that can threaten America's space architecture in every orbital 
        domain.

   The PLA is pouring resources and energy into developing 
        advanced weapons, like hypersonics, and already has very 
        substantial national cyber capabilities.

    Beijing's purpose in this buildup was initially to develop the 
capability to exclude American forces from China's near seas during a 
conflict; hence the missile-centric focus of the effort. But in the 
last decade the PLA has also been investing in expeditionary 
capabilities in a way that clearly indicates the intention to achieve 
global reach.
    I do not want to suggest that the PLA is ten feet tall. They have 
continued deficiencies and disadvantages. For one thing, they are 
operationally inexperienced compared to America's armed forces. For 
another, the United States has close regional treaty partners with 
substantial capabilities of their own that partially offset the PLA's 
advantage in proximity to the region.
    But there is no question that the Chinese buildup has shifted the 
balance of forces in its near seas. By way of illustration, I have 
attached to this statement a graphic from a briefing at Indo-Pacific 
Command, then known as PACOM, that the Commission received several 
years ago.
    This shift in forces, coupled with China's tremendous economic 
growth, has had profound consequences for the stability of the region.
    As the Committee knows, Beijing systematically challenges the 
rights of its neighbors in the East and South China Seas and about 8 
years ago began increasing its confrontations. The list of recent 
provocations includes: using naval and air forces to encroach on the 
Senkaku Islands, declaring an ADIZ over the East China Sea, taking 
control of the Scarborough Shoal from the Philippines and threatening 
the Second Thomas Shoal, ignoring an adverse international arbitration 
decision, drilling for oil in contested waters while coercing its 
neighbors into abandoning drilling projects in their own exclusive 
economic zones, constant encroachment on the fishing waters of other 
nations, and reclaiming and militarizing a number of coral reefs in the 
South China Sea--the last in express contradiction of explicit 
commitments made to President Obama.
    Fortunately, when these provocations began the Obama administration 
reacted quickly with its Rebalance policy. The Rebalance was in form a 
recognition of the primary importance of Asia generally to America's 
long term interests, but in fact it was a signal that the era of 
wishful thinking about Beijing's intentions was ending. The Rebalance 
affirmed America's commitment to the region, led to closer 
relationships with our treaty partners and--most important of all--made 
clear that the object of our policy was to uphold the rights of the 
United States to trade and travel in the region and the integrity of 
the norm based global order.
    The Trump administration has refined and deepened the scope of the 
Rebalance. The new national security strategy properly identifies great 
power competition as the main focus of our foreign policy and 
explicitly and appropriately features China as a threat. In furtherance 
of the new strategy, the administration is developing and applying a 
range of economic tools capable of imposing costs and consequences on 
Beijing.
    In addition, Congress has played a vigorous role in the last few 
years. The following steps were of particular importance: lifting the 
defense sequester and increasing the budget for the armed forces, 
amending and strengthening CFIUS to provide greater protection against 
Chinese investments in the United States that threaten our national 
security, and passing the BUILD Act to enable the United States to 
contest the One Belt One Road initiative with an alternative that 
emphasizes respect for labor standards, the environment, and the 
interests of local workers and economies. Most recently, Congress 
passed the Asia Reassurance Initiative Act to deter aggression, 
including from China, promote partnerships in the region, and ensure 
the American budgetary commitment to the Indo Pacific more closely 
matches our national interest in the region.
    Those were major achievements, and this hearing is a sign that more 
are coming. As a former Member and Senator, I'm proud of how Congress 
is responding.
                     conclusion and recommendations
    We are now in a time of transition similar to the decade following 
the Second World War. At that time the Truman and Eisenhower 
administrations recognized the danger of Soviet aggression, defined the 
nature of the threat and the strategy necessary to counter it, and 
built an architecture of tools necessary to carry out the strategy.
    To be sure, it would be inaccurate and unhelpful to think of the 
U.S.-China relationship as a cold war. It's better framed as a 
competition between two powerful nations which have conflicting 
interests and very different visions of the world.
    The CCP is seeking for China a kind of regional hegemony, with the 
broader and longer term goal of reshaping the world order. There are 
three sets of reasons motivating the regime:

    1. Economic and strategic: Beijing wants to leverage its economic 
strength to capture markets, secure unfettered access to critical 
resources, attain technological dominance, and promote its economic 
model abroad.

    2. Nationalistic and historical: The United States and its allies 
have midwifed an international system that fosters, however 
imperfectly, free access to the international ``commons,'' neutral 
rules governing trade, and the peaceful resolution of disputes. China's 
leaders are happy to accept the benefits of such a system but chafe at 
the constraints. Their vision is of a world where the powerful 
countries get most of the benefits, at least within their respective 
spheres of influence. They are moving to create such a sphere, at least 
in Asia.

    3. Political: The CCP is well aware that it lacks the legitimacy of 
a democratically elected government. To strengthen its popular support, 
the Party believes it must deliver economic growth, a better quality of 
life, and a reassertion of China's historic place as the Middle Kingdom 
in Asia and a leading power in the world. Success in those areas is 
therefore not just a matter of national interest, but vital, in the 
CCP's view, to the continued stability of the regime.

    These reasons are deeply rooted in the psyche of the CCP leadership 
and in their own interests as they have defined them. That means that 
we cannot expect China, as long as it is controlled by the CCP, to 
abandon either its hegemonic goals or the means it has used to achieve 
them, unless and until costs and consequences are imposed which channel 
the Party in a different and acceptable direction.
    The problem is that the path which the CCP has chosen for China 
constitutes a serious threat to the peace of the region, the security 
and legitimate interests of the United States and its allies, and the 
norm based international order that promotes equal rights for all 
nations and the peaceful resolution of disputes.
    That is the reason this national competition is now underway.
    The immediate task for the United States government is to build on 
the progress made in recent years and, in concert with allies and 
partners, complete the creation of a national security architecture for 
the challenge that lies ahead.
    Certain strategic considerations should be kept firmly in mind as 
this process unfolds.

   It will be necessary to sustain bipartisan agreement on what 
        success in this national competition means, and on the highest 
        order principles and methods that will be used to achieve it. 
        Only such an agreement can sustain the kind of prolonged 
        national effort that will be necessary to achieve a favorable 
        result.

   China is a great power that is reassuming its place as a 
        leading figure in the community of nations. The United States 
        should welcome and respect that development. The problem here 
        is not the aspirations of the Chinese people or the pride they 
        take in the history and culture of their country. The problem 
        is how the CCP is defining its ambitions for China and the 
        coercive and illicit methods it is using to achieve them. In 
        this context, it will be necessary clearly to communicate to 
        the CCP leadership what is and is not acceptable and to impose 
        real costs and consequences for actions which cross the line.

   Congress should focus on continuing to develop a range of 
        flexible tools for imposing costs in a way that does not 
        escalate confrontations into crises. The majority of those 
        tools should be economic, diplomatic, or reputational. While it 
        is vital to continue rebuilding our armed forces and to 
        maintain a substantial forward presence in the region, the 
        primary mission of American hard power should be to prevent 
        escalating armed conflict so that the tools of soft or smart 
        power have time to work.

    Here are some specific recommendations for the Committee:

    1. The Committee is right to be concerned about China's One Belt 
One Road (OBOR) program and generally about the PRC's use of investment 
and other incentives to interfere with America's bilateral 
relationships. I am particularly concerned about the maritime aspects 
of OBOR. An estimated 70 percent of the world's container traffic flows 
through Chinese owned or invested ports, generating substantial 
economic leverage China could convert into broader political and 
military influence. The Committee should consider investigating the 
details of those investments, or securing an assessment by the 
intelligence community or the Federal Maritime Administration, with a 
view towards developing an appropriate response.

    2. The BUILD Act was a vital first step in creating a development 
alternative for countries targeted by One Belt One Road. The Committee 
should oversee the creation of the new agency to ensure that it works 
with other development bodies to maximize its impact, and to contest in 
appropriate ways the Chinese narrative regarding One Belt One Road.

    3. I am sure the Committee intends to vigorously oversee 
implementation of the Asia Reassurance Initiative Act. The 
authorization in the bill should be fully funded, and the Committee 
should press for additional funding after the program is up and 
running. The Committee might also consider encouraging colleagues on 
the Armed Services Committee to authorize an Indo Pacific Deterrence 
Initiative, modeled off the European Deterrence Initiative (EDI), to 
further enhance U.S. military presence and commitment to the region.

    4. The Chinese are actively using investments and promises of 
support, particularly in Eastern Europe, to fragment the EU's response 
to China's human rights record and unfair trade practices. Though the 
European Deterrence Initiative is directed mostly at Russia, it (and 
NATO) could be a good vehicle for increasing our influence in Europe in 
support of the EU where China is concerned.

    5. The Committee is aware of the CCP's use of ``sharp'' power to 
protect its narrative by manipulating opinion in other countries. A 
hearing directed to that subject, with a focus on the CCP's United 
Front activities, could be the basis for legislation expanding the 
capabilities of the State Department and other agencies to respond in a 
manner consistent with our values. Long term, this tool will be 
essential in the national competition.

    I'll close by quoting the final paragraph of the introduction to 
the Commission's 2018 Report:

    For several decades, U.S. policy toward China was rooted in hopes 
that economic, diplomatic, and security engagement would lay the 
foundation for a more open, liberal, and responsible China. Those hopes 
have, so far, proven futile. Members of Congress, the administration, 
and the business community have already begun taking bipartisan steps 
to address China's subversion of the international order. Washington 
now appears to be calling with a unified voice for a firmer U.S. 
response to China's disruptive actions. In many areas, the CCP will be 
quick to cast any pushback or legitimate criticism as fear, 
nationalism, protectionism, and racism against the Chinese people. As a 
new approach takes shape, U.S. policy makers have difficult decisions 
to make, but one choice is easy: reality, not hope, should drive U.S. 
policy toward China.
    Again, I speak on behalf of the U.S.-China Commission when I say we 
want to assist you in any way we can as you move forward with your 
efforts.

    [The information referred to follows:]

              China's Technonationalism Toolbox: A Primer

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The Chairman. Senator Talent, thank you very much. As you 
noted, you went substantially over your time. Even though you 
have hung up your toga, you have not given up the Senate 
habits.
    [Laughter.]
    The Chairman. So in that regard, you have our forgiveness.
    Senator Talent. I very much appreciate your indulgence and 
that of the ranking member. Thank you.
    The Chairman. But thank you so much. Those were great 
statements.
    Now we have Dr. Oriana Mastro. Dr. Mastro is an assistant 
professor of security studies in the Edmund A. Walsh School of 
Foreign Service at Georgetown University where she focuses on 
Chinese military and security policy, Asia-Pacific issues, war 
termination, and course of diplomacy.
    She is also an officer in the United States Air Force 
Reserve--thank you--for which she works as a political military 
affairs strategist at PACAF and is currently the Jeane 
Kirkpatrick Fellow at the American Enterprise Institute.
    Previously, Dr. Mastro was a Stanton Nuclear Security 
Fellow at the Council on Foreign Relations, a fellow in the 
Asia-Pacific Security Program at the Center for a New American 
Security, a University of Virginia Miller Center National 
Fellow, a Center for Strategic and International Studies 
Pacific Forum Sasakawa Peace Fellow, and a pre-doctoral fellow 
at the Institution for Security and Conflict Studies at George 
Washington University.
    Additionally, she has worked on China policy issues at the 
Carnegie Endowment for International Peace, RAND Corporation, 
U.S. Pacific Command, and Project 2049.
    Doctor, thank you so much for joining us, and we look 
forward to hearing from you.

STATEMENT OF DR. ORIANA MASTRO, ASSISTANT PROFESSOR OF SECURITY 
STUDIES, EDMUND A. WALSH SCHOOL OF FOREIGN SERVICE, GEORGETOWN 
                   UNIVERSITY, WASHINGTON, DC

    Dr. Mastro. Thank you, Mr. Chairman, Ranking Member 
Menendez, and distinguished members of the committee. Thank you 
for the opportunity to discuss some of the ways China is 
increasing its power and influence, in some cases at the 
expense of the United States.
    The views I am about to express are my own, though given 
the time constraints, I am going to try to use more of my 
military training and less of my academic training to make my 
comments as brief as possible.
    China's economic growth has been astounding. But for me 
perhaps even more significant has been China's ability to 
translate its economic growth into vast economic, political, 
and military power on the world stage, especially over the past 
20 years. This is surprising because China actually started out 
in a weaker position vis-a-vis the United States. China's 
systems and values are generally less attractive to most around 
the world than those of the United States. China also does not 
have any allies or really strong partners. Its military is so 
greatly inferior to that of the United States in terms of power 
projection capabilities, though I list in my testimony how it 
has managed to create some severe operational difficulties in 
the region.
    China's economy, we have to remember, has been smaller than 
that of the United States over the past 20 years, and it 
entered an international order in which the United States 
wielded a disproportionate degree of influence.
    But even with all these disadvantages, China's relative 
power has grown to the point that we now find ourselves in a 
great power competition.
    And so this situation highlights the theme of my testimony 
today, which is to look at how China has managed to make such 
power gains over the past 20 years. I think answering this 
question can provide some critical insights into how the United 
States should increase its own competitiveness in this great 
power competition.
    In my written testimony, I go through this obviously in 
much more detail. But my bottom line argument is that to date, 
China has gained power and influence by focusing on areas where 
the U.S.'s ability and willingness to compete has been 
relatively weak, and then leveraging China's own strengths, its 
own comparative advantages in new and entrepreneurial ways to 
build power in those areas. Admittedly, China's efforts have 
not always been successful, but we know that its share of world 
power has increased, suggesting that it succeeds more often 
than it fails.
    In terms of China's approach to building political power, 
it has been mentioned that China only joined many of these 
international institutions in the 1990s, and the United States 
largely supported this change with the idea that the more China 
participated, the more it would be socialized into the then-
current norms and rules of behavior. We know now that the logic 
of this U.S. support was proven flawed.
    But to me the problem is not China's participation in 
international institutions. The central problem is that these 
institutions have not adapted to ensure that China is 
accommodated in the few cases where its aims are legitimate and 
that the institutions can constrain Chinese behavior when 
Chinese aims are not legitimate. The United States has also not 
attempted to build new institutions to address contemporary 
issues.
    As a result, China has been able to build up power by 
exploiting many gaps in the international order by building 
alternative institutions, and then actually by shaping a lot of 
rules and norms in its favor. There are many areas where these 
norms are either nonexistent or weak, and China has been 
actively working to shape them so that they benefit China 
economically, politically, and militarily.
    In terms of their approach to military power, I think this 
is one area where their entrepreneurial approach is extremely 
clear. China has long understood that to succeed in reaching 
great power status, they had to avoid a strong response from 
the United States to delay action. And they have done so by 
being relatively ambiguous to date, at least until the past 
couple of years, about what their intentions have been.
    There is nowhere I think that China's entrepreneurial 
strategies are more evident than their anti-access/area denial 
strategy. This is when they focus on low-cost asymmetric 
capabilities designed to erode U.S. military supremacy and to 
make it difficult for the United States to come to the aid of 
our allies in the region in case of a conflict with China.
    Another area where they have been very entrepreneurial is 
in their approach to building up power and influence in the 
South China Sea. Instead of directly confronting the United 
States--in my position and I would say from reading Chinese 
writings and listening to Chinese speeches, this is not 
controversial--is that China wants to be dominant in the Indo-
Pacific region, and that dominance includes pushing the United 
States military out of the region.
    But to do so, they have not done it directly. They engage, 
for example, in gray zone activities, which means that China 
increases the risk of the United States in operating in the 
South China Sea by harassing our vessels and aircraft with non-
military platforms. This makes it very difficult for us to 
respond.
    In my written testimony, I go through great detail about 
China's strategy to control the South China Sea, and I do so 
only to highlight one of my final points, which is that the 
South China Sea lies, in my view, at the center of this 
geopolitical competition.
    To sum up, I do not think it is fair to say that China has 
been outcompeting the United States. In many ways the United 
States has not been competing. We have not been present in many 
of these areas and many of these countries where China has 
focused on building its influence when they use industrial 
policy or infrastructure building. The amount of money that the 
United States has focused on these efforts has been quite 
small.
    And when it comes to the military, while balancing is a 
step in the right direction, the United States military still 
does not have the platforms, the posture, the basing, and the 
training that it needs to ensure it prevails in most conflicts 
in Asia.
    Washington needs to get back into the game. We need to 
start competing again. And I do not think we should do so by 
lowering our standards to China's level. While imperfect in 
implementation, the values and principles behind U.S. global 
power and leadership ensure that others also benefit. China's 
Achilles heel in my mind is that its leaders have failed to 
articulate a vision of Chinese dominance that is beneficial for 
anyone but China. In the pursuit of economic, political, and 
military power, I believe the protection of liberal values 
needs to be our guidepost and a priority.
    There are many things that we can do to be more 
competitive--and I am happy to address some of those in the 
Q&A. But I do think Washington needs to embark on a program of 
institution building and take seriously the idea that we need 
to shape international norms in our favor and fill gaps so that 
China cannot exploit the international system to its benefit.
    And we need to leverage our own strengths against Chinese 
weaknesses, one of which is our allies and partners and ability 
to build coalitions. This is not a great power competition 
between the United States and China. This is between China and 
the United States with our allies and partners. And being 
competitive does not mean confronting China and undermining 
China. It means making ourselves a more attractive global 
partner.
    It will take immense political capital to facilitate such 
cooperation among nations, but this is the only way I believe 
to ensure that the United States, in conjunction with its 
allies and partners, maintains the vast share of power and 
influence in the international system, which I believe is to 
all countries' benefit.
    Thank you very much.
    [The prepared statement of Dr. Mastro follows:]

