[Senate Hearing 116-317]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 116-317

 
                    THREATS POSED BY STATE-OWNED AND
          STATE-SUPPORTED ENTERPRISES TO PUBLIC TRANSPORTATION

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                                   ON

    EXAMINING THE THREATS POSED BY STATE-OWNED AND STATE-SUPPORTED 
                  ENTERPRISES TO PUBLIC TRANSPORTATION

                               __________

                             MARCH 5, 2020

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban Affairs
  
  
  
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                Available at: https: //www.govinfo.gov /
                
                
                
                            ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
42-246 PDF           WASHINGTON : 2021                
                


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                  Jen Deci, Professional Staff Member

          Homer Carlisle, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 5, 2020

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    29

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    29

                               WITNESSES

Senator Tammy Baldwin of Wisconsin...............................     5
    Prepared statement...........................................    31
Senator John Cornyn of Texas.....................................    11
    Prepared statement...........................................    32
E. Michael O'Malley, President, Railway Supply Institute.........     6
    Prepared statement...........................................    32
    Responses to written questions of:
        Senator Cotton...........................................    56
Scott N. Paul, President, Alliance for American Manufacturing....     8
    Prepared statement...........................................    37
    Responses to written questions of:
        Senator Cotton...........................................    57
        Senator Warren...........................................    62
Emily de La Bruyere, Principal, Horizon Advisory.................    10
    Prepared statement...........................................    44
    Responses to written questions of:
        Senator Cotton...........................................    64
Frank J. Cilluffo, Director, McCrary Institute for Cyber and 
  Critical Infrastructure Security, and Director, Center for 
  Cyber and Homeland Security, Auburn University.................    13
    Prepared statement...........................................    50
    Responses to written questions of:
        Senator Cotton...........................................    66
        Senator Warren...........................................    69
        Senator Sinema...........................................    71

              Additional Material Supplied for the Record

Statement from Portland Cement Association.......................    72
Letter from Rail Security Alliance...............................    74
Letter from Securing America's Future Energy.....................    76
Letter from VIA Metropolitan Transit.............................    78

                                 (iii)


THREATS POSED BY STATE-OWNED AND STATE-SUPPORTED ENTERPRISES TO PUBLIC 
                             TRANSPORTATION

                              ----------                              


                        THURSDAY, MARCH 5, 2020

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:03 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. The Committee will now come to order.
    Today's hearing will focus on the threats posed by State-
owned and State-supported enterprises on public transportation.
    Last year, Ranking Member Brown and I were original 
cosponsors with Senators Cornyn and Baldwin in introducing S. 
846, the Transit Infrastructure Vehicle Security Act, language 
that served as the basis for Section 7613 of the National 
Defense Authorization Act, or NDAA, which was enacted in 
December.
    As you will see today, this issue has broad bipartisan 
support.
    There are 52 bipartisan cosponsors of S. 846, and more than 
half of the Members of this Committee, on both sides of the 
dais, are among that list.
    The provisions in S. 846 are also supported by the Trump 
administration, both in a Statement of Administration Policy 
regarding the House NDAA and Acting OMB Director Russell 
Vought's letter to the House and Senate Armed Services 
Committees supporting the language ultimately reflected in 
Section 7613.
    Today's expert witness panel reflects the multifaceted 
nature of threats BYD and CRRC pose to our national security, 
the economic competitiveness of the domestic bus and rail 
manufacturing industry, and cybersecurity.
    All of the witnesses have been valuable resources to the 
Committee as we got the language of S. 846 enacted into law, 
and we thank them for their expertise and willingness to help.
    From a national security perspective, 15 former generals 
and admirals from the Energy Security Leadership Council wrote 
a letter warning of the Chinese strategy to dominate critical 
industries.
    The former military leaders stated that the ``Chinese 
industry is inexorably intertwined with Chinese Government, 
which creates a host of economic and national security concerns 
for the United States.''
    Economically, both CRRC and BYD include direct subsidies 
from the Chinese Government in their annual reports.
    There are presently at least seven other transit railcar 
manufactures besides CRRC and at least five other transit bus 
manufacturers besides BYD in the United States.
    It is impossible for other bus and rail manufacturers to 
fairly compete when these two companies have the unfair 
advantage of the financial support of the Chinese Government.
    As transit agencies are working to address the $98.8 
billion state of good repair backlog in the industry, they are 
often looking to modernize, such as transitioning to electric 
buses and incorporating autonomous technologies.
    Along with the modernization comes increased connectivity, 
which increases the threat of cyberincidents and espionage.
    The language enacted in Section 7613 of the NDAA 
acknowledges that all of these threats are real and applies 
significant new restrictions on funding for the acquisition of 
CRRC railcars and BYD buses.
    It is unfortunate that Section 7613 includes a 2-year delay 
on the prohibition, and it is critical that transit agencies 
immediately understand the threats associated with purchasing 
from a State-owned or State-supported entity and how that 
should affect their procurement decisions now and looking 
ahead.
    Recently, Senator Brown and I, along with House 
Transportation and Infrastructure Chairman DeFazio and Ranking 
Member Graves, wrote to Secretary Chao emphasizing the urgent 
need for the Department of Transportation to put out 
information online or issue a ``Dear Colleague'' so that 
transit agencies are informed of the new law and can plan their 
rolling stock procurements accordingly.
    We have already heard anecdotally that both BYD and CRRC 
have been seeking to misinform agencies as to the applicability 
of the language.
    In order for agencies to make informed procurement 
decisions, it is critical that the Administration respond and 
give transit agencies the tools they need to understand how to 
comply with the statute.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman, for calling today's 
hearing on the bipartisan bill. I appreciate our friend Senator 
Baldwin being here. Thank you. And Senator Cornyn I believe was 
called away at the last minute, but thank you for your work, 
Tammy.
    Senator Baldwin and Senator Cornyn have been partners in 
our Transit Infrastructure Vehicle Security Act. Members of 
this Committee also supported and cosponsored the bill. Thank 
you to them.
    Our Committee's bipartisan work to address a threat to 
public transportation from companies supported and controlled 
by the Chinese Government shows that our Government can be 
nimble in responding to new economic and security threats. We 
must be vigilant. It is why just this week Senators Baldwin and 
Cornyn and Crapo and I have sponsored an amendment to the 
energy bill on these issues.
    While TIVSA is now law, we need to keep our focus on the 
two Chinese companies in question: CRRC and BYD. These 
companies have repeatedly shown that they do not play by the 
rules.
    Let us talk first about CRRC. As a State-owned enterprise, 
they did not have to worry about making a profit when it used 
low-ball bids to win four major U.S. contracts for transit 
railcars.
    In 2014, CRRC offered a bid on the Boston MBTA contract 
that was more than $150 million lower than the next competitor. 
In Chicago in 2016, they beat the next lowest bidder by $226 
million.
    That is not because they were doing the work more 
efficiently. It is because they were subsidized, propped up by 
the Chinese Government. So it is not surprising that 
established manufacturers were simply unable to match these 
bids.
    That is not the full picture, though, of the damage from 
CRRC's low-ball bids.
    Hyundai-Rotem manufactured railcars for Philadelphia's 
SEPTA system and Denver's RTD system. The 300 Hyundai workers 
in its Philadelphia factory were represented by Transport 
Workers Union, TWU, Local 234. They made a middle-class living 
wage with employer-provided benefits and a retirement plan. All 
of these workers lost their jobs after Hyundai-Rotem lost the 
SEPTA contract to CRRC.
    Hyundai closed the plant in August of 2018. For every U.S. 
job created by CRRC, it is estimated the U.S. loses between 
three and five jobs.
    Before Congress acted last year, CRRC was making plans to 
win a contract with the Washington, D.C., Metro worth more than 
$1 billion.
    And then there is the electric bus maker BYD, another 
company covered by TIVSA. I want to be clear: My concern with 
CRRC and BYD is not with the American workers they employ, but 
with the Chinese Government's influence and control.
    I spoke last night with Senator Cortez Masto discussing the 
transportation union SMART. We will always stand with our union 
brothers and sisters. That is not the issue here. To me, it is 
about workers. To most of us, it is about the workers. But our 
concern is with the Chinese Government's influence and control.
    BYD may not be technically owned by the Chinese Government, 
but it is certainly controlled by it. As our expert witnesses 
will testify, BYD may receive even more State support than 
CRRC, and BYD has deep ties to the Chinese Government.
    BYD's goals in the U.S. extend far beyond the public 
transportation system. It supplies electric trucks for freight 
delivery; it offers electric garbage trucks to cities; it is 
eyeing the passenger car market.
    There are four other major bus manufacturers that build 
electric buses in the U.S.; two are American-owned. These 
companies are ramping up their production of zero-emission 
buses to help American transit agencies reduce emissions, but 
they do not enjoy enormous support from the Chinese Communist 
Party.
    This is an industry of the future. It is more and more 
important in our economy. It is more and more important to deal 
with the science of climate change. We cannot cede it to China.
    BYD likes to point out that Warren Buffet is an investor in 
their company. One billionaire investor does not mean that BYD 
is looking out for the interests of American workers.
    CRRC and BYD are two in a long line of examples of how 
China cheats its way--many in this audience, I know several of 
you have been part of this struggle for decades--how they cheat 
their way into being a global leader in industry after industry 
after industry. Ohio's steel industry knows that too well.
    For years, Chinese State-owned steel companies have been 
flooding our markets and the global markets, forcing 
steelworkers in my State out of their jobs.
    It is why we have taken more than 60 trade enforcement 
actions against Chinese steel producers, to help create a level 
playing field for American producers.
    CRRC and BYD, though, undermine those trade enforcement 
efforts by purchasing Chinese steel, turning it into frames and 
shells for buses and railcars at factories in China, then 
shipping them to the U.S. for final assembly, and they get 
bought using U.S. tax dollars, threatening steelworker jobs.
    It is exactly the kind of cheating you would expect from 
sophisticated Chinese companies that refuse to play by the 
rules.
    It is a jobs issue, and it is a national security issue.
    When we let Chinese companies manufacture our buses and 
railcars, we face cyber and data security risks. Our hearing 
today will discuss these concerns facing transit agencies and 
our broader transportation sector. TIVSA created an important 
new requirement for transit agencies to assess cybersecurity 
risks, but Congress still needs to fully assess the risks 
associated with data from our transportation system being 
exposed to foreign actors.
    We know the threat of Chinese State-owned enterprises 
investing in the U.S. is not limited to rail and bus 
manufacturers. We do not even know all the ways in which 
companies owned or controlled by the Chinese Government are 
gaining footholds in our market.
    My legislation with Senator Grassley, the Foreign 
Investment Review Act, would require the Secretary of Commerce 
to review certain foreign investments, particularly those made 
by State-owned enterprises, to make sure they are in the long-
term, strategic interests of American workers and American 
businesses. This is an example of bipartisan legislation that 
actually can help address new economic and security threats.
    I will close by noting that as we work to reauthorize 
transit programs--and I look at Senator Baldwin's leadership 
particularly--we need to strengthen Buy America requirements. 
It is not complicated. American tax dollars, shockingly, should 
support American jobs.
    Thanks.
    Chairman Crapo. Thank you, Senator Brown.
    We have two panels today. Senators Cornyn and Baldwin will 
be our first panel. As you can see, Senator Cornyn is not here. 
He has been called away. We do not know if he will make it 
back. If he does get back later, we may interrupt the second 
panel to allow him to make his statement. But we do have 
Senator Baldwin here, and we appreciate you being here, Senator 
Baldwin. You may proceed.

        STATEMENT OF SENATOR TAMMY BALDWIN OF WISCONSIN

    Senator Baldwin. Thank you. Thank you, Chairman Crapo and 
Ranking Member Brown. I am delighted to have the opportunity to 
be here today to discuss our legislation, the Transit 
Infrastructure Vehicle Security Act, which became law in 
December 2019 as part of the National Defense Authorization Act 
for Fiscal Year 2020.
    This law is important to me in short because Wisconsin is a 
State that makes things. For generations, we have assembled our 
Nation's ships, built our Nation's engines, and brewed our 
Nation's beer. However, since we allowed China to enter the 
World Trade Organization in 2001--a move I opposed--millions of 
manufacturing jobs have been lost. And many workers have seen 
their wages stagnate as a result of downward pressure from 
competition from Chinese State-backed companies.
    As a nonmarket economy, China gives hundreds of billions in 
State subsidies to manufacturers in industries in which the 
Government wants to compete. In 2015, the Chinese Communist 
Party released a strategic document outlining how it intends to 
compete globally in manufacturing. It was called ``Made in 
China 2025''.
    This plan revealed that China desires to dominate in 
railcar and electric bus manufacturing. Recently, two State-
supported companies have made inroads into the U.S. market: the 
railcar manufacturer China Railway Rolling Stock Corporation, 
which we refer to as CRRC, and the bus and electric battery 
manufacturer Build Your Dreams, which we refer to as BYD.
    We know from observing CRRC's entry into the Australian 
market that domestic industry cannot compete with China's 
aggressive State-owned enterprises. Over the last 15 years, 
Australia's domestic railcar production collapsed as CRRC 
gained increasing market share.
    Wisconsin manufacturers are happy to compete with anyone in 
the world, but we need a level playing field. And China's 
nonmarket economy forces Wisconsin manufacturers to compete 
with Chinese companies that get free land, free utilities, free 
R&D, and interest-free loans worth hundreds of millions of 
dollars.
    These Chinese Government-subsidized rivals would be bad 
enough, but now these companies are increasingly using their 
U.S. assembly facilities to win taxpayer-funded contracts from 
the Federal Transit Administration to procure buses and 
railcars for American cities.
    When taxpayer dollars are spent, I believe we must make 
every effort to ensure that they support American workers and 
businesses. As a strong supporter of expanding and improving 
Buy America policies, I was proud to join Senators Crapo, 
Brown, and Cornyn in introducing and passing legislation to 
prohibit FTA funds from going to companies supported by 
nonmarket economies, such as BYD and CRRC.
    In 2 years, the prohibition in that law will go into force. 
Transit agencies need to know how they will be affected as soon 
as possible. Senator Cornyn and I have both requested that 
Secretary Chao and Acting FTA Administrator Williams publish 
information to ensure that transit agencies planning for the 
future are able to make safe, informed, and legal procurement 
decisions.
    While the legislation addressed many immediate concerns 
facing the domestic railcar and bus manufacturing industries, I 
urge this Committee to work with the Department of 
Transportation to further tighten Buy America requirements to 
ensure that Federal taxpayer dollars support good-paying 
manufacturing jobs in the U.S.
    I am deeply concerned by a study from Oxford Economics that 
found that CRRC's railcar production in the U.S., while 
compliant with Buy America, relies heavily on imported parts. 
This particular report estimated that, as a result of this 
``import and assemble'' business model, every one job CRRC 
creates in the U.S. eliminates as many as five U.S. jobs.
    I will close by commending the Committee on the oversight 
work it is doing to ensure that this law is implemented as 
swiftly and as effectively as possible and once again thank you 
the Chair and Ranking Member for the opportunity to testify 
here today.
    Chairman Crapo. Thank you, Senator Baldwin. We appreciate 
your work on this issue, and we will continue to work with you 
to make sure that these policies are implemented effectively. 
Thank you.
    Senator Cornyn has not yet arrived, so we will now move to 
our second panel. Would the panelists please come forward?
    [Pause.]
    Chairman Crapo. Thank you. And on our second panel, we will 
receive testimony from Mr. Michael O'Malley, president of the 
Railway Supply Institute; Mr. Scott Paul, president of the 
Alliance for American Manufacturing; Ms. Emily de La Bruyere--
did I pronounce that right?--principal of Horizon Advisory; and 
Mr. Frank Cilluffo, director of the McCrary Institute for Cyber 
and Critical Infrastructure Security and director of the Center 
for Cyber and Homeland Security at Auburn University.
    You may all proceed. We ask you to stick to your 5 minutes 
so that we can get our questions in. And, again, we welcome you 
here and appreciate the work that you have already put in and 
the assistance you have already given and your willingness to 
help us here today.
    Mr. O'Malley, you may begin.

  STATEMENT OF E. MICHAEL O'MALLEY, PRESIDENT, RAILWAY SUPPLY 
                           INSTITUTE

    Mr. O'Malley. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, thank you very much for the 
opportunity to testify today on threats facing public 
transportation systems from foreign State-owned and State-
supported enterprises, an issue that is of critical importance 
to the railway supply industry and the Nation. My name is Mike 
O'Malley, and I serve as president of the Railway Supply 
Institute, an international trade association representing more 
than 200 companies who manufacture or deliver goods and 
services in the locomotive, freight railcar, maintenance of 
way, communications and signaling, and passenger rail 
industries.
    The rail system of the United States is one of our 
country's greatest assets, covering more than 140,000 miles and 
carrying 40 percent of America's intercity freight, including 
111 million tons of hazardous materials, each year. It also 
transports millions of passengers every day, from small transit 
systems to large commuter authorities to intercity service 
provided by Amtrak or other entities. These systems are 
supported by an extensive domestic railway supply industry that 
has been a dynamic and vital part of the U.S. economy for over 
200 years, encompassing 125,000 jobs across all 50 States and 
paying an average wage 40 percent above the national average. 
Without this industry, our Nation's passenger and freight 
railroads simply could not meet their customers' critical 
needs.
    Unfortunately, over the past decade our industry has 
witnessed substantial intervention in the global rail 
marketplace from nonmarket economy foreign Governments. Most 
notably, the People's Republic of China--working through State-
owned enterprises like CRRC--has identified rail manufacturing 
as a strategic market sector and made clear their intention to, 
in their words, ``conquer'' the global rail market. As a State-
owned enterprise, CRRC benefits from the full resources of the 
Chinese Government and has been repeatedly used to spearhead 
strategic initiatives identified by the Chinese Communist 
Party. Backed by these virtually unlimited resources, CRRC and 
its affiliates have leveraged direct subsidies, State-backed 
financing, and below-market loans to secure more than $2.6 
billion in railcar contracts at far below market rate for 
transit agencies in Boston, Chicago, Los Angeles, and 
Philadelphia. These contract awards present both economic and 
national security risks. As many national security experts have 
pointed out, China has demonstrated that the technologies on 
railcars can be used for illicit means.
    On the economic front, CRRC's anticompetitive practices are 
threatening thousands of high-paying man jobs and putting the 
long-term future of this industry at risk. We have seen what 
can happen when CRRC is left to continue these practices 
unchecked.
    In Australia, Chinese State-owned enterprises decimated the 
rolling stock market in less than 10 years, leaving CRRC as 
effectively the sole supplier of both freight and passenger 
railcars. Rail manufacturers want a free and fair global market 
that promotes competition, but they should not be expected to 
compete against the unlimited resources of a foreign 
Government.
    The rail manufacturing industry is grateful for the actions 
policymakers have taken thus far to mitigate CRRC's threat, 
whether through much needed reforms to the Committee on Foreign 
Investment in the United States or the more recent passage of 
the Transit Infrastructure Vehicle Security Act as part of the 
2019 national defense bill. These legislative achievements are 
important steps forward, but the threat remains.
    Looking ahead, I would offer the following recommendations 
for policymakers to continue being proactive in countering this 
threat: First, the Federal Transit Administration should 
immediately communicate with its grantees the restrictions 
contained in the TIVSA bill to ensure compliance with this new 
law.
    Second, Congress should pass a long-term infrastructure 
bill with robust passenger rail funding levels to ensure that 
States and localities can make smart, sustainable investments 
for the future.
    Third, the U.S. Department of Transportation should be 
given additional resources to ensure strict, consistent 
compliance with Buy America rules, supporting domestic jobs and 
preventing foreign State-owned enterprises from gaming the 
system.
    And, finally, Congress should pass legislation to create 
safeguards for the freight rail industry as well.
    Given the global nature of this threat, many of our allies 
are now following the lead of U.S. policymakers to address this 
issue. RSI members will continue doing all we can to support 
our passenger agency customers in serving the mobility and 
economic development needs of communities across the country, 
but we cannot be expected to compete in a marketplace that is 
distorted by Chinese Government subsidies and intervention.
    We appreciate the opportunity to provide these 
recommendations and will continue working with Members of 
Congress to formulate policies that enhance rail safety, 
security, and efficiency. Thank you very much for the 
opportunity to testify, and I will be happy to answer any 
questions you may have.
    Chairman Crapo. Thank you very much.
    Mr. Paul.

  STATEMENT OF SCOTT N. PAUL, PRESIDENT, ALLIANCE FOR AMERICAN 
                         MANUFACTURING

    Mr. Paul. Thank you, Chairman Crapo, Ranking Member Brown, 
and Members of the Committee. On behalf of the Alliance for 
American Manufacturing, I want to thank you for the opportunity 
to testify.
    AAM is a partnership between the United Steelworkers Union, 
which is America's largest industrial union, and some leading 
American manufacturers, and together we have seen the 
destructive impacts of China's model of State-led capitalism on 
our domestic manufacturing sector and the damaging ripple 
effects on thousands of communities across our Nation. Between 
2001, when China entered the WTO, and 2018, 3.7 million U.S. 
jobs were lost or displaced because of the massive bilateral 
trade deficit with China. This carnage has been fueled by 
predatory trade practices and disruptive economic policies, 
including massive subsidization of State-owned enterprises and 
other ``champion'' firms that Beijing has deemed strategically 
important to their own economic and security interests.
    More recently, we have witnessed China's State-owned and 
State-supported rolling stock companies threaten legitimate 
competition in the markets that serve our public transportation 
system. Backed by extensive Government support, including Made 
in China 2025, CRRC and BYD are at the forefront of China's 
assault. Their penetration into our market has been accelerated 
by open access to taxpayer-financed railcar and electric bus 
procurements in major U.S. cities. In other words, these firms 
have penetrated our market not only with Beijing's backing, but 
also on the backs of American taxpayers.
    China's subsidies and other governmental support allow CRRC 
and BYD to underbid the competition. Left unchecked, the toll 
on U.S. supply chains will be devastating. Because CRRC and 
BYD's U.S. assembly operations are a supply line for major 
rolling stock components produced in China, the jobs of 
American workers throughout our domestic supply chains are now 
at risk. CRRC's train shells are made with Chinese metals and 
assembled with substantial Chinese parts in their stateside 
operations. Meanwhile, a city official familiar with BYD's 
assembly operations remarked that, ``the majority, if not all, 
parts were manufactured in China and shipped to the United 
States.''
    China's ambitions are sizable: to establish a substantial 
foothold into our public transit market as a means of expanding 
into private sectors such as the freight rail and electric 
vehicle markets. Jobs, supply chains, innovation, and the 
security of Americans using our public transportation systems 
are all at risk. We are also deeply concerned about China's 
``military-civil fusion'' partnerships. Put simply, technology 
and data obtained by these firms in the United States is handed 
directly to the Chinese military, and each collaborates with 
Huawei.
    We are grateful that Congress, under your bipartisan 
leadership, has begun taking action to mitigate this threat. 
Your bipartisan leadership led to passage of a version of TIVSA 
as part of the fiscal year 2020 NDAA. If TIVSA is properly 
implemented as intended by Congress, CRRC and BYD will no 
longer have unfettered access to our Federal tax dollars used 
to procure public transit vehicles. The TIVSA law represents an 
important milestone in the U.S. policy response to the threat 
of China's State-driven gaming of our economy.
    But already there are forces at work to undermine TIVSA. 
Shortly after enactment, CRRC held a ``thank you'' event at 
which speakers discussed plans to indefinitely extend the 2-
year implementation delay. And in Los Angeles, BYD recently 
secured a bus order for 135 buses. So we urge Congress to 
reject any attempts to undermine the TIVSA law. Instead, AAM 
supports efforts to accelerate implementation, educate transit 
agencies, and enhance the law.
    First, we must ensure the Administration implements the 
TIVSA law without delay and as Congress intended and reject 
short-sighted attempts to undermine the law.
    Second, we must be better stewards of U.S. tax dollars by 
closing loopholes by strengthening and by ensuring compliance 
with applicable Buy America laws.
    And, finally, we must incentivize the production of 
electric vehicle batteries and battery cells in the United 
States and invest in America's failing infrastructure.
    Again, thank you for the opportunity to testify at today's 
hearing. My full testimony has detailed information on CRRC and 
BYD along with detailed policy commission. We look forward to 
working with you.
    Chairman Crapo. Thank you very much.
    You may proceed, Ms. de La Bruyere.

 STATEMENT OF EMILY DE LA BRUYERE, PRINCIPAL, HORIZON ADVISORY

    Ms. de La Bruyere. Thank you, Chairman Crapo, Ranking 
Member Brown, for the opportunity to testify.
    I am here to tell you about Beijing's plan, about the 
strategic vision with which it deploys its State champions 
internationally and about the implications of that vision for 
American security.
    CRRC, BYD, and the larger ecosystem of Chinese champions in 
transportation, but more broadly across foundational 
ecosystems, operationalize a longstanding, documented bid to 
overtake the United States. That bid begins by making critical 
U.S. economic and military systems dependent on China. It ends 
with a world in which Chinese Communist Party control over 
global networks, standards, and platforms grants them control 
over global movement. This is network hegemony.
    China's ambition is evident in authoritative strategic 
discourse. It is equally evident in the facts: in the 
subsidies, in the mandates assigned State champions, in the 
industrial and strategic planning underlying all of this. That 
planning includes Made in China 2025. It also includes China 
Standards 2035. It includes the Strategic Emerging Industries 
Initiative, but it also includes the Transportation Great Power 
Strategy.
    I would like to emphasize at the outset that BYD and CRRC 
are critical, but they are just the tip of the iceberg. As I 
speak, any number of other Chinese State champions are 
integrating themselves into our foundational systems, both so 
that we depend on them and so that we fuel them. They are not 
just doing so in rail and road, but across the entire 
transportation and logistics ecosystem, not just in 
transportation and logistics but across FinTech and social 
media, in surveillance and sensors, across the bio-economy, 
space, the Internet of Things. But for today, BYD and CRRC 
first.
    CRRC is a State-owned enterprise. BYD is a private company. 
Both receive hundreds of millions of U.S. dollars' worth of 
Chinese Government subsidies every year, which is orders of 
magnitude more than they report in their English language 
annual statements.
    In BYD's case, its subsidies exceed its operating profit. 
These subsidies stem for Chinese industrial planning that is 
designed to prop up the transportation sector, writ large, so 
that Chinese champions can dominate global markets, but also so 
they will do so according to Chinese Communist Party guidance. 
This mandate is codified in Xi Jinping's Transportation Great 
Power Strategy. That strategy was issued in October 2019 as 
this body was debating TIVSA.
    The strategy lays out China's plan to export a global 
transportation network. It will connect highways, railways, 
waterways, aviation, pipelines, postal services, freight. It is 
to be built by Chinese champions on Chinese information systems 
to export Chinese standards. It is to connect back to a 
Beijing-controlled big data repository. It will also connect to 
BeiDou's space network and to Huawei's telecommunications 
network. For the record, BYD and CRRC cooperate with both of 
those companies.
    China's vision is not rhetoric and it is no distant future. 
The Transportation Great Power Strategy lays out a plan for a 
multidimensional logistics information network. This network is 
in place. No one is talking about it. It connects the global 
infrastructures in which China invests to a domestic data hub 
and information system. Beijing has secured the support of 
ASEAN's NEAL-NET and Europe's IPCSA so that they proliferate 
China's coercive tool. Ostensibly private companies also 
partner with this system so that it can extend its net more 
broadly and more subversively. That there is a key part of the 
Transportation Great Power Strategy. It is explicit about the 
fact that this network will extend internationally, fueled by 
foreign investment and thanks to partnerships among 
international actors and Chinese companies. BYD and CRRC have 
explicitly labeled themselves as champions of the 
Transportation Great Power Strategy, and all of this is part 
and parcel of the military-civil fusion program.
    BYD, CRRC, Huawei, and BeiDou, the larger litany of 
ostensibly civilian champion, operate in conjunction with 
Beijing's military system, with joint ventures, with research 
partnerships, with domestic and international investment 
vehicles. These partnerships are designed to transfer 
technology and data seamlessly between the military and the 
civilian. More broadly, they are designed to transform the 
commercial field into a geopolitical battleground. This adds up 
to an entirely new form of power projection, one in which China 
not only has coercive but also has shaping power. Recent 
jamming events at the port of Shanghai hammer this home in the 
military domain. China's corporate social credit system does 
the same economically. But China is proliferating its web 
through commercial--through civilian actors, not through 
explicitly military tools. That means we miss what they are 
doing. We also risk fueling it. We should not be giving Federal 
funding to China's champions.
    Chairman Crapo, Ranking Member Brown, thank you for this 
opportunity. I look forward to your questions.
    Chairman Crapo. Thank you very much.
    We have been joined by Senator Cornyn now. Mr. O'Malley has 
graciously let him take his seat for his testimony. He says he 
is happy to do it.
    Senator Cornyn, we welcome you and we open the floor to 
you. You may make your statement.