                Prepared Statement of Dr. Oriana Mastro

    Chairman Risch, Ranking Member Menendez, and distinguished members 
of the committee, thank you for the opportunity to discuss some of the 
ways China is challenging U.S. primacy in the region and in the 
international system more broadly. Before I begin describing the 
tactics China has been employing to accumulate power and influence, at 
times at the United States' expense, I want to be upfront about the 
strategic framework that colors my thinking.
    First, I do not believe China is inherently a threat to the United 
States. But China has defined its interests and goals in such a way 
that they conflict with those of the United States. Specifically, China 
believes that dominance of the Indo-Pacific is central to its security 
and interests, meaning that Beijing cannot feel secure with the U.S. 
forward presence in the region. And the United States cannot protect 
its own interests and national security without the ability to operate 
there. Thus, we have a serious conflict of interest.
    Second, China prefers to use political and economic tools to 
achieve its security goals, but as its military becomes more 
proficient, it will not shy away from using this tool as well if the 
issue at hand is important and the other tools do not suffice. In other 
words, I believe Chinese leaders are being truthful when they say they 
would prefer to achieve China's goals peacefully. But this just means 
that they hope the United States and others will fully accommodate 
their position without a fight.
    Lastly, I believe China's territorial aims are limited. It wants 
control over the South China Sea, the East China Sea and Taiwan, and 
nothing more. Thus, if the United States conceded to China the sphere 
of influence of Northeast, Southeast, Central, and South Asia, our 
points of contention would be greatly lessened. However, I also believe 
these demands are too much and that the U.S. cannot concede to them 
without seriously jeopardizing its own security and that of its allies 
and partners in the region. In other words, it is easy to avoid 
conflict if you give the other side everything it wants.
                    the strategy behind china's rise
    China's rise has been meteoric in pace and astounding in scale. 
Since Deng Xiaoping's market reforms in 1979 that shifted China to a 
more market-based economy, Chinese gross domestic product growth has 
``averaged nearly 10 percent a year . . . and has lifted more than 800 
million people out of poverty.'' \1\ Today, China is the second-largest 
economy and the largest single contributor to world growth since the 
2008 financial crisis.\2\ Between 2005 and 2018, China invested around 
$1,941.53 billion (USD) worldwide.\3\ In the same time frame, nominal 
Chinese military spending increased from $76.6 billion (USD) to $228.2 
billion.\4\
    China has managed to translate its economic growth into vast 
economic, political, and military power on the world stage. On the most 
basic level, power is the ability to get other countries to do what you 
want. China's system and values are generally less attractive than 
those of the United States. China also does not have allies or even the 
long-standing relationships that the United States has around the 
world, its military is still greatly inferior to that of the United 
States in power projection capabilities, its economy has been smaller, 
and it entered an international order in which the United States 
wielded a disproportionate degree of influence. But even with all these 
disadvantages, Chinese relative power has grown to the point that we 
now find ourselves in a great power competition.
    This situation highlights the theme of my testimony today: how 
China has managed to make relative power gains from its weaker position 
over the past 20 years. My bottom-line argument is that China has 
consistently chosen a position in the international system from which 
it can best limit the degree to which other states' policies affect it 
and from which it can influence the nature and terms of competition. 
For example, China spent much of the 1990s and 2000s finding places and 
issues where the competition among states was the weakest--military 
operations other than war such as peacekeeping and infrastructure 
development as a key component of economic aid and engagement with 
specific countries in Africa, Latin America, and Asia that had a weak 
U.S. presence. China then leveraged its strengths and took 
entrepreneurial actions to outmaneuver the United States, tipping the 
balance of power in its favor. Admittedly, China is not always 
successful in its endeavors. But its share of world power has 
increased, suggesting that it succeeds often enough. I argue that this 
is not because the United States is insufficiently competitive on the 
world stage as a political, economic, or military partner, but because 
Washington has simply not been competing.
              china's approach to building political power
    The United States set up international institutions after WWII as 
means of promoting cooperation and constraining states in ways that 
encouraged responsible, stabilizing foreign policy choices on the part 
of the participants. This experiment has largely been successful. 
States are more cooperative than ever before, and the rate of 
interstate conflict is at a historical low. (And the interstate wars 
that do erupt are shorter and less violent.) These institutions also 
facilitate the promotion of structures, norms, principles, and values 
that support U.S. power and reduce the transaction costs of diplomacy, 
making it easier for the United States to exercise its power.
    For these reasons, China avoided international institutions during 
the Cold War and criticized them as tools of U.S. hegemonic power. In 
the 1990s, however, Chinese leaders decided it would be to their 
benefit to become less isolated economically and politically, so China 
joined almost all of the existing institutions. The United States 
supported this change, as American strategists believed that the more 
China participated, the more it would be socialized into the then-
current norms and rules of behavior.
    The logic behind the U.S. support has proved flawed. This does not 
imply, however, that the inclusive approach is incorrect. That others 
benefit from U.S. leadership is one of the greatest competitive 
advantages the United States wields over China. And there is little 
evidence that China wants to overturn the current order, as Beijing 
benefits greatly from aspects of it. As a member of the permanent five 
with veto power, China has gained significant power over international 
security from its participation in the United Nations Security Council. 
As of April 2018, the World Bank had lent China more than $60.495 
trillion for 416 projects on domestic growth in transportation, urban 
development, rural development, water resources management, energy, and 
the environment. China's accession to the World Trade Organization 
(WTO) expanded China's access to foreign markets, leading to a surge in 
exports that fueled its impressive economic growth.
    The biggest issue is not China's participation in international 
institutions. The central problems are not only that these institutions 
have not adapted to ensure that China is accommodated when its aims are 
legitimate and constrained when they are not, but also that the United 
States has not attempted to build new institutions to address 
contemporary issues. As a result, China has been able to build up its 
political power in three ways: by exploiting blind spots in the 
international order, by building alternative institutions, and by 
shaping roles and norms in its favor. The result of this strategy is 
twofold. First, China is more inured from international pressure, 
making it more difficult to shape Chinese behavior. Second, states are 
dependent on Beijing economically and politically, which allows China 
to compel others to accommodate its will. States' desire to avoid 
Beijing's wrath to not become targets of its political warfare or 
economic coercion makes many, including allies and partners of the 
United States, unwilling to support U.S. policies that push back 
against China or condemn some of its irresponsible behavior.
    Exploiting Strategic Blind Spots. First, the U.S.-led world order 
has weaknesses and gaps that China has successfully exploited. When 
China began to enter international institutions, some parts of the 
world were largely outside the U.S.-led world order and consequently 
were not benefiting from it. Thus, China initially chose to focus on 
increasing its influence in parts of the world where the U.S. presence 
was weak or nonexistent. These areas included unsavory regimes that the 
U.S. had abandoned such as North Korea, Myanmar, and Zimbabwe. China's 
relationships with these regimes increase its political power without 
threatening the United States. They also included parts of the world 
that the United States had neglected. China did not supplant the United 
States in Central Asia or in many African countries; the U.S. was 
simply not there. U.S. companies in particular have been conspicuously 
absent. For example, in Ecuador, Chinese companies invested $1.8 
billion USD in 2005, while U.S. companies invested less than 
$50,000.\5\
    Second, Beijing actively builds defenses against aspects of the 
order that are unfavorable to its interests. It has done so, for 
example, by infiltrating groups to render them ineffective, as in the 
case of the U.N. Human Rights Council (UNHRC).\6\ Within the UNHRC, 
China has used its position to shield itself from criticism about its 
domestic human rights violations and change norms surrounding 
transparency and accountability in dealing with human rights violations 
in other countries.\7\ For instance, China has blocked the 
accreditation of certain nongovernmental organizations that criticize 
or investigate human rights violations. It has also emphasized 
principles such as ``sovereignty'' to shield states from having to 
disclose certain information about domestic human rights violations.\8\ 
The United States, instead of strengthening its role in the UNHRC to 
ensure that the institution performs as originally intended, has 
conceded ground by withdrawing from it.
    When it does not infiltrate international organizations to render 
them ineffective, Beijing repurposes institutions for its own strategic 
purposes. For example, it uses INTERPOL's ``red notice'' system to 
track down dissidents. Since Meng Hongwei,\9\ a former Chinese vice 
minister of public security, was elected the leader of INTERPOL in 
2016, INTERPOL has released nearly 100 red notices for Chinese 
dissidents abroad.\10\
    Building Alternative Institutions. In some cases, China has worked 
to change the rules of institutions to gain a greater official say in 
their activities and decisions. It has sought to rewrite the rules in 
institutions like the WTO, the International Monetary Fund (IMF), and 
the World Bank to increase its voting power to be commensurate with its 
economic stature. For example, during the 2001-09 WTO Doha development 
rounds, China led a group of developing countries in pushing back 
against the developed nations to demand better trade deals for 
developing nations worldwide.\11\ At the IMF, voting power and 
governance are based on special drawing rights (SDR), or an 
international reserve asset.\12\ In 2015, China fought to make the 
renminbi part of the SDR, and its quota share increased from 4 percent 
to 6.41 percent.\13\
    Yet when China believes it cannot achieve a level of influence 
commensurate with its economic status, it is often prepared to create 
its own institutions. For example, the Asian Infrastructure Investment 
Bank (AIIB) shows China's willingness to found organizations that 
further its interests but that are still tied to the international 
trade system. After years of arguing for better infrastructure 
investment in Asia at the World Bank and the IMF, China launched the 
AIIB in 2016 to invest in projects that were ``high quality, low cost'' 
in infrastructure and connectivity.\14\ In the most recently available 
Annual Report (2017), the AIIB claims to have 84 approved members and 
over $4.22 billion USD worth of investments in projects and funds.\15\ 
The United States has no influence in this institution because 
Washington refused to participate.
    The most significant initiative for building and exercising Chinese 
power globally is the Belt and Road Initiative (BRI). Since 2013, over 
70 countries have signed contracts for projects under the BRI, and it 
is reported that between 2013 and 2018 China spent a total of $614 
billion USD on BRI projects.\16\ In Africa, the BRI has built airports, 
railways, manufacturing hubs, and infrastructure improvements with 
significant investments in Nigeria, Ethiopia, and Kenya. In Europe, the 
BRI has made inroads in central and eastern Europe and has recently 
been in dialogue with Portugal and Greece (with a specific interest in 
port access). In Asia, the BRI has made significant investments in 
railway and port construction, with proposals in Indonesia, Laos, and 
Malaysia.\17\
    But the initiative is not just about building infrastructure. 
Through the BRI, China is attempting to leverage its economic power for 
political and security purposes, which include making the world a safe 
place for authoritarian governments. Nadege Rolland, in her definitive 
book on the BRI, writes that ``BRI is intended to enable China to 
better use its growing economic clout to achieve its ultimate political 
aims without provoking a countervailing response or a military 
conflict'' to achieve its ultimate goal ``of establishing itself as the 
preponderant power in Eurasia and a global power second to none.'' \18\ 
Many of these countries take Chinese funding because they have few 
other options--and the Trump administration's initiative to dedicate 
$113 million to new technology, energy, and infrastructure initiatives 
in emerging Asia is far from sufficient to change this calculus.
    Shaping Rules and Norms in China's Favor. Third, China has sought 
to establish new standards, rules, norms, and processes to give it a 
competitive advantage where the established order is weak, ambiguous, 
or nonexistent. For example, China is trying to shape governance and 
policy in artificial intelligence in ways that give its companies an 
edge, legitimize its internal social uses of technologies such as face 
recognition software, and weaken the voices of independent civil 
society actors who inform the debate in North America and Europe.
    In the cyber realm, China has been pushing an idea of ``cyber 
sovereignty'' that considers cyberspace to be primarily governed by 
states and recognizes the legitimacy of every state's efforts to govern 
content within its borders, rather than just ensuring the functioning 
of the internet. This idea stands in contrast to the United States' 
desired model, which is multilateral and guarantees a role for 
nonstate, civilian actors. To shift the norm in its preferred 
direction, China has put the brakes on U.S.-led norm building in the 
U.N. Group of Governmental Experts (the main norm-setting body for 
Western governments in cyberspace) and has held its own annual World 
Internet Conference in Wuzhen since 2014. China has been watching the 
2016 U.S. election hacking with keen interest to see if Western 
countries will start to follow China's lead in favoring content 
controls over the internet and will walk back from the ideas set out in 
the UNHRC's ``internet freedom'' speech.
    In the maritime realm, the United States insists that freedom of 
navigation of military vessels is a universally established and 
accepted practice enshrined in international law, but not all countries 
accept this interpretation. Argentina, Brazil, China, India, Indonesia, 
Iran, Malaysia, the Maldives, Oman, and Vietnam argue that warships 
have no automatic right of innocent passage in their territorial seas. 
Twenty other developing countries (including Brazil, India, Malaysia, 
and Vietnam) insist that military activities such as close-in 
surveillance and reconnaissance by a country in another country's 
exclusive economic zone (EEZ) infringe on coastal states' security 
interests and therefore are not protected under freedom of navigation. 
China is exploiting this lack of consensus, and that the United States 
has not even ratified U.N. Convention on the Law of the Seas, to its 
advantage. It is seeking to establish a code of conduct with 
Association of Southwest Asian Nations (ASEAN) countries that could 
legitimize Chinese expansionist activities in the South China Sea.
              china's approach to building military power
    Chinese leaders and strategists have long understood that to rise 
to great power status, they must avoid a strong negative response from 
the U.S. In the late 1990s, China adopted a strategy of reassurance 
that emphasized ``regional economic integration and multilateral 
confidence building in an effort to assuage the fears of China's 
neighbors during its ascendance to great-power status.'' \19\ Chinese 
military modernization came last and is therefore a relatively new 
phenomenon. Ten years ago, Chinese defense spending was a third of what 
it is today. By all standard measures, the Chinese military was 
backward. Its navy was a glorified coast guard that could not sail 
beyond visual range of the coastline. Its pilots, poorly trained and 
with few flight hours, did not fly at night or over water. Its nuclear 
forces still relied on liquid fuel and storage in silos, both of which 
greatly reduced its survivability. And none of the services had modern, 
mechanized equipment. Indeed, the mechanization of the Chinese military 
is only scheduled to be completed 2 years from now.
    Once China did begin modernizing, it focused on defensive military 
capabilities first. China's desire to engage in ``military operations 
other than war'' such as peacekeeping, humanitarian assistance, and 
disaster relief under Hu Jintao's New Historic Missions reassured many 
that China planned to use its military for the global good. China has 
been the number one contributor of peacekeeping troops among the 
permanent five since 2012.\20\
    This is all to say that China's overwhelming economic power and 
military capabilities are relatively new phenomena and that there is a 
clear connection between China's increasing clout and its shift from 
reassurance to a growing reliance on coercion to achieve its goals. In 
its defense policy, China made a conscious shift to prioritize the 
military as a key tool of national power and to leverage it for 
national security purposes, especially the aim of protecting its 
territorial integrity and sovereignty as defined by China. Xi Jinping 
has put the military at the forefront of China's efforts to achieve 
national rejuvenation. A strong military is one of the key components 
of the China Dream, and Xi has called on China's armed forces to be 
prepared to fight and win wars. This assertiveness is no longer new; it 
began in 2009 with coercive diplomacy in the South China Sea. This fact 
suggests that China's reliance on coercion will only increase. It is 
also telling that Chinese leaders and strategists perceive coercion as 
an effective strategy.
    Two reasons explain why Deng's approach of keeping a low profile 
was jettisoned for a more assertive, confident, and proactive foreign 
policy. First, the previous policy of taoguangyouhui was seen as 
insufficient to protect national interests because it did not persuade 
others to respect China's interests in the region. Second, while some 
admit that the United States and China's neighboring countries are 
uncomfortable with the new approach, they argue that it is more 
practical and effective than letting China suffer disgraces and insults 
for the sake of ``biding its time.'' Many Chinese thinkers complain 
that the potential benefits of keeping a low profile--a positive 
international image or greater support and friendship from neighboring 
countries--have not materialized.\21\ Neighboring powers were 
suspicious of China's rise long before the foreign policy shift, and 
the behavior of other South China Sea claimants during that period 
suggests that an ``unprincipled'' strategy like ``biding time'' does 
not command respect or prevent countries from harming China's core 
interests.\22\
    Perhaps nowhere is the challenge of China's entrepreneurial 
strategies more evident than in military competition. First, China's 
anti-access area denial (A2AD) strategy, in which it developed 
relatively low-cost asymmetric capabilities to erode U.S. military 
supremacy, significantly complicates any U.S. plans to come to the aid 
of Japan, Taiwan, or the Philippines in the event of a conflict with 
China. China is also building economic and political power that it can 
leverage during a time of conflict to convince countries not to host or 
support U.S. military operations. This strategy includes using all the 
tools at its disposal to create wedges between the U.S. and its allies 
so that countries such as Japan or Australia will chose to stay neutral 
in a conflict between China and the United States over Taiwan or the 
South China Sea, for example.
    Second, instead of directly confronting the United States to push 
it out of the Asia-Pacific with military force, China has engaged in 
gray-zone activities. Specifically, China has increased the risk to the 
U.S. of operating in the South China Sea by harassing U.S. vessels and 
aircraft with nonmilitary platforms. In this way, it maintains a degree 
of deniability that discourages a U.S. response. With these tactics, 
China has made significant political and territorial gains without 
crossing the threshold into open conflict with the United States or 
rival claimants, especially in the South China Sea. These strategies 
help China build relative power vis-a-vis the United States. Beijing 
also strives to reduce U.S. credibility as a security partner and ally 
to erode the U.S.-led security order in Asia.
    China's Strategy to Control the South China Sea. China's strategy 
of focusing on areas where competitive forces are weakest and then 
leveraging its comparative advantages is strikingly evident in its 
strategy to control the South China Sea--an end China is actively 
pursuing.
    On the military side, Beijing is positioning itself in a way that 
weakens the conventional U.S. deterrent against China. China wants the 
ability to deny foreign military vessels and aircrafts access to the 
sea and airspace over the South China Sea. It has been making progress 
toward this goal by building bases in the South China Sea, specifically 
on Fiery Cross, Subi, and Mischief Reefs in the Spratlys (known as the 
Big 3). All these bases will have approximately 10,000 foot runways and 
the airfield support facilities (including reinforced hangars) to 
accommodate fighters, bombers, tankers, large transport, patrol 
airborne early warning, and aircraft refueling.\23\ China's largest 
island in the Paracels, Woody Island, is also China's largest military 
outpost in the South China Sea. China has developed airstrips and port 
facilities and placed permanently stationed military personnel and 
temporarily deployed fighters, surface-to-air missiles, and anti- ship 
cruise missiles on the island.\24\
    These bases will eventually house systems that will expand the 
reach and increase the layers of China's A2AD capabilities and the 
range of China's own power projection capabilities. For example, if 
China were to deploy H6-K bombers to the Big 3, it could then hold U.S. 
defense facilities in northern Australia and Guam at risk. If they were 
stationed at Woody Island, almost all of the Philippines, including the 
five sites selected for U.S. base development, would fall within 
range.\25\ If China put HQ-9s and anti-ship on Woody Island and Fiery 
Cross Reef, Subi Reef, or Mischief Reef, it could hold any U.S. assets 
that dared to operate in most of the South China Sea at severe risk.
    I could spend pages laying out the possible combinations and what 
they mean for U.S. operations. But the bottom line is that while China 
is building facilities to house military systems, they are still in the 
initial stages. In May 2018, the Chinese landed a H6-K bomber on Woody 
for the first time. HQ-9 anti-aircraft missiles were first reported on 
Woody Island, an island disputed by China, Taiwan, and Vietnam, in 2016 
(though they were removed in 2018 and then redeployed).\26\ Since April 
2016, China has deployed, at various times, Y-8 military transport 
planes, YJ-12B cruise missiles, and HQ-9B surface-to-air missile 
systems on each of the Big 3.\27\ In February 2019, after the People's 
Liberation Army Navy conducted a monthlong series of drills in the 
South China Sea, an anonymous source mentioned that the People's 
Liberation Army Strategic Rocket Force was looking to deploy its HQ-9 
anti-air missiles and YJ anti-ship missiles on Woody Island on a 
permanent basis.\28\ We should thus expect the pace and scale of future 
deployments to increase. With these deployments, China will be in a 
position to enforce an overly expansive air defense identification zone 
or eventually even a maritime exclusion zone in the region, which will 
put the burden of escalation on the United States if it chooses not to 
recognize the zones. This means that the present moment is a crucial 
time for U.S. policy. If Washington hopes to deter or prevent the 
militarization of the South China Sea Islands, it has to take a tougher 
stance now.
    Yet China's preferred strategy is to sidestep, rather than 
confront, the United States and to cajole other countries into agreeing 
to resolve their claims on terms favorable to Beijing. China calls this 
the ``dual-track'' principle, according to which regional neighbors 
negotiate to resolve disputes and cooperate to maintain peace and 
stability.\29\ This doctrine implies exclusion of the U.S. and other 
non-regional powers, as well as international institutions. For 
example, after the Permanent Court of Arbitration (PCA) ruled in favor 
of the Philippines in its case against China in 2016, China deemed the 
PCA illegitimate because the Philippines had violated the Declaration 
on the Conduct of Parties in the South China Sea by taking the case 
beyond the concerned parties.\30\
    China also uses influence operations and predatory economics to 
coerce neighboring countries to reorder the Indo-Pacific region to its 
advantage.\31\ For example, after the PCA ruling, the Philippines' 
President Rodrigo Duterte said he would ``set aside'' the ruling ``in 
the play of politics'' to avoid ``impos[ing] anything on China.'' \32\ 
This position was widely attributed to Duterte's view of China as an 
``essential ally'' that he hoped would fund his infrastructure plans in 
the Philippines.\33\ At the July 2016 ASEAN meeting, Cambodia--a close 
political ally of China's--blocked any mention of the PCA ruling, 
effectively shielding China from any ASEAN-led multilateral approaches 
to dealing with Chinese actions in the South China Sea.\34\ Laos, which 
heavily relies on Chinese investments, supported Cambodia's block, 
demonstrating China's ability to leverage its economic and political 
clout over small regional neighbors.\35\ China has tried to insert 
language that would prevent countries from engaging in military 
exercises with countries from outside the region (read: the United 
States) unless the parties concerned, such as China, do not object.
    The Implications of Chinese Control. If China controlled the South 
China Sea, the restrictions it would impose there would likely depend 
on the activity. On the more permissive side, China has not shown 
interest in disrupting commercial transit through the South China Sea. 
In 2016, global trade transiting through the South China Sea reached 
$3.37 trillion USD, with most exports coming from China, or about 39.5 
percent of the total Chinese trade goods passing through these 
waters.\36\ These commercial activities benefit China, and there is 
little incentive to disrupt them wholesale.
    However, China has shown a great willingness to engage in economic 
coercion to signal its displeasure with other countries' foreign 
policies, and if it controlled the South China Sea, it might disrupt 
selectively and periodically to the same end. In 2010, after a 
territorial dispute with Japan in the East China Sea, China implemented 
a rare earth minerals embargo against Japan. (This ban was later 
extended to include the United States and Europe after the Obama 
administration called for investigations into whether this ban violated 
international trade law).\37\ In 2017, after South Korea confirmed its 
purchase of the U.S. Terminal High Altitude Aerial Defense battery, 
China retaliated against South Korean companies in China and 
significantly reduced Chinese tourism to South Korea. A year later, the 
Bank of Korea estimated that this backlash had reduced South Korea's 
economic growth rate by 0.4 percent.\38\ In other words, while China 
will not seek to deny commercial access to the South China Sea as it 
will deny military access, it may periodically hold commercial 
interests at risk as part of a campaign to coerce a country to concede 
on something.
    In the middle of the spectrum would be China's approach to the 
exploited natural resources in the waters that fall within the nine-
dash line. These resources include oil and gas deposits and fisheries. 
An estimated 190 trillion cubic feet of natural gas and 11 billion 
barrels of oil reserves lie within the South China Sea, and access to 
these energy resources is crucial for all of the claimants 
involved.\39\ On the fisheries side, the South China Sea is in the top 
five ``most productive fishing zones,'' with half of the fishing 
vessels in the world operating in these waters and accounting for over 
10 percent of the global fish catch.\40\
    China has proposed a number of joint cooperative ventures with 
other claimants. Since 2007, China and Vietnam have conducted regular 
joint Gulf of Tonkin exploration ventures,\41\ and China and Brunei 
embarked on joint oil and gas development ventures last year.\42\ In 
2017, China supported the idea of a joint energy venture with the 
Philippines that would develop oil fields and exploration and 
exploitation in the South China Sea.\43\ This is the aspect of their 
strategy that Chinese leaders highlight to present their position as 
fair, legitimate, and peaceful. An analysis of the statements made on 
the South China Sea by members of the Political Bureau of the Communist 
Party of China Central Committee, for example, show these leaders use 
terms such as ``cooperation'' and ``political solution'' six times more 
frequently than competitive themes such as ``sovereignty,'' 
``military,'' ``tension,'' ``freedom of navigation,'' or other U.S. 
themes.\44\
    On the other end of the spectrum, China would be the most 
restrictive about military activities, which is why the issue is 
central to U.S. national security. Chinese domestic law attempts to 
extend more state power over China's EEZ than international law allows, 
including jurisdiction over hydrographic surveys, military surveys, and 
intelligence gathering.\45\ China believes the EEZ does not constitute 
the high seas, and therefore the U.S. does not have the right to 
conduct intel gathering activities or other military activities 
there.\46\ China also claims the Paracels and Spratlys, including the 
artificial islands. Each is surrounded by a 200-mile EEZ, and China 
argues that the islands should be treated as archipelagos, which means 
the waters between them would be territorial waters (according to 
international law).\47\ It is through this manipulation of 
international law that China deems the South China Sea within its EEZ 
and claims that the U.S. military is not allowed to operate there.
    Much more is at stake for the United States if it concedes to China 
in the South China Sea. First, China currently claims nearly the entire 
East and South China Seas as its historic waters and EEZ.\48\ If China 
proves successful at changing the interpretation of maritime law so 
that the EEZ is equivalent to territorial waters, then (1) the United 
States will be unable to conduct operations vital to U.S. national 
security in much of the world's oceans and (2) ``freedom of navigation 
near the shore will be diminished, impairing naval and air operations 
and diminishing power-projection and forced-entry capabilities of 
amphibious forces.'' \49\
    Politically, U.S. acquiescence to Chinese coercive diplomacy could 
increase anxiety among U.S. allies and strategic partners, leading to 
Asian policy changes that could undermine regional stability.\50\ 
Moreover, U.S. deterrence against China would be severely weakened. 
Without the ability to operate militarily in the South China Sea, given 
the tyranny of distance, the United States' ability to hold China at 
risk would be greatly reduced. This is the whole point of China's South 
China Sea strategy--to push the U.S. military out so that China can do 
whatever it wants without having to answer to the United States. For 
deterrence purposes, the United States needs to be able to threaten 
China with unacceptable costs. It cannot do so if the U.S. military 
does not maintain a presence in Asia and the ability to operate freely 
around China. And the United States cannot protect and defend South 
Korea, Japan, Taiwan, or the Philippines without the ability to operate 
in the waters surrounding China. This is simply the reality of current 
technology.
    To sum up, China is not outcompeting the United States; the U.S. is 
not competing. China is gaining power and influence at the expense of 
the United States by focusing on areas where the U.S. ability and 
willingness to compete have been weakest and then leveraging its 
strengths in entrepreneurial ways to build power in those areas.
    Washington needs to get back in the game, but without lowering its 
standards to China's level. While perhaps imperfect in implementation, 
the values and principles behind U.S. global power and leadership 
ensure others benefit. China's Achilles' heel is that its leaders have 
failed to articulate a vision of Chinese dominance that is beneficial 
for anyone but China. In its pursuit of economic, political, and 
military power, the protection of liberal values needs to be a 
guidepost and a priority.
    The South China Sea lies at the center of this geopolitical 
competition. The United States has to move beyond symbolic displays of 
force such as the freedom of navigation operations to include actions 
that improve the United States' ability to operate in those waters. 
This could include building a new institution or coalition of like-
minded states that patrol the waters and protect all countries' rights 
of freedom of navigation in the South China Sea. Or the U.S. could make 
peace in the South China Sea a real diplomatic priority, getting all 
parties to the negotiating table, and if China is unwilling to 
participate, the U.S. could bring the other claimants together without 
Beijing to establish a consensus at least among them that supports U.S. 
interpretation of freedom of navigation. And if the United States wants 
to deter the militarization of these islands, which threaten U.S. 
sovereignty, it has to threaten unacceptable costs on China, for 
example, by communicating to Beijing that the United States will build 
its own bases in the area in response.
    Beyond the South China Sea, Washington needs to embark on a program 
of institution building that will shape norms in our favor and fill the 
gaps in the order that China has been able to exploit. The United 
States needs to leverage its own strengths against Chinese weaknesses, 
one of which is the ability to build coalitions. This should not be a 
great power competition between China and the United States but between 
China and the United States along with its allies and partners. China 
cannot outspend the United States and the European Union together. For 
example, it cannot prevail in a regional conflict against the United 
States, Japan, and Australia. So, if China uses economic coercion 
against a country, U.S. allies and partners should ban together and 
sanction China. We should be patrolling the South China Sea together to 
ensure that every country, even those that are not treaty allies of the 
United States, has the ability to sail and fish there. And the U.S. 
needs to lead by example. If Washington is unwilling to stand up to 
China as the most powerful nation in the world, it cannot expect anyone 
else to do so. It will take immense political capital to facilitate 
such cooperation among nations, but it is the only way to ensure the 
United States, in conjunction with its allies and partners, maintains 
the vast share of power and influence in the international system.

------------------
Notes

    \1\ World Bank, ``China--Overview,'' September 26, 2018.
    \2\ World Bank, ``The World Bank Group in China--Facts and 
Figures,'' July 2018. en-2018.pdf.
    \3\ Derek Scissors, ``Worldwide Chinese Investments and 
Construction 2005-2018,'' American Enterprise Institute, accessed March 
4, 2019.
    \4\ CSIS China Power, ``What Does China Really Spend on its 
Military?,'' March 4, 2019.
    \5\ Derek Scissors, ``China Global Investment Tracker,'' American 
Enterprise Institute, accessed March 7, 2019, and CEIC, ``Ecuador 
Foreign Direct Investment: America,'' March 7, 2019.
    \6\ Human Rights Watch, ``The Costs of International Advocacy: 
China's Interference in United Nations Human Rights Mechanisms,'' 
September 5, 2017.
    \7\ Ted Piccone, ``China's Long Game on Human Rights at the United 
Nations,'' Brookings Institution, September 2018.
    \8\ Ted Piccone, ``China's Long Game on Human Rights at the United 
Nations.''
    \9\ Note: Meng Hongwei is now detained in China for alleged 
corruption.
    \10\ Sunny Chao, ``Interpol, Headed by China's Police Vice-
Minister, Abuses Red Notices to Track Down Dissidents Overseas,'' Epoch 
Times, May 17, 2018.
    \11\ North-South Institute, ``The BRICS at the WTO Doha Development 
Round,'' September 28, 2009.
    \12\ International Monetary Fund, ``IMF Executive Directors and 
Voting Power,'' March 5, 2019.
    \13\ International Monetary Fund, ``IMF Executive Directors and 
Voting Power.''
    \14\ Sue-Lin Wong, ``China Launches New AIIB as Power Balance 
Shifts,'' Reuters, January 15, 2016.
    \15\ Asian Infrastructure Investment Bank, ``Financing Asia's 
Future: 2017 AIIB Annual Report and Financials,'' 2018.
    \16\ Derek Scissors, ``China Global Investment Tracker,'' American 
Enterprise Institute, accessed March 5, 2019.
    \17\ Jonathan E. Hillman, ``How Big Is China's Belt and Road,'' 
Center for Strategic and International Studies, April 3, 2018.
    \18\ Nadege Rolland, China's Eurasian Century? Political and 
Strategic Implications of the Belt and Road Initiative, National Bureau 
of Asian Research, May 23, 2017.
    \19\ Thomas J. Christensen, ``The Advantages of an Assertive China: 
Responding to Beijing's Abrasive Diplomacy,'' Brookings Institution, 
March 25, 2011.
    \20\ Providing for Peacekeeping, ``IPI Peacekeeping Database,'' 
March 4, 2019.
    \21\ Yan Xuetong, ``From Keeping a Low Profile to Striving for 
Achievement,'' Chinese Journal of International Politics 7, no. 2 
(Summer 2014): 161.
    \22\ Zhang Liwei, ``Zhongguo waijiao fengge zhuanxing xu jinshen,'' 
[Prudence must be practiced when changing China's diplomatic style],'' 
Financial Times, December 17, 2013, and Yan, ``From Keeping a Low 
Profile.''
    \23\ ``China Lands First Bomber on South China Sea Island,'' Center 
for Strategic and International Studies, May 18, 2018, and Thomas 
Shugart, ``China's Artificial Islands Are Bigger (and a Bigger Deal) 
Than You Think,'' War on the Rocks, September 21, 2016.
    \24\ Ankit Panda, ``South China Sea: What China's First Strategic 
Bomber Landing on Woody Island Means,'' Diplomat, May 22, 2018, and 
Asia Maritime Transparency Initiative, ``Woody Island,'' Center for 
Strategic and International Studies, March 4, 2019.
    \25\ Center for Strategic and International Studies, ``China Lands 
First Bomber on South China Sea Island.''
    \26\ Gordon Lubold and Chun Han Wong, ``China Positions Missiles on 
Disputed South China Sea Island,'' Wall Street Journal, February 17, 
2016.
    \27\ Center for Strategic and International Studies, ``China Lands 
First Bomber on South China Sea Island.''
    \28\ Liu Zhen, ``China Just Finished a Month of Unannounced Drills 
in the South China Sea to Test Its Wartime Command System,'' Business 
Insider, February 21, 2019.
    \29\ Ministry of Foreign Affairs, ``Wang Yi: ``Wang Yi: shuanggui 
silu shi jiejue nanhai wenti zuiwei xianshi kexing de banfa'' [Wang Yi: 
`Two- track thinking' is the most realistic and practical way to solve 
the South China Sea problem],'' April 21, 2016.
    \30\ Xinhua, ``Zhongguo waizhang wang yi jiu suowei nanhai zhongcai 
ting caijue jieguo fabiao tanhua,'' [Chinese Foreign Minister Wang Yi 
makes statement about the results of the so-called South China Sea 
Arbitration Tribunal],'' July 12, 2016.
    \31\ Department of Defense, ``Summary of the 2018 National Defense 
Strategy,'' 2018.
    \32\ Guardian, ``Philippines to `Set Aside' South China Sea 
Tribunal Ruling to Avoid Imposing on Beijing,'' December 17, 2016.
    \33\ Eijas Ariffin, ``The Philippines and China: Two Years Since 
the PCA,'' ASEAN Post, July 13, 2018.
    \34\ Manuel Mogato, Michael Martina, and Ben Blanchard, ``ASEAN 
Deadlocked on South China Sea, Cambodia Blocks Statement,'' Reuters, 
July 25, 2016.
    \35\ Economist, ``Laos Ushers Through ASEAN Statement,'' July 29, 
2016.
    \36\ ChinaPower, ``How Much Trade Transits the South China Sea?,'' 
March 4, 2019.
    \37\ Jongryn Mo, ``China's Changing Economic Leverage,'' Wall 
Street Journal, December 14, 2010.
    \38\ South China Morning Post, ``Chinese Tourists Returning to 
South Korea After Missile Tensions Cool,'' May 2, 2018.
    \39\ South China Sea Working Group, ``A Blueprint for Cooperation 
on Oil and Gas Production in the South China Sea,'' Center for 
Strategic and International Studies, Asia Maritime Transparency 
Initiative, July 25, 2018.
    \40\ South China Sea Working Group, ``A Blueprint for Fisheries 
Management and Environmental Cooperation in the South China Sea,'' 
Center for Strategic and International Studies, Asia Maritime 
Transparency Initiative, September 13, 2017.
    \41\ Ralph Jennings, ``China and Vietnam Explored Almost a Decade 
Together for Oil. What Went Wrong?,'' Forbes, April l9, 2018.
    \42\ Liu Zhen, ``China and Brunei to Step Up Oil and Gas 
Development in Disputed South China Sea,'' South China Morning Post, 
November 19, 2018.
    \43\ Manuel Mogato, ``China Backs Joint Energy Development with 
Philippines in Disputed Sea,'' Reuters, July 25, 2017.
    \44\ This analysis is based on the full content regarding the SCS 
from 2013 to 2018 under the ``Leadership Activities'' category in the 
People Data (data.people.com.cn). The database collects data from 
official media and websites.
    \45\ For the details of the legal positions, see Law of the 
People's Republic of China on the Exclusive Economic Zone and the 
Continental Shelf, June 26, 1998; United Nations Convention on the Law 
of the Sea, and China's Statement upon Ratification. For a thorough 
analysis, see Peter A. Dutton, ``Maritime Disputes and Sovereignty 
Issues in East Asia,'' Testimony before the United States Senate 
Committee on Foreign Relations, July 15, 2009.
    \46\ Ying Yang, ``Zhuanshu Jingji Qu Zhidu Yu Junshi Huodong de 
Falv Poxi'' [An analysis of laws and military activities regarding the 
Exclusive Economic Zone], Social Science Journal no. 5 (2017): 118-24; 
Zirong Yang and Feng Xiao, ``Hangxing Ziyou Jue Bushi `Junshi Huodong 
Ziyou'' ' [Freedom of navigation is not freedom of military 
activities], Jiefangjun Bao, May 12, 2016, and Cheng Zhao, ``Meishi 
`Hangxing Ziyou' Chongji Guoji Haiyang Zhixu'' [American `freedom of 
navigation' disrupts international maritime orders], Renmin Ribao, July 
27, 2016.
    \47\ Lei Hong, ``2016 Nian 7 Yue 8 Ri Waijiaobu Fayanren Hong Lei 
Zhuchi Lixing Jizhehui'' [July 8th, 2016 the Spokesman of the Foreign 
Affairs Ministry, Hong Lei, hosted regular press conference], Foreign 
Affairs Ministry, July 8, 2016, and Ziwen Zhang, Song Qu, and Yang Bai, 
``Nansha Diaojiao Jianshe Shu Zhongguo Hefa Quanli'' [To construct on 
the Spratlys is China's legal right], Renmin Ribao, July 25, 2016.
    \48\ James Kraska, ``Sovereignty at Sea,'' Journal of the 
International Institute of Strategic Studies 51 (June/July 2009): 13-
18.
    \49\ Kraska, ``Sovereignty at Sea.''
    \50\ Even if the U.S. regional maritime presence is not reduced, 
but rather shifted to different zones, U.S. concessions in the face of 
Chinese coercive diplomacy would still cause anxiety among U.S. allies 
about the United States' willingness to absorb costs to stay active in 
the region and protect its allies' interests.

    The Chairman. Thank you.
    We will now go to a round of questions. I am going to take 
just a brief shot here at the beginning.
    Dr. Mastro, that was an interesting observation you made 
regarding China's work around the world where they build 
infrastructure. They are really focused on that. We see that 
everywhere where we go where their hands are involved in that. 
And interestingly, our hand is there too, but instead of 
infrastructure, it is on humanitarian aid.
    What do you think about the balance of the spending, our 
doing it on humanitarian aid and their doing it on 
infrastructure building? How would you address that?
    Dr. Mastro. Mr. Chairman, I think this really highlights 
the point of the fact that we need to look at our own 
comparative advantages instead of trying to respond to China by 
doing exactly what they do. So a lot of countries do have this 
demand for infrastructure, and I think the United States needs 
to get more involved in that game. But, on the other hand, 
humanitarian aid, assistance, disaster relief--these are some 
of the ways that the United States has provided leadership in 
the international system that are to the benefit of other 
nations and where China is actually relatively weak. And so I 
think we should be doing much more of this humanitarian aid and 
highlighting to the countries around the world that this is a 
service that the United States provides that China does not 
provide.
    The Chairman. Do you agree that--what I find--I do not know 
if others find this too, but that particular item, and that is 
us doing humanitarian things, the Chinese doing infrastructure 
things where they are actually trying to get their hands on 
something in a country, is becoming better and better known 
around the world. Each of us, the United States and China, is 
developing a reputation in that regard. Do you agree or 
disagree with that?
    Dr. Mastro. I agree with that. I think in general China 
prefers weaker partners, and that is another fundamental 
difference between us and the Chinese. Now, the jury is still 
out on how successful their strategy is going to be because I 
think countries are learning that over time it is not 
beneficial for them to be in that weaker position vis-a-vis 
China as the Chinese are willing to use coercion to ensure that 
their will is accommodated.
    But those countries need alternatives. For example, one of 
the areas the BRI, the Belt and Road Initiative, first entered 
into was Central Asia. This is not a place where China was 
replacing the United States. We were not present not only sort 
of politically and militarily, but also economically. So we 
need to be able to provide countries with alternatives to this 
cheap investment.
    The Chairman. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Thank you both for very thoughtful testimony.
    Let me say it seems that there are as many opinions 
regarding China's global intentions as there are analysts, with 
some saying that it is strictly economic, while others saying 
they seek to change the global system of governance, and still 
others asserting that China only wants to achieve regional 
hegemony.
    So I would like to ask both of you, in your view, what does 
China want in the near term, in the long term, and why? And 
secondly, what are in your views the three most important 
things the United States can do to protect its interests in all 
of its dimensions vis-a-vis China?
    Senator Talent. You have really asked a $64 question, 
Senator, which is what is the ultimate object of these 
policies. I refer in my statement to the fact that they are 
seeking a kind of hegemony in East Asia, but what does that 
really mean? I think I want to answer that with reference to 
one of the reasons that they are doing it. In my statement, I 
talk about sets of reasons. One set of reasons is nationalistic 
and historical.
    So a Japanese scholar said to me a few years ago when I was 
visiting, he said you have to understand we view the world 
horizontally and they view it vertically. So we view the 
international order as one in which nations relate to each 
other basically according to agreed-upon rules and resolve 
disputes according to those rules and resolve them peacefully 
where there are no rules, negotiate peacefully.
    He said they view the relations between nations as one in 
which the larger and more powerful nations naturally get the 
benefits. And if you think in terms of the history, their way 
of looking at the world has actually been the predominant way 
in which nations have related to each other through most of 
history. I am not going to even attack them for this. And I 
think they are more comfortable in that kind of a setting just 
as we are more comfortable in ours.
    The order that we and our allies and most of the world has 
built comports with our values. We believe it preserves the 
peace, and it is one in which we have prospered and, as Dr. 
Mastro said, many nations have had an opportunity to prosper.
    So I do think as an ultimate objective they want to move 
the world more in the direction of their view of how nations 
ought to relate to each other.
    Senator Menendez. Any suggestions on the top two or three 
things we should be doing?
    Senator Talent. Well, look, I have to say I put an 
attachment to the Senators, which we got from PACOM a few years 
ago, showing how the balances of forces in the region has 
changed from 1999 to 2016. And it shows the disproportion in 
terms of Chinese numbers, platforms, ships, planes, et cetera 
in the region.
    I think we and our allies have to think very thoughtfully 
about how we are going to begin effectively redressing that 
balance because I think I am very concerned that if we do not 
effectively deter kinetic aggression in the region better than 
I think we are doing now--I agree with Dr. Mastro that 
operationally we have a lot of advantages. But if we continue 
to allow the balance of power to shift, there is a danger that 
they may get opportunistic and may move quickly in some area. 
And I am really concerned about Taiwan, for example, becoming a 
flashpoint. What we do not want is a confrontation to become 
escalating armed aggression.
    So the point is that--and I will be try and be quick. The 
armed services, by preventing that, are also the foundation for 
the tools of soft power to work. So I would say we need to 
restore the deterrent more strongly. We need to build tools 
that allow us to get our narrative out, which we are not doing 
effectively. I think you have laid the basis for that with 
ARIA. And I would work on how the State Department can be more 
effective in that.
    And then I think we have to think very strongly about how 
we can make the WTO more effective and on a multilateral basis 
in dealing with the broader set of tactics. WTO tools are not 
sufficient.

    [The information referred to follows:]