           STATEMENT OF SENATOR JOHN CORNYN OF TEXAS

    Senator Cornyn. Well, thank you Mr. Chairman and Ranking 
Member Brown, Senator McSally, and Members of the Committee. 
Thank you for inviting me to share my thoughts with you on this 
topic. This is important to my State and your State, our 
national security, and the integrity of our entire economy.
    China has, of course, a long history of undermining market 
economies across the globe by subsidizing Chinese businesses so 
they can outcompete domestic industry, because they never have 
to worry about turning a profit.
    Global domination of rolling stock production, like trains 
and buses, is at the forefront of the Made in China 2025 
initiative, which outlines the Chinese Communist Party's plans 
for economic domination across the globe.
    That is why I was concerned when I found out certain 
Chinese State-controlled companies like the China Railway 
Rolling Stock Corporation and Build Your Dreams were submitting 
unrealistically low bids for transit projects in major U.S. 
cities in an attempt to put competition out of business and 
dominate the market on a long-term basis.
    Transit railcars and buses are highly advanced vehicles. 
They are equipped with a host of computers, sensors, and 
cameras.
    When an American steps into a subway or city bus, they 
accept that many of these devices are there to ensure their 
safety and trust that the Government will not use them to abuse 
their civil rights.
    But these advanced technologies can do much more than help 
you get to work on time. They are also capable of spying on 
passengers and our infrastructure network, and they can be 
undetectably placed on transportation systems across America.
    Thousands of Government and military officials use transit 
services every day, especially here in the Nation's capital. I 
am sure many of the folks in this room relied on those 
transportation facilities to get here today.
    The potential for an adversarial State actor to monitor the 
movement of American citizens, hack personal or Government-
issued devices, and collect intelligence on our military is a 
major security concern.
    Allowing American trains and buses to become Trojan horses 
for these technologies on American soil is simply unacceptable.
    And I think we can all agree that Chinese State-controlled 
companies should not receive a dime of American taxpayer money 
in their efforts to control our economy and undermine national 
security.
    Fortunately, Congress has taken an important step to 
address that problem.
    Senator Baldwin, the Chairman, and Ranking Member have 
joined us in getting the Transit
    Infrastructure Vehicle Security Act passed into law as part 
of the National Defense Authorization Act last year.
    This commonsense, bipartisan legislation sends a strong 
signal to the Chinese Government that we will not allow them to 
infiltrate the operations of our critical infrastructure.
    The legislation will ban the use of Federal transit funding 
for the procurement of railcars and buses produced by companies 
that are owned, controlled, or sponsored by foreign Governments 
with nonmarket economies and that are designated as countries 
of concern by the U.S. Trade Representative.
    Unfortunately, special interests were able to demand a 2-
year enforcement delay of some of this legislation's critical 
components.
    I am here today to ask for your help in ensuring this delay 
does not turn into a window of opportunity for the Chinese 
Communist Party and its State-controlled companies to further 
exploit our vulnerabilities here by rushing to procure 
contracts and extending their tentacles further into America's 
infrastructure network.
    Without strong leadership from the Federal Transit 
Administration, transit agencies will unknowingly allow CRRC 
and BYD to compete for their projects, even though a Federal 
ban on those contracts is just around the corner. We have to do 
everything we can to stop it in the interim.
    I look forward to working with you, Mr. Chairman, the 
Ranking Member, and other Members of this Committee to help 
educate U.S. Government agencies, the public, and our local 
jurisdictions about China's threat to our infrastructure, and 
the legal tools Congress has enacted to address this problem.
    Thank you for the opportunity to speak to you today, and 
thanks for accommodating my schedule.
    Chairman Crapo. Thank you, Senator. We are glad you were 
able to get here, and we appreciate not only your testimony 
today but your work on this issue. We look forward to 
continuing to work with you, and the message you suggested 
needed to be sent is one of the purposes of this hearing. You 
may be excused, and you can let Mr. O'Malley have his seat 
back. Thank you.
    And we will proceed to Mr. Cilluffo.

STATEMENT OF FRANK J. CILLUFFO, DIRECTOR, MCCRARY INSTITUTE FOR 
   CYBER AND CRITICAL INFRASTRUCTURE SECURITY, AND DIRECTOR, 
   CENTER FOR CYBER AND HOMELAND SECURITY, AUBURN UNIVERSITY

    Mr. Cilluffo. Thank you, sir.
    Chairman Crapo, Ranking Member Brown, thank you for the 
opportunity to testify before you today and thank you for your 
leadership and that of your colleagues, such as Senators Cornyn 
and Baldwin, in getting the ball rolling legislatively in this 
important subject area.
    I do not think I have ever testified at a hearing where I 
agree with every opening statement from everyone here. So 
rather than try to go deep in a whole bunch of areas, I will 
double tap a couple of points and foot stomp a couple of 
points. But quite honestly, the hearing--the statements have 
been excellent and I agree with almost every single point.
    So this hearing speaks specifically to the threat posed to 
public transportation by State-owned and supported enterprise. 
On this question, as everyone said, I will speak very plainly. 
The chief threat comes from China and certainly includes the 
sale and provision of railway cars to U.S. transit systems. But 
the threat also extends far beyond that to all critical 
infrastructure, as Ms. de La Bruyere had mentioned.
    And here is how it works. As others have made loud and 
clear, a nonmarket economy can underbid U.S. firms. And it is 
about more than simply an unlevel playing field. A foothold in 
the U.S. supply chain gives rise to a host of concerning 
possibilities ranging from computer network exploit or 
espionage, mapping of our critical infrastructure, or 
intelligence preparation of battlefields, and/or computer 
network attack, disruptive or destructive attacks.
    I want to underscore here that if you can exploit, you can 
also attack if the intent exists to do so.
    Companies may be willingly or even unwittingly serve as 
conduits of sensitive information as Chinese legal provisions 
allow their security services to request and even compel 
assistance. Even worse, China's challenge is not just economic. 
It is part of this broader strategy that others have discussed 
on strategic dominance.
    And apropos to this Committee, a majority of the critical 
technologies targeted by the State Council's Made in China 2025 
are directly or indirectly related to the transportation 
sector. And I can say the same with some of the other roadmaps, 
notably on space.
    With respect to transportation specifically, here is the 
problem: the potential for continuous and direct access to our 
railcar and transit systems is real. The consequences, an 
adversary could shut down trains and disrupt operations. Knock-
on effects could hit other critical U.S. infrastructure and 
major U.S. cities could experience significant economic 
effects.
    The bottom line, U.S. national and economic security are 
inextricably interwoven and we need to work harder to 
innoculate ourselves and better manage the risk. Consider the 
scale and scope. FBI has about 1,000 investigations in all 56 
field offices, spanning just about every industry and sector, 
all related to China. U.S. companies and U.S. universities are 
both targets all over the country from Alabama to Iowa. Plus, 
China plans to double its current research spending to reach 
over $800 million for recruitment via its Thousand Talents 
Program, as the National Intelligence Council recently 
released. And that includes the buyout of bankrupt companies, 
which I think is a big set of issues to acquire technology.
    Our current and future ecosystem is replete with risk, 
especially as the attack surface grows exponentially. Whatever 
we do, we cannot afford to build advanced systems like 5G and 
IoT on quicksand. The potential to do so is, unfortunately, 
real.
    Also, keep in mind that the transportation sector supports 
and intersects with other critical missions, infrastructure, 
and functions. For example, defense mission assurance, the 
ability to project power and deploy forces and the link between 
rail system switches and positioning, navigation and timing or 
PNT. Think GPS, think timing and signaling. And no surprise, 
China has also invested heavily in its space programs, to 
include antisatellite capabilities.
    So what to do? Very quickly, third-party testing. Kudos to 
your legislation. I think the provisions on cybersecurity 
certification ought to serve as a model for other critical 
infrastructures. Incentive security, leverage the market 
forces. Action will entail costs, but inaction will be much 
more costly.
    Start with the lifeline sectors, the most critical of our 
critical infrastructures. Identify, assess and manage risk 
continuously. This cannot be a reactive, check-the-box 
exercise. Scrutinize our supply chains, use systems of systems 
thinking. On the technology side, I would urge a nationwide R&D 
test bed-type network. You need not look further than the 
recent coronavirus crisis to realize how important, from an 
economic perspective, our supply chains are. Obviously, the 
public health issue is number one, but the economic 
implications are striking, as well.
    Integrate cyberfactors writ large and elevate corporate 
governance. So this is not just the IT guy or gal's job. This 
is a corporate governance set of issues and we need to build in 
rigor with empirical data into policymaking.
    And then finally, because I know I am over my time, more 
human capital--the workforce challenges here are immense--and 
resources. We do now have an opportunity to lash up the arms 
and the legs of Government, notably NSA, DOD, DHS CISA, and the 
Department of Transportation.
    I thank you for the opportunity to testify. I am sorry, I 
did not make it on time.
    Chairman Crapo. That is all right.
    I am going to ask the first question to each of you, and I 
have 5 minutes, so I will ask you to each try to take about a 
minute in responding to this.
    We find ourselves in a very connected world. It seems like 
everything we have now is a smart device. I would like you to 
talk for a second about what type of smart capabilities are now 
or could be developed to be utilized in our transit system 
infrastructure? And maybe some of the ways or risks that this 
generates in terms of the risk of vulnerability to attack or 
hacking or monitoring or even more malign purposes.
    So if you would, let us just start over with you, Mr. 
O'Malley. And if you could each try to keep it to about a 
minute, I would appreciate it.
    Mr. O'Malley. Absolutely. I think what I would say, from 
our perspective as rail manufacturers, there are a whole host 
of technologies that are being used, both in the transit side 
of the business as on the freight side. And that is everything 
from advanced train control technologies like PTC to better use 
of GPS and Wi-Fi and surveillance technologies, if you will, 
making sure that the systems are running more efficiently.
    I think those are helpful things, in many ways, but they 
also carry risk in terms of the way they can be used. And I 
think the challenge here is inserting a Chinese State-owned 
enterprise into the middle of all of that risk and not knowing 
sort of what their motivations are and how they might act in 
that respect.
    Chairman Crapo. Thank you. Mr. Paul.
    Mr. Paul. I will make two brief points. First, is that CRRC 
and BYD, if there are concerns about the types of data that are 
being collected, it is easy to secure either subpoenas or other 
sorts of legal actions to compel American-based firms to supply 
that. For firms that are based in China, it is extraordinarily 
difficult to do that. And CRRC and BYD both ultimately answer 
to Beijing. That is number one.
    Number two, in a hearing on the House side, and I think 
this is a very important point, with the advent of facial 
recognition technology and the fact that all of this equipment 
has video surveillance monitors--some for good reason--it 
presents the very real possibility the Chinese Government could 
access this not only to spy on us but also their dissidents, as 
well, who have sought refuge in the United States against the 
oppressive regime. I am incredibly concerned about that.
    Chairman Crapo. Thank you. Ms. de la Bruyere.
    Ms. de La Bruyere. So those first order security threats 
are very real. But there is also the potential for strategic 
information advantage and information shaping that comes from 
controlling these keystone positions in an interconnected 
world. So first, information dominance. If Beijing has these 
railcars, it knows--because they are connected--with better 
information, how resources are moving around in the U.S. That 
gives it an inherent market advantage because that is the kind 
of information that shapes how markets are going to work. That 
market advantage extends to all sorts of other domains and it 
also works in the political, the strategic, the kinetic domain.
    Then there is the shaping. If these information systems are 
controlled by Beijing, it can shape the information they 
disseminate. So these cars, these rails, these buses, they are 
going to turn into autonomous driving systems. So that means 
that China has a hand in determining the--no longer GPS where 
the BeiDou behind that autonomous system is telling you to go 
in your path. Or what the media that is playing in the car when 
you walk in in the morning is. And so that creates a world that 
is operating according to Chinese rules where they dominate the 
narrative that is being disseminated, the choices that are 
being made, the incentives more broadly.
    Chairman Crapo. Thank you. Mr. Cilluffo.
    Mr. Cilluffo. Mr. Chairman, thank you.
    That is an excellent question because I may have been a 
little dramatic saying we do not want to build our systems on 
quicksand. But the reality is that that is potentially where we 
are going if we do not take a systems of systems approach here.
    It is much cheaper, smarter and better to bake security 
into the design of our infrastructures than try to bolt it on 
after the fact. And I think transportation--I mean, when I 
think of autonomous vehicles, the highways of tomorrow are 
going to be paved in silicon as much as they are in asphalt. It 
is all going smart, which has great opportunity but it does 
bring about peril and risk.
    That is why the core operating systems, the foundations 
upon which all these systems are built, we do not want to hand 
that over to anyone but U.S. companies. I think China, as Mark 
Twain said, history may not repeat itself, but it tends to 
rhyme. If you have looked at the historical role that China has 
played in intellectual property theft, it should be loud and 
clear how we need to be going toward that.
    But in addition to intellectual property theft, if you are 
in the core of the system, you can disrupt and/or turn toward 
destructive attacks. And U.S. DOD is dependant upon civilian 
infrastructure to be able to deploy forces. Imagine if you 
stymied the ability to be able to deploy or project power.
    So there are a number of national security issues here. But 
I would just say when you look at 5G, Huawei, these are the 
hubs and spokes sorts of issues we need, as a country, to get 
right or we will be paying a big, big, big price long-term.
    Chairman Crapo. Thank you.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    My first question is for Mr. O'Malley and Mr. Paul, if you 
would each answer it. As Chairman Crapo noted, we joined with 
Chairman DeFazio and Ranking Member Graves of the House 
Transportation and Infrastructure Committee in sending a letter 
to DOT asking Secretary Chao to immediately provide information 
to grantees about the TIVSA provision so that U.S. transit 
agencies can be fully aware of the new restrictions on 
procurement and so there is no misinformation in the market. We 
sent our letter January 31st, DOT has not taken action.
    Mr. O'Malley, are you aware of any reason they could not 
quickly distribute information in a letter or on its website? 
Is there any reason or, maybe better yet, excuse for this 
delay?
    Mr. O'Malley. No, we are not aware of any reason why they 
cannot. And frankly, we share your concerns and we would like 
to see them communicate immediately with their grantees.
    You know, the will of Congress, I think, is very clear 
here. We were disappointed with the 2-year delay, as you all 
were, as well. But this is a national security threat and I 
think we have to act in that fashion and quickly.
    Senator Brown. Mr. Paul.
    Mr. Paul. I completely agree with Mr. O'Malley. There is no 
plausible reason why at least initial guidance could not have 
been provided by now, particularly since this provision was put 
into place as part of the NDAA bill and is viewed with some 
national security implications and WMATA specifically was 
excluded from procurement possibilities for CRRC. There is a 
recognition that there is a security imperative to this.
    So it is not merely a procurement guideline and I wish 
every agency would take it more seriously than it has so far.
    Senator Brown. Yes, we cannot really figure it out either, 
Mr. Paul.
    Just for you, today's hearing offers clear evidence that 
China's State-owned steel companies and China's transit 
manufacturers hurt U.S. companies and manufacturers are 
undermined by America's standards. Not every infrastructure 
program, as you know, is covered by Buy America which means 
taxpayer dollars can still be spent on steel from China or 
anywhere else.
    Do you believe our piecemeal approach to Buy American 
adequately protects American taxpayers from subsidizing Chinese 
steel companies or other foreign-based manufacturers? And is 
there any reason we should not apply Buy America policies that 
we have in the transit space to all Federal infrastructure?
    Mr. Paul. Yes, Senator Brown, that is an excellent question 
and I completely agree with you. I know that you and others 
have introduced legislation for a broader application of 
domestic preferences and Buy America laws, in particular.
    We think that there are tens of billions of dollars in 
procurement that are currently uncovered by Buy America. And it 
is important for two reasons. One is the reason that you 
suggest, which is that it affords the opportunity of State-
owned enterprises and others to gain access to our market with 
the leverage of American tax dollars.
    Second, and I think this is fundamentally the most 
important thing, our procurement market is one of the most open 
in the world and it is also out-sized. In fact, it is 
disparately out-sized compared to the next five OECD partners 
in terms of public procurement markets. And so we have opened 
ourselves up to these imports coming in, in many cases 
subsidized or coming from State-owned companies without any 
sorts of protections. And we more or less stand alone in that 
regard.
    We need to modernize our laws and we look forward to 
working with you to do that.
    Senator Brown. Thank you, and one more question for Mr. 
Paul. My concern, as I said in my opening statement, with CRRC 
and BYD is not with the American workers they employ but with 
the Chinese Government's influence and control and the 
resulting effects. In fact, I am worried that American workers' 
jobs may be at risk if and when these companies consolidate 
market share--really coming from the admonition and the 
warnings from Ms. de La Bruyere, I think she said that just 
perfectly--but worried that those companies consolidate market 
share and relocate their production back to China.
    What would a Chinese State-owned or State-controlled 
company captured industry, what is likely to happen?
    Mr. Paul. Overall in the industry, and particularly as they 
gain market share--and I want to point out quickly here that I 
think CRRC now has about 83 percent of global rolling stock 
company. When you are squeezing out competitors, that 
consolidates supply chains. And what that means is that in that 
supply chain, up and down it, you are going to lose jobs.
    We have seen this already. There was a story just within 
the last month that kind of boiled my blood. And that is the 
fact that the metal shells for these CRRC cars that are coming 
into Massachusetts are being built in China with subsidized 
steel at a time where our industry is still under a great deal 
of stress and where we have seen layoffs recently and we will 
see them, for instance, at U.S. Steel in Michigan.
    So the fact that tax dollars are being utilized for this 
purpose is something that should be outrageous to elected 
officials.
    I was a shop steward for a union I served in, and so I 
believe in the dignity of work. And I do believe that instead 
of trying to play the victim here, I think what we need to find 
is that if these are productive assets that BYD has and CRRC 
has, there should be willing private sector buyers that would 
be able to take those on to provide true competition for the 
American market.
    Senator Brown [presiding]. Thank you. Chairman Crapo and I 
were talking briefly before the hearing. We have very difficult 
political philosophies. We work together on a lot of banking 
issues like anti-money laundering and issues like that. We do 
not see the world the same way on big issues.
    We both had voted against the NTR 20 or so years ago. And 
just, people were sounding the warnings that we were 
outsourcing so much of our production. In some sense, we helped 
to create, upon intensive lobbying by some businesses, a whole 
new business plan where you shut down production in the U.S., 
you move to China, and then you sell back into the U.S. And we 
have, in a sense, given that away.
    And it is--mixing metaphors--these roosters are coming 
home, or whatever. Chickens, I guess, come home to roost. 
Roosters probably come with the chickens when they come home to 
roost, but anyway.
    Senator McSally.
    Senator McSally. Thank you, Ranking Member Brown and 
Chairman Crapo, for having this very important hearing. I 
appreciate the testimony of everybody here today.
    When I was a cadet at the Air Force Academy in 1984, we 
were studying Sun Tzu and China's plans to dominate the world. 
And we are seeing it manifest before our eyes in every possible 
facet of power for them to become a world dominant power and 
supplant us. So thank you for your important testimony today.
    I am pretty sure I know the answer to the first question 
but does anybody on this panel think China is our friend here? 
Anyone?
    [No response.]
    Senator McSally. No, right? I could not agree more.
    Look, I have been focused on national security my whole 
life. I very much appreciate the importance that you are 
putting on this from a national security point of view. Look, 
they are going to use all means necessary and it is right in 
front of us. We are seeing what they are doing in the military. 
We are seeing what they are doing with supply chains which has 
been highlighted with coronavirus and our pharmaceutical 
industry. We see it with our important critical minerals. We 
are addressing that on Energy and Natural Resources. We see it 
in the tech industry. We see it in big data.
    And now today we are talking about public transportation 
and how this is a part of their global plan. And you do not 
have to just believe me or believe you, you just can read what 
they say, which you have all cited it, whether it is Made in 
China 2025 or their transportation great power strategy, which 
is a subset of that. It has all been cited today.
    I think all of your testimony needs to be required 
listening by every State and local bureaucrat who is involved 
in public transportation, who may just think they are doing 
their job to bid out to the lowest bidder for local 
transportation and save money. But as you said, Frank, and it 
is great to see you again, the cost of not addressing this and 
stopping this from happening is astronomical to our national 
security, the cost to our taxpayers. This is just so troubling 
to me and I so appreciate your raising awareness on it.
    We have a platform here, too, so I am making a plea. To my 
fellow Americans, the State and local bureaucrats, wake up! We 
are being played by the Chinese Community party. I am not a 
fear monger. This is exactly what is happening, and this is the 
unclassified version of what is happening here.
    So thank you for all you are doing here.
    With what has been brought out today, I guess my question 
is with this 2-year delay, which we all think is a bad idea, is 
there any barrier for States and localities from simply just 
doing the right thing? Forget about waiting for Federal 
guidance on exactly what they can and cannot do, is there any 
barrier right now where there are bids going on right now for 
the next project, for a local government to say no, we are not 
going to allow the Chinese-owned company to win this bid? We 
are going to do the right thing and we are going to comply by 
this law, but we are also going to do what is best for America, 
what is best for American workers and what is best for our 
future and our security? Is there any barrier to that?
    Mr. O'Malley. Senator, I think you have touched on it 
exactly, and let me give you an example. In Atlanta, over the 
last couple of years, they had a major bid for several hundred 
railcars. And that is actually a new company that has come in, 
European owned and made a major investment in the State of 
Utah. They are going to be employing 1,000 people by the time 
they are done with that.
    Senator McSally. Right, exactly.
    Mr. O'Malley. That is exactly what should be happening.
    And so no, I do not think there is any real barrier. And to 
the extent they had an issue before December, certainly I do 
not think they should at this point. Use your discretion and do 
what is right.
    Senator McSally. They do not need to wait for guidance; 
right? I would ask the rest of you to weigh in.
    Mr. Paul. Senator, that is a good question. And 
unfortunately, the companies we are talking about here, CRRC 
and BYD, have been proactive both anecdotally and through news 
reports of reaching out to these agencies, in some cases 
mischaracterize what the obligations----
    Senator McSally. It is called propaganda. That is what the 
Communists do.
    Mr. Paul. Right. And unfortunately, under some of the 
contracts that are set up they have options for ongoing 
purchases that--again, I think that is an area that needs to be 
tightened up because if a local agency has a lowest best bid 
requirement and they are operating under no other information, 
CRRC and BYD may persuade them to continue a contractor to have 
a contract that has options that go beyond the 2-year term.
    So I think it is incumbent on the Congress, as well as the 
agencies, to weigh in on that and to ensure that the intent of 
the law is what is being implemented right now.
    Senator McSally. Thank you. Ms. de La Bruyere.
    Ms. de La Bruyere. I just wanted to add, it is not just 
doing the right thing. It is also in their best interest.
    Senator McSally. Right.
    Ms. de La Bruyere. In the immediate term, BYD buses break 
down. In the longer term, they break down the industry in that 
area.
    Senator McSally. Great, thanks.
    Mr. Cilluffo. Senator McSally, great to see you again.
    A very, very quick point. I mean, thus far I think we have 
all said, in one way or another, China's strategy has honestly 
been powered by theft of U.S. intellectual property.
    Senator McSally. Right.
    Mr. Cilluffo. I am worried about the day they stop stealing 
our secrets. The reason I say that is because they have 
already----
    Senator McSally. They do not need to. They have coopted.
    Mr. Cilluffo. ----gotten everything they need and they are 
putting that toward marketing. And I think there is a little 
bit of hubris, we still think they are imitators. They are not. 
They are innovators now and they are investing so heavily in 
certain technologies such as quantum computing, artificial 
intelligence, through an authoritarian regime lens. So I think 
we need to heed that and take that seriously.
    Senator McSally. Great. Thank you. And I know I am out of 
time, but I do want to highlight, in Tucson they did recently 
receive an FTA grant, went to a company, an American company, 
American-owned, American-made. This is the right model and I 
want to highlight the good job they did there.
    Thank you, sir.
    Chairman Crapo [presiding]. Thank you.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    I want to thank you and the Ranking Member for holding this 
hearing, on this very important issue. I think this is one 
where there is broad bipartisan agreement.
    As somebody who sits on the intel side, and we have now 
done more than a dozen classified briefs to various sectors of 
the industry, recognizing this emerging challenge. Frankly, it 
is a challenge on an economic basis that I would argue is much 
greater than the Soviet Union ever was.
    The only caveat I would put on the front end, I think we 
have to be careful when we talk about this to say that we are 
anti-Xi Jinping, anti-Communist Party of China, that we are not 
anti-China because particularly in this country there are a 
whole lot of Chinese Americans who hear these comments and 
believe that this is venom, anger, frustration directed at 
them. We have to be very, very careful about that.
    The point I always try to make is I actually stand with the 
Chinese people. I stand with the people of Hong Kong against 
the kind of authoritarian practices that this regime practices 
both in terms of surveillance and also some of its business 
practices.
    You mentioned what is happening in 5G. As somebody who has 
taken the lead on this, Huawei is a national threat. And the 
truth is there is not going to be a market-based solution when 
Huawei gets 40 percent of the 5G market by controlling the 
Chinese market and $100 billion backstop. There is no market 
base where other Western competitors can be competitive against 
that.
    The Chairman mentioned the fact about IoT. One of the areas 
that we are finally making some progress on but it is insane 
that it has taken 3 years is the Federal Government, dismissing 
all of the State and local activities, buying literally 
billions of IoT connected devices a year and we still do not 
have even de minimis security standards on those devices such 
as making sure they are patchable, making sure there is no 
embedded passcodes.
    We finally have Federal legislation that will at least 
mandate on Federal spending that you have minimum security 
devices. It is lunacy that it has taken us 3 years and that 
there has been internal disputes between various standard 
setting bodies about who is going to set the standard. We need 
the standards yesterday.
    Again, all bipartisan. This is one of the issues where I 
think there is absolutely no difference.
    On this particular topic, I just want to simply echo the 
good work Senator Baldwin did, the Chair and the Ranking 
Member. As somebody who, along with Senator Van Hollen and 
Cardin and Kaine, started to take the lead when we saw the 
challenges that WMATA may be going down, frankly where other 
transit systems have already gone down. And as the testimony 
has pointed out, this is not only potentially the ability to 
create havoc with these cars but the ability to monitor 
American's conversations, where they are. Again, these cars are 
complete with literally thousands if not millions of sensors 
that are IoT connected. And I think it is very appropriate that 
we have backed WMATA off, that we have taken and put these kind 
of restrictions in place for hopefully, on a going forward 
basis, all transit systems. But we do need to do more.
    Mr. Cilluffo, I want to ask you, one of the things I have 
also been working on is cybergrants to State and local 
officials because we do need to make sure that we bring this 
expertise all the way up and down, not only the private sector 
supply chain but within the State and local government ability 
as well. Could you speak to that for a moment?
    Mr. Cilluffo. Sure. Thank you, Senator Warner.
    I recently had the opportunity to testify before your House 
colleagues on State, local, tribal, territorial, and 
cybersecurity needs. You are absolutely right. The challenge we 
see at the Federal level pales in comparison as to what we see 
at State, local, tribal, and territorial.
    So I do think there is--we need to better enable and 
support--sort of think of it as a Geek Squad, whether it is 
through the Cyber and Infrastructure Security Agency at DHS to 
be able to enable some of those capabilities. They are starting 
at a very low baseline. And when you look at the talent needs 
with respect to cyber, obviously the Government in any form 
cannot compete with the private sector.
    But when you start looking, State and local is 
unfortunately further down the totem pole. So we have to come 
up with new ways, whether it is enhancing scholarship for 
service programs to be able to allow them to work at State and 
local. That is a dire need and one that needs to be backfilled 
yesterday.
    Senator Warner. I would just simply say to the Chairman as 
we wind down, that I appreciate what you are doing here. 
Clearly, in terms of public transit we need to make these 
restrictions. But we need to work together, as well, on IoT, on 
5G. And frankly, as we think about potentially governmental 
action to support American or Western-based, we have got to 
figure out how to get it right in 5G because we may have to do 
the same thing in artificial intelligence, quantum computing, 
facial recognition, and a host of other areas.
    Thank you.
    Mr. Cilluffo. Senator Warner, can I just raise one quick--
because this is what makes cyber so vexing. It transcends all 
committees. It transcends all sectors. And it touches 
everyone's responsibility, that we do need to think about this 
issue a little differently than we do many of the other issues.
    So if I am transportation, I am dependent upon 
telecommunications. I am dependent upon the electric, the grid, 
and energy sectors, oil, gas, water. So it is looking at those 
interdependencies that I think is so challenging but so 
important.
    Senator Warner. Amen.
    Chairman Crapo. Thank you, very good points.
    Senator Tillis. Thank you, Mr. Chairman, for holding this 
Committee. And thank you all for being here.
    I am sorry, I had to step out before your opening 
statements were complete. I was down at a Senate Armed Services 
hearing, hearing from the Department of the Navy, getting ready 
for our NDAA markup. And guess what came up? China, a country--
to the point that was made--at one point we only worried about 
China because they could beat us in quantity. They could put 
out more platforms. But we could beat them on quality.
    But now, they are innovators and they are closing the 
qualitative gap, and they already have an advantage on the 
quantitative side. And this sort of stuff is funding that.
    While we go and make a penny-wise pound-foolish decision 
about passenger cars or electric buses, we are literally giving 
to the Communist regime the very resources they need to 
threaten us, expand our standoff distances, and threaten 
American men and women across the globe.
    If you take a look at some of the major transit authorities 
up in the Massachusetts area, Pennsylvania, Chicago, Los 
Angeles, they are buying these passenger rail vehicles. They 
have been proven to not be at the level of quality that we 
would expect. I do not even know what the total cost of 
ownership is but my guess is if you looked at the total cost of 
ownership and you were making smart strategic sourcing 
decisions, you probably would not buy them, particularly--if 
all things were equal--when you know that these are resources 
that are going right back to the Chinese Communist party.
    There is no such thing as a private company in China. There 
is no such thing.
    We have to have people wake up. I see an L.A. Times report 
that I think agency staff described the buses as being 
unsuitable, poorly made, and unreliable for more than 100 
miles.
    The threat to our industrial base is not hypothetical. How 
many of you are familiar with what China did over several years 
in Australia? Starting with low-cost passenger rail with the 
promise to manufacture it in Australia. Now they are sending 
shrink-wrapped commuter railcars to Australia. Destroyed that 
part of the base. And then making the play on freight rail, 
which is absolutely a threat to our national interest.
    So does anybody there, in a couple of minutes, want to talk 
about how China has systematically disintermediated the 
industrial base in Australia? And if we let them continue to do 
it, they are going to do it here. It is going to cost American 
jobs, but I do not think it is hyperbole to say that at some 
point it could cost American lives. And those are the lives of 
men and women in uniform.
    We will just go down the line if you all want to touch on 
it in my remaining time.
    Mr. O'Malley. So Senator, I think you are absolutely right. 
In Australia, they completely wiped out the domestic 
manufacturing capacity.
    Senator Tillis. They did not start that way.
    Mr. O'Malley. Absolutely.
    Senator Tillis. They promise they were going to keep them 
in there and keep those Australia jobs, and now they are gone.
    Mr. O'Malley. Sounds very familiar. And so I think we 
absolutely do not want to see that happen here. Right now the 
rail supply sector is heavily domestic and our companies here 
are manufacturing, they are not assembling these products here. 
That is a critical difference in terms of what we are seeing 
the CRRC.
    In addition to all of the national security issues 
involved, but when you talk about assembling, there are far 
fewer jobs. We question whether they are fully compliant with 
Buy America as they do that. And quite frankly, it is just not 
in our long-term interest. I think you are absolutely spot on.
    Senator Tillis. Mr. Paul.
    Mr. Paul. Senator, I agree with everything that Mr. 
O'Malley said.
    I would also just add this, that the public procurement 
market alone are not going to float BYD or CRRC. But the 
important thing is they are using these tax dollars to gain a 
beachhead into important industries in the United States. And 
as large as our public transportation sector is, the private 
transportation sector is exponentially larger.
    And BYD has the ambitions to be the globe's leading 
electric vehicle maker. And they have targeted the American 
market.
    And so the fact that they are using tax dollars to go at 
essentially what is one of the keys of American manufacturing--
one out of every nine manufacturing jobs in the United States 
is tied to the automotive sector.
    There are many things that Congress should or should not 
do. It should definitely not allow a company to use tax dollars 
to gain leverage into one of the keys of American manufacturing 
like that.
    Ms. de La Bruyere. It is not just that they have done that 
in Australia. They have also done that in the U.S. This is the 
story of the semiconductor supply chain, of the tire supply 
chain, of the steel supply chain. But it is also the story that 
moves up a step in all of those supply chains. And as China 
cements its position there, then moves up a step in the next 
kind of supply chain.
    Because this is the question of innovation, too. Sure 
Beijing ``innovates'', in quotes. But they innovate by 
siphoning our innovative resources so that it is not only our 
taxpayer dollars that are fueling them but it is our innovative 
resources that are allowing them to coopt 5G and the Internet 
of things and space and whatever we are describing when we talk 
about AI. And that is a way bigger subversive problem.
    Mr. Cilluffo. Senator Tillis, excellent question and I will 
be very brief. We always want to learn from our mistakes. Even 
better to learn from the mistakes of others. And I think the 
lesson is loud and clear in Australia.
    But let me just underscore one point. They have learned 
themselves. They are standing tall and firm on the 5G Huawei 
question in terms of the next set of critical infrastructures. 
And I think it is the hard lessons they have learned in the 
rail sector.
    So they are standing shoulder to shoulder with us on that 
particular issue, but you are spot on.
    Chairman Crapo. Thank you.
    Senator Smith.
    Senator Smith. Thank you very much, Chair Crapo, and also 
Ranking Member Brown. And thank you all so much for being here. 
As you can tell, many of us on this Committee are very 
interested and very concerned about how Chinese-funded State-
backed enterprises are aiming to dominate global manufacturing 
of new energy vehicles.
    And for me, I am particularly interested in buses because 
in Minnesota we are the home of two New Flyer manufacturing 
plants. I will share this with my colleague, Senator Jones. One 
is in St. Cloud and one is in Crookston.
    New Flyer supports approximately 1,200 jobs in Minnesota, 
many of them good union jobs with CWA, and very important to 
the economy of these two communities.
    I joined some of my colleagues last year in working on this 
defense authorization bill, which included a provision that I 
authored, which would prohibit Federal transit funding from 
being used to purchase buses and railcars that are manufactured 
by Chinese State-owned and State-supported enterprises.
    I am looking at Mr. Paul, but I am actually going to direct 
my first question to Mr. Cilluffo. Can you just explain, help 
us understand why this provision that we worked on is not only 
about American jobs but it is also about--how does it relate 
directly to national security, when we are thinking about these 
buses?
    Mr. Cilluffo. Thank you, Senator Smith.
    And I think the procurement acquisition piece is critical 
but, in itself, is insufficient.
    So from a mission assurance perspective, which DOD would 
zero in on, the ability to enhance and maintain our military 
capacities you do have the potential to disrupt our ability to 
move people, goods, and things.
    Senator Smith. Right.
    Mr. Cilluffo. In a time of crisis, that could be 
devastating.
    So basically, there are three things: computer network 
attack, disruptive and/or destructive attacks; computer network 
exploit, espionage, intellectual property theft, or political 
or any other form of information theft; and then just the fact 
that the products themselves could be pretty shoddy. So you 
have got a combination of all three that I think factor into 
that national security argument.
    Senator Smith. Thank you, that is very helpful.
    Mr. Paul, you talked in your testimony about this 
compliance with Buy American laws, and Senator Brown referred 
to this, as well. And I completely agree with you that taxpayer 
funds should be going to U.S. companies to create American jobs 
instead of going overseas to foreign companies.
    It is interesting how this applies in the area of buses and 
batteries. Back in 2018, Senator Jones and I, with Senator 
Stabenow, asked the Federal Transit Administration to look into 
this. We asked the FTA to review whether Buy America 
requirements need to be updated, to make sure as we think about 
this relates to battery electric power buses. So we are still 
waiting. That review is not finished yet.
    But I would like if you could just help us understand this. 
Can you clarify how Buy America requirements are applied to 
battery electric transit buses? And whether you think that the 
current regulations are sufficient to protect domestic 
manufacturing in this area?
    Mr. Paul. Senator, it is a great question. And first of 
all, the way in which it is being applied now is not sufficient 
to protect American jobs. Those standards have not been updated 
since, I believe, 1996. Obviously, a lot has happened in the 
electrical vehicle industry since that time. And so there is a 
desperate need to do it.
    It should be done in a manner that does not favor one 
proprietary system or another but there are, in fact, as you 
indicated, some American based bus suppliers that could 
compete. The challenge with Buy America compliance--I mean, 
there are questions, first of all, whether BYD actually is 
complying. An Inspector General's report form Albuquerque, New 
Mexico, points to that, and I would recommend that to your 
attention.
    But the second thing is the manner in which the batteries 
are classified right now account for an extraordinary amount of 
the value of the vehicle. That means that a lot of the other 
parts of the vehicle that BYD is assembling in California are 
coming from China. Everything from the doors to the tires to 
everything else. And so it is eroding the impact that Buy 
America laws are supposed to have.
    Eventually, we want to get to a point where batteries are 
American made and vehicles are American made and that standard 
is moving up. But that is not where we are right now.
    Senator Smith. I completely agree with you, particularly 
when we think about how important I think it is for America to 
be leading and not following when it comes to battery 
technology. And so here we have a situation where you have got 
a component of a component of a component in the battery that 
is driving these buses. And it is fundamentally Chinese made, 
yet they are able to claim it because of these outmoded rules, 
as I understand it, as an American component. And that seems to 
be going directly counter to what it is that we want to be 
accomplishing. And it hurts American manufacturers like the one 
in my State.
    Thank you very much.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman.
    Thank you all for being here today.
    Mr. Cilluffo, is that how you pronounce that?
    Mr. Cilluffo. Right.
    Senator Jones. War Eagle.
    I want to stick with transit a little bit. In 2017, the 
U.S. Army and Navy discovered an electronic back door to the 
Chinese in drones made by a Chinese manufacturer, DJI. So they 
ordered soldiers and sailors to discontinue the use of those 
drones due to the concerns of cyberspies were intercepting 
video and other encrypted data of our U.S. military personnel.
    There is a clear connection to Chinese actors in both the 
drone example and the scenario in your testimony detailing how 
they could exploit and weaponize transit systems. I am clearly 
afraid that bad actors might use information gathered from 
buses and railcars to coordinate specific cybersecurity 
attacks.
    As the technology gets more innovative and is incorporated 
into these smart buses and railcars, are you concerned that 
these vehicles and their passengers as they are communicating, 
whatever it is, that we are going to be sending Chinese data 
from all of these? Particularly, I mean you have got the Tiger 
Transit System down at Auburn with all these kids and the 
faculty riding around and they are on these dang things the 
whole time. Same thing at the University of Alabama and all 
around the country.
    Should we be concerned about that?
    Mr. Cilluffo. About the University of Alabama? I am 
kidding.
    Senator Jones. I know Auburn is always concerned about the 
University of Alabama.
    [Laughter.]
    Mr. Cilluffo. Senator Jones, thank you for all you do for 
Auburn and War Eagle and the State of Alabama.
    Yes, you know, I did have the opportunity to testify on DJI 
and UAS and drone activities. And there was a very real concern 
that ET is phoning home. If you have a remote access to be able 
to gain in, you can control that data. That does not mean it is 
always happening. I do not have the smoking keyboards and 
smoking guns for everything but the capability exists to do 
just that.
    So yes, I do think, in addition to what I would consider 
the higher end national security issues we need to get our arms 
around in terms of mission assurance and some of the disruptive 
and destructive attacks, yes. Theft of data and information of 
any kind.
    I am sure many in this room were victims of the OPM hack. 
This was at the U.S. Government. Imagine if you start matching 
up OPM data with other data that has been gleaned through other 
means in addition to biometrics. That is a scary place.
    And we tend to mirror image. We tend to look at it through 
a democratic lens. Authoritarian regimes handle and treat this 
information very differently.
    Senator Jones. Thank you.
    This is really for the entire panel or anyone on the panel. 
When States and local communities buy buses and materials for 
transits they tend to opt for it through a bidding process. 
They just go to the cheapest option. So State-owned 
enterprises, including all the ones in China, benefit from 
those subsidies. It puts American manufacturers at a 
disadvantage.
    However, States and communities making procurement 
decisions are just not always armed with knowledge that certain 
companies are State-owned enterprises. They might change their 
modeling a little bit if they were aware of that.
    So my question is what tools exist to help local 
communities identify and determine if companies have 
connections to a foreign Government, especially countries like 
China or any other autocratic ones? Yes, sir. Mr. Paul.
    Mr. Paul. Senator Jones, thank you for the question.
    They have very few tools at their disposal, particularly 
smaller agencies that are already cash-strapped. You have seen 
obviously a bigger--you know, the rail transit system is much 
more compact in the United States and much more urbanized than 
buses which are, again, on college campuses, at every airport 
you go to, and throughout midsized cities. And fundamentally, 
these agencies are not armed with the information that they 
need.
    That is why it is important that the Department of 
Transportation provide guidance and do active outreach as soon 
as possible to ensure that this law is fully implemented. And 
to date, we have seen absolutely no steps taken toward that.
    I want to thank the Senator and the Committee for having 
the hearing because we need to drive this process along. We 
cannot expect a mid-sized city to be able to know everything 
that Beijing is doing. That is one of the obligations we have 
here.
    Senator Jones. Let me follow up on that real quick in my 
remaining seconds, if you will give me a little bit of leeway, 
Mr. Chairman. I do not like to create Big Brother around here 
anymore than anybody else does, but would it help to create 
some kind of database, a secure database, where Federal 
departments and agencies can share identifying information of 
adversarial State-owned enterprises, related entities with 
close ties to foreign Government or anything? Is that something 
that we ought to explore in Congress, creating that database?
    Mr. Paul. I would say that sounds very reasonable to me, 
along with extraordinary guidance provided along with federally 
funded grant opportunities for these local agencies. It is 
important that we do this sooner rather than later because what 
we have observed in both the bus and the rail sectors is that 
BYD and CRRC are actively trying to get business now under this 
2-year window and to seek it with options so that it erodes the 
effectiveness of the restrictions that Congress is attempting 
to put into place.
    Senator Jones. Great. Do you want to say something?
    Ms. de La Bruyere. Yes.
    Senator Jones. Assuming that the Chairman will let you.
    Chairman Crapo. Briefly.
    Ms. de La Bruyere. I will be quick.
    It is also not just China's State-owned companies, and so 
the need is also that the Federal Government be able to monitor 
better what the various subversive links that are not currently 
triggered by our monitoring processes are. So that is like 
State-supported companies like BYD but it is also investment in 
what appear to be U.S. companies, shell companies, and other 
sorts of opaque links.
    Senator Jones. Great. Thank you. Thank you for the extra 1 
minute, 24 seconds.
    Chairman Crapo. You are welcome. That does conclude our 
questioning and I want to also again thank the witnesses, not 
only for your testimony today but you have been engaged on this 
for a long time and your work has been very helpful to the 
Committee. I think we have delivered a very strong message 
today. I appreciate you helping us to do so. For Senators who 
wish to submit questions for the record, those questions are 
due on Thursday, March 12. I encourage the witnesses to respond 
to those questions as promptly as you can. Again, thank you all 
for being here, and the hearing is adjourned.
    [Whereupon, at 11:31 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Today's hearing will focus on the threats posed by State-owned and 
State-supported enterprises on public transportation.
    Last year, Ranking Member Brown and I were original cosponsors with 
Senators Cornyn and Baldwin in introducing S. 846, the Transit 
Infrastructure Vehicle Security Act, language that served as the basis 
for Section 7613 of the National Defense Authorization Act, or NDAA, 
which was enacted in December.
    As you will see today, this issue has broad bipartisan support.
    There are 52 bipartisan cosponsors of S. 846, and more than half of 
the Members of this Committee, on both sides of the dais, are among 
that list.
    The provisions in S. 846 are also supported by the Trump 
administration, both in a Statement of Administration Policy regarding 
the House NDAA, and Acting OMB Director Russell Vought's letter to 
House and Senate Armed Services Committees supporting the language 
ultimately reflected in Section 7613.
    Today's expert witness panel reflects the multifaceted nature of 
threats BYD and CRRC pose to our national security, the economic 
competitiveness of the domestic bus and rail manufacturing industry, 
and cybersecurity.
    All of the witnesses have been valuable resources to the Committee 
as we got the language of S. 846 enacted into law, and we thank them 
for their expertise and willingness to help.
    From a national security perspective, 15 former generals and 
admirals from the Energy Security Leadership Council wrote a letter 
warning of the Chinese strategy to dominate critical industries.
    The former military leaders stated that the ``Chinese industry is 
inexorably intertwined with Chinese Government, which creates a host of 
economic and national security concerns for the U.S.''
    Economically, both CRRC and BYD include direct subsidies from the 
Chinese Government in their annual reports.
    There are presently at least seven other transit railcar 
manufacturers besides CRRC and at least five other transit bus 
manufacturers besides BYD in the United States.
    It is impossible for other bus and rail manufacturers to fairly 
compete when these two companies have the unfair advantage of the 
financial support of the Chinese Government.
    As transit agencies are working to address the 98.8 billion dollar 
state of good repair backlog in the industry, they are often looking to 
modernize, such as transitioning to electric buses and incorporating 
autonomous technologies.
    Along with the modernization comes increased connectivity, which 
increases the threat of cyberincidents and espionage.
    The language enacted in Section 7613 of the NDAA acknowledges that 
all of these threats are real, and applies significant new restrictions 
on funding for the acquisition of CRRC railcars and BYD buses.
    It is unfortunate that Section 7613 includes a 2-year delay on the 
prohibition, and it is critical that transit agencies immediately 
understand the threats associated with purchasing from a State-owned or 
State-supported entity, and how that should affect their procurement 
decisions now and looking ahead.
    Recently, Senator Brown and I, along with House Transportation and 
Infrastructure Chairman DeFazio and Ranking Member Graves, wrote to 
Secretary Chao emphasizing the urgent need for the Department of 
Transportation to put out information online or issue a ``Dear 
Colleague'' so that transit agencies are informed of the new law and 
can plan their rolling stock procurements accordingly.
    We have already heard anecdotally that both BYD and CRRC have been 
seeking to misinform agencies as to the applicability of the language.
    In order for agencies to make informed procurement decisions, it is 
critical that the Administration respond and give transit agencies the 
tools they need to understand how to comply with the statute.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you, Mr. Chairman, for calling today's hearing on a 
bipartisan bill that you and I, along with Senators Cornyn and Baldwin 
and 48 others, successfully included in the National Defense 
Authorization Act at the end of last year.
    I want to welcome Senator Cornyn and Senator Baldwin, our partners 
in the Transit Infrastructure Vehicle Security Act. I also want to 
thank the many Members of this Committee who supported and cosponsored 
the bill.
    Our Committee's bipartisan work to address a threat to public 
transportation from companies supported and controlled by the Chinese 
Government shows that our Government can be nimble in responding to new 
economic and security threats. We must be vigilant. It's why just this 
week, Senators Cornyn, Baldwin, Crapo, and I have sponsored an 
amendment to the energy bill on these issues.
    While TIVSA is now law, we need to keep our focus on the two 
Chinese companies in question: CRRC and BYD. These companies have 
repeatedly shown that they do not play by rules.
    Let's talk first about CRRC. As a State-owned enterprise, CRRC 
didn't have to worry about making a profit when it used lowball bids to 
win four major U.S. contracts for transit railcars.
    In 2014, CRRC offered a bid on the Boston MBTA contract that was 
more than $150 million lower than the next competitor. In Chicago in 
2016, they beat the next lowest bidder by $226 million.
    That's not because they were doing the work more efficiently--it's 
because they were being propped up by the Chinese Government. So it's 
not surprising that established manufacturers were unable to match 
these bids.
    But that isn't even the full picture of the damage from CRRC's 
lowball bids.
    Hyundai-Rotem manufactured railcars for Philadelphia's SEPTA system 
and Denver's RTD system. The 300 Hyundai workers in its Philadelphia 
factory were represented by Transport Workers Union Local 234, and they 
made a middle-class living wage with employer-provided benefits and a 
retirement plan. All of these workers lost their jobs after Hyundai-
Rotem lost the SEPTA contract to CRRC.
    Hyundai closed the plant in August of 2018. For every U.S. job 
created by CRRC, it's estimated the U.S. loses between 3 and 5 jobs.
    Before Congress acted last year, CRRC was making plans to win a 
contract with the Washington, D.C., Metro worth more than $1 billion 
dollars.
    And then there's the electric bus maker BYD, another company 
covered by TIV-SA. I want to be clear--my concern with CRRC and BYD is 
not with the American workers they employ, but with Chinese 
Government's influence and control.
    BYD may not be technically owned by the Chinese Government, but 
it's certainly controlled by it. As our expert witnesses will testify, 
BYD may receive even more State support than CRRC, and BYD has deep 
ties to the Chinese Government.
    BYD's goals in the U.S. extend far beyond the public transportation 
market. BYD supplies electric trucks for freight delivery, it offers 
electric garbage trucks to cities, and it's eyeing the passenger car 
market.
    There are four other major bus manufacturers that build electric 
buses in the U.S., and two are American-owned. These companies are 
ramping up their production of zero-emission buses to help American 
transit agencies reduce emissions, but they do not enjoy enormous 
support from the Chinese communist party.
    This is an industry of the future--we can't cede it to China.
    BYD likes to point out that Warren Buffet is an investor in their 
company. One billionaire investor does not mean that BYD is looking out 
for the interests of American workers.
    CRRC and BYD are two in a long line of examples of how China cheats 
its way into being a global leader in industry after industry. Ohio's 
steel industry knows that all too well.
    For years, Chinese State-owned steel companies have been flooding 
our market and the global market, and forcing U.S. steelworkers out of 
their jobs.
    It's why we've taken more than 60 trade enforcement actions against 
Chinese steel producers, to help create a level playing field for 
American producers.
    But CRRC and BYD undermine those trade enforcement efforts by 
purchasing Chinese steel, turning it into frames and shells for buses 
and railcars at factories in China, and then shipping them to the 
United States for final assembly--and they get bought using taxpayer 
dollars, threatening our steelworkers.
    It's exactly the kind of cheating you'd expect from those Chinese 
companies that refuse to play by the rules.
    It's a jobs issue, and it's also a national security issue.
    When we let Chinese companies manufacture our buses and railcars, 
we also face cyber and data security risks. Our hearing today will 
discuss these concerns facing transit agencies and our broader 
transportation sector. TIV-SA created an important new requirement for 
transit agencies to assess cybersecurity risks, but Congress still 
needs to fully assess the risks associated with data from our 
transportation system being exposed to foreign actors.
    We also know the threat of Chinese State-owned enterprises 
investing in the U.S. isn't limited to rail and bus manufacturers. We 
don't even know all the ways in which companies owned or controlled by 
the Chinese Government are gaining footholds in our market.
    My legislation with Senator Grassley--the Foreign Investment Review 
Act--would require the Secretary of Commerce to review certain foreign 
investments, particularly those made by State-owned-enterprises, to 
make sure they are in the long-term, strategic interests of American 
workers and American businesses. This is just another example of 
bipartisan legislation that can help address new economic and security 
threats.
    I will close by noting that as we work to reauthorize transit 
programs, we need to strengthen Buy America requirements. It's not 
complicated: American tax dollars should be support American jobs.
    Thank you, Mr. Chairman.
                                 ______
                                 
        PREPARED STATEMENT OF SENATOR TAMMY BALDWIN OF WISCONSIN
    Chairman Crapo and Ranking Member Brown, thank you for the 
opportunity to be here today to discuss our legislation, the Transit 
Infrastructure Vehicle Security Act, which became law in December 2019 
as part of the National Defense Authorization Act for Fiscal Year 2020.
    This law is important to me in short because Wisconsin is a State 
that makes things. For generations, we have assembled our Nation's 
ships, built our Nation's engines, and brewed our Nation's beer. 
However, since we allowed China to enter the World Trade Organization 
in 2001--a move I opposed--millions of manufacturing jobs have been 
lost. And many workers have seen their wages stagnate as a result of 
downward pressure from competition from Chinese State-backed companies.
    As a nonmarket economy, China gives hundreds of billions in State 
subsidies to manufacturers in industries in which the Government wants 
to compete. In 2015, the Chinese Communist Party released a strategic 
document outlining how it intends to compete globally in manufacturing 
called ``Made in China 2025''.
    This plan revealed that China desires to dominate in railcar and 
electric bus manufacturing. Recently, two State-supported companies 
have made in-roads into the U.S. market, the railcar manufacturer China 
Railway Rolling Stock Corporation (CRRC) and the bus and electric 
battery manufacturer Build Your Dreams (BYD).
    We know from observing CRRC's entry into the Australian market that 
domestic industry cannot compete with China's aggressive State-owned 
enterprises. Over the last 15 years, Australia's domestic railcar 
production collapsed as CRRC gained increasing market share.
    Wisconsin manufacturers are happy to compete with anyone in the 
world, but they need a level playing field. China's nonmarket economy 
forces Wisconsin manufacturers to compete with Chinese companies that 
get free land, free utilities, free R&D, and interest-free loans worth 
hundreds of millions of dollars.
    These Chinese Government-subsidized rivals would be bad enough, but 
now these companies are increasingly using their U.S. assembly 
facilities to win taxpayer-funded contracts from the Federal Transit 
Administration to procure buses and railcars for American cities.
    When taxpayer dollars are spent, we must make every effort to 
ensure they support American workers and businesses. As a strong 
supporter of expanding and improving Buy America requirements, I was 
proud to join Senators Crapo, Brown, and Cornyn in introducing and 
passing legislation to prohibit FTA funds from going to companies 
supported by nonmarket economies, such as BYD and CRRC.
    In 2 years, the prohibition in the law will go into force. Transit 
agencies need to know how they will be affected as soon as possible. 
Senator Cornyn and I have both requested that Secretary Chao and Acting 
FTA Administrator Williams publish information to ensure that transit 
agencies planning for the future are able to make safe, informed, and 
legal procurement decisions.
    While the legislation addressed many immediate concerns facing 
domestic railcar and bus manufacturing, I urge the Committee to work 
with the Department of Transportation to further tighten Buy America 
requirements to ensure that Federal taxpayer dollars support good-
paying manufacturing jobs in the U.S. I am deeply concerned by a study 
from Oxford Economics that found that CRRC's railcar production in the 
U.S--while compliant with Buy America--relies heavily on imported 
parts. The report estimated that--as a result of this ``import and 
assemble'' business model--every one job CRRC creates in the U.S. 
eliminates as many as five U.S. jobs.
    I will close by commending the Committee on the oversight work it 
is doing to ensure that this law is implemented as swiftly and as 
effectively as possible and once again thank the Chair and Ranking 
Member for the opportunity to testify here today.
                                 ______
                                 