            The Build-Up of China's Military Forces in Asia

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    Senator Menendez. Let me turn to Dr. Mastro.
    Dr. Mastro. I think China, as I mentioned, wants to 
dominate the Indo-Pacific, but it just wants veto power 
everywhere else. So I do not think they really want to replace 
the United States. They just want to displace the United States 
in order to widen their own freedom of maneuver. China wants, 
in capitals around the world, countries to ask themselves, 
first, what would China think and, second what would the United 
States think.
    I would say in terms of the global system, they do want to 
change it, but they do not want to overthrow it. It is not that 
they hate all aspects of it. Some they benefit from. But the 
aspects that they do not benefit from, they either render those 
ineffective like in terms of the human rights commissions or 
they try to change those institutions from within.
    In terms of the three things that we should do about it, 
first I just want to double down on restoring the deterrent. 
Right now, this is China being deterred. We are seeing the best 
of Chinese behavior right now, and that is because China does 
not have faith in its own military capabilities. But that is 
not going to be the case forever. They have embarked on a 
massive military reform program that, by their estimation, 
should be done by 2025. I am very concerned if the United 
States does not make some significant changes, not only in the 
quality of some of our platforms, but the quantity, because 
that becomes very important in conflicts, that China is no 
longer going to be deterred by that time frame.
    The second thing I think we need to do is invest at home. 
Now, I am a military specialist, but I look at the economic 
power as the basis for U.S. power in the world. I heard a 
statistic yesterday that China is now graduating more data 
scientists out of one university than we are in all of our 
universities combined. And so I think providing the necessary 
incentives for research, development, and improving our 
education at home is one way we need to compete.
    And lastly, we need to get serious about global leadership. 
In my view an America First strategy is a very Chinese 
strategy. We need to be thinking more about our role in the 
world, and that includes building new institutions. I am not 
surprised that institutions built decades ago cannot handle 
what to do about cyber, what to do about attacks in space, and 
other norms of behavior in terms of the standards for AI, for 
example. So we really need to get serious again about building 
institutions and enhancing our global leadership.
    Senator Menendez. Thank you.
    The Chairman. Thank you, Senator Menendez.
    Senator Rubio.
    Senator Rubio. Thank you both for being here.
    There is a concept: war of choice. It is where a nation 
sort of picks a time and place of their choosing in which to 
engage militarily--somewhere where they think they can wrap up 
the conflict quickly, but they do it, first, to project power, 
to sort of send the message that we have capability. Second of 
all is to build capacity, to learn where their weaknesses are 
and build upon it.
    What, in the short- and mid-term, do either of you think is 
a risk of a war of choice by China, whether it is a border 
conflict with Vietnam that they could quickly wrap up, a Taiwan 
contingency, but some military engagement in which they are 
able to choose the timing and the place of it, they can wrap it 
up before there could be U.S. or other invention, and in the 
process sort of prove to the world some muscularity, some of 
their capability, and also learn a little bit about their 
weaknesses, in essence, use it almost as a low-risk military 
exercise?
    Dr. Mastro. Sir, I think the likelihood of that is quite 
high, especially in the timeline that I laid out. So one of the 
big issues with the military reforms was that the Chinese 
military has never conducted a joint operation before, the idea 
that the air force and the navy could work together. In most 
contingencies, such as Taiwan, the South China Sea, and the 
East China Sea, that is what is necessary.
    So when Xi Jinping came into power, he took a look at the 
military forces and decided they were not ready to fight and 
win. And so he has this phrase of preparing for military 
struggle, and that was the whole reform period.
    In my view, they need to test those capabilities against 
opponents that they know they can win against because there are 
also domestic political factors here. The Chinese people are 
paying attention to how much money they are spending on the 
military, even as the economy is slowing. So it would look very 
bad for the Chinese not to perform well. They need to make sure 
that they can perform well before they take on a reunification 
with Taiwan or a U.S. treaty ally that can bring in the United 
States.
    My bets are on a naval skirmish with Vietnam. I think it 
probably will not be on the border because they are not 
practicing as much ground operations as they are air and naval 
operations. But I think we might see some more forceful actions 
after they militarize the islands in the South China Sea in 
which they try to occupy some of the islands that are currently 
occupied by others.
    Senator Talent. Yes. I think they are legitimately, 
sincerely concerned about their operational capabilities. This 
is a constant theme. It is very significant that they have 
undertaken this reorganization of the armed forces. It is their 
parallel to the Goldwater-Nichols reforms that we engaged in 
about 35 years ago. Xi Jinping constantly talks about the need 
to train for combat. They talk about the five incapables, their 
concerns about what their military can do operationally, and I 
think they respect the operational effectiveness of the United 
States.
    So I think they would like to get through that 
reorganization before they actually test it. I think they may 
be underestimating how long it is going to take to really make 
that work. They may say it is done, but they may not really 
have matured as a force. But I think when that is done, I 
agree, I think they will attempt something probably with one of 
their neighbors. I do not think Xi Jinping--I mean, he talks 
about having a world-class military in 2035. He is going to be 
in his 80s. I do not think even if he thinks he is going to be 
in power, that he wants to wait that long. So I think they will 
be patient until they work their way through that. They could 
continue to be patient, as long as they feel they are winning 
by the salami slicing, but they could also move.
    And I will just add this. One of the dangers of the United 
States moving as you all and the executive branch have moved in 
the last few years to rebuild the tools, to come up with a 
relevant doctrine, to build new institutions is the more 
effectively they see us doing this and, in particular, if we 
are successful in some local kinds of confrontation, the 
greater danger that they may decide to express their intentions 
and their ambitions militarily.
    And there is a parallel for that, of course, in the late 
1930s, early 1940s when we used economic tools very effectively 
against another rising Asian power, and they decided that they 
would try and take us out. Now, I do not think that they are 
planning that. I do not think they want that, but I do not 
think it is impossible either.
    The Chairman. Thank you, Senator Rubio.
    Senator Coons.
    Senator Coons. Thank you, Chairman Risch, Ranking Member 
Menendez, for organizing this briefing, for your compelling 
opening statements.
    And thank you, Senator Talent, Dr. Mastro, for sharing your 
expertise with us today.
    It is hard to think of any challenge more consequential to 
the world we live in today and the world we will live in 
tomorrow than an ascendant China. If politics is to stop at the 
water's edge, then surely this committee can and should work 
together with our administration to develop a sustained and 
bipartisan strategy for dealing with China. And I look forward 
to working with members of this committee to shape legislation 
that will form our country's response to China's challenge.
    Last year, I worked closely with a number of members of 
this committee to pass the BUILD Act, which will create a 21st 
century Development Finance Corporation that will guarantee 
roughly $60 billion a year in private sector investment. It has 
revamped tools with our private sector to be more effective. 
That finance corporation will be up and running by October, and 
I look forward to working with the administration and members 
of this committee to ensure it provides a transparent 
alternative to China's Belt and Road Initiative through 
American investments consistent with best international 
practices in labor, environment, and social standards.
    China will be holding a major Belt and Road conference in 
April. I think international participants should know there are 
alternatives to China's much larger Belt and Road Initiative.
    Dr. Mastro, if I could, how should we ensure that 
international officials who attend that conference understand 
the risks of Chinese investment and that the United States has 
new tools available to facilitate investment in developing 
countries?
    Dr. Mastro. Sir, thank you for that question.
    I think the first issue--and it is a very difficult issue, 
and I do not mean to suggest that this is the case for all 
leaders, but in some cases in the Belt and Road Initiative, it 
is not that the leaders of places do not know, but in some 
cases they are being bribed by the Chinese to accept the 
Chinese money over other sources of money that might be better 
for their country. I think the bigger issue here is a good 
governance issue that is going to be difficult for the United 
States to compete in some countries where leaders would prefer 
to take whatever the Chinese are giving them over what the 
United States gives them.
    But there are many that want higher quality, even 
infrastructure. I spent a couple weeks driving through Central 
Asia, and just anecdotally people would say, ``The Chinese 
built this road. It will last us 4 or 5 years. We wished 
someone else was willing to build it.''
    So in terms of getting the word out about what the United 
States is doing, especially partnerships with the private 
sector to encourage more private investment abroad, I think a 
lot of that is going to fall on the State Department in terms 
of our relationships with these countries. We could even think 
about holding our own types of fora to bring different 
countries together or an institution that could bring countries 
together to focus on good governance, good practices in terms 
of infrastructure.
    Also, I think there is an aspect of that in which the 
United States has to ensure that it has its own house in order 
in terms of infrastructure to provide that positive example to 
other countries around the world.
    Senator Coons. Dr. Mastro, I agree with the response you 
gave to an earlier question that sort of posited should we be 
investing more in infrastructure or sustaining our humanitarian 
work around the world. And I think the answer is to do both and 
do them better and make sure that our programs are efficient 
and targeted. But the good will that we have earned, the close 
alliances and values-based partnerships we have earned through 
effective humanitarian relief around the world we have to also 
complement by showing up. Most African heads of state I have 
met with in the last 8 years would prefer American investment, 
American technology, American partnership, but we have gotten 
out of that work. I think we need to reengage and compete.
    Senator Talent, thank you for your service on the 
commission that you described. Your 2018 report includes ten 
key recommendations, including requiring a number of reports 
from different parts of our government to ensure that every 
major U.S. Government department and agency is appropriately 
preparing for the challenges that China presents. I will give 
just quick examples.
    The report recommends the DNI conduct an assessment of 
China's access and basing facilities along the Belt and Road 
Initiative, and it directs the Department of Defense and 
Homeland Security to examine the implications of changes to the 
Chinese coast guard's command structure.
    Given this robust reach and range of recommendations, would 
you recommend that Congress take up debate and pass a statute 
directing that these recommendations be implemented to ensure 
that they are heard and followed in the executive branch?
    Senator Talent. Yes. I fully supported the recommendations, 
and you could do it, I think, in appropriations or by statute, 
whatever would be a good way of doing it. I do think that we 
have to be aware and assess constantly what the intentions of 
the Chinese are in a number of different areas. And we are 
developing that capability now. Again, we are in a time of 
transition, but we have to be able to make those assessments.
    If I may just comment on your earlier question very 
briefly, I think there is a real opportunity for us here with 
the BUILD Act because, as the committee knows, the Chinese 
narrative regarding One Belt One Road is in some trouble. There 
are a number of different countries--you mentioned Africa, Sri 
Lanka, a whole lot of places--where people are having a 
hangover after doing these deals and realizing what it means in 
terms of their debt. They see Chinese companies bringing in 
Chinese workers. They see environmental standards degraded.
    And so I think in terms of the competition and the policy, 
we could do a lot with a little if we could amplify the 
narrative while we were doing it. And I hope in implementing 
and overseeing the implementation of the BUILD Act, you pay 
real attention to using what we are doing. And it is a very 
legitimate narrative that we are doing it the right way and 
helping people.
    And I would not underestimate the impact on Beijing of even 
small investments in strategic places. They are really throwing 
their weight around in Southeast Asia now, and if we go in 
there with some investments in a different model, the lights 
would go on in Beijing at night and they are going to have to 
figure out what we are doing. It is a way of countering and 
occupying them and taking the initiative.
    Senator Coons. The new structure of this new development 
and finance institution literally encourages and allows us to 
do things in a multilateral way with the Australians, with the 
Japanese, with the New Zealanders, with the Scandinavian 
countries. And so I think it allows us to reengage with some of 
our critical allies in exactly that work.
    I am looking for cosponsors for a bill that would implement 
the recommendations of your report, and I hope to be 
introducing that legislation soon.
    Thank you both for your testimony.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Gardner.
    Senator Gardner. Thank you, Mr. Chairman.
    Thank you both for your testimony today.
    Chairman, thank you very much for holding this hearing, and 
thanks again for the work this committee is doing and has done 
on China. We are at a true inflexion point in the relationship 
between the United States and China. The questions we have to 
ask: what tradeoffs will be made? What costs are we willing to 
endure with those tradeoffs? Whose values will determine and 
shape the future of trade, diplomacy, human rights, rule of 
law?
    As stated in our National Security Strategy, for decades 
U.S. policy was rooted in the belief that support for China's 
rise and for its integration into the post-war international 
order would liberalize China. Contrary to our hopes, China 
expanded its power at the expense of the sovereignty of others.
    The challenge before us now is identifying what policy 
tools the United States has at its disposal and how we shape 
and execute a comprehensive and effective strategy to deal with 
Beijing and to chart a new course for U.S.-China relations.
    This is why in the 115th Congress, Senator Markey and I 
held four hearings in our subcommittee dedicated to China, 
including a three-part series of hearings titled ``The China 
Challenge,'' which examined how the United States should 
respond to the challenge of a China that seeks to upend and 
supplant the U.S.-led liberal world order. The hearings 
examined security, economic, and human rights implications of a 
less than peaceful rise by China.
    At one of our hearings, Dr. Graham Allison of Harvard 
University astutely observed as realistic students of history, 
Chinese leaders recognize that the role the United States has 
played since World War II as the architect and underwriter of 
regional stability and security has been essential to the rise 
of Asia, including China itself. But they believe that as the 
tide that brought the United States to Asia recedes, America 
must leave with it. Much as Britain's role in the western 
hemisphere faded in the beginning of the 20th century, so must 
America's role in Asia as the region's historic super power 
resumes its place.
    That is why Senator Markey and I led the passage of the 
Asia Reassurance Initiative Act, which was signed into law on 
December 31st, 2018. We will not simply allow America to recede 
with the tide.
    In order to deal with an assertive China, we first and 
foremost need a stronger network of allies and partners in the 
Indo-Pacific, as you have stated. That is exactly the intent of 
the Asia Reassurance Initiative. And I hope the administration 
will fully fund and fully implement the strategy and the 
funding that is mandated by the legislation.
    We have talked in this hearing about the needs for 
security. It authorizes dollars for an Asia-Pacific security 
initiative, counterterrorism, maritime domain awareness, South 
China Sea freedom of navigation operations. It authorizes 
legislation to address intellectual property theft in China, 
legislation dealing with cyber initiatives, legislation that 
could create a cyber league of the Indo-Pacific states to 
counter China's behavior when it comes to their approach to the 
Internet and the cyber field.
    This is an opportunity for this Congress to build out on 
that. China has no qualms or doubt about the direction that it 
is headed, the leadership that it seeks, the dominance that it 
pursues. Many of our values are and will be in direct conflict 
with China, but we must build on the strategy of the Asia 
Reassurance Initiative, be ever present throughout the region, 
and never forget the long-term interests of the United States 
will be met and delivered or denied in Asia. A great power 
competition defined American exceptionalism. We will not let it 
write the last chapter of U.S. power.
    The question I want to start with is this. If we simply 
want China to be a less concerning business environment to do 
business in--we talked about this yesterday, Dr. Mastro. If we 
simply want China to be a less concerning place to do business 
in, to deal with, and yet we want more trade, we want more 
opportunity there, we are simply tying ourselves to a nation 
whose human rights and governance is at odds with our own, 
making it more difficult to extract ourselves later on or to 
influence future behavior when they do not change their 
behavior. Can we do both? Senator Talent, Dr. Mastro?
    Senator Talent. How do we influence their behavior in terms 