           PREPARED STATEMENT OF SENATOR JOHN CORNYN OF TEXAS
    Thank you Mr. Chairman and Ranking Member Brown--I appreciate you 
inviting Senator Baldwin and I to share our thoughts with the 
Committee. This issue is important to my home State, our national 
security, and the integrity of our economy.
    China has a long history of undermining market economies across the 
globe by subsidizing Chinese businesses so they can outcompete domestic 
industry, because they never have to worry about turning a profit.
    Global domination of rolling stock production, like trains and 
buses, is at the forefront of the ``Made in China 2025'' initiative, 
which outlines the Chinese Communist Party's plans for economic 
domination across the globe.
    This is why I was concerned when I found out certain Chinese State-
controlled companies like the China Railway Rolling Stock Corporation 
(CRRC) and Build Your Dreams (BYD) were submitting unrealistically low 
bids for transit projects in major U.S. cities in an attempt to put 
competition out of business and dominate the market on a long-term 
basis.
    Transit railcars and buses are highly advanced vehicles equipped 
with a host of computers, sensors, and cameras.
    When Americans step onto a subway or city bus, they accept that 
many of these devices are there to ensure their safety and trust the 
Government won't abuse their civil rights.
    But these advanced technologies can do much more than help you get 
to work on time. They're also capable of spying on passengers and our 
infrastructure network--and they can be undetectably placed on 
transportation systems across America.
    Thousands of Government and military officials use transit services 
every day, especially here in D.C. I'm sure many of the folks in this 
room relied on those trains and buses to get here today.
    The potential for an adversarial State actor to monitor the 
movements of American citizens, hack personal or Government-issued 
devices, and collect intelligence on our military is a major security 
concern.
    Allowing American trains and buses to become Trojan horses for 
these technologies on American soil is unacceptable.
    And I think we can all agree that Chinese State-controlled 
companies should not receive a dime of American taxpayer money in their 
efforts to control our economy and undermine national security.
    Fortunately, Congress has taken critical action to address the 
problem.
    Senator Baldwin, Chairman Crapo, and Ranking Member Brown joined us 
in getting the Transit Infrastructure Vehicle Security Act passed into 
law as part of the National Defense Authorization Act last year.
    This commonsense, bipartisan law sends a strong signal to the 
Chinese Government that we will not allow them to infiltrate the 
operations of our critical infrastructure.
    The legislation will ban the use of Federal transit funding for the 
procurement of railcars and buses produced by companies that are owned, 
controlled, or sponsored by foreign Governments with nonmarket 
economies and that are designated as countries of concern by the U.S. 
Trade Representative.
    Unfortunately, special interests were able to demand a 2-year 
enforcement delay of some of this legislation's critical components.
    I am here today to ask for your help in ensuring this delay does 
not turn into a window the Chinese Communist Party and its State-
controlled companies can further exploit by rushing to procure 
contracts and extending their tentacles further into America's 
infrastructure network.
    Without strong leadership from the Federal Transit Administration, 
transit agencies will unknowingly allow CRRC and BYD to compete for 
their projects, even though a Federal ban on such contracts is coming 
soon. We must do everything we can to stop this.
    I look forward to working with Chairman Crapo, Ranking Member 
Brown, and other Members of this Committee to educate Government 
agencies, the public, and our local jurisdictions about China's threat 
to our infrastructure--and the legal tools Congress has enacted to 
address this problem.
                                 ______
                                 
               PREPARED STATEMENT OF E. MICHAEL O'MALLEY
                  President, Railway Supply Institute
                             March 5, 2020
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for the opportunity to testify today on the threats facing 
public transportation systems from foreign State-owned and State-
supported enterprises, an issue that is of critical importance to the 
railway supply industry and the Nation. My name is Mike O'Malley and I 
serve as president of the Railway Supply Institute (RSI), an 
international trade association representing more than 200 companies 
involved in the manufacture or delivery of goods and services in the 
locomotive, freight railcar, maintenance of way, communications and 
signaling, and passenger rail industries. RSI members provide critical 
products to Class I and short line railroads, shippers, Amtrak, and 
commuter and transit authorities nationwide. We work with these 
customers to create new products or services that drive enhancements in 
both safety and efficiency across their rail networks.
Introduction
    The rail system of the United States is one of our country's 
greatest assets, covering more than 140,000 miles and carrying 40 
percent of America's intercity freight, including 111 million tons of 
hazardous materials. It also transports millions of passengers every 
day--from small transit systems to large commuter authorities to 
intercity service provided by Amtrak or other entities. These systems 
are supported by an extensive, domestic railway supply industry that 
has been a dynamic and vital part of the U.S. economy for over 200 
years, encompassing 125,000 jobs across all 50 States and paying an 
average wage 40 percent higher than the national average. \1\ Without 
this robust domestic rail supply industry, our Nation's passenger and 
freight railroads simply could not meet their customers' needs.
---------------------------------------------------------------------------
     \1\ ``Tracking the Power of Rail Supply, The Economic Impact of 
Railway Suppliers in the U.S.'', https://www.rsiweb.org/Files/
EIS%202018/RSI-Infographic%20FINAL.pdf
---------------------------------------------------------------------------
    Unfortunately, over the past decade our industry has witnessed 
substantial intervention in the global rail marketplace from nonmarket 
economy foreign Governments. Most notably, the People's Republic of 
China--working through State-owned enterprises (SOEs) like CRRC--has 
identified rail manufacturing as a strategic market sector and made 
clear their intention to ``conquer'' the global rolling stock market. 
\2\ Backed by the full resources of the Chinese Government, CRRC and 
its affiliates have leveraged direct subsidies, State-backed financing, 
and below-market loans to secure more than $2.6 billion in railcar 
contracts at far below market rate for transit agencies in Boston, 
Chicago, Los Angeles, and Philadelphia. These manipulative incursions 
into the U.S. market present both national and economic security risks. 
There is ample evidence illustrating the Chinese Government's 
willingness to use industrial espionage, hacking, intellectual property 
theft, and more to achieve its global objectives, giving us every 
reason to be concerned about their involvement with critical rail 
infrastructure and the technology that supports it.
---------------------------------------------------------------------------
     \2\ @CRRC-global, ``Following CRRC's entry to Jamaica, our 
products are now offered to 104 countries and regions. So far, 83 
percent of all rail products in the world are operated by #CRRC or are 
CRRC ones. How long will it take for us conquering the remaining 17 
percent?'' Twitter, January 11, 2018.
---------------------------------------------------------------------------
    Thankfully, Congress has recognized this threat and begun taking 
proactive efforts to address it. In a time when consensus on major 
issues facing the Nation seems as difficult as ever, both houses of 
Congress and the President united on a bipartisan basis to take strong, 
proactive action last year to address this threat. But the threat 
remains, so it is critical that Congress and the Administration 
continue to scrutinize CRRC's unfair practices, ensure that the 
Transportation Infrastructure Vehicle Security Act (TIVSA) is 
implemented quickly as intended, and enact future policies that will 
discourage CRRC from further undermining the U.S. railcar manufacturing 
market. For example, this Committee can help ensure that Congress 
approves a long-term infrastructure bill that gives passenger rail 
agencies--and the suppliers that support them--the resources they need 
to make sustainable investments right here in the United States. 
Members of this Committee have undoubtedly been given a whole host of 
reasons why an infrastructure bill is important to our future, but I 
would like to offer one more--American rail supply manufacturers 
absolutely depend on it. The best way to encourage investment in 
American jobs and rolling stock manufacturing is to increase 
investments in passenger rail and provide the certainty associated with 
a long-term bill.
    My goal with this testimony is to provide a comprehensive picture 
of CRRC's targeting of the U.S. rail market, discuss the industry's 
outlook moving forward, and to offer policy recommendations that would 
further enhance the economic and national security of U.S. rail 
infrastructure against foreign Government interests.
Chinese SOEs Present an Imminent Threat to the Global Rail Industry
    CRRC is the product of a State-directed merger in 2014 between 
China's two largest State-owned rail companies, China South Locomotive 
& Rolling Stock Corporation (CSR) and China North Locomotive & Rolling 
Stock Corporation (CNR). That merger, coupled with hundreds of millions 
of dollars in support from the Chinese Government, has allowed CRRC to 
quickly establish itself as the largest producer of rail rolling stock 
in the world. In 2018, CRRC claimed to have over 180,000 employees with 
revenues exceeding $37 billion USD, \3\ more than that of its three 
largest competitors combined. As an SOE, CRRC benefits from the full 
resources of the Chinese Government and has been repeatedly used to 
spearhead political initiatives driven by the Chinese Communist Party 
(CCP). The ``Made in China 2025'' plan explicitly lists rail as one of 
ten sectors that China is targeting for global domination over the next 
5 years. Similarly, CRRC has been at the forefront of the Belt and Road 
Initiative, receiving virtually unlimited support from the Chinese 
Government to finance strategic rail infrastructure projects across the 
globe.
---------------------------------------------------------------------------
     \3\ CRRC Company Profile, https://www.crrcgc.cc/g5141.aspx.
---------------------------------------------------------------------------
    All evidence suggests that CRRC is driven by these national policy 
objectives, not market principles, making it impossible for other 
companies to compete on a level playing field. In fact, CRRC's own 
bylaws explicitly direct the company to seek guidance from the CCP on 
significant matters affecting the company's operations. \4\ The company 
has also demonstrated a history of intellectual property theft and 
serious questions have been raised about its labor practices. As a 2017 
U.S.-China Economic and Security Review Commission report noted, CRRC's 
predecessor companies forced technology transfer agreements on many of 
the world's leading rail companies, which Chinese engineers then 
adapted through a process China has termed ``digestion and re-
innovation.'' \5\ A recent NBC news report also linked CRRC to the use 
of child labor in Madagascar--producing component parts for the same 
railcars it is now assembling in the United States. \6\
---------------------------------------------------------------------------
     \4\ ``CRRC Corporation Limited Articles of Association'', CRRC 
Corporation Limited, at 70. http://www.crrcgc.cc/Portals/73/Uploads/
Files/2018/6-4/636637164457871915.pdf
     \5\ U.S.-China Economic and Security Review Commission, ``China's 
High Speed Rail Diplomacy'', February 21, 2017. https://www.uscc.gov/
sites/default/files/Research/
China's%20High%20Speed%20Rail%20Diplomacy.pdf
     \6\ NBC News, ``Zone Rouge: An Army of Children Toils in African 
Mines'', November 18, 2019. https://www.nbcnews.com/news/all/army-
children-toil-african-mica-mines-n1082916
---------------------------------------------------------------------------
    In recent years, CRRC's pattern of underbidding has become one of 
our industry's greatest challenges. Since 2014, CRRC and its affiliates 
have leveraged State-backed financing and below-market loan rates to 
secure more than $2.6 billion in railcar contracts for transit agencies 
in Boston, Chicago, Los Angeles, and Philadelphia. The company has won 
these contracts by as much as 30 percent below the next lowest bid, 
suggesting that these are hardly market-based offerings and that they 
would not be possible without the support of massive subsidies from the 
Chinese Government.
    Emboldened by winning those contracts, CRRC moved on to target 
America's largest and most security-sensitive cities as well. In March 
2018, the Metropolitan Transit Authority (MTA) of New York announced 
that CRRC was among the winners of a ``Genius Grant Transit 
Challenge'', which challenged companies to develop innovative solutions 
to improve New York City's subway system. Despite the absence of any 
ongoing procurements, CRRC committed to invest $50 million of its own 
funds to develop the city's next generation subway car, prompting 15 
bipartisan members of the New York congressional delegation to raise 
concerns with the MTA directly. \7\ Here in Washington, D.C., CRRC 
announced its intent to bid on the Washington Metropolitan Transit 
Authority's (WMATA) ongoing rolling stock procurement, prompting 
members of Congress, including two who serve on this Committee, to once 
again raise concerns directly with WMATA. \8\ These concerns that were 
echoed again just last month by Secretary of State Mike Pompeo in an 
address before the National Governors Association. \9\
---------------------------------------------------------------------------
     \7\ Letter to Metropolitan Transit Authority, May 21, 2019. 
https://kathleenrice.house.gov/uploadedfiles/20190521--mtaletter.pdf
     \8\ Letter to Washington Metropolitan Transit Authority, January 
18, 2019. https://www.scribd.com/document/397856431/WMATA-Cyber-
Concerns-8000-Series-Rail-Car-RFP
     \9\ Secretary Pompeo remarks to National Governors Association 
2020 Winter Meeting, February 8, 2020. https://www.youtube.com/
watch?v=g1BbswU3i10
---------------------------------------------------------------------------
    These concerns are certainly warranted. National security experts 
have consistently raised the alarm about the ability of CRRC to 
leverage the technologies on these railcars for espionage or other 
illicit activities. \10\ Many of these trains will contain or interact 
with Wi-Fi systems, automatic train control, automatic passenger 
counters, surveillance cameras, and other Internet of Things (IoT) 
technology that are thoroughly integrated into the information and 
communications technology infrastructure of transit authorities, all 
designed and built by a company controlled by the CCP and the 
Government of China.
---------------------------------------------------------------------------
     \10\ The Hill, ``Opinion--Defense Bill Must Protect U.S. Rail 
System Against Chinese Cyberintrusions'', David N. Senty and Mark S. 
Sparkman, 2 October 2019. https://thehill.com/opinion/cybersecurity/
463704-defense-bill-must-protect-us-rail-system-against-chinese-cyber
---------------------------------------------------------------------------
CRRC a Threat to U.S. Jobs and Economic Security
    Unlike its competitors, CRRC has established assembly operations--
not traditional manufacturing operations--to complete these contracts, 
hiring far fewer employees than comparable plants run by railcar 
manufacturers that have heavily invested here in America for decades. 
CRRC constructs the cars in China and then ships them to the U.S. for 
final assembly. As a result, U.S. components and labor are far more 
limited than those utilized by their competitors. By contrast, most of 
the other major rolling stock manufacturers here in the United States 
source the vast majority of their components domestically, often 
significantly exceeding minimum Buy America requirements.
    To date CRRC has established two assembly facilities in 
Springfield, MA, and Chicago, IL, and based on media reports these 
facilities have just 200 employees in total. \11\ This illustrates the 
clear distinction between the type of American manufacturing that 
Federal and State passenger rail investments are designed to produce 
and assembly operations of the CRRC. To be clear, we do understand the 
value those jobs bring to their communities, but the fact is that they 
came at a cost. A study from Oxford Economics estimated that for every 
job CRRC creates here in the United States to assemble passenger 
railcars, between three and five jobs are eliminated elsewhere in the 
domestic supply chain. \12\ Oxford estimated that this could result in 
the loss of as many as 5,100 U.S. jobs and $330 million in GDP in the 
passenger railcar market alone if action was not taken. It is not a 
coincidence that passenger railcar manufacturing plants near Chicago 
and in Philadelphia closed in recent years after their local 
authorities awarded contracts to CRRC.
---------------------------------------------------------------------------
     \11\ Boston Business Journal, ``Lights Off at CRRC's Springfield 
Train Car Factory? Company Execs Say It Could Happen'', October 10, 
2019. https://www.bizjournals.com/boston/news/2019/10/10/lights-off-at-
crrcs-springfield-train-car-factory.html
     \12\ Oxford Economics, ``Assessing How Foreign State-Owned 
Enterprises' U.S.-Based Operations Disrupt U.S. Jobs'', June 2019. 
https://www.oxfordeconomics.com/recent-releases/assessing-how-foreign-
state-owned-enterprises-us-based-operations-disrupt-us-job
---------------------------------------------------------------------------
Evidence That CRRC Intends To Use Passenger Rail as a Foray Into 
        Freight Manufacturing
    Equally concerning is the prospect of CRRC utilizing its existing 
beachhead in passenger railcar assembly to move into the freight rail 
sector. There they could build freight railcars used to transport 
sensitive military equipment, hazardous materials, critical 
commodities, and more. As many former military and intelligence 
officials have repeatedly noted, there are substantial risks in 
allowing a Chinese SOE to build, operate, or otherwise involve itself 
in the manufacture or assembly of those freight railcars. During times 
of war, the U.S. rail network is critical to our military's ability to 
deploy assets quickly and decisively. Other witnesses for this hearing 
will provide more detail on this subject, but given these strategic 
threats and China's growing military capacity, we should take great 
care in deciding who we rely on for military readiness. As the 
Department of Defense Office of Industrial Policy noted in a 2018 
report, ``The decline in the U.S. manufacturing industry creates a 
variety of risks for America's manufacturing and defense industrial 
base and, by extension, for DoD's ability to support national 
defense.'' \13\
---------------------------------------------------------------------------
     \13\ U.S. Department of Defense, ``Assessing and Strengthening the 
Manufacturing and Defense Industrial Base and Supply Chain Resiliency 
of the United States'', September 2018. https://media.defense.gov/2018/
Oct/05/2002048904/-1/-1/1/assessing-and-strengthening-the-
manufacturing-and%20defense-industrial-base-and-supply-chain-
resiliency.pdf
---------------------------------------------------------------------------
    Because freight rail is funded almost entirely with nonpublic 
funds, there are no Federal content standards as we see in passenger 
rail, and thus nothing preventing CRRC from aggressively targeting 
domestic railcar and component manufacturers using nonmarket tactics. 
CRRC's penetration of the freight market could therefore happen very 
quickly and with virtually no transparency. This would have a 
devastating effect on our country's ability to manufacture and deliver 
freight railcars independently.
    The experience of the Australian market serves as perhaps the best 
example of what can happen in the freight rail sector. In a period of 
less than 10 years, the Australia's freight railcar manufacturing was 
rapidly overtaken by CRRC and its predecessor companies as it 
systematically drove its competition out of the market. Today, there is 
no meaningful producer of freight rail rolling stock in Australia and 
thus China is effectively the sole supplier. Independent research has 
suggested that similar actions in the United States could result in the 
loss of as many as 65,000 U.S. jobs and $6.5 billion in GDP. \14\
---------------------------------------------------------------------------
     \14\ Oxford Economics, ``Will We Derail U.S. Freight Rolling Stock 
Production?'', May 2017, at 24. https://www.oxfordeconomics.com/recent-
releases/will-we-derail-us-freight-rolling-stock-production
---------------------------------------------------------------------------
    While CRRC has recently claimed they have no interest in the 
freight segment of the market, their actions show otherwise. In 2014, 
CRRC entered into a now-defunct joint venture with a Chinese holding 
company and a U.S. firm to launch Vertex Rail Corporation, a freight 
railcar assembly facility located in Wilmington, North Carolina. 
Despite nearly 100 members of the House and Senate raising national 
security concerns with the investment, it was ultimately allowed to 
move forward. \15\ While that venture closed in November 2018, there is 
little doubt that the U.S. market remains a prime target. In fact, 
there are indications that CRRC is already establishing a presence in 
Canada with the intent to import freight cars into the U.S. market.
---------------------------------------------------------------------------
     \15\ Letter to U.S. Department of Treasury, July 15, 2016. https:/
/lipinski.house.gov/uploads/CFIUS%20Letter%20to%20Treasury.pdf
---------------------------------------------------------------------------
Current Actions and Policy Recommendations
    RSI and our members are grateful for the actions policymakers have 
taken thus far to mitigate CRRC's threat. Beginning with successful 
efforts to reform the Committee on Foreign Investment in the United 
States (CFIUS), Congress passed the Foreign Investment Risk Review 
Modernization Act (FIRRMA) in 2018. This gives future Administrations 
the tools needed to thoroughly review transactions like those of CRRC 
and Vertex moving forward and take appropriate steps to block those 
transactions if they are deemed a threat to national security.
    The passage of the Transit Infrastructure Vehicle Security Act 
(TIVSA) is also an important step forward. This legislation will block 
any Federal funds from being used to subsidize CRRC's activities in the 
future, ensuring that CRRC is unable to further leverage American 
taxpayer funds to underbid its competition. It also institutes much-
needed cybersecurity standards that will help limit the national 
security risks associated with CRRC's existing or future contracts.
    These legislative achievements are important steps for the 
industry, but it is essential that we not get complacent in the wake of 
China's clear desire to overtake our industry. We offer the following 
recommendations for policymakers to continue to be proactive in 
countering this threat:
    1. The Federal Transit Administration (FTA) should immediately 
communicate with its grantees on TIVSA to ensure compliance with this 
new law. We have heard some suggestion that there is confusion 
regarding what this bill does. To us, lawmakers were clear in passing 
this legislation that there are significant national and economic 
security risks associated with awarding a contract to CRRC and that 
Federal funds should not be used to award a contract to a Chinese SOE. 
Yet CRRC has said that it will continue to aggressively bid on 
contracts. \16\ As leaders of this Committee have so clearly 
articulated, it is essential that the FTA communicate to transit 
agencies to ensure prompt compliance with Congress' intent in passing 
this legislation as part of the National Defense Authorization Act.
---------------------------------------------------------------------------
     \16\ New England Public Radio, ``Capitol Hill Deal Keeps 
Springfield's CRRC Rail Car Factory Rolling'', Dec. 12, 2019. https://
www.nepr.net/post/capitol-hill-deal-keeps-springfields-crrc-rail-car-
factory-rolling#stream/0
---------------------------------------------------------------------------
    2. Congress should pass a long-term infrastructure bill with robust 
passenger rail funding levels to ensure that States and localities can 
make smart, sustainable investments for the future. CRRC's success in 
winning Federal and State transit contracts has been fueled by their 
ability to come in at below-market prices by leveraging Government 
subsidies, under procurement rules that often require transit agencies 
to award contracts to the lowest bidder. People are increasingly 
recognizing the benefits of passenger rail and States and localities 
are making rolling stock investments to support it, but predictable, 
dedicated and sustainable sources of Federal funding are needed.
    3. Pass legislation or direct the U.S. Department of Transportation 
to ensure strict Buy America compliance, spurring domestic jobs and 
limiting the ability of foreign SOEs to game the system. By design, Buy 
America laws were written to ensure that taxpayer dollars made 
available for constructing and sustaining our public transportation 
systems would flow back into the U.S. economy and discourage the 
outsourcing of these manufacturing jobs to other countries. 
Unfortunately, RSI believes that the U.S. Department of Transportation 
currently lacks adequate resources to ensure strict compliance with Buy 
America provisions across the country. Congress should direct USDOT to 
exercise stricter oversight to help keep grant funding in the United 
States and spur the domestic jobs critical to maintaining a strong 
American manufacturing base.
    4. Create additional safeguards for the freight industry. While 
TIVSA was a vital step forward that will help level the playing field 
in the domestic passenger railcar market, the freight sector remains at 
risk. RSI will be working this year with members of Congress to 
identify legislation that could help establish appropriate standards 
for freight railcar manufacturing so we can ensure that CRRC does not 
wipe out the market in the same way they did in Australia. Given 
actions already taken by CRRC and the criticality of freight rail 
networks for national security and military deployment capabilities, we 
must act quickly.
    I will make one final point. Given the global nature of this 
threat, many of our allies are now following the lead of U.S. 
policymakers to address the issue in other markets as well. In Europe, 
for example, the European Commission is actively exploring ways to 
address the threat. The Association of the European Rail Supply 
Industry (UNIFE) recently issued a call to action given the expansion 
of China's State-owned rail suppliers, citing ``the threat to European 
rail suppliers and the 400,000 jobs they represent due to unequal 
competition and State subsidies to Chinese players.'' \17\ We encourage 
the U.S. Congress and Administration to work with our allies across the 
globe to unite in the effort to ensure a market-driven railway supply 
sector free from SOE interference.
---------------------------------------------------------------------------
     \17\ UNIFE, ``A Call for Urgent Action: The Fast Expansion of 
China's State-Owned Rail Suppliers'', November 2019.
---------------------------------------------------------------------------
Conclusion
    RSI members will continue investing and doing all we can to support 
our passenger agency customers in serving the mobility and economic 
development needs of communities across the country, but we cannot 
compete with an entire country in a marketplace distorted by Chinese 
Government subsidies. We appreciate the opportunity to provide these 
recommendations on critical issues affecting our industry and will 
continue working with members of Congress to formulate policies that 
enhance rail safety, security, and efficiency. Thank you for the 
opportunity to testify and I would be happy to answer any questions 
that you may have.
                                 ______
                                 
                  PREPARED STATEMENT OF SCOTT N. PAUL
             President, Alliance for American Manufacturing
                             March 5, 2020
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
on behalf of the Alliance for American Manufacturing (AAM), thank you 
for the opportunity to testify at today's hearing on the Threats Posed 
by State-Owned and State-Supported Enterprises to Public 
Transportation.
    The Alliance for American Manufacturing is a nonprofit, nonpartisan 
partnership formed in 2007 by some of America's leading manufacturers 
and the United Steelworkers. Our mission is to strengthen American 
manufacturing and create new private-sector jobs through smart public 
policies. We believe that an innovative and growing manufacturing base 
is vital to America's economic and national security, as well as to 
providing good jobs for future generations. AAM achieves its mission 
through research, public education, advocacy, strategic communications, 
and coalition building around the issues that matter most to America's 
manufacturers and workers.
The TIVSA Law Is an Important Milestone
    For the last two decades, we have seen the destructive impacts of 
China's model of State-led capitalism on our domestic manufacturing 
sector, and the damaging ripple effects on thousands of communities 
across our Nation. Between 2001, when China entered the World Trade 
Organization (WTO), and 2018, 3.7 million U.S. jobs were lost or 
displaced because of our massive bilateral trade deficit with China. 
\1\ This carnage has been fueled by predatory trade practices and 
disruptive economic policies, including massive subsidization of State-
owned enterprises (SOEs) and other ``champion'' firms that Beijing has 
deemed strategically important to their own economic and security 
interests.
---------------------------------------------------------------------------
     \1\ ``Growing China Trade Deficit Cost 3.7 Million American Jobs 
Between 2001 and 2018: Jobs Lost in Every U.S. State and Congressional 
District'', Robert E. Scott and Zane Mokhiber. Economic Policy 
Institute. 30 January 2020.
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    More recently, we have witnessed China's State-owned and State-
supported rolling stock companies threaten legitimate competition in 
the markets that serve our public transportation system. Backed by 
extensive Government support, including Made in China 2025, China 
Railway Rolling Stock Corporation (CRRC) and Build Your Dreams (BYD) 
are at the forefront of China's assault. Their penetration into our 
market has been accelerated by open access to taxpayer-financed railcar 
and electric bus procurements in major U.S. cities. In other words, 
these firms have penetrated our market with not only Beijing's backing, 
but also on the backs of American taxpayers.
    China's subsidies and other governmental support allow CRRC and BYD 
to underbid the competition, but you get what you pay for. The 
taxpaying public has received dangerous railcars plagued by 
undercarriage faults, door malfunctions, and derailment and electric 
buses experiencing brake pressure issues, door issues, cracked and 
missing welds compromising the integrity of the buses, malfunctioning 
wheelchair accessibility, and exposed high voltage cables that created 
a risk of electrical fire. \2\
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     \2\ ``Inspection of Albuquerque Rapid Transit Project 
Procurement'', Peter Pacheco, Office of the Inspector General, City of 
Albuquerque. 6 June 2018.
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    Left unchecked, the toll on U.S. supply chains will be devastating. 
Because CRRC and BYD's U.S. assembly operations are a supply line for 
major rolling stock components produced in China, the jobs of American 
workers throughout our domestic supply chains are now at risk. A recent 
MassLive article describes the business model well: ``[CRRC's] cars 
come to Springfield as unfinished metal shells built in China. Here, 
workers install all the electronics, interiors, motors and other 
equipment.'' \3\ Meanwhile, a city official familiar with BYD's 
assembly operations remarked that ``the majority, if not all, parts 
were manufactured in China and shipped to the United States.'' \4\
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     \3\ ``Rail Car Maker CRRC MA Deals With Production Delay, Trade 
Tensions as It Builds Warehouse for East Springfield Factory'', Jim 
Kinney. MassLive. 9 February 2020.
     \4\ ``Inspection of Albuquerque Rapid Transit Project 
Procurement'', Peter Pacheco, Office of the Inspector General, City of 
Albuquerque. 6 June 2018.
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    China's ambitions are sizeable: To establish a substantial foothold 
into our public transit market as a means of expanding into private 
sectors such as the freight rail and electric vehicle markets. Jobs, 
supply chains, innovation, and the security of Americans using our 
public transportation systems are all at risk. We are also deeply 
concerned about China's ``military-civil fusion'' partnerships, which 
means that doing business with China's State-owned and State-supported 
enterprises directly finances China's development of its military 
capabilities and proliferation of its surveillance regime. Technology 
and data obtained by these firms in the United States is handed 
directly to the Chinese military and each collaborates with Huawei.
    We are grateful that Congress--under your bipartisan leadership--
has begun taking action to mitigate this threat. As China's State-
backed firms have sought to avail themselves of U.S. tax dollars to 
advance Beijing's broader economic and military interests, your 
bipartisan leadership led to passage of a version of the Transportation 
Infrastructure Vehicle Security Act (TIVSA) as part of the fiscal year 
2020 National Defense Authorization Act (NDAA). If TIVSA is properly 
implemented as intended by Congress, CRRC and BYD will no longer have 
unfettered access to the Federal dollars used to procure public transit 
vehicles. The TIVSA law represents an important milestone in the United 
States' policy response to the threat of China's State-driven gaming of 
our economy.
    Yet, China's assault on our public transportation infrastructure is 
not likely to subside and the manufacturing capabilities that underpin 
America's public transportation remain at risk. It is necessary for 
Congress to remain vigilant about the threat that China's State-owned 
and State-supported firms continue to pose to American jobs, supply 
chains and national security:

    We must ensure that the Administration implements the TIVSA 
        law without delay and as Congress intended.

    We must reject shortsighted attempts to undermine the TIVSA 
        law.

    We must be better stewards of U.S. tax dollars by closing 
        loopholes and ensuring compliance with applicable Buy America 
        laws.

    We must incentivize the production of electric vehicle 
        batteries and battery cells in the United States.

    And, we must invest in America's failing infrastructure.

    AAM has a long history of standing up to China's cheating on trade 
policy, including its environmental and labor record. For 12 years we 
have worked with leaders of both parties to push back against dumping, 
subsidies, currency manipulation, and other unfair trade practices that 
have cost millions of American workers their jobs over the past two 
decades. It is unfortunate that some have chosen to attack us for 
offering fact-based information to policymakers. To date, neither BYD 
nor CRRC have refuted any facts that AAM or others have laid out about 
their deep connections to the Chinese Government, the Communist Party, 
the Chinese military, or other State-championed firms like Huawei.
    It is the duty of this Committee and of Congress to scrutinize how 
these firms are systematically seeking to destroy the competitive 
national landscape for U.S. rolling stock manufacturing. We must strive 
to be good stewards of American tax dollars and promote a competitive, 
market-based ecosystem of companies that do not benefit from aggressive 
foreign Government support to bankroll anticompetitive behavior.
    Again, thank you for the opportunity to testify at today's hearing. 
My full testimony has detailed information on CRRC and BYD, along with 
policy recommendations that we hope you will take into consideration.
China Railway Rolling Stock Corporation (CRRC)
CRRC Threatens U.S. Rail Supply Chains
    In 2014 the Massachusetts Bay Transportation Authority (MBTA) made 
what we believed to be a shortsighted decision to award a $566 million 
railcar contract to a Chinese SOE, CNR, that would soon after become 
CRRC after merging with yet another Chinese State-owned rolling stock 
firm that was disqualified from the same bidding process. CRRC's bid 
was more than $200 million below the next lowest bidder and roughly 
half that of another established firm. At the time, I wrote to then-
Massachusetts Governor Deval Patrick warning that granting this award 
with tax dollars would reward and enable illicit competition tied to 
the Chinese Government. ``As a basic principle of fairness, all bids 
should play by the same set of market rules and none should be allowed 
to benefit from the backing of a foreign Government. It is cheating, 
plain and simple, and should not be rewarded using taxpayer dollars,'' 
I wrote. ``By making [CRRC's] entry into the U.S. market possible, this 
procurement opens the door to unfair, State-owned competition on other 
rail and transit procurements throughout the United States.''
    Regrettably, AAM's warning was ignored, and the concerns outlined 
in that letter more than 5 years ago have become reality. Once MBTA 
legitimized CRRC with its first major U.S. transit contract, it quickly 
secured an additional $2 billion in transit railcar contracts in 
Philadelphia, Los Angeles, and Chicago with low bids that no private-
sector competitor could possibly match. In Philadelphia, a competitor 
was quoted as saying, ``I cannot grasp how they are able to do it at 
that cost.'' \5\ Compounding the damage, MBTA granted another $277 
billion contract to CRRC 2 years later.
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     \5\ ``Mass.-Based Company With Chinese Backing Beats Local Group 
for SEPTA Car Contract'', The Philadelphia Inquirer. 21 March 2017.
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    With the financial backing of Beijing, CRRC is systematically 
working to drive established competitors out of the market and achieve 
a monopoly in U.S. and global railcar production. But, don't just take 
my word for it. In January of 2018, CRRC tweeted, ``Following CRRC's 
entry to Jamaica, our products are now offered to 104 countries and 
regions. So far, 83 percent of all rail products in the world are 
operated by #CRRC or are CRRC ones. How long will it take for us 
conquering the remaining 17 percent?'' \6\ This tweet was later 
deleted.
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     \6\ @CRRC--Global, ``Following CRRC's entry to Jamaica, our 
products are now offered to 104 countries and regions. So far, 83 
percent of all rail products in the world are operated by #CRRC or are 
CRRC ones. How long will it take for us conquering the remaining 17 
percent?'' Twitter, January 11, 2018. [Tweet deleted]
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    We acknowledge that Boston, Los Angeles, and Chicago secured 
commitments that final assembly of CRRC railcars be completed locally 
with additional pledges of support for local workers. That these 
transit agencies sought to preserve some American jobs is commendable, 
but their efforts do little to mitigate other overwhelmingly negative 
impacts to our Nation. High-wage jobs throughout the U.S. rail 
manufacturing supply chain are at risk of being displaced by workers 
operating under harsh conditions and little pay in China. CRRC's U.S. 
assembly plants are a vehicle--both literally and figuratively--for 
Chinese content to be delivered into the U.S. market.
    As of 2015, there were more than 750 companies in at least 39 
States that manufacture components for passenger rail and transit rail. 
This includes: 24 major locomotive, railcar, and streetcar assembly 
facilities; 188 direct suppliers that manufacture major propulsion, 
electronics, and body components and systems; and, in the Midwest and 
Mid-Atlantic alone, 540 additional companies manufacturing 
subcomponents, materials, track and infrastructure, as well as 
providing repair and remanufacturing to the industry. All told, the 
U.S. rail manufacturing sector supports 90,000 jobs. \7\ As noted 
earlier in my testimony, CRRC's entry into the U.S. transit procurement 
market is almost assuredly a precursor to penetrating our freight rail 
market, a sector that not only supports 65,000 manufacturing jobs but 
is also responsible for moving 40 percent of all goods in the United 
States. \8\
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     \7\ ``Passenger Rail & Transit Rail Manufacturing in the U.S.'', 
BlueGreen Alliance and the Environmental Law & Policy Center. January 
2015.
     \8\ ``Will We Derail U.S. Freight Rolling Stock Production: An 
Assessment of the Impact of Foreign State-Owned Enterprises on U.S. 
Freight Rolling Stock Production'', Oxford Economics, May 2017.
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Quality and Safety of CRRC Railcars Is a Recurring Issue
    In only a limited period, there are already numerous accounts of 
quality and safety problems with CRRC railcars carrying passengers in 
Boston. Just this week, MBTA removed CRRC railcars from service after 
identifying a serious equipment fault. According to authorities, 
``Inspectors identified a fault with the bolsters which is being 
corrected to ensure the vehicles are reliable and safe . . . '' \9\ 
\10\ According to an MBTA spokeswoman, the bolster is a beam underneath 
the railcar that allows navigation along turns on the track. This news 
is even more concerning given that it is third time CRRC railcars have 
been pulled from this particular train line since delivery. In December 
2019, CRRC railcars witnessed odd noise related to a different 
undercarriage problem and, in September 2019, a malfunction opened 
doors while the trains were in motion. \11\ Worse yet, a CRRC train 
derailed from its tracks in November 2019. \12\
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     \9\ ``MBTA Taking New Orange Line Trains Out of Service'', Emily 
Sweeney. Boston Globe. 3 March 2020.
     \10\ ``MBTA Takes All New Orange Line Trains Out of Service for 
Repair'', Stefan Geller. Boston Herald. 3 March 2020.
     \11\ ``CRRC: The MBTA Is Handling Latest Problem With Springfield-
Built Orange Line Cars'', Jim Kinney. MassLive. 3 March 2020.
     \12\ ``MBTA Investigating Derailment of New Orange Line Train in 
Medford Rail Yard'', Steph Solis. MassLive. 18 November 2019.
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CRRC Poses a Serious Security Threat
    CRRC's rapid ascent raises alarming questions about Beijing's 
backdoor access to and operational control over critical technology 
embedded in our rail infrastructure--such as GPS, sensors and other 
safety features. Within the TIVSA law, policymakers rejected the 
possibility that the Washington Metropolitan Area Transit Authority 
(WMATA) could award its pending procurement for its 8000-series railcar 
to CRRC. This was a clear statement that Beijing should not have 
operational control of or access to a major U.S. transit system, 
opening our critical infrastructure to potential attack or backdoor 
access to sensitive data and communications of riders. Putting railcars 
manufactured by a Chinese State-owned firm underneath the Pentagon in 
Washington, D.C., or near sensitive locations in New York City or 
anywhere else in America is a horrible idea.
    As you will hear from other experts on today's panel, CRRC is 
Beijing's national champion in rail and emerging transportation 
systems. It plays a direct role in China's military-civil fusion 
strategy. According to research released by Radarlock in 2019, CRRC is 
working directly with Beijing to obtain foreign technology, collect 
sensitive data, and export technologies and information systems that 
threaten individual and data security, including those of Huawei. CRRC 
executives wear ``dual hats'' as corporate and Party leaders, appointed 
for political purposes. \13\
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     \13\ ``CRRC and Beijing's Dash for Global Rolling Stock 
Dominance'', Bruyere and Picarsic. Radarlock. October 2019.
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Build Your Dreams (BYD)
BYD Wants To Move From Electric Buses to Electric Automobiles in the 
        United States
    In 2013 BYD, short for ``Build Your Dreams'', established an 
electric bus assembly facility in Lancaster, California, signaling its 
intention to compete for taxpayer-funded transit contracts in U.S. 
cities. BYD says it has more than 50 public and private customers in 
the United States, including universities and airports, and has 
delivered more than 400 electric buses from its California facility. 
Globally, it claims to have 40,000 electric buses in service \14\ and 
is a major producer of rechargeable battery technology in China for 
various end products.
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     \14\ BYD website.
---------------------------------------------------------------------------
    Like CRRC, BYD's unparalleled State-subsidies and low-cost, State-
backed supply chain of imported Chinese parts and components allow it 
to undercut competition with impossibly low prices. A recent San 
Francisco pilot purchase of three electric buses each from BYD and two 
competitors showed that the Chinese State-supported firm's price tag 
came in millions of dollars below the established, market-driven 
competition. \15\
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     \15\ ``Transit Agency Approves Pilot Contracts To Test Electric 
Buses'', Jerold Chinn. SFBay.ca. Website. 6 November 2019. Accessed 29 
Feb 2020.
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    Already one of the world's largest battery producers and the 
world's largest electric vehicle company, BYD executives have been 
outspoken in their plans to one day sell passenger electric vehicles in 
the United States. In 2008, BYD's chairman has ``boasted of plans to 
dominate world auto sales by 2025'' and, more recently, a BYD executive 
said the company planned to sell passenger cars in the United States in 
``roughly 2 to 3 years.'' Left unchecked, BYD's business model would 
threaten over 5,600 auto parts suppliers spread across the Nation, 
employing 871,000 workers. \16\
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     \16\ ``State of the U.S. Automotive Industry'', American Auto 
Policy Council. August 2018.
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BYD Buses Plagued by Quality and Safety Concerns
    BYD's struggles with quality, consistency, and performance have 
been well documented. According to Albuquerque officials, bus batteries 
limited the bus range to 177 miles on a single charge, far short of the 
275 miles stipulated in its contract. The buses also experienced 
serious safety issues, including brake pressure issues, door issues, 
cracked and missing welds compromising the integrity of the buses, 
malfunctioning wheelchair accessibility, and exposed high voltage 
cables that created a risk of electrical fire. \17\ The city has 
resorted to legal action against BYD. \18\
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     \17\ ``BYD Faces Albuquerque Lawsuit: City Claims Bus Firm Didn't 
Live up to Deal'', Antelope Valley Press. 08 December 2018.
     \18\ City of Albuquerque v. BYD Motors, Inc., No. 1:2019-cv-00012 
(U.S. Dist. Ct., NM).
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    Meanwhile, Los Angeles city transit agency staff ``called them 
`unsuitable,' poorly made and unreliable for more than 100 miles,'' the 
LA Times reported. Buses used in Los Angeles experienced white smoke 
from a rear wheel, wouldn't start on a second run, lost charge after 
just 68 miles, and stalled on the road. Others serving Disney resorts 
experienced door and air system failures. In Denver, bus doors would 
not open or close. In Columbia, Maryland, passengers were ``jolted by 
an explosion and a wheel fire.'' \19\
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     \19\ ``Stalls, Stops and Breakdowns: Problems Plague Push for 
Electric Buses'', Paige St. John. Los Angeles Times. 20 May 2018.
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BYD Is a National Champion of China's Electric Battery Goals
    While BYD is not a ``State-owned'' company in the same advertised 
manner as CRRC, it enjoys many of the same benefits and has similar 
connections to Communist Party Leaders, the China's military, and firms 
like Huawei. As the U.S.-China Economic & Security Review Commission 
has noted, ``some private Chinese companies operating in strategic 
sectors are private only in name, with the Chinese Government using an 
array of measures, including financial support and other incentives, as 
well as coercion, to influence private business decisions and achieve 
State goals.'' \20\
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     \20\ U.S.-China Economic and Security Review Commission, 2017 
Annual Report to Congress, at 3.
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    The Made in China 2025 strategy identified new energy vehicles as 
one of ten priority sectors for developing indigenous innovation 
capability, making the sector a priority, high-technology industry 
important to China's mid- and long-term growth strategy. BYD is one of 
China's ``national champions'' meaning Beijing believes it has a high 
potential for growth, innovation, and the ability to advance China's 
industrial and other policy goals. ``At the heart of BYD's technology 
is its batteries for a broad range of applications--from cell phones 
and laptops to large-scale, grid-connected energy storage systems,'' 
its website boasts. \21\ There are documented cases of BYD's battery 
technology being provided to China's military. \22\
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     \21\ ``About'', BYD website.
     \22\ ``Building the China Dream: BYD & China's Grand Strategic 
Offensive'', Bruyere and Picarsic. Radarlock. October 2019.
---------------------------------------------------------------------------
    As a national champion, BYD has been the beneficiary of a mix of 
Government support, including a lower corporate tax rate in China, 
loans from State-owned and policy banks, and generous grants and 
subsidies. China initiated its Government support for new energy 
vehicles in 2009 targeting battery, hybrid, and fuel cell electric 
vehicles, including both passenger and commercial vehicles. \23\ This 
support grew over time and, according to a 2019 Bloomberg article, 
``the company received new energy vehicle subsidies equal to 380 
percent of its electric car sales . . . [getting] about 8.2 billion 
yuan ($1.2 billion) from the central Government and 4.4 billion yuan 
[$647 million] from local governments.'' This Government backing made 
it possible for BYD to deploy its battery technology into commercial 
vehicles. \24\
---------------------------------------------------------------------------
     \23\ Compiled from Government of China Announcements.
     \24\ ``Buffett's China Ride Is Losing Power With Investors'', 
Bloomberg. 19 February 2019.
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BYD Is Closely Aligned With Beijing
    While BYD consistently cites Warren Buffett as its largest 
shareholder, there are several Chinese State-owned investment funds 
that hold equity interests in BYD or its subsidiaries. \25\ Meanwhile, 
BYD's leadership have past and present ties to local and national 
Chinese Governments. For instance, BYD's Chairman and CEO Wang Chuanfu 
owns a significant stake in the company and was a delegate of the 
People's Congress of Shenzhen from 2000 to 2010 and held a position 
with the city legislature from 2005 to 2015. \26\ Much of BYD's 
staggering global growth is owed to BYD's nearly exclusive access to 
its home market of Shenzhen, a city of twelve million people, where it 
supplied upwards of 80 percent of the city's 14,000 electric buses. 
\27\ Zou Fei, an expert of the ``Thousand Talents Program'' of the 
Central Committee of the Communist Party of China, \28\ was previous 
managing director within the sovereign wealth fund responsible for 
managing China's foreign exchange reserves. Also the deputy general 
manager of Norinco Group--a State-owned defense company--serves as a 
supervisor on BYD's Board. \29\
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     \25\ BYD 2017 Annual Report and BYD Financial Releases.
     \26\ BYD 2017 Annual Report.
     \27\ ``100% Electric Bus Fleet For Shenzhen (Population 11.9 
Million) By End of 2017'', Clean Technica. 12 November 2017.
     \28\ BYD 2017 Annual Report.
     \29\ BYD 2013 Interim Report.
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    Despite its best efforts to brand itself as a private company free 
of Beijing's influence, BYD's direct and active role in China's 
military-civil fusion strategy is deeply disturbing and well documented 
in the 2019 Radarlock Report, ``Building the China Dream: BYD & China's 
Grand Strategic Offensive''. BYD uses its status as a ``private 
company'' to ``obtain technology, information, and positioning from the 
international market, then to carry those back to the CCP and the 
People's Liberation Army (PLA).'' Meanwhile, its research and 
development centers are ``incubated'' in military-civil fusion zones 
that focus on technology transfer and data sharing. BYD and now-banned 
Huawei signed a ``comprehensive strategic cooperation agreement'' in 
March 2019, solidifying a long-standing, ``inseparable'' partnership 
between the two firms. BYD not only benefits from the Made in China 
2025 strategy, it is helping to formulate the next iteration: China 
Standards 2035. \30\ This paints a troubling profile of a company with 
deep ties to the Chinese Government and military that is trying to 
masquerade as a commercial entity.
---------------------------------------------------------------------------
     \30\ ``Building the China Dream: BYD & China's Grand Strategic 
Offensive'', Bruyere and Picarsic. Radarlock. October 2019.
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BYD's Reliance on Chinese Imports Raises Buy America Compliance 
        Questions
    U.S. domestic content preference laws--including the Buy America 
law applied to transit Federal assistance--are an important policy to 
incentivize domestic capital investment and ensure that American 
workers supply the materials and components used to build our vehicles 
and infrastructure. An Albuquerque Inspector General report raised 
significant questions as to BYD's Buy America compliance and the degree 
to which it relies on imported Chinese components and parts for the 
electric buses it assembles in Lancaster, California. While a BYD 
official said that ``only the frames of the buses were made in China,'' 
the IG report offers sharply different accounts from city inspectors. 
One person interviewed say that ``the majority, if not all, parts were 
manufactured in China and shipped to the United States.'' Another 
observed that ``many of the shipping labels for various components had 
Chinese characters.'' After asking about the status of certain 
components, including lights and seating, an inspector was told ``it's 
on the boat'' and believed that ``everything'' originated in China 
based on responses to questions. \31\
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     \31\ ``Inspection of Albuquerque Rapid Transit Project 
Procurement'', Peter Pacheco, Office of the Inspector General, City of 
Albuquerque. 6 June 2018.
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    A closer look at BYD's Buy America compliance calculations in the 
IG report reveal even more alarming questions, particularly with the 
way battery power systems consisting of Chinese content are counted.

    BYD met the 65 percent statutory threshold \32\ with 53 
        percent of the total cost of materials attributed to its Power 
        Battery System. Meanwhile, import records show that BYD imports 
        massive quantities of battery equipment, including battery 
        cells, from another BYD subsidiary in China. This foreign 
        content is used to assemble a battery pack that ostensibly 
        qualifies as domestic component for purposes of FTA's Buy 
        America regulation. \33\ This, in turn, means that all other 
        domestic-origin components--such as seats and the farebox--
        accounted for as little as 18 percent of the total cost of 
        materials in a BYD electric bus.
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     \32\ The statutory Buy America law for rolling stock procurements 
funded with Federal Transit Administration (FTA) grants requires that 
assembly occur in the United States and that domestic content account 
for a minimum of 65 percent as measured by total material cost, 
increasing to 70 percent by FY2020.
     \33\ BYD's U.S. Imports Derived from Shipping Manifests, 2017 and 
2018 YTD as of Nov. 28, 2018, Obtained from Panjiva, Inc.

    An individual interviewed in the Albuquerque IG report 
        indicated that he felt ``pressured'' to validate [Buy America] 
        compliance by signing documents representing that he personally 
        validated the origination of the components. Upon being told 
        that ``signing the document was just a `formality' to ensure 
        compliance,'' he said that he felt ``uncomfortable'' signing. 
        He later told the IG ``that he felt he was under duress in 
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        being pressured to sign the document.''

    Meanwhile, the IG report indicates that BYD provided the 
        ``summary of calculations for the percentages of United States 
        made parts'' to the auditor tasked with ensuring Buy America 
        compliance. Given that many of BYD's imported components and 
        parts come from other divisions of BYD, this raises serious 
        questions as to the validity of that information and how 
        thorough of an audit was conducted.

    As further evidence, we direct your attention to BYD's 
        public comments submitted to the U.S. Trade Representative 
        (USTR) requesting Section 301 tariff relief for storage 
        batteries, \34\ air conditioning machines, seats, parts and 
        accessories, \35\ and electric vehicles, specifically noting 
        its K9S, \36\ K9MC, \37\ K7M, \38\ and K8S \39\ electric bus 
        models. USTR's General Counsel stated that the ``request was 
        denied because the request concerns a product strategically 
        important or related to `Made in China 2025' or other Chinese 
        industrial programs.''
---------------------------------------------------------------------------
     \34\ BYD America Corp. comments and appendix, Proposed 
Determination of Action Pursuant to Section 301: China's Acts, 
Policies, and Practices Related to Technology Transfer, Intellectual 
Property, and Innovation, Docket No. USTR-2018-0005, May 14, 2018.
     \35\ BYD Motors LLC comments, China's Acts, Policies, and 
Practices Related to Technology Transfer, Intellectual Property, and 
Innovation, Docket No. USTR-2018-0026, Sept. 6, 2018.
     \36\ Exclusion Denied, BYD Motors Inc., Electric bus, HTS 
8702903100, USTR-2018-0025-7530, Oct. 26 2018.
     \37\ Exclusion Denied, BYD Motors Inc., Electric bus, HTS 
8702903100, USTR-2018-0025-7528, Oct. 26, 2018.
     \38\ Exclusion Denied, BYD Motors Inc., Electric bus, HTS 
8702903100, USTR-2018-0025-7346, Oct. 25, 2018.
     \39\ Exclusion Denied, BYD Motors Inc., Electric bus., HTS 
8702903100, USTR-2018-0025-7347, Oct. 25, 2018.
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Policy Recommendations
    AAM appreciates your leadership in securing enactment of the TIVSA 
law. Yet, China's assault on our public transportation infrastructure 
is not likely to subside and the manufacturing capabilities that 
underpin America's public transportation remain at risk. There is more 
work that must be done to mitigate the threat of Chinese State-owned 
and State-supported companies.

    Implement TIVSA Without Further Delay. More than 2 months 
        have now passed since TIVSA enactment and the Administration 
        has yet to notify or release guidance to transit agencies. We 
        are concerned that failing to educate transit agencies in a 
        timely manner about how TIVSA impacts their planning decisions 
        leaves an opening for deception and misinformation.

    Defend and Enhance TIVSA. Already, there are forces at work 
        to undermine TIVSA. Shortly after enactment, CRRC held a 
        ``thank you'' event at which speakers discussed plans to 
        indefinitely extend the 2-year implementation delay. \40\ We 
        urge Congress to reject any attempts to undermine the TIVSA 
        law. Instead, AAM supports efforts to accelerate 
        implementation, educate transit agencies, and enhance the law.
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     \40\ ``CRRC MA, Rep. Richard Neal Celebrate Victory in Washington; 
Compromise Allows Rail Car Company To Keep Seeking New Work'', Jim 
Kinney. MassLive. 23 December 2019.

    Tighten Buy America Laws. AAM supports making improvements 
        to longstanding Buy America laws by closing loopholes, 
        modernizing rules for battery content, and adding additional 
        teeth to prevent erosion of our supply chains. We find it 
        concerning that companies like BYD are meeting the statutory 
        Buy America threshold with electric batteries assembled 
        domestically almost entirely of foreign content, with little to 
        no domestic processing in the United States. It is appropriate, 
        in our view, to recognize that short-term market limitations 
        exist in battery cell production and create a Buy America 
        framework for electric batteries that rewards value added by 
        American workers. We must also ensure that other non-battery 
        components and parts continue to be produced in the United 
        States and are not diminished by virtue of the outsized cost of 
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        the electric battery.

    Develop a Policy Framework for Domestic Battery Production. 
        Faced with a deeply distorted global market, Congress and the 
        Administration should work together to establish a mix of 
        incentives and policies that maximize the utilization of new 
        energy vehicles and expand the supply chain for the domestic 
        production of electric batteries and battery cells.

    Conduct Buy America Audits. AAM encourages further scrutiny 
        of both CRRC's and BYD's Buy America certifications to ensure 
        compliance. Both companies appear to rely heavily on imported 
        Chinese content and the Albuquerque IG report raised 
        significant questions as to the legitimacy of BYD's 
        certification.

    Invest in America's Failing Infrastructure. Last, but 
        certainly not least, we encourage you to continue the 
        challenging work of passing a substantial infrastructure 
        investment paired with strong Buy America requirements.
Conclusion
    We applaud the Committee for holding today's hearing and for your 
leadership in securing enactment of the TIVSA law. We look forward to 
working with you to counter the threats to America's public 
transportation while strengthening U.S. manufacturing.
                                 ______
                                 
               PREPARED STATEMENT OF EMILY DE LA BRUYERE
                      Principal, Horizon Advisory
                             March 5, 2020
    Thank you, Chairman Crapo, Ranking Member Brown, and Members of the 
Committee, for inviting me to testify before the Senate Banking 
Committee this morning.
    CRRC and BYD are vehicles of the Chinese State: They receive 
significant State subsidies, implement Chinese Communist Party (CCP) 
international strategy, and directly connect to Beijing's military 
apparatus. Those are facts. You will hear from other witnesses today 
about immediate implications for national and economic security; about 
threats to America's manufacturing industrial base and cybersecurity. I 
echo their serious concerns.
    But I am here to tell you about Beijing's plan, about the strategic 
vision with which China deploys its champions, in transport and in 
other foundational networks, and the far-reaching implications of that 
vision for American security.
    CRRC, BYD, and the larger ecosystem of Chinese champions 
operationalize a long-standing, codified, strategic bid to overtake the 
United States. \1\ As documented in CCP literature, that bid begins by 
making critical U.S. economic and military infrastructures dependent on 
Beijing. It ends with CCP control over international networks, 
standards, and platforms--in other words, CCP control over global 
movement. This is network hegemony. It establishes its footholds in 
transportation and manufacturing. It extends into health, agriculture, 
information, information technology, finance. It spans critical 
technology, infrastructure, and data. If Beijing succeeds, it will 
claim global coercive power. It will use that power liberally.
---------------------------------------------------------------------------
     \1\ Xi Jinping describes this ambition with a Chinese phrase that 
translates, roughly, to ``overtake around a corner.'' Based on the 
action of one car passing another car on a corner, the concept refers, 
in the geostrategic sense, to leveraging moments of flux to overtake a 
competitor.
---------------------------------------------------------------------------
    Authoritative Chinese sources are explicit about this ambition. 
Take, for example, 2018 State Council policy guidelines:

        The implementation of China's railway strategy will establish a 
        full domestic and ``Belt and Road'' network that will extend to 
        neighboring countries and even the world: Air transportation, 
        sea transportation, road transportation, logistics nodes, and 
        urban distribution will all be dominated through the leadership 
        of the railway network. \2\
---------------------------------------------------------------------------
     \2\ Railway Supply-Side Reforms Reshape the Logistics Market 
Landscape, Logink Network, November 15, 2018.