of their economic----
    Senator Gardner. If our interest is simply to make more 
trade deals with them, to invest more with them, are we simply 
making a deal with a country whose human rights are at odds 
with ours, whose beliefs and rule of law are at odds with ours, 
or can we use that to change their behavior in a significant--
--
    Senator Talent. Oh, I think we can use economic tools to 
change their behavior. I think the problem--and the 
administration is exploring doing that. I mean, it is doing 
that. It is using the leverage and the tools that it has 
available. And I think we have a lot of clout in that 
standpoint because we have a big trade deficit with China. We 
are a big customer. In other words, to the extent that trade 
becomes an issue, they have more to lose than we do, and I 
think that they view it that way.
    I think the problem we are going to have with this is that 
they know that that economy needs to grow not only so that they 
can get the resources they need to support the objects of the 
state, to fund the military buildup and the others, but also 
because the Chinese leaders are very well aware they need a 
measure of legitimacy with the people. They cannot do it all 
through repression. And as you know, the deal is the Chinese 
Communist Party continues to rule the country, and they deliver 
a better quality of life to the Chinese people.
    Now, they are not going to engage in the economic 
liberalization that would mean giving up control of vital parts 
of the economy by the Chinese Communist Party. So they have got 
to get that wealth somehow. And what I have said very often--I 
have written this in additional views on commission reports--I 
think they are going to be moving in the direction of more of 
the same kind of illicit activity we have seen in the past 
because they have to figure out ways to get growth.
    I think the economy is slowing more than they admit. I 
think the imbalances are a big problem. They have a lot of 
weaknesses. I think their currency is in some trouble.
    I do not think deals with them are the way to go, and I do 
not think it is going to change behavior. I do not think they 
have much choice but to continue trying to do what they are 
going to do because they are not going to take the next step to 
have a truly liberal market economy.
    Senator Gardner. Dr. Mastro.
    Dr. Mastro. Sir, I think one of the difficulties of the 
United States leveraging economic power is like economic 
sanctions. One country doing it alone does not have a great 
impact because China can substitute its trade by going 
somewhere else. And I do not think they are going to make some 
of the structural reforms that we want because primarily the 
party wants to stay in power, and there is no amount of 
threatening we can do that would cause them to make changes to 
human rights or to the economy domestically if they think it 
will undermine their power.
    So I really think this is an area where coalitions matter 
because China will only stop its behavior when it does not 
work. And so today they are able to engage in the theft of IPR 
or to force foreign companies to give them technologies and 
information because all countries are allowing it. And so I 
think the focus of our efforts should be less on China and more 
on ensuring that we are on the same page with private business 
and companies. I think in the United States we now are, though 
that was not always the case. But private businesses are not on 
the same page with their governments elsewhere in other 
countries, in some cases with our allies and partners.
    So if the international community somehow could come 
together and say just because China is only targeting the 
Philippines today or only targeting South Korea today or only 
targeting the U.K. today, we do not want to take the economic 
cost associated with that. So we all turn a blind eye. And the 
bottom line is unless the United States, the most powerful 
country in the world, stands up to China in these areas, no 
other country is willing to do so.
    I think it is a step in the right direction for the United 
States to be willing to absorb some costs itself economically 
to signal to China that this behavior will not be tolerated. 
But in the end, we really do need to think about the 
international system and building more pressure globally on 
China to stop, whether it is cyber-enabled espionage or the 
stealing of intellectual property.
    Senator Gardner. Thank you both.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Romney.
    Senator Romney. Thank you, Mr. Chairman and Ranking Member, 
for calling this hearing. Most instructive and informative.
    And I appreciate very much both of you being here and 
testifying today and the work that you are doing on an ongoing 
basis.
    It is said, obviously, that demographics are destiny, and 
they have what? Approaching 1.4 billion people. And so they are 
going to be about four times our size. What that means is that 
ultimately their economy will be larger than ours. At some 
point, it will be substantially larger than ours, and their 
investment in the military could be greater. Their investment 
in technology could be greater, education, and so forth.
    So in a setting like that, in my view, the only way that 
one is able to succeed and prevent that from occurring would be 
for us to link arms in a very strong way with our allies around 
the world that share our values, economic values, human rights, 
and so forth. And that allows us to have the same economic and, 
if you will, demographic clout that it will have.
    I am concerned that there is a perception that somehow 
China will be dissuaded from action by virtue of shame or by 
being called cheaters or the people who thieve intellectual 
property. My perception is the things that we consider to be 
shameful, they consider to be praiseworthy and laudable and 
they celebrate. And they only will respond to things which they 
believe are in their self-interest.
    In changing the perception of self-interest, I believe it 
is essential for us, as you both indicated, to have a much 
stronger series of actions to strengthen our relationship with 
allies. We have all said that, but I am interested in your 
perceptions as to what things we can do in the region and 
globally to specifically strengthen our associations with our 
allies militarily and economically and diplomatically such that 
we present a much stronger face to China, such that they 
recalculate what is in their self-interest. They decide that 
instead of fighting and pushing that they are better off to 
work together with us. So I would appreciate your thoughts 
about specifically the sense we have now.
    Some of us celebrate that the EU is trouble. I do not 
celebrate that. I want the EU to be stronger. We tell nations, 
hey, you go off and do your own thing. No, no. We need to all 
come together because what is in the best interest of the 
United States of America is also in the best interests of these 
other countries, and combining with them is essential for us 
long-term.
    So how do we strengthen those ties? What should be our 
priorities? What actions should we take to be stronger with our 
alliances as opposed to more atomized?
    Dr. Mastro. Well, sir, I will answer your question.
    First, I just want to highlight I completely agree about 
the economic power issue. China's economy might be bigger than 
that of the United States, but that of the United States and 
the EU, it will not be. So thinking in terms of these 
coalitions is very important.
    And going back to the cyber-enabled espionage, this is a 
perfect example of what I highlighted of how they exploit 
weaknesses in the system. This was something that countries did 
not really do before until China started doing it on such a 
grand scale. So we have to find our weak spots before the 
Chinese do in a lot of cases.
    In terms of improving our relationships with allies and 
partners, my concern is I do not think we are really trying to 
do that right now. In a lot of cases, it really just requires 
good diplomacy, and especially with the EU. One of the issues 
is that our European partners would say that they do not really 
have any security concerns with China. You know, China is an 
economic partner to them, and the security concerns lie in the 
region and they lie between China and the United States and no 
one else.
    So I think what we need is less a China strategy and more a 
new type of U.S. foreign policy that with it highlights how 
U.S. leadership in the world is beneficial for everyone and 
how, if China undermines that leadership in Asia, for example, 
that will have great impact on what the United States and the 
European Union can do in regions that are potentially more 
important to our European allies.
    I argue that we need to be more entrepreneurial in our 
approaches, but I do not have something amazingly innovative 
for you besides the fact that I think we need to show up. We 
need to invest more in our diplomatic efforts in the region, 
invest more in economic investment in Europe, and try to 
convince them that the security issues that are existent in 
Asia impact them as well.
    Senator Romney. Thank you.
    Senator Talent. I think the most effective immediate 
reassurance of our allies in the region and potential partners 
and the thing that would cause them to want to work with us 
comes down to something pretty simple, Senator, which is 
rebuilding the armed forces to the point where we can increase 
our forward presence in the region. In other words, that will 
be a sign of our commitment. That will assure them that we are 
capable of deterring actual Chinese aggression, which Senator 
Rubio asked about, and it is really the indispensable attribute 
of a world leader.
    I think it can have a similar impact that Reagan's rebuild 
did in the 1980s. The armed forces both perform a really 
important function, but also send a really important and 
reassuring message and will suggest to other countries like the 
ASEAN countries that the wind is still blowing in America's 
direction. They do not need to and should not cut a deal with 
China.
    Now, one specific economic tool the commission recommended 
is instituting with other countries what is called--and I had 
to get it to read it because this is not my area of expertise--
a non-violation, nullification, or impairment case against 
China. There is a provision in the WTO that permits countries 
to bring a sort of global case against a country, not based on 
any specific violation but saying that a number of different 
actions taken together--Mr. Portman probably could give you 
chapter and verse on this given his experience--is nullifying 
the benefits of WTO membership to a number of other countries.
    Dr. Mastro mentioned the fact that we have not updated or 
worked on new institutions that are appropriate for 21st 
century challenges like this one, and I really think--I know 
this is part of your remit and also I guess the Finance 
Committee--to look at the tools of the WTO. And it is going to 
be much easier--it is still hard, but much easier to use the 
existing institution in innovative ways than it will be to try 
and come up with some new institution for controlling illicit 
economic activity. And this is what the commission recommended.
    Senator Romney. Thank you.
    The Chairman. Thank you.
    Senator Cardin.
    Senator Cardin. Well, let me thank both of our witnesses.
    Clearly, as the chairman and ranking member stated in their 
opening statements, there are multiple issues and challenges in 
regards to our relationship with China.
    But I want to follow up first, if I might, on the trade 
front. We had a hearing yesterday in the Finance Committee on 
WTO and how it has evolved over the last 25 years and the fact 
that when we entered WTO, we had a lot of hope that it would 
deal with non-market economies in a way that we would have a 
more level playing field as these economies emerged.
    And then shortly after we established WTO, we had the 
discussion about China's accession to the WTO. And it was a 
controversial issue here in Congress, and we recognized that we 
had to deal with China. We wanted to use international norms to 
deal with China, and we were hopeful that by joining the WTO, 
it would evolve over time to deal with the challenges of non-
market economies. At the ministerial meetings over the last 
decade, there has virtually been no progress made on dealing 
with these issues.
    So I sort of want to get at least your views as to what 
should be our agenda, the bilateral discussions between the 
United States and China, the multilateral discussions. There 
will be a ministerial meeting in 2020 with the WTO. But we have 
allowed China to emerge as a major economic power without 
having to comply with normal standard trade rules. I would 
argue its number one objective is to be a world dominant 
economic power and then to use that for its influences 
globally. But it is focused on becoming a world economic power, 
and we are allowing that to take place without having a fair, 
level playing field.
    I applaud the President's efforts in the bilateral 
discussions to do this. It is going to be challenging to see 
that happen if we do not have multilateral support for our 
discussions with China. And of course, the United States is not 
part of TPP, which would have given us a broader bargaining 
unit in order to deal with the challenges of China.
    I give you one example that has come to my attention of an 
immediate problem is that China uses Mongolia's cashmere as a 
way to get value for export, and Mongolia does not have the 
right to directly use the general system of preferences to get 
their cashmere here in the United States. It is an issue we are 
going to work with a separate bill. But it just shows how 
strategic they are in every industry to try to get an economic 
advantage and control that through its central government 
rather than through market forces.
    How can we be strong with our trading partners to change 
the international trading rules so non-market economies do not 
have the type of advantages they have today as witnessed by 
China's growth?
    Dr. Mastro. Well, sir, I think this really highlights a 
point from the previous question about what the United States 
can do to reassure, and while I think obviously I believe in 
the effectiveness of the military as a tool of national power, 
a lot of countries in the world and many of our allies and our 
partners do not face the military threat of China. They are 
primarily concerned about trade and economic issues, and they 
want to see leadership from the United States in this area.
    But China is the number one trading partner of many of our 
allies. I think China is one trade agreement away from having 
more formal trade agreements in Asia than the United States.
    Senator Cardin. Are we making a mistake by doing it alone, 
bilateral without multilateral discussions?
    Dr. Mastro. Well, sir, there are many free trade agreements 
that we could do bilaterally in the region that we have not 
signed. We also need to move forward. Maybe TPP was not the 
best answer, but we do need to take seriously the economic 
arrangements that we have with countries around the world. And 
that is difficult given that the United States has to be 
serious about free trade and there are some protectionist 
tendencies----
    Senator Cardin. And how do we deal with the local pressures 
of commerce, the light, inexpensive products? So they will take 
the short-term gains of having inexpensive products enter our 
market when we lose the long-term capacity of economic growth.
    Dr. Mastro. Well, sir, I would just say that is a very 
difficult question. And one of the big issues, for example, in 
terms of pressuring China to make market reforms like not 
requiring joint ventures, for example, is if the United States 
is the only one doing it, U.S. businesses are going to be 
harmed and less competitive compared to businesses from other 
countries. And so in this back and forth between China and the 
United States, we really have to push other countries as well 
to take as much of a stance on these issues or else we will be 
more at a disadvantage if we are the only ones doing it.
    Senator Cardin. I would just conclude on this. I agree with 
that. But it seems to me the way this has been set up with just 
the bilateral discussions, while we are having trade 
disagreements with our traditional trading partners on other 
issues such as aluminum and steel and auto parts, that it puts 
us in a weaker position in trying to get the type of good 
governance concessions in the trade discussions with China that 
we desperately need to have.
    One of the good things about TPP was that we had a good 
governance section in that bill to deal with non-market 
economies because there were non-market economies in TPP. It is 
going to be challenging for the United States alone to be able 
to negotiate those types of terms in a bilateral discussion.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Cardin.
    Senator Talent. Mr. Chairman, can I just say a couple 
things in response to Senator Cardin, and I promise I will be 
very brief.
    The Chairman. Senator, that is always a risk, but I am 
going to take it.
    Senator Talent. Multilaterally, I mentioned to Senator 
Romney there are tools available at the WTO. They have not been 
used very extensively for a number of countries to bring a case 
based on global kinds of illicit activities, a range of illicit 
activities. I would do that.
    Bilaterally, I think we ought to set an example around the 
world by enforcing our own laws. You are probably aware that 
Chinese companies listed on an American stock exchange do not 
comply with the rules of the SEC and the auditing requirements 
because we are not permitted to audit the Chinese auditing 
firms, and yet we continue to allow them to be listed. When I 
saw that, I thought why in the world.
    And the other thing is I think you should consider 
developing tools as we get into this back and forth trade, 
whether multilateral or bilateral. There are going to be 
sectors of our economy that get hurt. You addressed--the farm 
issue is one. But consider other kinds of tools to assist 
companies that are taking damage when the Chinese react. I 
think it would be an interesting tool that would empower 
administrations.
    The Chairman. Thank you, Senator Cardin.
    I am next going to call on Senator Portman, but before I 
do, I want to note that in this hearing we really have not 
touched at all on the type of infusion that the Chinese have 
done in our institutions, be they national labs, be they the 
education system, or as you just referred to, Senator Talent, 
our stock markets and that sort of thing. And that is probably 
an item for a hearing in and of itself because it is so broad.
    But I do want to include in the record the 93-page report 
that was issued February 22nd, 2019 by the Permanent 
Subcommittee on Investigations, which is a subcommittee of the 
Committee on Homeland Security and Governmental Affairs, 
entitled ``China's Impact on the U.S. Education System.'' It 
deals with the Confucius Institutes and those kinds of things, 
all of which was chaired by our own Senator Rob Portman. So I 
am going to put that in the record.
    The Staff Report referred to was appended to a subcommittee 
hearing held on February 28, 2019 (S. Hrg. 116-30/Jacket 36158, 
pp. 80-175)