    That narrative is matched by the facts: By the mandates China 
assigns its State champions, the support with which it deploys them 
internationally, and the policies directing that support--policies that 
extend from Made in China 2025 to its new successor, China Standards 
2035; \3\ from the Strategic Emerging Industries Initiative to the 
Transportation Great Power Strategy.
---------------------------------------------------------------------------
     \3\ Planning for that industrial strategy was completed in 
January. It is expected to be released in March. [``China Standard 
2035'' Project Concluding Meeting and ``National Standardization 
Development Strategy Research'' Project]. State Administration for 
Market Regulation, January 14, 2020.) For additional discussion, see 
Emily de La Bruyere and Nathan Picarsic, ``Game of Phones: 5G Is the 
Next U.S.-China Standards Battleground'', The Octavian Report, Summer 
2019, https://octavianreport.com/article/5g-us-china-standards-fight/.
---------------------------------------------------------------------------
    My testimony will walk through these facts as they relate to BYD, 
CRRC, and the Chinese strategic approach to the transportation domain. 
I will begin by detailing the ties linking BYD and CRRC to the Chinese 
Government and military apparatus. I will then discuss the Chinese 
Government plans shaping those ties, and their implications for U.S. 
economic and national security.
    The network strategy behind Beijing's actions amplifies the first-
order risks elaborated by the other witnesses here today. The network 
power that Beijing has already cemented underscores the immediacy of 
the threat. China's offensive is underway.
State and Military Ties
    Beijing aggressively subsidizes its transportation champions so 
that they can underprice international competitors. This tactic may 
produce a short-term loss. But China is directing its State champions 
according to a long-term vision: As they capture critical nodes, 
networks, and supply chains, Beijing more than recoups its investment--
both strategically and economically. At a first level, basic American 
infrastructure systems, systems that Beijing qualifies as national 
defense structures, come to rely on Chinese actors. At the next, 
Beijing seizes the information and physical foundations for a new 
generation of ``smart,'' or ``connected,'' infrastructure. Beijing 
locks in not just asymmetrical dependence, but also information 
dominance and standard-setting power.
    China's intentions are not benign. This approach is part and parcel 
of Being's military agenda, operationalized in a national-level 
military-civil fusion \4\ (MCF) program that masks Beijing's strategic 
positioning in the guise of civilian, commercial activity--that of, 
say, a private electric bus company.
---------------------------------------------------------------------------
     \4\ Emily de La Bruyere and Nathan Picarsic, Military-Civil 
Fusion: China's Approach to R&D, Implications for Peacetime 
Competition, and Crafting a U.S. Strategy, 2019 NPS Acquisition 
Research Symposium, May 2019; Emily de La Bruyere and Nathan Picarsic, 
``Military-Civil Fusion: Crafting a Strategic Response'', CHIPS (DoN 
CIO Magazine), July-September 2019, https://www.doncio.navy.mil/CHIPS/
ArticleDetails.aspx?ID=12635.
---------------------------------------------------------------------------
State Financial Support
    CRRC is a State-owned enterprise controlled by the Chinese State 
Council's State-Owned Assets Supervision and Administration Commission 
(SASAC). \5\ CRRC's core and original business is the manufacture of 
rolling stock. It is the largest such manufacturer in the world. But 
through subsidiaries, investments, and partnerships, in China and 
abroad, CRRC's business extends more broadly, covering the entire land 
transportation ecosystem. CRRC's apparatus includes 46 wholly and 
majority-owned subsidiaries. \6\ They reflect a presence across all of 
the rail industry's value chain, as well as emerging, adjacent domains: 
New materials, alternative energy sources, electric motors and 
transmissions, sensor networks, autonomous driving, semiconductors, 
energy storage. CRRC focuses in particular on ``smart transportation'' 
and data systems.
---------------------------------------------------------------------------
     \5\ The Chinese Government owns 53 percent of CRRC through the 
Chinese holding company China Railway and Rolling Stock Group 
Corporation. (CRRC Annual Report, 2018). As a CRRC representative put 
it in 2016, ``CRRC's actual controller is a State-owned fund. CRRC is 
thus a State-owned entity.'' ([Sun PengCong]. [Nature of Property 
Rights, Government Support, and Financial Risks of M&A]. Inner Mongolia 
University, 2016.)
     \6\ Or, at least, its website declares that figure: CRRC's 2018 
annual statement lists investments in 51 subsidiaries. And according to 
reports from its 2018 audit, in 2016 it declared 401 wholly owned and 
holding subsidiaries as well as 109 shareholding companies. [Audit 
Commission: CRRC and Other Super Companies Total Expenditure Subsidy of 
647.3 Million], Audit Commission, June 20, 2018.
---------------------------------------------------------------------------
    CRRC is one of the most heavily subsidized companies in China. 
Since 2015, CRRC has reported more than 6 billion RMB (over 850 million 
USD) in direct subsidies, with 1.37 billion RMB (or approximately 191 
million USD) in 2018. \7\ CRRC's 2019 subsidies likely exceeded that 
figure. \8\
---------------------------------------------------------------------------
     \7\ [CRRC Corporation Annual Report], 2015 through 2018.
     \8\ As of June, CRRC had already reported 632.87 million RMB in 
direct subsidies. ([CRRC Corporation Limited Semi-annual Report 2019], 
2019).
---------------------------------------------------------------------------
    This financial backing is orders of magnitude higher than what CRRC 
discloses in its English language annual reports. \9\
---------------------------------------------------------------------------
     \9\ CRRC's English language annual reports suggest that it 
received approximately 243 million RMB (about 34 million USD) in 
``Government grants'' in 2018 and 994 RMB (about 140 million USD) in 
2017.
---------------------------------------------------------------------------
    Still, these figures likely underestimate the true degree of 
Government financial support fueling CRRC. They do not account for the 
beneficial tax cuts that fund much of CRRC's research and development 
(R&D) \10\--or, of course, any subsidies that CRRC chooses not to 
declare. \11\ Nor do these figures account for the indirect support 
that CRRC receives: The State-owned enterprise benefits from an entire 
ecosystem of Government-backed R&D programs, innovation centers, 
national projects, and laboratories, many of which it oversees. And 
where CRRC has not vertically integrated, it further benefits from a 
domestic supply chain comprised of additional State-owned and State-
backed vendors. The CCP also helps to set up CRRC's international 
contracts, marketing it as a One Belt One Road champion. \12\
---------------------------------------------------------------------------
     \10\ In 2018, the State Administration of Taxation increased the 
tax deduction for R&D expenses from 50 percent to 75 percent, a 
deduction that ``basically subsidizes 11 to 18 percent of actual R&D.'' 
Vice President of CRRC Zhan Jingyan explained in March that, for CRRC, 
which invests about 10 billion (about 1.4 billion USD) annually into 
R&D, that amounts to ``at least 1 billion RMB [about 140 million USD] 
of subsidies a year.'' ([1 billion plus 600 million: After the tax and 
fee reduction, how much can CRRC save?]. East Money Finance, March 30, 
2019.)
     \11\ CRRC has limited incentive publicly to report the full extent 
of Government financial support that can otherwise be obscured--and the 
Chinese State can easily funnel funds to companies that it owns.
     \12\ Premier Li Keqiang is called the ``super salesman'' of CRRC. 
([Sun Peng Cong]. [Nature of Property Rights, Government Support, and 
Financial Risks of M&A]. Inner Mongolia University, 2016.)
---------------------------------------------------------------------------
    Proportionately speaking, BYD receives even more State support than 
does CRRC. BYD has reported a total of 9.2 billion RMB (1.3 billion 
USD) in Government grants and subsidies since 2007. The company 
declared 2.3 billon RMB (approximately 328 USD million) in Government 
subsidies in 2018 alone. Those funds constituted more than half of 
BYD's total profit. In the third quarter of 2019, while Congress was 
debating the Transit Infrastructure Vehicle Security Act (TIVSA), BYD 
declared over RMB 1 billion more in direct Government subsidies. \13\ 
Relative to profit, BYD is the single most subsidized Chinese player in 
its field.
---------------------------------------------------------------------------
     \13\ [BYD Annual Reports], 2009 through 2018; [BYD Third Quarterly 
Report], 2019.
---------------------------------------------------------------------------
    As with CRRC, these figures likely constitute a lower-bound of the 
true magnitude of Government support. They omit, for example, consumer-
side subsidies that reduce the price of electric vehicles in China: 
CITIC Securities estimates that BYD received an additional 37.3 billion 
RMB (5.3 billion USD) of such subsidies between 2016 and 2018. \14\
---------------------------------------------------------------------------
     \14\ Glonway, ``The Story of the BYD Government Subsidy'', Sina 
Finance, July 29, 2019.
---------------------------------------------------------------------------
    BYD is not a State-owned Enterprise. But it is guided by the 
Chinese Government. In fact, BYD's CCP connections are all the more 
threatening for its private status. Beijing knows that the U.S. and 
other international systems treat private companies as neutral actors. 
So, Beijing leverages those as masked vehicles for its offensive. In 
November 2018, the Ministry of Transportation invited BYD, as well as 
19 other private companies, \15\ ``to discuss the role of private 
capital in building a Transportation Great Power.'' The Minister 
promised ``unwaveringly to encourage, support, and guide the private 
enterprises to become bigger, stronger, and better.'' In return, he 
reminded them that they were to ``contribute to the grand strategy and 
platform of a `Transportation Great Power'.''
---------------------------------------------------------------------------
     \15\ Huachuan Group, Land Bridge Group, Juneyao Airlines, SF 
Express, SJTI, Intech, Baidu, Didi, Ctrip, Deppon Logistics, Hecheng 
Group, Jinling Transportation, Chongqing Heniu, Fujian Air China, 
Guangxi New Harbor Engineering, Fujian Port Road, Beijing E-Hualu 
Information Technology, Kahangtianxia, and Shanghai Public Transport.
---------------------------------------------------------------------------
    ''It is hoped that the majority of private entrepreneurs will 
better integrate into the tide of reform and opening up in the new era, 
actively participate in the construction of a Transportation Great 
Power, and work tirelessly to realize the Chinese dream of the great 
rejuvenation of the Chinese Nation.'' \16\
---------------------------------------------------------------------------
     \16\ [The Ministry of Transport invited 20 private enterprises 
such as SF, BYD, Baidu, Didi and others to encourage private capital to 
participate in transportation projects], China Communications News, 
November 22, 2018.
---------------------------------------------------------------------------
    CRRC and BYD's State backing is not unique. They are just two 
players in a much larger constellation. The National New Energy Vehicle 
(EV) subsidy program through which BYD received more than RMB 3.45 
billion in 2018 also funded Foton Motor, Yanzhou Yaxing, BAIC Blue 
Valley, Ankai Automobile, Dongfeng Motor, Yutong Bus, Zhongtong Bus, 
etc. Tesla's largest Chinese competitor, Nio, benefits from the same 
demand-side EV subsidy as BYD.
    The CCP is pursuing a comprehensive program to dominate the 
international transportation supply chain, industry, and market. That 
program is part of Xi Jinping's ``Transportation Great Power'' 
strategy. The objective does not end at industrial development. This 
strategy is about asymmetric dependence, network control, and the 
international, coercive power to be reaped from those.
Military Ties
    China's transportation agenda falls under the rubric of the 
national-level military-civil fusion strategy, a program that deftly 
inserts thinly veiled military tools into the fragmented, open global 
commercial ecosystem for coercive ends. ``Military and civilian are 
different only in name,'' explain Chinese sources, ``The military is 
for civilian use, and the civilian for military.'' \17\ Transportation 
is key to this strategy. According to Chinese classifications, 
transportation falls squarely under the definition of a military 
industry. \18\
---------------------------------------------------------------------------
     \17\ Ma Qing Feng, ``Research on the Synergy Between Defense 
Economy and National Economy''. Henan University, 2013. Ma wrote that 
text under the tutelage of Henan University's Sun Siqiang, former 
senior scholar at the Chinese Academy of Social Sciences, consultant 
expert at the Small and Medium Enterprise Research Center of the 
Ministry of Industry and Information Technology (the Government entity 
charged with implementing MCF), and director of the Chinese Capital 
Research Society.
     \18\ In January 2018, the Ministry of Transport and the National 
Defense Science and Industry Bureau signed a cooperation agreement to 
promote, together, military-civil fusion. A 2018 article from the Army 
Military Transportation Institute is sufficiently on the nose: ``Under 
the conditions of informationization, the military increasingly depends 
on national transportation and communications resources. To strengthen 
the construction of strategic projection capabilities, it is necessary 
to use national strategic transportation resources to establish a 
military-civil fusion strategic projection system. Recently, China's 
transportation infrastructure has achieved unprecedented development. 
so that civil transportation infrastructure and large-scale 
transportation vehicles can not only help economic construction but 
also directly support national defense and military needs to improve 
our military's strategic projection capabilities.'' ([Zhang Jian], 
[Meng Jun], [Yang Xikai]. [Research on the Military-civilian Integrated 
Development of National Defense and Transportation in the New Period], 
2018.)
---------------------------------------------------------------------------
    CRRC and BYD's ties to the People's Liberation Army (PLA) bear this 
point out. Both companies publicly espouse support for military-civil 
fusion, partner with military entities, and define their projects--
especially in new energy automobiles, new materials, high-speed rail, 
and autonomous vehicles, and information systems--as part of the 
military-civil fusion program.
    CRRC's annual report endorses the military-civil fusion strategy:

        We will implement the military-civil fusion development 
        strategy and expand the application of technology and products.

    That is no empty claim. In May 2017, CRRC joined a series of State 
military and financial entities to spearhead a 113.9 RMB billion 
Government investment fund dedicated to military-civil fusion. \19\ 
CRRC calls its High-Speed Train Technology Innovation Center a 
``military-civil fusion project.''
---------------------------------------------------------------------------
     \19\ [China CRRC: Capital to set up a scale of 113.9 billion 
funds, investing in military and civilian integration and other 
industries]. [China Fund News], July 3, 2017
---------------------------------------------------------------------------
    In 2018, CRRC signed a ``strategic cooperation agreement'' with 
AVIC, a State-owned military enterprise, to launch an ``MCF development 
program'' dedicated to new materials, unmanned subways, and autonomous 
driving. \20\ Meanwhile, BYD boasts a ``strategic cooperation'' 
agreement with the China Academy of Launch Vehicle Technology. The two 
seek jointly to develop to materials, guidance, sensors, fasteners, and 
autonomy, among other fields. \21\
---------------------------------------------------------------------------
     \20\ [AVIC and China's CRRC affiliated enterprises signed a 
military-civilian integration development project cooperation 
agreement], Sohu News, May 25, 2018.
     \21\ [BYD will conduct strategic cooperation with China Academy of 
Launch Vehicle Technology], Xinhua, April 7, 2018.
---------------------------------------------------------------------------
    CRRC and BYD also operate R&D centers in ``military-civil fusion 
enterprise zones,'' industrial zones dedicated to incubation of, as 
well as information exchange among, MCF entities. BYD sits in the 
Beijing Daxing MCF Industrial Zone, \22\ the Xi'an High-Tech Industrial 
Development, \23\ and the Baotou Equipment Manufacturing Industrial 
Park. \24\ The Harbin Economic and Technological Development Zone that 
hosts a CRRC R&D center is also home to Harbin North Defense Equipment 
Co., Ltd, AVIC's Dong'an Engine Group, Chinalco's Northeast Light Alloy 
Co., and ``other important military enterprises.'' Those zones, and 
others like them, support their members financially. They also create 
channels for ``research integration;'' mechanisms for sharing 
technological and data resources. \25\
---------------------------------------------------------------------------
     \22\ Approved by the Ministry of Industry and Information 
Technology (MIIT) in 2012, the Beijing Daxing Industrial Base focuses 
on aerospace technology, the weapons industry, new materials, and new 
energy. It hosts, among others, NORINCO, AVIC, and the China Rocket 
Corporation.
     \23\ That zone takes, as its ``main direction,'' ``absorbing high-
quality resources form the whole society to participate in national 
defense construction, guiding civilian technology to expand into the 
military field, and promoting network information.'' (Xi'an High Tech 
Industrial Development Zone, xdz.gov.cn)
     \24\ The Baotou Zone's members include China Weapon First 
Machinery Group and NORINCO's engineering machinery group.
     \25\ The Xi'an Zone--which connects almost 1,000 universities and 
military units to its companies--includes a ``Xi'an Science and 
Technology market'' for ``transaction, sharing, and communication'' to 
provide ``technical exchange and equipment sharing for military-civil 
enterprises.'' It organizes ``matchmaking meetings, technical seminars, 
investment promotion associations, and MCF markets.'' (Xi'an High Tech 
Industrial Development Zone, xdz.gov.cn)
---------------------------------------------------------------------------
    CRRC and BYD also partner with other MCF players that the United 
States has already labeled as predatory actors or national security 
threats. Both companies signed ``strategic cooperation agreements'' 
with Huawei in March 2019. The BYD-Huawei relationship focuses on 
automotive intelligent networking, intelligent driving, cloud 
computing, and smart parks;'' \26\ the CRRC Huawei partnership on 
connecting the former's physical, rail infrastructure to the latter's 
information technology. \27\
---------------------------------------------------------------------------
     \26\ [BYD and Huawei will hold hands again: cooperation will be 
carried out in the areas of car networking and smart driving], March 
26, 2019.
     \27\ [The company cooperates with Huawei to build an industrial 
internet platform]. CRRC, April 2, 2019.
---------------------------------------------------------------------------
A Transportation Great Power and Network Hegemony
    How does this all actually add up? The Huawei relationships begin 
to frame the picture. Beijing is not undercutting U.S. companies simply 
to subvert American manufacturing. (Though they do.)
    Beijing is not deploying information-collecting systems simply to 
spy on critical U.S. hubs. (Though, again, this first-order risk is 
real.) Beijing targets the transportation industry in order to can 
capture foundational, physical and virtual, infrastructures. It intends 
to set global rules.
    Beijing establishes its footholds in physical infrastructure. It 
extends its reach through information infrastructure. Made in China 
2025 outlines that first phase: Monopoly over global industry's 
critical physical components. China Standards 2035, to be officially 
launched this month, defines the next step: Beijing's plan for 
dominance over global rules.
    According to official State planning, China intends to establish a 
``global smart grid'' connecting new energy sources and a ``global 
transportation system'' connecting smart vehicles. China intends to 
proliferate ``sensor networks'' and a ``global logistics platform.'' It 
intends to link all of these on a ``ubiquitous,'' ``backbone'' 
``Internet of Things (IoT)''--or ``Internet of Everything;'' \28\ the 
future foundation for military, commercial, social, political, 
information narrative domains. In sum, it intends to build the tracks, 
pipes, channels along which everything in the information era operates; 
having built those, to collect and to define their information.
---------------------------------------------------------------------------
     \28\ ``National Medium- and Long-Term Program for Science and 
Technology Development (2006-2020)'', Ministry of Science and 
Technology, Beijing: 2006.
---------------------------------------------------------------------------
    If China realizes this vision, it will acquire immediate 
information access--with obvious first order security risks. In the 
longer term, Beijing's network will also allow it to shape information; 
therefore both to coerce and to define the global environment. This 
would amount to unprecedented, cross-domain, new-type power projection.
    Transportation systems offer an entry point.
    On September 23, 2019--as this body was debating the TIVSA--the 
Central Committee of the Chinese Communist Party and the State Council 
issued the ``Transportation Great Power Outline:'' ``By 2035, a 
transportation powerhouse will be basically established.'' Having 
cemented dominant international positions in transportation equipment, 
hubs, systems, standards Beijing will deploy a global a system of 
``three-dimensional interconnection,'' linking ``railways, highways, 
waterways, civil aviation, pipelines, postal services, and other 
infrastructures.'' \29\
---------------------------------------------------------------------------
     \29\ Outline of Building a Powerful Country for Transportation, 
Central Committee of the Communist Party and the State Council, 
September 2019.
---------------------------------------------------------------------------
    The Chinese transportation network will be the foundation for 
global movement. It will also offer the Chinese Communist Party 
complete information on that movement. ``Integrated with big data, 
Internet, AI, blockchain, super-computing,'' it is to feed into a 
Government-run ``comprehensive transportation big data center.'' \30\ 
It will connect to other domains--''energy networks, information 
networks''--as well as military systems, including China's ``Beidou 
satellite navigation system.'' \31\
---------------------------------------------------------------------------
     \30\ In December, 3 months after the State Council published the 
Transportation Great Power Strategy, the Ministry of Transportation 
issued a supporting plan for ``Promoting the Development of 
Comprehensive Transportation Big Data (2020-2025). That plan orders all 
entities under the central Government to cooperate in the construction 
of a ``multidimensional,'' ``controllable,'' ``integrated,'' 
``comprehensive transportation big data system.''
     \31\ [Outline of Building a Powerful Country for Transportation], 
Central Committee of the Communist Party and the State Council, 
September 2019.
---------------------------------------------------------------------------
    The system is to permit ``global big data analysis.'' It is to 
support ``national strategies,'' including both the Transport Great 
Power Strategy and One Belt One Road. It is to be fully established by 
2025. ``Notice of the Ministry of Transport on issuing the `Outline 
Action for Promoting the Development of Comprehensive Transportation 
Big Data 2020-2025' '', Ministry of Transport, December 12, 2019.)
    This network will extend internationally through the unwitting 
cooperation of foreign actors. China's Transportation Great Power 
Strategy explains that the network will spread via the corridors of the 
Silk Road Economic Belt; fueled by ``international investment'' (albeit 
only from those entities that pass the Corporate Social Credit System's 
screening) and based on partnerships among Chinese companies and 
foreign States, societies, and enterprises \32\--partnerships like, of 
course, those between BYD and CRRC and the U.S. system.
---------------------------------------------------------------------------
     \32\ [Outline of Building a Powerful Country for Transportation], 
Central Committee of the Communist Party and the State Council, 
September 2019.
---------------------------------------------------------------------------
    In October, BYD General Manager Li Hui declared his company a 
champion of ``Xi Jinping's Transportation Great Power'' strategy. \33\ 
CRRC's President Sun Yongcai spoke even earlier and more explicitly of 
CRRC's participation: ``The National Congress of the Communist Party of 
China has proposed to build a `technological power, quality power, 
aerospace power, network power, and transportation power,''' he said in 
2018. ``Facing the trend of the times and the golden opportunity, CRRC 
will shoulder the responsibility of carrying out national strategy.'' 
\34\
---------------------------------------------------------------------------
     \33\ He also advertised the links between BYD and Huawei: ``Our 
communication and signal systems use ITE-U in cooperation with 
Huawei.'' ([2019 Global Future Travel Conference; Li Hui, General 
Manager of BYD Rail Business]. auto.gasgoo.com, October 30, 2019.)
     \34\ [Sun Yongcai: Contributing CRRC Solutions and CRRC Wisdom to 
the Construction of a Powerful Transportation Country], Sina Auto, 
January 20, 2018.
---------------------------------------------------------------------------
    Beijing intends to complete its transportation vision by 2035. But 
the foundation is in place, globally, today. The Transportation Great 
Power strategy describes a multidimensional logistics network. Through 
foreign investments, commercial proxies, and cooption of multilateral 
organizations, China has already established that network. It is called 
the National Transportation Logistics Platform in China; LOGINK abroad. 
No one is talking about it. It connects the global ports, rail, air, 
post systems in which China invests to a domestic data hub. Beijing has 
secured the support of ASEAN's NEAL-NET and Europe's IPCSA so that they 
proliferate China's information system, so that Japan and South Korea 
advocate a Chinese coercive tool as a global standard. Ostensibly 
private Chinese companies extend the net more widely and more 
subversively. Alibaba's Cainiao Logistics maintains a strategic 
cooperation agreement with LOGINK. Relationships with Alibaba 
proliferate the Chinese State data system.
    This constitutes an entirely new type of power projection. 
Interconnected global networks and platforms risk granting Beijing 
unprecedented coercive might. China's web of smart cities, 
telecommunications, surveillance, logistics platforms, land and sea 
transportation, e-commerce, FinTech empower the CCP to shape, deny, and 
coerce--informationally, economically, and kinetically. Recent jamming 
at the port of Shanghai points to potential first order, operational 
threats. China's corporate social credit system does the same in the 
economic domain. But proliferated through ostensibly commercial rather 
than explicitly military tools, this subversive web is escaping our 
attention. Worse yet we are fueling it. We should not be granting 
Federal funding to China's State-supported champions.
                                 ______
                                 
                PREPARED STATEMENT OF FRANK J. CILLUFFO
   Director, McCrary Institute for Cyber and Critical Infrastructure 
Security, and Director, Center for Cyber and Homeland Security, Auburn 
                               University
                             March 5, 2020
Introduction
    Chairman Crapo, Ranking Member Brown, and distinguished Committee 
Members--notably including Senators Shelby and Jones from my 
Institute's home State of Alabama--thank you for the opportunity to 
testify before you today.
    The threats to public transportation posed by State-owned and 
State-supported enterprises is a matter of national significance, as 
the issue bears on U.S. national and economic security, which are 
inextricably intertwined. Your leadership in this area is important and 
commendable, not least because the concerns that are at play in regards 
to public transportation apply also to other critical U.S. 
infrastructure sectors and national critical functions. \1\
---------------------------------------------------------------------------
     \1\ The National Risk Management Center (NRMC) has identified and 
created a list of National Critical Functions that addresses cross-
sector and systemwide risks. NRMC is nested within the Department of 
Homeland Security's (DHS) Cybersecurity and Infrastructure Security 
Agency (CISA). For details, see https://www.cisa.gov/national-critical-
functions.
---------------------------------------------------------------------------
    Fortunately, the subject under study today has been the focus of 
considerable attention on the part of lawmakers in recent months. Much 
credit is, of course, due to this Committee's Chairman and Ranking 
Member, together with Senators Cornyn and Baldwin (also testifying 
today), for leading the charge on legislation in this area. \2\
---------------------------------------------------------------------------
     \2\ S. 846, Transit Infrastructure Vehicle Security Act, https://
www.congress.gov/bill/116th-congress/senate-bill/846/
cosponsors?searchResultViewType=expanded&KWICView=false.
---------------------------------------------------------------------------
    By way of further example, last May, your colleagues on the House 
of Representatives' Committee on Transportation and Infrastructure also 
convened a hearing similar to this one, at which I also had the 
privilege of testifying. \3\ My statement before you today builds on my 
statement of last year, and I will take a parallel approach: first, I 
will set out the threat and place it in context, showing why it 
matters; and second, I will offer selected policy recommendations that 
speak to priority issues requiring timely action.
---------------------------------------------------------------------------
     \3\ ``The Impacts of State-Owned Enterprises on Public Transit and 
Freight Rail Sectors'', (May 16, 2019), http://cchs.auburn.edu/--files/
the-impacts-of-state-owned-enterprises-on-public-transit-and-freight-
rail-sectors.pdf. This statement should be read in tandem with the 
present written testimony, since I have not repeated all of the details 
here.
---------------------------------------------------------------------------
The Threat Climate and Its Implications
    This hearing speaks specifically to the threat posed to public 
transportation by State-owned and State-supported enterprises. On this 
question, let me speak plainly: the chief threat comes from China and 
certainly includes the sale and provision of railway cars to U.S. 
transit systems--but the threat also extends far beyond, to much more 
than the transportation sector alone.
    The crux of the matter is that State-owned and State-supported 
enterprises are able to outbid others when competing for contracts. In 
the case of China, a nonmarket economy, this is part of a broader 
strategy to undermine America's economic might; and the challenge is 
not just economic. This is so because U.S. national and economic 
security are inextricably interwoven. Each depends upon the other.
    From a cyberstandpoint, a State-owned enterprise (Chinese or 
otherwise) foothold into the supply chain of public transportation, a 
critical U.S. infrastructure sector, could open the door to a wealth of 
intelligence that could be weaponized against us. While there are a 
multitude of ways to engage in espionage, the line between it (computer 
network exploitation) and computer network attack is thin and turns 
largely on intent. Put differently, if you can exploit, you can also 
attack, if the will exists to do so.
    This begs the question, why open this door to espionage as 
potential gateway for attack, if it is not necessary to do so? \4\ Keep 
in mind that espionage in this context could allow an adversary to map 
critical U.S. infrastructure prior to attack and otherwise engage in 
intelligence preparation of the battlefield (as the military would 
say). While, in general, security is not the only factor to be 
considered in decision-making in this context public safety should be 
the larger concern, especially given the potential for hybrid (not just 
cyber but physical) consequences.
---------------------------------------------------------------------------
     \4\ To be clear on the issue of necessity in the context of 
railcars in particular, there do exist alternatives for U.S. transit 
systems to pursue instead of purchasing from Chinese State-owned or 
State-supported enterprises. See below for additional details.
---------------------------------------------------------------------------
    In case the above is a bit too abstract to appreciate fully, let me 
explain more concretely the cybersecurity risks associated with 
railcars produced by State-owned enterprises: the potential for 
continuous and purposeful (adversary) access to our railcar/transit 
systems may arise through equipment communications links; hardware or 
software may be compromised; and the likelihood of direct access is 
real. \5\
---------------------------------------------------------------------------
     \5\ Via onsite employee (State-owned enterprise employee or 
contractor sited at U.S. transit agency) with access to networks/
operations.
---------------------------------------------------------------------------
    Consider just some of the consequences that could follow from these 
risks: the adversary could shut down trains and disrupt transit 
operations; knock-on effects could hit other critical U.S. 
infrastructure sectors; and major U.S. cities that depend strongly on 
rapid transit systems could experience significant economic effects, 
particularly if an incident were to disrupt systems for a lengthy 
period.
    It is important to note that State-owned and State-supported 
enterprises may not even be witting accomplices in any of this. While 
certain countries (such as China and Russia) have laws that require 
State-owned enterprises to furnish assistance upon request, \6\ such 
companies may also be inadvertent conduits for furthering the goals and 
ambitions of their (authoritarian) State of origin.
---------------------------------------------------------------------------
     \6\ In the case of China, at least three instruments are at play: 
the National Intelligence Law of 2017, the associated Implementing 
Regulations, and Communist Party requirements enshrined in law and 
iterated publicly in 2014, 2015, and 2017. For details, see Nick 
Eftimiades, ``On the Question of Chinese Espionage'' (forthcoming), 
Brown University Journal.
---------------------------------------------------------------------------
    Despite this array of serious security implications, America has 
yet to inoculate itself against them. I will not repeat here all of the 
case-specific evidence offered in my 2019 testimony.
    Suffice it to say, for the sake of illustration, that China Railway 
Rolling Stock Corporation (CRRC) is building new railcars for major 
American cities such as Boston, Chicago, Los Angeles, and Philadelphia. 
This gives rise to a plethora of vulnerabilities as described.
    The temptation to procure from CRRC is understandable from the 
perspective of cost alone; State subsidies tilt the playing field 
heavily in China's favor. \7\ But there is so much more than price at 
play here: China is not just seeking to win in U.S. markets \8\; it has 
developed and is executing a much larger strategy (Made in China 2025 
\9\) designed to further the country's economic, military, and 
political goals.
---------------------------------------------------------------------------
     \7\ For a long-form examination of a case of Chinese underbidding 
giving rise to quality control concerns and costs that ultimately 
``ballooned'' see: Charles Piller, ``Troubled Welds on the Bay Bridge: 
How a Chinese Builder's Flaws Left Structural Doubts and Cost 
Taxpayers'', The Sacramento Bee (June 7, 2014), https://www.sacbee.com/
news/investigations/bay-bridge/article2600743.html.
     \8\ Even in relation to the narrow issue of trying to win in U.S. 
markets however CRRC has been engaged in a ``misinformation 
campaign''--as noted in a compelling letter of warning to Secretary of 
Transportation Elaine Chao (dated February 13, 2020) from Senators 
Cornyn and Baldwin. In the Senators' words: ``The CRRC has used the 
argument that no U.S. companies manufacture transit railcars and if not 
for CRRC we would have no railcars in America. This. does not take into 
account that the U.S. has a thriving and robust transit rail 
manufacturing sector . . . which is comprised of numerous enterprises 
from market economy allies of the U.S. Most importantly, unlike CRRC, 
these companies use U.S. supply chains, use U.S. produced components, 
and are compliant under `Buy America' provisions.'' https://
www.documentcloud.org/documents/6781588-Cornyn-Baldwin-TIVSA-
Implementation.html
     \9\ ``The Made in China 2025 Initiative: Economic Implications for 
the United States'', Congressional Research Service--In Focus (updated 
April 12, 2019), https://fas.org/sgp/crs/row/IF10964.pdf. In a 2018 
speech to China's National Academy of Sciences and Engineering, 
President Xi Jinping asserted: ``If China is to flourish and 
rejuvenate, it must vigorously develop science and technology and 
strive to become the world's major scientific center and innovative 
highland. Self-reliance is the basis for the struggle of the Chinese 
Nation to stand on its own footing in the world.'' Cited in Simon 
Sharwood, ``Chinese President Xi Seeks Innovation Independence'', The 
Register (June 1, 2018), https://www.theregister.co.uk/2018/06/01/xi-
xinping-science-technology-policy-speech/.
---------------------------------------------------------------------------
    A forthcoming analysis of 464 documented cases of China's espionage 
worldwide concludes that ``collection efforts coordinate closely to the 
priority technologies identified in Government strategic planning 
documents,'' including Made in China 2025, and Space Science and 
Technology in China: A Road Map to 2050. Chinese ``private companies'' 
and State-owned enterprises each engage in or support espionage in just 
over 21 percent of the cases studied; and together constitute slightly 
more than 43 percent of the case total. Targets include ``U.S. military 
and space technologies'' and ``commercial interests.'' \10\
---------------------------------------------------------------------------
     \10\ Eftimiades, ``On the Question of Chinese Espionage''. Note 
also: Department of Justice Office of Public Affairs, ``Newly Unsealed 
Federal Indictment Charges Software Engineer With Taking Stolen Trade 
Secrets to China'' (July 11, 2019), https://www.justice.gov/opa/pr/
newly-unsealed-federal-indictment-charges-software-engineer-taking-
stolen-trade-secrets-china [A software engineer at a suburban Chicago 
locomotive manufacturer stole proprietary information from the company 
and took it to China].
---------------------------------------------------------------------------
    Put bluntly, China's strategy is powered by theft of U.S. 
intellectual property; and we ignore or underplay that broader context 
at our peril. In the words of the new U.S. National Counterintelligence 
Strategy released last month by the National Counterintelligence and 
Security Center: ``A more powerful and emboldened China is increasingly 
asserting itself by stealing our technology and intellectual property 
in an effort to erode United States economic and military 
superiority.'' \11\
---------------------------------------------------------------------------
     \11\ National Counterintelligence Strategy of the United States of 
America 2020-2022, https://www.dni.gov/files/NCSC/documents/features/
20200205-National-CI-Strategy-2020-2022.pdf.
---------------------------------------------------------------------------
    The scale and scope of the challenge is daunting. According to FBI 
Director Christopher Wray, ``The FBI has about a thousand 
investigations involving China's attempted theft of U.S.-based 
technology in all 56 of our field offices and spanning just about every 
industry and sector. U.S. companies and U.S. universities are both 
targets--all over the country, from Alabama to Iowa.'' \12\ The 
situation is all the more concerning when set against China's plans to 
double its current spending on research ($400 million) to $800 million. 
It is expected that these monies will be directed primarily to the 
country's Thousand Talents Program (for recruitment) and the buy-out of 
bankrupt companies. \13\
---------------------------------------------------------------------------
     \12\ Catalin Cimpanu, ``FBI Is Investigating More Than 1,000 Cases 
of Chinese Theft of U.S. Technology'', ZDNet (February 9, 2020), 
https://www.zdnet.com/article/fbi-is-investigating-more-than-1000-
cases-of-chinese-theft-of-us-technology/. Note also, the FBI ``made 19 
arrests this fiscal year alone on charges of Chinese economic 
espionage. In comparison, the FBI made 24 arrests all last fiscal year, 
and only 15, five years earlier, in 2014.'' Ibid. See also: Jackson 
Cote, `` `China's Economic Espionage and Theft Is a Real,'[sic] U.S. 
Attorney Andrew Lelling says after arrest of Harvard professor for 
undisclosed ties to China'', MassLive.com (January 28, 2020), https://
www.masslive.com/boston/2020/01/chinese-economic-espionage-and-theft-
is-a-real-us-attorney-andrew-lelling-says-after-arrest-of-harvard-
professor-for-undisclosed-ties-to-china.html
     \13\ Telephone interview with Nick Eftimiades on February 18, 
2020.
---------------------------------------------------------------------------
    In addition, economic and political power are (of course) tightly 
connected. As press reports note, ``China's influence playbook centers 
around economic leverage stemming from its growing wealth.'' The FBI's 
Foreign Influence Task Force notably includes a unit dedicated to 
``countering China's political influence in the United States.'' \14\
---------------------------------------------------------------------------
     \14\ Bethany Allen-Ebrahimian, ``Exclusive: How the FBI Combats 
China's Political Meddling'', Axios (February 12, 2020), https://
www.axios.com/fbi-china-us-political-influence-0e70d07c-2d60-47cd-a5c3-
6c72b2064941.html?stream=top.
---------------------------------------------------------------------------
    Against this backdrop, the new U.S. National Counterintelligence 
Strategy articulates five Strategic Objectives that require a whole-of-
society approach, including the following that are of particular 
relevance to today's hearing: Protect the Nation's Critical 
Infrastructure; Reduce Threats to Key U.S. Supply Chains; and Counter 
the Exploitation of the U.S. Economy.
    Returning specifically to transportation, against this broader 
background, rail is not the only concern: by way of further example, a 
Chinese manufacturer (DJI) has captured the U.S. market for unmanned 
aircraft systems (UAS). \15\ The end-user of these systems may be a 
range of critical U.S. infrastructure sectors, and sensitive data may 
be exposed. \16\
---------------------------------------------------------------------------
     \15\ Consider also: in their recent letter to Transportation 
Secretary Chao, Senators Cornyn and Baldwin underscore and detail the 
threat posed to the United States by Chinese buses (in addition to 
railcars). https://www.documentcloud.org/documents/6781588-Cornyn-
Baldwin-TIVSA-Implementation.html
     \16\ See my 2019 testimony for allegations to this effect raised 
by U.S. officials in 2017. An additional concern, more generally, is 
the potential for data manipulation. In the financial services sector, 
for instance, transactions take place in milliseconds. The ability to 
slow the transmission of signals could allow a malicious actor to 
attain control or dominance of the market. Eftimiades interview 
(February 18, 2020).
---------------------------------------------------------------------------
    The transportation sector as a whole also intersects with and 
supports other critical U.S. sectors and national functions. Notably, 
U.S. national defense is to an extent dependent upon the integrity of 
the transportation sector. If compromised, the ability of U.S. forces 
to deploy, project power, and achieve their goals and objectives 
(collectively known as Mission Assurance), may be placed into jeopardy. 
\17\ Consider the potential for cyber/physical convergence, with 
concomitant consequences on the battlefield.
---------------------------------------------------------------------------
     \17\ Auburn University Center for Cyber and Homeland Security, 
``Strengthening Defense Mission Assurance Against Emerging Threats'' 
(May 2019), http://cchs.auburn.edu/files/mission-assurance-policy-
forum-summary.pdf.
---------------------------------------------------------------------------
    Widening the aperture further, foreign State-owned enterprises and 
the advanced technologies that they offer, at relatively low cost and 
often with concessionary financing, pose a dilemma for other critical 
infrastructure sectors as well. Case in point: 5G telecommunications 
technology from Chinese companies Huawei and ZTE.
    5G is the bedrock for next-generation networks worldwide. The 
strategic significance of 5G is reflected in the Prague Proposals, 
recognized by more than 30 countries worldwide. \18\ Who builds and 
contributes to these networks matters deeply, and each country's 
decision on the matter will affect not only their telecommunications 
sector but also every other sector and function that depends on 
telecommunications (such as transportation, including autonomous 
vehicles).
---------------------------------------------------------------------------
     \18\ Government of the Czech Republic, ``Prague 5G Security 
Conference Announced Series of Recommendations: The Prague Proposals'', 
(March 5, 2019), https://www.vlada.cz/en/media-centrum/aktualne/prague-
5g-securityconference-announced-series-of-recommendations-the-prague-
proposals-173422/.
---------------------------------------------------------------------------
    Huawei and ZTE are competing aggressively to serve as suppliers 
worldwide; but America is rightfully taking a hard line at home and 
urging allies to do the same, based on evidence of these two companies' 
complicity with the Chinese Government. Just last month, the U.S. 
Department of Justice revealed new charges against Huawei, citing 
racketeering and conspiracy to steal trade secrets. \19\
---------------------------------------------------------------------------
     \19\ ``Chinese Telecommunications Conglomerate Huawei and 
Subsidiaries Charged in Racketeering Conspiracy and Conspiracy To Steal 
Trade Secrets'', (February 13, 2020), https://www.justice.gov/opa/pr/
chinese-telecommunications-conglomerate-huawei-and-subsidiaries-
charged-racketeering.
---------------------------------------------------------------------------
    Other products and technologies supplied by Chinese companies that 
have raised security concerns in the United States include video 
surveillance equipment manufactured by Hangzhou Hikvision Digital 
Technology and used in U.S. schools and other sensitive (military/
diplomatic) sites. At inception, Hikvision was a Chinese Government 
research institute. State-owned enterprises retain a 40-plus percent 
stake in the company.
    Many other smaller but still important opportunities exist for 
foreign State-owned enterprises to make inroads into U.S. critical 
infrastructure sectors either directly or indirectly. Flush with State 
support, these foreign enterprises can buy up U.S. assets/entities that 
are on the verge of bankruptcy or in need of start-up funding. Such 
acquisitions may relate only to a component, such as switches; but 
switches are key to the safe operation of passenger and freight rail.
    In the context of rail transit systems, switches and precision 
timing go hand-in-hand. The wider trio of issues--positioning, 
navigation, and timing (PNT)--also merits a quick sidebar: China is 
investing heavily to safeguard its own PNT functions and undermine 
those of others (including through antisatellite capabilities that 
could blind and bind the U.S. military, which relies heavily on space-
based assets for transit and targeting requirements and other needs). 
\20\
---------------------------------------------------------------------------
     \20\ The new Executive Order on Strengthening National Resilience 
through Responsible Use of Positioning, Navigation, and Timing Services 
issued on February 12, 2020, is a welcome development. https://
www.whitehouse.gov/presidential-actions/executive-order-strengthening-
national-resilience-responsible-use-positioning-navigation-timing-
services/
---------------------------------------------------------------------------
    Whether in relation to the transportation sector or beyond, supply 
chain and concomitant counterintelligence and national security 
concerns are certainly not limited to Chinese-origin goods and 
services. Russian antivirus software produced by Kaspersky Lab, for 
example, poses similar concerns and for this reason is subject to a ban 
on use by U.S. Federal agencies.
    A final word on threat: the Internet of Things raises further the 
salience of the concerns expressed here as it continues to expand the 
potential surface of attack; think sensors, smart cities, and smart 
cars. While it may not be possible to eliminate all vectors of attack, 
it is imperative that we seek to limit them and at the same time, 
cultivate resilience--the ability to minimize the impact of, and bounce 
back from, an incident.
Selected Policy Recommendations
    Turning to counterthreat measures, I would be remiss if I did not 
begin by giving credit where it is due. A solid step in the right 
direction is S. 846, the Transit Infrastructure Vehicle Security Act. 
This legislation, cosponsored by Chairman Crapo and Ranking Member 
Brown (plus others including Senators Shelby and Jones), represents 
precisely the sort of precautionary action needed. \21\
---------------------------------------------------------------------------
     \21\ S. 846 is the basis of language that was ultimately enacted 
into law in Section 7613 of the National Defense Authorization Act for 
Fiscal Year 2020 (P.L. 116-92).
---------------------------------------------------------------------------
    With its incorporation into law as part of the National Defense 
Authorization Act (NDAA) for Fiscal Year 2020, new public transit 
system railcars will be subject to cybersecurity certification; a 
specific category of countries of concern will be barred from 
participating in rolling stock procurement bids solicited by public 
transit systems; and the ``next-generation'' buildout of the National 
Capital's rail transit system (Metrorail's 8,000-series cars) will be 
insulated from penetration by CRRC. \22\
---------------------------------------------------------------------------
     \22\ The Washington Metropolitan Transit Authority is poised to 
contract for its ``next-generation'' railcars; the deal could be worth 
over $1 billion. Justin George, ``Metro's Next-Generation Rail Cars 
Will Not Be Made in China'', Washington Post (January 25, 2020), 
https://www.washingtonpost.com/local/trafficandcommuting/metros-next-
generation-rail-cars-will-not-be-made-in-china/2020/01/25/1d848c7e-
3e06-11ea-baca-eb7ace0a3455-story.html. For a helpful (plain-language) 
elaboration of some of the key implications of the relevant NDAA 
provision, see: Bethany Allen-Ebrahimian, ``Senators Warn of Threats 
Posed by Chinese Rail Companies'', Axios (February 20, 2020), https://
www.axios.com/china-rail-car-threat-senators-transportation-beb72eaf-
9c25-4dc0-a88a-f42d2a37d793.html.
---------------------------------------------------------------------------
    The provision (NDAA Section 7613) that speaks to cybersecurity 
certification underscores the importance of ``third-party testing and 
analysis'' in addition to ``voluntary standards and best practices'' 
developed under the aegis of the National Institute of Standards and 
Technology (NIST) and the Secretary of Homeland Security. This is a 
prudent and laudable approach. Certifications, underpinned by common 
standards and third-party testing, has proven successful in moving 
markets in other industries. In fact, I would go a step further and 
suggest that the general principles of the cited provision (Section 
7613) should apply also to other critical infrastructure sectors.
    In charting a course forward, the challenge is to maintain and 
enhance U.S. national security while limiting collateral damage to 
other U.S. interests. Put starkly, we must figure out a way to preserve 
and advance our security without undermining unduly the U.S. economy. 
While this need not be an either/or proposition, the way forward will 
require sustained leadership and determination on the part of both 
Government and industry, coupled with a willingness and ability to 
prioritize. More fundamentally, it may require us to look deeper at how 
to better leverage market forces to incentivize security. This may mean 
creating a greater demand for security from consumers in the products 
and services they buy. It may also mean incentivizing suppliers to 
prioritize security as a differentiator in the products they produce. 
Action will entail costs; but inaction will ultimately be far costlier.
    In practice, therefore, we should begin with the Lifeline Sectors, 
which are the most critical of the critical. These include the defense 
industrial base, energy (electricity, oil, natural gas), financial 
services, transportation, telecommunications, and water. Together with 
the list of National Critical Functions identified by the National Risk 
Management Center, is a good place to start in terms of prioritizing 
our efforts to elevate and monitor security concerns, test our response 
and mitigation measures, and continually refine these regimes. All risk 
management proceeds in cycles, and national risk management is no 
exception. Risk identification, assessment, and management must be 
continuous, adaptive, and forward looking. A reactive or regulatory 
``check-the-box'' approach simply will not do.
    Part of this exercise must involve scrutinizing supply chains. 
While helpful steps have already been taken--such as Executive Order 
13806 on Assessing and Strengthening the Manufacturing and Defense 
Industrial Base and Supply Chain Resiliency of the United States \23\; 
and the Information and Communications Technology Supply Chain Risk 
Management Task Force launched by the Department of Homeland Security's 
Cybersecurity and Infrastructure Security Agency (CISA)--efforts must 
be widened and deepened. \24\
---------------------------------------------------------------------------
     \23\ July 21, 2017, https://www.federalregister.gov/documents/
2017/07/26/2017-15860/assessing-and-strengthening-the-manufacturing-
and-defense-industrial-base-and-supply-chain.
     \24\ Robert Kolasky, Director, National Risk Management Center 
(CISA, DHS): Statement for the Record for a Hearing on ``Securing U.S. 
Surface Transportation From Cyber Attacks'', before the U.S. House of 
Representatives Committee on Homeland Security, Subcommittee on 
Transportation and Maritime Security, Subcommittee on Cybersecurity, 
Infrastructure Protection, and Innovation (February 26, 2019), https://
www.congress.gov/116/meeting/house/108931/witnesses/HHRG-116-HM07-
Wstate-KolaskyB-20190226.pdf at p. 5. See also, DHS CISA et al., 
Internet of Things Security Acquisition Guidance--Information 
Technology Sector (February 2020), https://www.cisa.gov/sites/default/
files/publications/20-0204-cisa-sed-internet-of-things-acquisition-
guidance-final-508-0.pdf.
---------------------------------------------------------------------------
    A ``system of systems'' approach is also needed on the technology 
side in order to properly integrate advancements into the broader 
ecosystem. To date, we have fallen short on this count. As remedy, an 
R&D effort is needed--in the form of a nationwide network of technology 
testbeds that simulate a realistic pansectoral environment. Taken in 
aggregate, such a platform would identify and explore the various 
national and economic security implications of new and critical 
technologies before they are in widespread use.
    A strategic approach is equally needed in terms of integrating 
cyberfactors into our thinking and practices more generally, from the 
get-go, rather than retrofitting cyberfixes later on when damage is 
already done. By way of example, risk assessments and risk management 
strategies should not be treated as a separate vertical; instead, they 
should be integrated from inception. Along similar lines, a domestic 
version of The Prague Proposals \25\ could prove useful for 
safeguarding U.S. Lifeline Sectors and National Critical Functions in 
relation to the rollout and widespread implementation of 5G technology. 
Ultimately, the United States must continuously identify the industries 
and technologies critical to national and economic security and take 
steps to reduce vulnerability at both a macroeconomic and microeconomic 
level.
---------------------------------------------------------------------------
     \25\ These principles regarding the ``cybersecurity of 
communication networks in a globally digitized world'' were generated 
at the 5G Security Conference (2019) in which 32 countries 
participated. Supra.
---------------------------------------------------------------------------
    In furtherance of much of the above (and to inform cyberpolicy and 
programs more generally), it would be helpful to have in place a 
dedicated and official entity that is tasked with collecting and 
providing data (statistics) on cybersecurity and the broader 
cyberecosystem. Both the Government and the private sector lack 
reliable, comprehensive, and empirical metrics on which to base public 
policy and risk management practices, respectively. We must seek to 
apply the same level of rigor, clarity, and statistical analysis to 
cybersecurity that we have given to public health, the economy, and 
criminal justice.
    In addition, resources--both human and capital--are needed. To this 
end, building the Nation's cyberworkforce should be a national 
imperative and addressed urgently, as there is a disturbing deficit of 
knowledge and bandwidth in our public institutions and in our companies 
in relation to countering and thwarting cyberthreats posed by State 
actors to U.S. critical infrastructure.
    Regarding the machinery of Government: in order to properly 
safeguard U.S. national and economic security in this context, the arms 
and legs of the U.S. Government will have to recalibrate their efforts 
and synchronize them ever more intensely to better support top-priority 
critical infrastructure and Nation critical functions. For example, the 
FBI is already working to lash up and grow its Cyber and 
Counterintelligence Divisions, in order to counter advanced and 
persistent adversary activity. This is a solid start, but must be 
continued, enhanced, and expanded over time. Another important partner 
in the mission is the National Security Agency and in particular its 
Cybersecurity Directorate. That entity's role in fusing foreign 
intelligence and cyberdefense will be instrumental to Department of 
Defense Mission Assurance (among other things).
    Finally, I would like to add that the U.S. Cyberspace Solarium 
Commission, of which I am a member, took on many the above-discussed 
issues throughout the course of our work. Our forthcoming report, due 
out on March 11th of this year, lays a clear path forward to increase 
the effectiveness of U.S. Government collaboration, resilience of 
critical infrastructure, security of the cyberecosystem, and public-
private partnership. \26\ I look forward to continuing the 
conversation, and to working further with you and your colleagues in 
the weeks ahead, on these matters of national importance.
---------------------------------------------------------------------------
     \26\ The Commission worked across industry, academia, the 
Congress, and the executive branch to arrive at workable solutions to 
strengthen the security posture of the United States in cyberspace. Our 
forthcoming report organizes nearly 80 recommendations across six 
pillars.
---------------------------------------------------------------------------
Conclusion
    Thank you for the opportunity to testify before you today. \27\ I 
look forward to trying to answer any questions that you may have.
---------------------------------------------------------------------------
     \27\ Thank you also to my Deputy Director, Sharon Cardash (with 
Auburn's Center for Cyber and Homeland Security), for her skillful 
assistance in preparing this testimony.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
                    FROM E. MICHAEL O'MALLEY

Q.1. What other industries should Congress consider as 
potential vehicles for Chinese espionage? Are there any Chinese 
firms that you believe are flying under the radar in terms of 
dominating strategically important industries?

A.1. The railway supply industry is one of ten sectors that the 
Chinese Communist Party (CCP) has identified publicly in its 
Made in China 2025 initiative, and there is every reason to 
believe that China could use any of these sectors for espionage 
or other illicit activities. Our experience suggests that they 
are willing to go to great lengths to dominate these sectors 
and leverage that dominance to accomplish political and 
strategic aims.
    While CRRC's penetration of the U.S. passenger railcar 
market has garnered the most attention to date, there are other 
rail-sector Chinese SOEs in other segments of the industry that 
would present equally concerning threats if they were to gain a 
foothold in the North American market. These companies include 
China Railway Signal & Communication (CRSC) and China Railway 
Engineering Corporation (CREC), both of which have been key 
players in China's rail projects around the globe.

Q.2. Given that China appears to blend the its militarily and 
civilian sectors in the service of a common political objective 
set by the Chinese Communist Party (CCP), would the United 
States be unreasonable to view powerful Chinese commercial 
firms as extensions and enables of the Chinese military, and as 
instruments of the CCP?

A.2. The ties between Chinese SOEs like CRRC and the Chinese 
Government are well documented. CRRC's own bylaws explicitly 
state that the company must consult with the CCP on activities 
affecting the company's operations. \1\ The company's board of 
directors also include many high ranking CCP officials, making 
it readily apparent that the mission of companies like CRRC are 
tied closely to that of the Government leadership. Thus, we 
should view the national security and economic risks associated 
with Chinese SOEs in the rail manufacturing sector as part of a 
single, integrated threat to U.S. economic and national 
security.
---------------------------------------------------------------------------
     \1\ ``CRRC Corporation Limited Articles of Association'', CRRC 
Corporation Limited, at 70; http://www.crrcgc.cc/Portals/73/Uploads/
Files/2018/6-4/636637164457871915.pdf.

Q.3. It is also apparent that China is attempting to establish 
global information and standard-setting dominance by 
infiltrating little known standard-setting bodies to gain 
advantages. How could the U.S. dramatically raise China's cost 
---------------------------------------------------------------------------
of executing its current strategy?

A.3. Our members are actively working on a whole host of 
technologies, including IoT enabled solutions, that can deliver 
enhanced safety, security, and efficiency to the rail industry. 
It is critically important that we not allow Chinese SOEs to 
dictate the standards for those technologies given that 
critical shipments of military goods, hazardous materials, and 
people rely on them every day.
    RSI continues to seek dedicated investment in 
infrastructure, balanced economic regulation and the promotion 
of domestic manufacturing to drive American innovation. We 
strongly encourage Congress to pass a surface transportation 
bill with dedicated and predictable funding for transit and 
intercity passenger rail to help increase domestic 
manufacturing of rolling stock and its associated technologies. 
Additionally, enacting regulatory reforms that ensure safety 
and encourage investments in innovative technologies would be 
another important step forward to mitigate China's attempt at 
standard setting dominance in this industry.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
                       FROM SCOTT N. PAUL

Q.1. What other industries should Congress consider as 
potential vehicles for Chinese espionage? Are there any Chinese 
firms that you believe are flying under the radar in terms of 
dominating strategically important industries?