    [The material referred to above can be accessed at the 
following url:]

https://www.govinfo.gov/content/pkg/CHRG-116shrg36158/pdf/CHRG-
116shrg36158.pdf

    The Chairman. And with that, I will yield to Senator 
Portman.
    Senator Portman. Thank you, Mr. Chairman. I appreciate your 
holding this hearing. It is another good opportunity for us to 
take a broader view here. We have talked about military, soft 
power, trade tools, so much to do with regard to China.
    I will, if it is okay, ask a question in a moment about the 
Confucius Institutes. And the chairman is right. We had an 8-
month investigation, and we found some disturbing things about 
lack of reciprocity and lack of transparency that I want to 
touch on with you, Mr. Talent.
    Thanks to both of you and, Jim, for your service on the 
commission over the years.
    Just quickly on the trade issues at the WTO, a lot of good 
points made this morning by Senator Romney, Senator Cardin, and 
others. China has wanted to get out of non-market status for a 
long time. As you know, we have been the ones that have pushed 
back. We have to continue to push back. They are a non-market 
economy. Unfortunately, under this new administration in China, 
they have been even more focused on their state-owned 
enterprises.
    And we also have to deal with this issue of China self-
certifying their developing status. Because of this growing 
economy that they have, they are taking advantage of what 
developing countries, truly developing countries, are able to 
use in the WTO system.
    And so there are things that can be done, as you say, 
within the system. Nullification would require us to get the EU 
and Japan strongly on board. They have reason to do that. And I 
agree with you that we need to be more multilateral in how we 
approach it.
    But I will say this administration has done the right thing 
in my view with regard to the 301 case, as tough as it is for 
some of my Ohio farmers and manufacturers and others. And I 
hope--we all have to hope--that by the next few weeks we will 
have some good news coming out of those negotiations. If so, we 
will for the first time have dealt with some of the structural 
issues.
    You are right. We need to use our own tools more. We have a 
269 percent tariff in place on rolled steel from China right 
now, as an example, because we did pass legislation here 3 
years ago, which we are now using much more aggressively to go 
after dumping and subsidization. But it is way broader than 
that, and intellectual property obviously is the focus of the 
301.
    On the Confucius Institutes just quickly, what we found out 
was $158 million has gone from the Chinese Government into 
these Confucius Institutes over the last half dozen years. And 
it is amazing to me that we do not hear more from the academy 
on this because you got about 100 colleges and universities 
that have Confucius Institutes now. And they come with strings 
attached, and I think those strings can compromise academic 
freedom.
    I do not know if you have looked into this much, but any 
thoughts you had on that, Jim, would be appreciated. The 
Chinese Government vets and approves all the Chinese directors, 
the teachers, the events themselves, the research proposals, 
the speakers at Confucius Institutes. Chinese teachers also 
sign contracts with the Chinese Government saying that they 
will follow Chinese law and conscientiously safeguard China's 
national interests. Any thoughts on the Confucius Institutes?
    Senator Talent. Yes. The influence goes beyond just the 
Confucius Institutes because the influence of the money, the 
participation--it is causing scholars in the field in some 
cases to self-censor, to be very careful about what they say 
because they will not have access to grants, they will not be 
able to travel to China as they need to. It is a real problem.
    I would encourage you even to broaden the approach and look 
at the work of the United Front Work Department, which is in 
charge of the Confucius Institutes. It is, I think, one of the 
oldest organs created by the Chinese Communist Party. They have 
hired tens of thousands of new cadres or employees under Xi 
Jinping. This whole concept of sharp power--you know, we are 
used to soft power, smart power, hard power. Sharp power is 
gray war tactics that they use extremely effectively to 
disrupt, confuse the narrative in other countries, and they are 
doing it through higher ed.
    I do think we should not view the Higher Academy as like 
our enemy in this. I mean, they did not know what was going on 
any more than many other people did.
    But, yes, there is a broader narrative, and I think it is 
important that the committee become aware of the facts. And 
again, this is an area where we have to develop tools for 
countering effectively.
    Senator Portman. One of the tools--Dr. Mastro, I want to 
hear from you--that we tried to develop is to have our own 
ability to have a presence in Chinese universities, colleges, 
educational system. We have failed in that because we have been 
blocked from doing that. That is the reciprocity concern that 
while you have a growth of Confucius Institutes--by the way, 
there are also about 1,000 K through 12 institutions that have 
Confucius Institutes primarily focused on Chinese language, as 
I understand it. We focus more on the colleges and 
universities, but it also is K through 12. We cannot do that in 
China. In fact, we are pulling back. As of this summer, we will 
have no U.S. State Department presence in terms of our own 
American values and history being taught in China. Dr. Mastro?
    Dr. Mastro. So I think these Confucius Institutes and in 
general the department that was previously mentioned is 
extremely entrepreneurial in that China combined covert 
operations with public diplomacy, which is something that the 
United States does not do. And this is why they have been able 
to really have such influence on academic discussion to a 
degree and also instruction because the main goal of this 
funding is to shape the conversation about China to ensure that 
people are not saying things about China in the United States 
and other countries. This is a big issue about political 
interference that goes against what the party wants people to 
say.
    I do not think, bottom line, it is bad to take any money 
from the PRC, to tell universities that there might be a big 
funder that comes from China and so you should not engage with 
them. That might not be the right approach. But there needs to 
be serious constraints on the amount of influence that China 
can have so it does not restrict academic freedom. For example, 
universities should be able to choose their own instructors for 
these institutes. If they then, like with other donors, want to 
say and we thank the People's Republic of China for their 
donation, that is fine.
    But this level of control and the lack of reciprocity is a 
real issue. I myself have spent time in Beijing studying, and 
the amount to which the foreigners have to be kept separately 
from the Chinese students at that time--I cannot confirm now, 
but at that time, it was illegal for me to enter a dormitory to 
engage with Chinese students. So I think the United States 
needs to demand much more of this reciprocity.
    Senator Portman. And Chinese monitors at all those 
institutions.
    My time has expired, and I apologize.
    On the transparency issue, just so you know, it is not so 
much the fact that these schools are accepting the funding. It 
is that they are not reporting it. And in fact, we think that 
about 70 percent of the schools are out of compliance with our 
own U.S. Department of Education rules on that. So at a 
minimum, we should have reciprocity and transparency so people 
know what is going on.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Portman.
    Senator Markey.
    Senator Markey. Thank you, Mr. Chairman.
    Senator Gardner and I were able to pass the Asia 
Reassurance Initiative that was signed by President Trump in 
December. And just more and more reports coming out of China 
makes it clear why we need that legislation and why we have to 
work on a bipartisan basis to continue to deal with this China 
threat.
    This morning, the Wall Street Journal detailed an internal 
Navy report stating that the United States Navy and its 
industry partners are, quote, ``under cyber siege.'' This 
follows an earlier report that a known Chinese hacking group is 
behind a series of cyber attacks on American universities as 
part of an elaborate scheme to steal research about maritime 
technology.
    In fact, this morning's Wall Street Journal article 
references letters I sent this week to the Departments of 
Defense and Homeland Security asking how they are ensuring that 
sensitive and classified military information at research 
institutions and universities are protected. After all, in this 
age of great power competition, it should come as no surprise 
that Chinese hackers are targeting academic institutions with 
valuable information about U.S. military capabilities.
    Dr. Mastro, as someone who has worked in academia, in think 
tanks, and for the U.S. military, how well do you think our 
government is doing in ensuring that sensitive and classified 
material is protected at research institutions and defense 
contractors and what more should we be doing to ensure that 
that information is being protected?
    Dr. Mastro. Sir, thank you for that question. It gives me 
an opportunity to really highlight what I think is one of the 
main issues, which is that many people who do not focus on 
China or the China challenge are relatively naive about some of 
the security challenges that come with it, whether it is having 
sensitive information or research at universities in which the 
main goal is the creation of knowledge for knowledge's sake or 
allowing Confucius Institutes to be funded. In many cases, 
people who are outside of this field do not understand those 
risks. And so it is less I think that the government is not 
protecting that information, but more that a lot of those 
protections are not necessarily in place in some of these 
places that the Chinese are able to find certain weak spots 
whether it is in the networks----
    Senator Markey. But bottom line, that just means we are not 
doing the job. If they can find weak spots, then we are not 
doing the job.
    Dr. Mastro. Yes, sir. I agree. I was trying to say it more 
diplomatically. But, yes, I think we are not doing the job, and 
we are not having a whole-of-government approach in which 
people in the business community, in academia, and all fields 
and sectors understand the challenge of China.
    Senator Markey. I appreciate that.
    Now, last week, Eric Rosenbach, who has extensive 
experience in national security, testified that it was not fair 
to leave security up to universities and that DOD should do 
more to help protect information. Do you agree with that?
    Dr. Mastro. I do agree with that, but to be a bit 
pessimistic, the DOD has its own issues with ensuring that its 
own networks are protected from hacking and has its own 
vulnerabilities vis-a-vis China.
    Senator Markey. Good. You are becoming less diplomatic as 
this question is going on. Excellent.
    [Laughter.]
    Senator Markey. The words just have to be said. It just has 
to be said they are not doing the job, and it exposes the whole 
system from top to bottom. And the Chinese are attacking and 
here are the words. The U.S. Navy is under cyber siege right 
now.
    So I would like now to stay on the topic of China and 
cybersecurity. CNN reported on Monday that rural American 
telecom companies have installed equipment from the Chinese 
firm Huawei within their cellular networks operating in close 
proximity to a field of intercontinental ballistic missiles 
outside of Malmstrom Air Force Base in Montana. According to 
James Lewis, a cybersecurity expert at CSIS, the Chinese 
Government, quote, ``could decide to interfere with ICBM 
command and control or with ICBM personnel,'' the people 
manning the missile silos.
    Dr. Mastro, with the recognition that we should be cautious 
about generalizing too much about the nature of the threats, 
what level of threat could foreign telecommunications 
technologies pose to U.S. ballistic missiles and their 
associated command and control networks?
    Dr. Mastro. Sir, it is my understanding from cyber experts 
that the degree to which this presents a threat depends on the 
exact technology, the system it is a part of, and what it is 
networked into. And therefore, I think this really highlights 
the need not only for the DOD to be focusing on cyber efforts 
but for there to be more efforts for Silicon Valley and DOD to 
work together so that we have the technical expertise necessary 
to be able to adequately answer that question.
    Senator Markey. So can we have a high degree of confidence 
that our existing nuclear command and control networks, given 
the advent of and deployment of Chinese advanced technology in 
close proximity to the most deadly weapons on the planet, in 
fact may be vulnerable? How high a level of confidence can we 
have? What state of knowledge do we have?
    Dr. Mastro. So, sir, I would say I am not equipped to say 
whether those towers themselves present a risk, but I would 
say, given Chinese capabilities, the risks are there and their 
ability----
    Senator Markey. Do you think it makes sense for us 
temporarily to bring in outside cyber experts to help the 
Department of Defense? Would that make sense to you?
    Dr. Mastro. Yes, sir.
    Senator Markey. Yes. And I thank you for that 
recommendation.
    Would you agree with that, Commissioner?
    Senator Talent. Yes, I would. You know, they looted our 
defense contractors 3 years ago. They are continuing to do it, 
and it is going to get worse as 5G rolls out, Senator.
    Senator Markey. No, I agree.
    Senator Talent. Because the number of devices that are 
going to be extant is going to go up by a factor of something 
like 10, and the Chinese are engaged in a major competition to 
control 5G. If they do that and produce those devices, we are 
not going to be able to trust anything that happens. And I will 
say I have a fair degree of confidence in the cyber defenses of 
the Department itself. But I would agree I think this is 
something we have to act on.
    Senator Markey. Again, you are being diplomatic. You are 
saying I have a fair degree of confidence.
    Senator Talent. You know what? You are right. And I will 
put it this way. I have very little confidence in actors 
outside of the Department certainly, and I am concerned about 
that. We have to assume that they are going to be situationally 
aware about the capabilities of our systems and our platforms 
in the event that there is a conflict because they have 
reconnoitered it through cyber. You have raised an outstanding 
point.
    Senator Markey. My feeling about the Chinese is very 
simple. They are not 10 feet tall, but they have a plan. What 
is our plan? Who is our cyber leader in the Federal Government? 
Who is the person whose name we all know that you would call 
and say what do they know about this potential threat? We do 
not know that person. And we can beat China in anything they 
do, but you need a plan. They have one. What is our plan? And 
you cannot just have a fairly high level of confidence. You 
just cannot wonder whether or not these agencies are providing 
extra help to the universities in order to protect the secrets 
that they have as well. We have to have a plan, and somebody 
has to be able to articulate to this committee what that plan 
is otherwise they will exploit these secrets to their advantage 
and our disadvantage and our allies'.
    Thank you, Mr. Chairman.
    The Chairman. Well said, Senator Markey. Thank you.
    Senator Young.
    Senator Young. Thank you, Dr. Mastro and Senator Talent, 
for being here today. Your testimony has been thoughtful, and 
it is very much related to a topic that we have been exploring 
in a subcommittee that I have chaired over the last couple of 
years.
    We focused in my Multilateral Institutions and 
International Economic Policy Subcommittee on China's predatory 
economic practices. We have been inattentive as a country now 
for a couple of years with respect to trying to address China's 
practices through a multilateral mechanism. I do see that 
improving somewhat, but it is kind of a drum that I keep on 
beating. And the question was just asked by one of my 
colleagues, what is the plan? That question is being asked in 
committee after committee, hearing after hearing.
    Now, in 2017, Senator Talent, the commission that you serve 
on called for a plan. It called for a plan to identify gaps in 
U.S. technological development vis-a-vis China and following 
this assessment, develop and update biennially a comprehensive 
strategic plan to enhance U.S. competitiveness and advance 
science and technology. That is a plan.
    I have related legislation calling for a national economic 
security strategy to be created out of the National Economic 
Council. You know, this is similar to what we do. We develop a 
National Security Strategy and then a National Defense Strategy 
and a National Diplomacy and Development Strategy. Why do we 
not have a national economic security strategy? And I may 
complement, frankly, my legislation with the gaps in our 
technological development per the commission's recommendations. 
But this is just a huge gap.
    China has a plan. It is on the website, you know, Made in 
China 2025. Anyone can google it. We at least know 
strategically where they are headed. And it is hard to even 
know strategically what our plan is. So we need to get our 
bearings on that front. So I am very glad each of you has 
underscored that.
    Is there a particular mechanism through which we ought to 
be working multilaterally that just comes to mind, an optimal 
mechanism? I would have thought the Trans-Pacific Partnership 
agreement would have been helpful, but in a bipartisan way, 
there was sort of a decision to abandon that approach. And I 
accept where we are on that, though there may be a way back in.
    We could work with a coalition of the willing, you know, G7 
or ASEAN partners perhaps. It would be a variant of a 
collective security arrangement where we would collectively 
agree--those participating countries--to engage in a form of 
reciprocity. When any one country has been injured through 
theft of intellectual property, all the other countries would 
bring to bear their economic weight against China, and suddenly 
we would have a lot more leverage, something, Dr. Mastro, you 
indicated we need to have. We cannot do this alone. We need the 
international community behind us if we are really going to 
deal with the deeper issue of intellectual property theft and 
forced technology transfers and all the things the commission 
has identified here in your toolkit.
    So give me your thoughts on, A) should Congress legislate 
the creation of some sort of strategy? Should we mandate that 
not just this administration, but each successive 
administration produces one? And then, B) do you have in mind a 
particular sort of construct where the U.S. can use our 
convening power to develop those sorts of institutions that 
were developed in the post-World War II time frame updated to 
this new environment where we are dealing with a state 
capitalist model?
    Senator Talent. Yes. I like the idea of an economic 
strategic plan. I think what you might want to do is rather 
than--the danger with this is trying to boil the sea, in other 
words, trying to cover too much. I would take it step by step. 
I would identify, for example, skills and technologies that are 
going to be necessary in the national security workforce, and I 
would target assistance and aid in those areas. So, for 
example, we need--and I think the plan is there to modernize 
nuclear infrastructure, the strategic arsenal, but our skilled 
workforce has aged out or is aging out rapidly. So I would try 
and walk a little bit before you run. I would pick some things.
    I like the idea of operating multilaterally to try and 
recruit smaller countries and to get them working together to 
deal with Chinese abuses. Now, what I would do is approach our 
allies in the region who are already working together much more 
than they were before, I mean, like with the Quadrilateral 
group with the Japanese, the Australians. And what you are 
going to need to do is to provide reassurances to the smaller 
countries, because the Chinese are going to react, and they are 
going to be concerned about how they could be hit. So I think 
they are going to need reassurance, and I think it needs to 
come from a group of countries that if they cooperate and help 
us, that we will protect them from any kind of reprisals.
    You are thinking along the right lines. I like the way you 
are updating the strategy and the doctrine. I think if we bring 
a committed economic power of the United States to bear, I 
think a lot of these things are possible going forward.
    Senator Young. Thank you.
    Doctor, did you have any thoughts?
    Dr. Mastro. I just wanted to also agree with the convening 
power of the United States. I think it would be best to think 
about these new institutions, for example, if you had one that 
you were focused largely on protection of technologies and IPR, 
of trying to make it a new institution versus tacking it onto 
one of the existing institutions largely because institutions 
are meant to be sticky. They are meant to be difficult to 
change. And so a lot of the issues that we have with our 
current institutional structure is that it is outdated to deal 
with contemporary issues. If we went in that direction, which I 
think is a positive direction, I would think about starting a 
whole new institution versus tacking it onto the WTO or 
something like that.
    The Chairman. Thank you, Senator Young.
    We have got a couple minutes before we have a vote 
starting. I know both Senator Cruz and Senator Shaheen want to 
get in on this. So, Senator Shaheen, you are next.
    Senator Shaheen. Thank you. Thank you both for being here.
    I am sorry that I missed the discussion. I understand that 
tariffs have come up. But in response to the initial round of 
tariffs that have been imposed by this administration, China 
has leveled retaliatory duties on a number of U.S. products 
that have really affected particularly small businesses. New 
Hampshire, which I represent, is a small business State, and we 
have seen a real impact on dairy products, on seafood, on a 
number of our small businesses that do business in China. And 
while I appreciate the need to get tough with those countries 
who cheat--and I certainly would agree that China has abused 
the rules--I wonder if there are other ways that we can do it 
that do not put our American businesses at a competitive 
disadvantage. And I wonder if either of you can speak to that.
    Senator Talent. Senator, yes. I think as we develop these 
tools and refine how we are going to use them effectively 
against China, one of the things we have to consider is what is 
the down side because they are not going to sit there and do 
nothing when we put 10 or 25 percent tariffs on broad ranges of 
their products.
    Now, I think there is a lot of precedent for the Congress 
providing assistance in a targeted way to particular businesses 
or segments of the economy that get hurt by the fallout in an 
economic back and forth. I would encourage you to think in that 
direction.
    Senator Shaheen. I do not want to interrupt, Senator, but 
with all due respect, you have been a Member of this body. You 
know how hard it is to get something like that done. And I 
would argue that that would be very difficult under the current 
circumstances.
    So I guess what I am really hoping you might suggest is are 
there other incentives, disincentives, sticks or carrots that 
we have with China itself that we could use in order to 
address----
    Senator Talent. Oh, other than tariffs or other than this 
economic--yes, but I think the problem is that anything we do 
that is going to be effective is going to provoke a response on 
their part. And they will try to analyze what we see as our 
particular vulnerabilities and leverage points, and they will 
try to hit those. So I do not know that, going forward, we are 
going to be able to use economic tools without them responding 
in a way that will cause some damage.
    I totally agree with you about the difficulty, although I 
would suggest, if I might, Senator, that going forward there 
may be opportunities and potential, as the whole government 
adjusts to this new era we are entering, to do things that 
might have been considered very difficult. But, no, obviously, 
getting anything done here--I get it. It is hard.
    Senator Shaheen. Dr. Mastro, do you want to----
    Dr. Mastro. Ma'am, I think in general this idea of 
confronting China directly and alone, whether it is in the 
economic sphere, other spheres, is not the best strategy. To be 
competitive in the international system, it is not about 
undermining China. It is about being a better global partner. 
China can target us because we are acting alone. They cannot 
put tariffs on the whole world. And so I think we need to do a 
better job at multilateralism and our diplomacy in that arena 
to get countries on board. But many countries, including our 
allies and partners, are afraid of Chinese retaliation, and 
that is why to date it is hard to get them on board with U.S. 
policies. I think some of our own diplomatic efforts under the 
Trump administration have not helped. So I would say we need to 
think less about doing this alone in a bilateral trading 
environment and think more about how we can bring to bear 
pressure from many different avenues.
    Senator Shaheen. The budget document that was just sent 
over to the Congress emphasizes the importance of great power 
competition and our need to be competitive with Russia and 
China. At the same time, the budget calls for a 24 percent 
decrease in the State Department in diplomatic initiatives. 
While we are doing that, what we have seen from the Chinese is 
that they have increased their budget by almost an equal amount 
for foreign affairs.
    Can you just talk about the priorities of suggesting that 
the only way we can deal with China and the great power 
competition is through military might as opposed to soft power 
and the importance of diplomacy?
    Dr. Mastro. One of the big issues, when you look at the 
history of rising powers, is that rising powers always build 
power in a different way than the predecessor. That is what 
makes them competitive. So just like the United States did not 
build colonies, China is not going to build a system similar to 
the United States.
    Historically, the United States has relied a lot on its 
military power projection and foreign military intervention as 
key tools of foreign policy. So moving forward, that 
consistently is what the United States focuses on. But China 
has recognized the fact of that is how the United States does 
business, and so it has focused most of its efforts--now, in my 
testimony, I talk about some of the regional challenges with 
the military--on political and economic power. And they have 
been largely successful in those areas.
    The bottom line is, of course, the United States needs to 
maintain its military edge. We need to be able to deter China 
and protect our allies and partners in the region. But the 
majority of countries are not focused on the military threat 
from China most of the time. They are focused on the political 
and economic aspects of this issue. So we should be investing 
much more in the State Department, USAID, and other tools of 
U.S. power. Doubling down and doing more of the same is not 
innovative and is not going to work given how competitive China 
has been.
    Senator Talent. We are going to need a range of tools, and 
they need all to be robust, Senator.
    Senator Shaheen. Thank you.
    The Chairman. Thank you.
    Senator Cruz.
    Senator Cruz. Thank you, Mr. Chairman.
    Welcome to the both of you. Thank you for your testimony 
today.
    China is in my judgment the greatest long-term geopolitical 
rival to the United States. Presidents in both parties have 
believed for decades that America could turn China from a foe 
into a friend through trade and diplomacy or that allowing 
China into rules-based institutions would turn China into a 
rules-based country. Instead, sadly, the opposite has happened.
    America cannot sever commerce with our largest trading 
partner, nor should we. But we must recognize China for the 
threat it poses to our national security.
    There are three urgent matters before America and our 
allies: number one, to insulate our vulnerability to Chinese 
espionage and interference; number two, to deconflict our 
commerce from enabling the party's human rights abuses; and 
number three, to compete to secure our interests. Let me focus 
principally on the first.
    Many of us are increasingly concerned that China is gaining 
access to American secrets by using non-traditional, all-of-
government or even all-of-nation approaches to espionage 
against us and our allies. Huawei is a Communist Party-
controlled surveillance agency veiled as a telecommunications 
company. It has maneuvered itself into a dominant position 
providing infrastructure across the globe, including to 
partners within the Five Eyes intelligence network of Great 
Britain, Canada, Australia, and New Zealand.
    Can you assess the risks presented by Huawei's commercial 
participation in the 5G build-out within these countries?
    Dr. Mastro. Sir, at the very least--now, I do not have the 
ability to independently assess the degree to which Huawei is 
controlled by the party and whether or not there are back doors 
that could lead to vulnerabilities in civilian or critical 
infrastructure, as well as impacts on military infrastructure.
    But what I can say is at the very least, a Chinese company 
like Huawei has to do what the Communist Party asks them to do 
even if Huawei is 100 percent private. I am not an economist 
but based on some of my studies, even private corporations have 
very close government ties--even if they are 100 percent 
private, even if their leadership has no love lost for the 
Communist Party, in the end if you are going to operate in 
China and if it is critical enough for Chinese national 
security and core interests that the party asks you to do 
something, you have to do it. And so given those connections I 
think between companies in China and the government, we have to 
be very careful on the national security front.
    However, I think we have to be careful also not to--this is 
not for Huawei, but other examples--use national security 
issues for protectionist goals because that really undermines 
the areas in which national security is really threatened.
    And I think we need to think differently about 
counterintelligence. We are in a different age of an intel 
threat that is very different than before. The insider threat 
is no longer someone that just wants money or something like 
that. We have China who is very proactive at getting 
information through cyber means but also just mass. They are 
not very good at it, but they have so much effort going at it. 
So there really does have to be a broader effort in the 
counterintelligence sphere, to your first point.
    Senator Talent. We should plan on the assumption that for 
the purposes of the national security goals of the Chinese 
state, private companies, companies that are technically 
private, are not private. And as a matter of fact, they have 
been pretty explicit recently in increasing the presence and 
visibility of the Chinese Communist Party committees which are 
attached to every company, even private companies.
    And so I agree with Dr. Mastro, and we have said this in 
the commission for a number of years. There are, obviously, 
differences between state-owned enterprises and private 
companies for certain economic purposes, but you have to assume 
they are all going to do the will of the state.
    And you mentioned 5G. This is a competition that the United 
States must win, and the Chinese understand this and they are 
pushing very, very hard. They are going to control the 
standards if we are not careful, and they are going to control 
the devices. And if they do that, then espionage is going to be 
very easy for them.
    Senator Cruz. Last year, I authored and passed an amendment 
in the National Defense Authorization Act to prohibit DOD from 
funding Confucius Institutes, which are one of the tools the 
Chinese use to penetrate American higher education.
    I have also introduced the Stop Higher Education Espionage 
and Theft Act to require the FBI to designate foreign actors 
conducting espionage in our colleges and universities.
    In your judgment, what further steps can Congress take to 
insulate our universities and research institutions from 
Chinese espionage?
    Dr. Mastro. Sir, I do not mean to pivot, but can I add one 
more concern from the point of higher education?
    Senator Cruz. Absolutely.
    Dr. Mastro. Which is to elevate the cases of scholars who 
are punished or retaliated against based on their research or 
their writing or even U.S.-based companies that will censor 
some scholar's work overseas. I myself have just canceled a 
trip in two weeks to China because I am concerned about my own 
safety, and that is the first time. I love going to China. I 
spend a lot of time there. But I am concerned that this would 
not be a priority back at home if, in retaliation for what is 
happening in the Huawei situation, China started harassing or 
detaining U.S. citizens. And so the intel aspect is very 
important.
    But we also have to recognize that individuals are being 
retaliated against that work in these institutions, whether it 
is to deny them access, visas, or what have you. And so I think 
that also has to be part of the national discussion.
    Senator Talent. And reciprocity ought to be the theme 
there. For example, in the commission, we have looked--for 
years they will deny--and this is a little outside higher ed. 
They will deny or hold up visas to foreign reporters wanting to 
come into China, and of course, we are letting Chinese 
reporters in the United States all the time. When Senator 
Dorgan was on the commission, he and I used to talk about why 
do we not respond in kind in those kinds of situations. And why 
should they not keep doing it from their point of view? We do 
not react.
    Senator Cruz. Thank you.
    The Chairman. Thank you, Senator Cruz.
    Senator Menendez.
    Senator Menendez. Very brief, Mr. Chairman, because I know 
we have to go to vote.
    This has been very instructive and I personally would like 
to follow up with both of you at different times on some of the 
elements I have not been able to get to.
    But there used to be a cyber coordinator at State. The 
administration got rid of it, and we have been working with 
offices on both sides of the aisle to try to bring it back. I 
hope we can do that. I think that type of action speaks to the 
disconnect between a confrontational approach and a real policy 
and strategy to be competitive at the end of the day.
    And I just want to follow up, Dr. Mastro. In your very 
opening statement, you said we have to start competing again. 
One of the concerns I have is that every time we retreat from a 
leadership role in the international context, we let China 
ultimately expand its role on the global stage, whether that is 
the Paris climate agreement, whether that is the Trans-Pacific 
Partnership, UNESCO, just to mention some.
    The impact of these moves has been twofold. It led some of 
the country's closest allies to begin hedging their bets and 
they are decreasing the weight they give to U.S. preferences in 
their own decision-making because they view the United States 
as unreliable.
    And secondly, when we withdraw from agreements such as TPP, 
it shifts economic attention to other vehicles, in this case 
the regional comprehensive economic partnership, a TPP-11 deal 
in which the U.S. is not included. The result is the U.S. is at 
a disadvantage because it is unable to influence the content of 
either of these agreements, thereby missing out on both the 
potential benefits of increased access to these markets and the 
opportunity to mitigate any potentially negative effects on the 
U.S. economy and other vulnerable societies.
    When we say we have to compete, we need to be in the game 
in all of these things in order to be able to affect the 
outcome because otherwise our preferences, which we used to 
lead the world in, are largely going to be sidelined, and when 
we are sidelined, then China takes advantage.
    Is that a fair statement?
    Dr. Mastro. Yes, sir. I think one of the big issues is not 
so much that China violates international norms, which is an 
issue, but the problem is that there are a lot of areas in 
which those norms have not been significantly set yet and they 
are ambiguous and they are nonexistent.
    And so we were just talking about 5G. I learned yesterday, 
in terms of the Telecommunications Union, China sends very high 
level representatives to ensure that standards are set in a way 
that is competitive for their companies, and we do not.
    And so it seems kind of on the softer side--in my written 
testimony, I focus a lot on military power because I think that 
is an important part of U.S. power, but this competition is 
everywhere. And setting the norms, rules of behavior are very 
important. The international system is not all-encompassing. 
There are many areas where there continue to be gaps, and so 
that needs to be a focus of U.S. efforts. I firmly agree with 
that.
    Senator Menendez. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Menendez.
    Well, thank you sincerely to both of our witnesses. This is 
an incredibly important issue to the United States of America, 
and we need to continue to focus on it and bring attention to 
all the many issues we discussed today and many more that we 
did not quite get to. So we will be doing some work in this 
area. But anyway, thank you, both of you, for your testimony.
    For the information of the members, the record will remain 
open until close of business Friday. We would ask that if you 
do get some questions for the record, that you give us as 
prompt an answer as possible, understanding you are a 
volunteer, but we need it to complete the record. So thank you 
so much.
    And with that, the committee is adjourned.
    [Whereupon, at 12:14 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


          Response of Hon. James Talent to Question Submitted 
                       by Senator Johnny Isakson

    Question. Personally, I believe the name of this hearing should 
have been ``A New Strategy for an Era of U.S.-China Competition'', 
because that's that we need--a robust strategy to proactively address 
an increasingly competitive China from a holistic perspective.
    As you mention in your testimony, the Chinese Communist Party (CCP) 
has built up its armed forces over the past 25 years, investing in the 
research of advanced weapons and creating a navy that is now larger 
than our own.
    The CCP is also using China's growing economy to expand its 
influence. As you say, the CCP is seeking to ``leverage its economic 
strength to capture markets [and] secure unfettered access to critical 
resources.''
    Mr. Talent, what steps can we take to address Chinese competition 
from both a security and economic standpoint? Particularly in Africa, 
where I consistently hear concerns over China's growing influence.

    Answer. Thanks for the question. Here is my response. Senator 
Isakson has asked the most important question. What is our strategy?
    Strategic thinking requires choosing the highest order ends and the 
highest order means by which the ends will be achieved. It has to come 
from the top levels of political authority--the President and Congress. 
Once strategic clarity is achieved, the middle and lower levels of 
government know what they are trying to achieve and can effectively 
harmonize their efforts, nurture the tools by which they will 
accomplish the strategic goals, and plan and execute particular 
operations. Importantly, these tools and operations must be fully 
resourced to ensure the rhetoric of strategy is manifested through 
concrete action.
    I'll offer these as strategic goals in the competition with China.
    Protecting the United States and its allies from aggression;
    Protecting America's right to trade and travel in the international 
``commons'' (sea, air, space, and cyberspace), and in the international 
economic system, freely and on the same terms as other countries;
    Preserving an international system where nations relate to each 
other according to norms, rather than by size and power;
    Preventing all armed conflict if possible, but in any event 
preventing escalating armed conflict.
    The highest order means to accomplish the goals should include the 
following.
    Armed forces of sufficient strength, and sufficient presence in 
Asia, to decisively deter China from attempting to achieve its goals 
through armed aggression;
    Strong alliances and partnerships that validate American leadership 
and share the burden of the competition;
    The use of economic power to impose costs on China for any 
systematic violation or subversion of the global trading system;
    Effectively contesting China's narrative about its intentions and 
actions so as to preserve unity at home and among allies, and impose 
reputational costs on the Chinese government for aggression, 
provocation, or violation of norms.
    Choosing the right strategy is not enough by itself for success, 
but without it the risk of failure goes way up. Conversely, a strategy 
without resourcing and action is not credible. I believe that Committee 
members, either in a formal hearing or in informal discussions, should 
work to try to identify a common strategy and the means to implement 
it. What I've outlined above is a first cut for the Committee's 
consideration.
    As regards a plan for Africa and other places where the Chinese are 
making investments: Congress should make certain that the appropriate 
Executive branch agency has clear responsibility for monitoring those 
investments and assessing any concrete national security implications. 
The United States should be fully prepared to exact reputational damage 
on China when it invests, as it often does, in a manner that corrupts 
local officials or rides roughshod over local labor, business, or 
environmental interests. We should robustly fund our own development 
programs and administer them with the strategic goals of the 
competition in mind.
    Having said that, I don't think the United States should get in a 
``whack a mole'' game everywhere on the planet where China makes 
investments. We need to identify areas of real concern based on the 
broader implications for the strategy. I will say that I am 
particularly concerned about China's ownership and influence in ports 
around the world and China's investment in digital infrastructure. 
Those trends have serious economic and security implications for the 
United States and need to be the subject of a focused and well-
resourced Executive plan. The Committee could do good work by 
overseeing vigorously in those areas.
    Let me add a point about corruption, which will be particularly 
relevant in Africa, where many governments struggle with weak 
institutions and poor governance. According to Transparency 
International, in 2018, China ranked 87th among 180 countries 
surveyed--a fall of 10 places from its rank last year. Chinese 
companies operating abroad take their corrupt practices with them, 
which is detrimental to both host government and economies, and U.S. 
businesses trying to do honest business in these countries. For that 
reason, I would like to draw your attention to the ``China Initiative'' 
recently announced by the U.S. Department of Justice. Among other 
aspects, the Initiative's goal is to examine how the Foreign Corrupt 
Practices Act (FCPA) can be used to address behavior of Chinese 
companies unfairly competing against American businesses. The 
Initiative is still in its infancy, but I would encourage the Committee 
to examine its structure and implementation.
    Finally, the U.S.-China Commission, on which I serve, made 26 
recommendations in its 2018 Annual Report to Congress to help bolster 
U.S. economic, security, and diplomatic capabilities. In my view, the 
strategy should focus on making better use of existing U.S. 
institutions and tools, and bolstering the capacity of smaller 
countries to manage pressure from China.
    Excerpted below are some of the recommendations I think particular 
relevant to your inquiry.
    Protecting freedom of navigation.
    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.
    Capacity building in allies and partners.
    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.
    Congress direct the administration to strengthen cooperation 
between the United States and its allies and partners in Europe and the 
Indo-Pacific on shared economic and security interests and policies 
pertaining to China, including through the following measures.
    Urge the administration to engage in regular information sharing 
and joint monitoring of Chinese investment activities and to share best 
practices regarding screening of foreign investments with national 
security implications, including development of common standards for 
screening mechanisms.
    Enhance consultations on mitigating the export of dual-use 
technology to China and identifying other foundational technologies 
essential for national security.
    Congress consider raising the threshold of congressional 
notification on sales of defense articles and services to Taiwan to 
those set for major U.S. allies, and terminating any requirement to 
provide notification of maintenance and sustainment of Taiwan's 
existing capabilities.
    Protecting freedom of information and contesting China's narrative.
    Congress require the U.S. Department of State to prepare a report 
to Congress on the actions it is taking to provide an alternative, 
fact-based narrative to counter Chinese messaging on the Belt and Road 
Initiative (BRI). Such a report should also examine where BRI projects 
fail to meet international standards and highlight the links between 
BRI and China's attempts to suppress information about and misrepresent 
reporting of its human rights abuses of Uyghurs in Xinjiang.
    Congress direct the National Counterintelligence and Security 
Center to produce an unclassified annual report, with a classified 
annex, on the Chinese Communist Party's influence and propaganda 
activities in the United States.
    Protecting U.S. critical infrastructure.
    Congress require the Office of Management and Budget's Federal 
Chief Information Security Officer Council to prepare an annual report 
to Congress to ensure supply chain vulnerabilities from China are 
adequately addressed. This report should collect and assess.
    Each agency's plans for supply chain risk management and 
assessments;
    Existing departmental procurement and security policies and 
guidance on cybersecurity, operations security, physical security, 
information security and data security that may affect information and 
communications technology, 5G networks, and Internet of Things devices; 
and
    Areas where new policies and guidance may be needed--including for 
specific information and communications technology, 5G networks, and 
Internet of Things devices, applications, or procedures--and where 
existing security policies and guidance can be updated to address 
supply chain, cyber, operations, physical, information, and data 
security vulnerabilities.
    Congress direct the National Telecommunications and Information 
Administration and Federal Communications Commission to identify (1) 
steps to ensure the rapid and secure deployment of a 5G network, with a 
particular focus on the threat posed by equipment and services designed 
or manufactured in China; and (2) whether any new statutory authorities 
are required to ensure the security of domestic 5G networks.

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