A.1. Several of the recommendations made by The U.S.-China 
Economic and Security Review Commission in 2019 spotlight the 
need for greater regulation and transparency of Chinese 
involvement in the U.S. financial system, including the role of 
the Chinese Communist Party (CCP) in businesses operating in 
the United States.
    As we've seen from companies like Build Your Dreams (BYD) 
and the China Rail Rolling Stock Corporation (CRRC), these 
companies are eager to conceal their connections to the CCP as 
they endeavor to undermine American manufacturers. Already one 
of the world's largest battery producers and the world's 
largest electric vehicle company, BYD executives have been 
outspoken in their plans to one day sell passenger electric 
vehicles in the United States. In 2008, BYD's chairman has 
``boasted of plans to dominate world auto sales by 2025'' and, 
more recently, a BYD executive said the company planned to sell 
passenger cars in the United States in ``roughly 2 to 3 
years.'' Left unchecked, BYD's business model would threaten 
over 5,600 auto parts suppliers spread across the Nation, 
employing 871,000 workers.
    On March 29th BYD announced that it will start offering a 
full suite of EV components to rivals and aspiring auto 
manufacturers to diversify its revenue sources amid sputtering 
car demand.
    Among the parts that the Shenzhen-based company makes and 
now sells are electric-car batteries, powertrains, and lights. 
BYD will use the brand name FinDreams for the parts business.
    Beyond CRRC and BYD, there are several other industries 
Congress should consider as potential vehicles for Chinese 
espionage and several Congress should take a closer look at in 
terms of strategically important industries where China has an 
outsized influence.
    Port Logistics IT Systems. China is exporting a global 
logistics information network in order to govern, collect 
information on, and shape global resource flows and data. 
Chinese leaders argue that their network will give them both 
market advantages over the Unite States and coercive leverage. 
China's approach nests within a broader competitive strategy. 
Careful consideration should be given to any potential 
proliferation of Chinese-owned, -administered, or -accessible 
logistics information networks to U.S. critical infrastructure. 
Beijing's approach to these systems poses credible security and 
economic threats.
    Telecom Networks. U.S. security and foreign policy 
officials have long voiced grave concerns that Huawei's 5G 
network would compromise confidential information, arguing that 
Huawei is ultimately obligated to serve the Chinese Communist 
Party (CCP). Last year, Secretary of State Michael Pompeo 
penned an opinion for POLITICO, stating, ``With 5G 
capabilities, the CCP could use Huawei or ZTE's access to steal 
private or proprietary information, or use `kill switches' to 
disrupt critical future applications like electrical grids and 
telesurgery centers. And one only needs to look at the CCP's 
extensive human rights abuses in Xinjiang--so clearly laid out 
in recently leaked documents--to see how it is using technology 
for mass repression.''
    Though Huawei contends that it is a private company and has 
not received any special treatment from the Chinese Government, 
it is estimated that Beijing substantially subsidizes the 
company, having provided $75 billion in State support. Despite 
public relations campaigns, suspiciously modeled after typical 
CCP techniques, that recast Huawei as simply another tech 
company, research has revealed employee links between Huawei 
and China's military and intelligence services. Furthermore, as 
the Wall Street Journal exposed this summer, Huawei technicians 
have already enabled Governments in Africa to access 
information, including encrypted communications, to spy on 
political opponents.
    Minerals. Minerals are essential to manufacturing 
components for everything from electric vehicles, smartphones, 
medical screening to weapons systems used by the military. But 
the United States remains heavily dependent on foreign sources 
for many of its critical minerals. About 91 percent of the rare 
earth element needed to make night-vision goggles for the 
military, for example, is imported from China.
    In 2017, President Trump issued an executive order to 
address these vulnerabilities, tasking the Interior Department 
with developing a list of critical minerals and the Commerce 
Department with devising a strategy--including action plans, 
goals, and recommendations--to secure vital supply chains here 
in the United States. The Interior Department released its 
report in 2018, finding that 31 of the 35 minerals designated 
as ``critical'' are import-reliant. The U.S. doesn't have any 
domestic production and relies completely on imports for 14 
critical minerals, the Interior Department found. Commerce 
followed up with its action plan in June 2019. Twenty-four 
goals and 61 specific recommendations were issued, including 
implementing better mineral recycling programs; developing 
technological alternatives to minerals; source diversification; 
improving processes for mineral extraction; building robust 
manufacturing capabilities; and enhancing minerals trade with 
America's allies.
    But of course, doing all this is easier said than done--and 
in the meantime, the United States remains dependent on 
countries like China and Russia for its critical minerals. 
China began scaling up mining capabilities of rare earth 
elements in the 1980s, resulting in their near-monopoly on both 
the mining of rare earth minerals and the processing of the 
resultant rare earth oxides into manufactured products. China's 
market power over rare earths now poses a national defense 
threat. China can quickly create a supply shock; their global 
market can respond by reducing demand and developing their own 
mining and processing capacities. There's no doubt that the 
U.S. reliant on China. Between 2014 and 2017, 80 percent of 
rare earth element imports came from China, while the remaining 
20 percent was originally processed in China.
    Pharmaceuticals. The U.S.-China Economic and Security 
Review Commission calls for Congress to address U.S. dependence 
on Chinese pharmaceuticals. The Commission's 2019 report 
recommends that Congress continue to hold hearings exploring 
U.S. dependence on China's pharmaceuticals. However, the 
commission is clear on the goal of these hearings: Legislation 
that requires the Food and Drug Administration to identify 
pharmaceuticals that are manufactured exclusively in China or 
formulated with the active pharmaceutical ingredients made in 
China, as well as an investigation to determine whether those 
drugs are manufactured with as much regulation as 
pharmaceuticals produced in America.
    Higher Education. The U.S.-China Economic and Security 
Review Commission calls for Congress to mandate the creation of 
a higher education advisory board comprised of representatives 
from universities and relevant Federal agencies. This board, 
which would be established within the Federal Bureau of 
Investigation (FBI), would aim to secure the American academic 
research system from espionage. This is already a focus of the 
FBI, which has been alerting academics of possible 
vulnerabilities as instances of academic espionage accumulate. 
An outsize number of these cases involve pilfered research 
being funneled to China.
    Given that China appears to blend the its militarily and 
civilian sectors in the service of a common political objective 
set by the Chinese Communist Party (CCP), would the United 
States be unreasonable to view powerful Chinese commercial 
firms as extensions and enables of the Chinese military, and as 
instruments of the CCP?
    It would not be unreasonable for the U.S. to view Chinese 
Commercial firms as extensions of the Chinese military and as 
instruments of the CCP. As the U.S.-China Economic and Security 
Review Commission has noted, ``some private Chinese companies 
operating in strategic sectors are private only in name, with 
the Chinese Government using an array of measures, including 
financial support and other incentives, as well as coercion, to 
influence private business decisions and achieve State goals.''
    For example, CRRC is Beijing's national champion in rail 
and emerging transportation systems. It plays a direct role in 
China's military-civil fusion strategy. According to research 
released by Radarlock in 2019, CRRC is working directly with 
Beijing to obtain foreign technology, collect sensitive data, 
and export technologies and information systems that threaten 
individual and data security, including those of Huawei. CRRC 
executives wear ``dual hats'' as corporate and Party leaders, 
appointed for political purposes. \1\
---------------------------------------------------------------------------
     \1\ ``CRRC and Beijing's Dash for Global Rolling Stock 
Dominance'', Bruyere and Picarsic. Radarlock. October 2019.
---------------------------------------------------------------------------
    As another example, BYD uses its status as a ``private 
company'' to ``obtain technology, information, and positioning 
from the international market, then to carry those back to the 
CCP and the People's Liberation Army (PLA).'' Meanwhile, its 
research and development centers are ``incubated'' in military-
civil fusion zones that focus on technology transfer and data 
sharing. BYD and now-banned Huawei signed a ``comprehensive 
strategic cooperation agreement'' in March 2019, solidifying a 
long-standing, ``inseparable'' partnership between the two 
firms. BYD not only benefits from the Made in China 2025 
strategy, it is helping to formulate the next iteration: China 
Standards 2035. \2\ This paints a troubling profile of a 
company with deep ties to the Chinese Government and military 
that is trying to masquerade as a commercial entity.
---------------------------------------------------------------------------
     \2\ ``Building the China Dream: BYD & China's Grand Strategic 
Offensive'', Bruyere and Picarsic. Radarlock. October 2019.
---------------------------------------------------------------------------
    Several of the recommendations made by The U.S.-China 
Economic and Security Review Commission in 2019 spotlight the 
need for greater regulation and transparency of Chinese 
involvement in the U.S. financial system, including the role of 
the Chinese Communist Party (CCP) in businesses operating in 
the United States.
    It is also apparent that China is attempting to establish 
global information and standard-setting dominance by 
infiltrating little known standard-setting bodies to gain 
advantages. How could the U.S. dramatically raise China's cost 
of executing its current strategy?
    China is exporting a global logistics information network 
in order to govern, collect information on, and shape global 
resource flows and data. Chinese leaders argue that their 
network will give them both market advantages over the U.S. and 
coercive leverage. China's approach nests within a broader 
competitive strategy. Careful consideration should be given to 
any potential proliferation of Chinese-owned, -administered, or 
-accessible logistics information networks to U.S. critical 
infrastructure. Beijing's approach to these systems poses 
credible security and economic threats.
    Beijing's network encompasses logistics information 
systems, logistics standards systems, logistics policies, and 
logistics operating systems. Those extend across railways, 
roads, air, shipping, pipelines, postal, warehousing, and 
international distribution networks. The Chinese National 
Transportation Logistics Information Sharing Platform and suite 
of corresponding port software systems offer a concrete example 
of Beijing's maneuvering. Through those Ministry of Transport-
controlled tools, China collects and disseminates ratings data 
(e.g., on individuals, companies, vehicles); tracking data 
(e.g., on vehicles, cargo, customs clearance); resource data 
(e.g., price indexes, route planning, supply chains); and so-
called ``comprehensive data'' (e.g., on policies and 
regulations, standards, interconnection between companies and 
infrastructures and softwares). Already more than 30 
international ports have adopted the Chinese State-backed 
standard. More than 400,000 international shipping and 
logistics companies (including American ones) are connected to 
it.
    Another important step would be to rethink the 2017 Federal 
Retirement Thrift Investment Board (FRTIB) decision to switch 
the benchmark for one of its investment funds to mirror an 
index with Chinese assets. Having a Federal retirement plan 
investing in Chinese companies will only lessen China's cost of 
executing its current strategy. This specific fund is worth 
around $50 billion. The index in question is admittedly huge, 
with more than 2,000 companies from dozens of countries on it. 
Among the Chinese companies included are Hikvision, a 
surveillance equipment manufacturer that has been involved in 
China's ongoing crackdown on its Uighur minority population. It 
was blacklisted by the Trump administration, which essentially 
blocks it from buying product inputs from U.S. companies. 
Another is ZTE, the telecommunications firm that faced the 
blacklist last year for selling equipment to Iran and North 
Korea despite U.S. sanctions. There are others too, like a 
Chinese weapons-systems manufacturer that makes stealth 
fighters, and a Chinese cell phone company that the Federal 
Communications Commission blocked from facilitating 
international calls in the United States because of concerns 
over espionage.
    Additionally, I would like to reiterate the policy steps 
from my testimony that the United States could use to 
dramatically raise China's cost of executing its current 
strategy:
    Implement the Transportation Infrastructure Vehicle 
Security Act (TIVSA) Without Further Delay. An unacceptable 
amount of time has now passed since TIVSA enactment and the 
Administration has yet to notify or release guidance to transit 
agencies. We are concerned that failing to educate transit 
agencies in a timely manner about how TIVSA impacts their 
planning decisions leaves an opening for deception and 
misinformation.
    Defend and Enhance TIVSA. Already, there are forces at work 
to undermine TIVSA. Shortly after enactment, CRRC held a 
``thank you'' event at which speakers discussed plans to 
indefinitely extend the 2-year implementation delay. \3\ We 
urge Congress to reject any attempts to undermine the TIVSA 
law. Instead, AAM supports efforts to accelerate 
implementation, educate transit agencies, and enhance the law.
---------------------------------------------------------------------------
     \3\ ``CRRC MA, Rep. Richard Neal Celebrate Victory in Washington; 
Compromise Allows Rail Car Company To Keep Seeking New Work'', Jim 
Kinney. MassLive. 23 December 2019.
---------------------------------------------------------------------------
    Tighten Buy America Laws. AAM supports making improvements 
to longstanding Buy America laws by closing loopholes, 
modernizing rules for battery content, and adding additional 
teeth to prevent erosion of our supply chains. We find it 
concerning that companies like BYD are meeting the statutory 
Buy America threshold with electric batteries assembled 
domestically almost entirely of foreign content, with little to 
no domestic processing in the United States. It is appropriate, 
in our view, to recognize that short-term market limitations 
exist in battery cell production and create a Buy America 
framework for electric batteries that rewards value added by 
American workers. We must also ensure that other non-battery 
components and parts continue to be produced in the United 
States and are not diminished by virtue of the outsized cost of 
the electric battery.
    Develop a Policy Framework for Domestic Battery Production. 
Faced with a deeply distorted global market, Congress and the 
Administration should work together to establish a mix of 
incentives and policies that maximize the utilization of new 
energy vehicles and expand the supply chain for the domestic 
production of electric batteries and battery cells.
    Conduct Buy America Audits. AAM encourages further scrutiny 
of both CRRC's and BYD's Buy America certifications to ensure 
compliance. Both companies appear to rely heavily on imported 
Chinese content and the Albuquerque IG report raised 
significant questions as to the legitimacy of BYD's 
certification.
    Invest in America's Failing Infrastructure. Last, but 
certainly not least, we encourage you to continue the 
challenging work of passing a substantial infrastructure 
investment paired with strong Buy America requirements.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM SCOTT N. PAUL

Q.1. In your testimony, you stated that ``CRRC rapid ascent 
raises alarming questions about Beijing's backdoor access to 
and operational control over critical technology embedded in 
our rail infrastructure--such as GPS, sensors and other safety 
features.'' And that ``this was a clear statement that Beijing 
should not have operational control of or access to a major 
U.S. transit system, opening our critical infrastructure to 
potential attack or backdoor access to sensitive data and 
communications of riders.'' In cybersecurity terms, a backdoor 
is an undocumented method of bypassing security controls to 
covertly access a computer system or encrypted data. The 
cybersecurity firm Cybereason revealed mobile phone networks 
across the globe had been infiltrated over a 6-year period 
using techniques commonly associated with Chinese threat 
actors.
    Currently, rolling stock is purchased with hardware and 
software bundled from the same manufacture. Do you believe that 
domestic cybersecurity would be improved if the DOT prohibited 
the bundling of hardware and software from the same manufacture 
and instead required an architecture that would allow other 
manufactures to provide alternative hardware and/or software 
options for rolling stock?

A.1. This is not an area of expertise for AAM, but it is 
certainly an issue that deserves more attention and action. A 
blanket prohibition of bundling hardware and software from the 
same manufacturer could have unintended consequences, and it 
may be worthwhile to establish protocols to allow for review on 
a case by case basis. Whatever the policy outcome, we must 
ensure that it is guided by promoting competition from trusted 
sources, is measured with stringent, universal, enforceable 
standards, and is able to evolve to meet the demands of both 
current and new threats that will arise.
    What we do know is that CRRC is Beijing's national champion 
in rail and emerging transportation systems and there should be 
no role for it in our public transportation system, regardless 
of any improvements we can make to cybersecurity protocols. 
CRRC plays a direct role in China's military-civil fusion 
strategy. According to research released by Radarlock in 2019, 
CRRC is working directly with Beijing to obtain foreign 
technology, collect sensitive data, and export technologies and 
information systems that threaten individual and data security, 
including those of Huawei. \1\
---------------------------------------------------------------------------
     \1\ ``CRRC and Beijing's Dash for Global Rolling Stock 
Dominance'', Bruyere and Picarsic. Radarlock. October 2019.

Q.2. Do you support the Federal Government funding software and 
hardware substitutes for potentially vulnerable transportation 
---------------------------------------------------------------------------
and other critical infrastructure?

A.2. Far too many new products are developed in America with 
Federal research and development funding only to be produced 
abroad. We encourage Congress to prioritize and support 
software and hardware substitutes, but we must match that 
pledge with testing support and other policies to ensure that 
the next breakthrough is made here by American workers. And, it 
goes without saying, but we must ensure that any entities 
receiving Federal support do not have ties to China's 
Government, military, or bad actors like Huawei.

Q.3. Policymakers often discuss mitigating cybersecurity 
attacks in terms improving cyberdefenses, but another method to 
combat State-sponsored cyberattacks would be to enact strong 
deterrents. Which specific deterrents do you believe would be 
effective against potential Chinese State-sponsored 
cyberattacks?

A.3. Several of the recommendations made by The U.S.-China 
Economic and Security Review Commission in 2019 spotlight the 
need for greater regulation and transparency of Chinese 
involvement in the U.S. financial system, including the role of 
the Chinese Communist Party (CCP) in businesses operating in 
the United States.
    Implementing the Transportation Infrastructure Vehicle 
Security Act (TIVSA) without further delay, would be one 
effective deterrent. An unacceptable amount of time has now 
passed since TIVSA enactment and the Administration has yet to 
notify or release guidance to transit agencies. We are 
concerned that failing to educate transit agencies in a timely 
manner about how TIVSA impacts their planning decisions leaves 
an opening for deception and misinformation.
    Defending and enhancing TIVSA is another. Already, there 
are forces at work to undermine TIVSA. Shortly after enactment, 
CRRC held a ``thank you'' event at which speakers discussed 
plans to indefinitely extend the 2-year implementation delay. 
We urge Congress to reject any attempts to undermine the TIVSA 
law. Instead, AAM supports efforts to accelerate 
implementation, educate transit agencies, and enhance the law.
    Having a robust domestic industry that can be agile in 
addressing the changing landscape in this area is also 
important. AAM supports making improvements to longstanding Buy 
America laws by closing loopholes, modernizing rules for 
battery content, and adding additional teeth to prevent erosion 
of our supply chains. We find it concerning that companies like 
BYD are meeting the statutory Buy America threshold with 
electric batteries assembled domestically almost entirely of 
foreign content, with little to no domestic processing in the 
United States. It is appropriate, in our view, to recognize 
that short-term market limitations exist in battery cell 
production and create a Buy America framework for electric 
batteries that rewards value added by American workers. We must 
also ensure that other non-battery components and parts 
continue to be produced in the United States and are not 
diminished by virtue of the outsized cost of the electric 
battery. Beyond improving on Buy America, the United States 
must conduct Buy America audits. AAM encourages further 
scrutiny of both CRRC's and BYD's Buy America certifications to 
ensure compliance. Both companies appear to rely heavily on 
imported Chinese content and the Albuquerque IG report raised 
significant questions as to the legitimacy of BYD's 
certification.
    Another, important step would be to rethink the 2017 
Federal Retirement Thrift Investment Board (FRTIB) decision to 
switch the benchmark for one of its investment funds to mirror 
an index with Chinese assets. Having a Federal retirement plan 
investing in Chinese companies that may have ties to the 
Chinese Communist Party (CCP) is not exactly a deterrent. This 
specific fund is worth around $50 billion. The index in 
question is admittedly huge, with more than 2,000 companies 
from dozens of countries on it. Among the Chinese companies 
included is ZTE, the telecommunications firm that faced the 
blacklist last year for selling equipment to Iran and North 
Korea despite U.S. sanctions.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
                    FROM EMILY DE LA BRUYERE

Q.1. At the end of your submitted testimony, you stated that 
the United States is inadvertently ``fueling'' China's bid to 
establish a global web of cross-domain dependency, offering 
NASA's collaborative dialogue with China as an example. Could 
you expand upon that thought and describe in more detail the 
various ways in which the U.S. is unintentionally aiding 
China's long-term strategic goals?

A.1. Beijing's strategy rests on the weaponization of 
cooperation. China asymmetrically integrates into international 
partnerships, siphoning foreign resources and claiming global 
leverage without releasing its own resources or ceding leverage 
over system. This posture is codified in Chinese strategic 
thought as ``two markets, two resources:'' \1\ the 
international market is to be penetrated while the domestic one 
is protected; foreign resources to be shared over international 
networks while domestic ones are held tightly at home.
---------------------------------------------------------------------------
     \1\ Emily de La Bruyere and Nathan Picarsic, ``Viral Moment: 
China's Post-COVID Planning'', Horizon Advisory, March 15, 2020, 
https://www.horizonadvisory.org/news/coronavirus-series-report-launch-
viral-moment-chinas-post-covid-planning.
---------------------------------------------------------------------------
    NASA, and other examples of scientific and technological 
partnerships in strategic--especially dual use--domains bear 
this out: They grant China access to determinative resources 
that it converts into power. See BeiDou, China's military-civil 
fusion champion, in the NASA case. But also see the spike in, 
unprotected, Government investment in basic artificial 
intelligence capabilities that followed China's claims to be 
investing in the same, and Beijing's ability to siphon the 
resultant fruits.
    Through such partnerships, Beijing is also able to 
establish footholds in critical infrastructures and 
technologies that it can hold at risk: In the CRRC case, U.S. 
transportation systems; in the NASA case, space; in the 
emerging technological domain, learning datasets and autonomous 
car technology. Beijing also--and this is particularly relevant 
in the present COVID-19 crisis--actively games U.S. industrial 
policy for resources and leverage. Beijing used the 2008 and 
2009 relief measures to carve out a place for its champions in 
U.S. infrastructure. It intends similarly to subvert U.S. 
responses to COVID-19. \2\
---------------------------------------------------------------------------
     \2\ Ibid.
---------------------------------------------------------------------------
    That is just the beginning. The step after parasitically 
benefiting from and coopting systems is to govern them. Beijing 
games the multilateral standard-setting bodies to which the 
U.S. grants it access (e.g., the World Trade Organization, 
ICANN, the International Telecommunications Union). In those, 
Beijing deploys scale, regulatory arbitrage, and control over 
its State-directed champions to set global rules according to 
its interests. Less formally, it does the same with its 
leverage over the U.S. financial system (whether Wall Street or 
pension funds), U.S. universities, and U.S. media.

Q.2. What other industries should Congress consider as 
potential vehicles for Chinese espionage? Are there any Chinese 
firms that you believe are flying under the radar in terms of 
dominating strategically important industries?

A.2. Beijing prioritizes less by industry sector more by 
industry type. It focuses on coopting international networks, 
standards, and platforms. According to that logic, particular 
priority areas include: Transportation infrastructure (e.g., 
rail, sea, autonomous, and new-energy vehicles), critical 
supply chains (e.g., pharmaceuticals, batteries, advanced 
manufacturing, microelectronics), space, next-generation 
information infrastructure (e.g., communications, 
surveillance), 5G and Internet protocols, FinTech, critical 
datasets (e.g., for defense applications, precision 
agriculture), logistics.
    All of these domains have their champions. Beijing calls 
its strategy ``Government-directed, enterprise-driven.'' Well-
known names figure: Huawei in telecommunications, LOGINK \3\ in 
logistics, DJI in autonomous systems, AliPay in FinTech. But 
there is a larger infrastructure below and around them as 
well--of other Chinese champions, but also of Chinese 
investment funds and investors who coopt foreign players to act 
in Beijing's interest.
---------------------------------------------------------------------------
     \3\ See Horizon Advisory's forthcoming report on China Standards 
2035 and LOGINK due to be released April 2020 at 
www.chinastandards2035.com and www.horizonadvisory.org.
---------------------------------------------------------------------------
    All are indeed flying under the radar. Until we have 
documentation and an information portal for interagency Federal 
Government access and Federal-State-local information sharing 
on Chinese companies, capital, and standard-setting systems, 
they will continue to do so.

Q.3. Given that China appears to blend the its militarily and 
civilian sectors in the service of a common political objective 
set by the Chinese Communist Party (CCP), would the United 
States be unreasonable to view powerful Chinese commercial 
firms as extensions and enables of the Chinese military, and as 
instruments of the CCP?

A.3. This would not be unreasonable. It would be factual. 
Beijing's military-civil fusion strategy codifies that military 
and civilian sectors serve a common, Chinese Communist Party 
objective; that Chinese commercial firms enable Beijing's 
military and Party interests. A 2013, Chinese definition of the 
military-civil fusion strategy emphasizes as much: ``The 
military is for civilian use, the civilian is military, and the 
military and civilian are fused.'' \4\ This does not just mean 
that Chinese commercial champions enable Beijing's military 
ambitions and serve as CCP instruments. It also means that 
Chinese capital does.
---------------------------------------------------------------------------
     \4\ Emily de La Bruyere and Nathan Picarsic, ``Military-Civil 
Fusion: China's Approach to R&D, Implications for Peacetime 
Competition, and Crafting a U.S. Strategy'', 2019 USN/NPS Acquisition 
Research Symposium, May 2019; Emily de La Bruyere and Nathan Picarsic, 
``The Reach of China's Military-Civil Fusion: Coronavirus and Supply 
Chain Crises'', Real Clear Defense, March 4, 2020, https://
www.realcleardefense.com/articles/2020/03/04/the-reach-of-chinas-
military-civil-fusion-coronavirus-and-supply-chain-crises-115092.html.

Q.4. It is also apparent that China is attempting to establish 
global information and standard-setting dominance by 
infiltrating little known standard-setting bodies to gain 
advantages. How could the U.S. dramatically raise China's cost 
---------------------------------------------------------------------------
of executing its current strategy?

A.4. First, the U.S. needs actively to compete. It needs to 
recognize the strategic value of standard-setting bodies, and 
fight for its interests in them. Beijing has a national 
strategy for deploying its representatives at 3GPP (the 
industry group that sets 5G standards). The U.S. should too.
    Second, China subverts international bodies precisely by 
breaking their rules: It benefits from the advantages of the 
WTO without complying with its most basic requirements. The 
U.S. should use its leadership position in these bodies to make 
them hold China accountable. It should make them do their most 
basic job: Enforce the rules.
    Where that is not possible, the U.S. should be prepared to 
build alternative systems. Where Beijing has subverted the 
existing order so that it threatens U.S. strategic maneuver, 
Washington should not be afraid to abandon subverted 
institutions--and to create alternatives in tandem with its 
trusted allies. Just as Beijing threatens to establish a 
parallel WHO for leverage and manipulation, Washington needs to 
be open to disrupting the systems China has coopted.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
                     FROM FRANK J. CILLUFFO

Q.1. What other industries should Congress consider as 
potential vehicles for Chinese espionage? Are there any Chinese 
firms that you believe are flying under the radar in terms of 
dominating strategically important industries?

A.1. Virtually all industries are potential targets and 
vehicles for Chinese espionage. From agriculture to aeronautics 
and beyond, China has demonstrated both sophistication and 
persistence in its efforts to breach the systems and networks 
of U.S. industry. The Made in China 2025 strategy, a key plank 
in China's drive for strategic dominance, is powered by Chinese 
espionage and represents a top priority of China's political 
leadership. This Strategy identifies ten key sectors: (1) next-
generation information technology, (2) high-end numerical 
control machinery and robotics, (3) aerospace and aviation 
equipment, (4) maritime engineering equipment and hightech 
maritime vessel manufacturing, (5) advanced rail equipment, (6) 
energy-saving and new energy vehicles, (7) electrical 
equipment, (8) agricultural machinery and equipment, (9) new 
materials, and (10) biopharmaceuticals and high-performance 
medical devices. (See listing in https://fas.org/sgp/crs/row/
IF10964.pdf.)
    In addition, China's inroads into key U.S. sectors such as 
transportation and telecommunications in turn provides China an 
entree into other crucial U.S. sectors, because transportation 
and telecommunications are the hubs that serve other critical 
spokes--including the U.S. military.
    Other smaller but still important opportunities exist for 
China's State-owned enterprises to make inroads into U.S. 
critical infrastructure either directly or indirectly. Flush 
with the financial backing of their sponsor (China), these 
foreign proxy entities can step in and scoop up U.S. assets and 
entities that are on the verge of bankruptcy or in need of 
start-up capital. Even more concerning is the extent to which 
we don't know what we don't know, which speaks to the second 
part of your question. While some Chinese firms such as Huawei 
and ZTE have entered the national lexicon, others such as 
drone-maker DJI and (video surveillance) equipment manufacturer 
Hangzhou Hikvision Digital Technology are well known to the 
U.S. intelligence and law enforcement communities; but the 
bigger concern would be Chinese entities that have not yet come 
onto U.S. radar screens. Against this broader background, no 
U.S. industry sector is off limits.

Q.2. Given that China appears to blend its military and 
civilian sectors in the service of a common political objective 
set by the Chinese Communist Party (CCP), would the United 
States be unreasonable to view powerful Chinese commercial 
firms as extensions and enablers of the Chinese military, and 
as instruments of the CCP?

A.2. This view would not be unreasonable; quite the contrary 
actually. This is so not only because China blurs the lines 
between political party, civilian society, and the military; 
but also because Chinese law requires that Chinese commercial 
firms stand ready to assist the State. On the latter point, at 
least three instruments are at play: China's National 
Intelligence Law of 2017, the associated Implementing 
Regulations, and Communist Party requirements enshrined in law 
and iterated publicly in 2014, 2015, and 2017. In a nonmarket 
setting such as China, this means that firms could be invoked 
even unwittingly to assist and further State goals and 
objectives set by the country's political leaders and executed 
by the Chinese military as directed.

Q.3. It is also apparent that China is attempting to establish 
global information and standard-setting dominance by 
infiltrating little known standard-setting bodies to gain 
advantages. How could the U.S. dramatically raise China's cost 
of executing its current strategy?

A.3. According to the U.S. Cyberspace Solarium Commission (on 
which I served as a Commissioner), China is greatly outpacing 
the United States in terms of participation and spending on 
international governance fora, including standards-setting 
bodies. Academics have estimated that the budget for China's 
external propaganda is roughly $10 billion annually. Some of 
this funding is spent on ensuring widespread participation and 
influence in these fora. In contrast, the U.S. Department of 
State spent $666 million on public diplomacy in fiscal year 
2014, with a correspondingly limited amount on participation in 
international fora. Additionally, Chinese nationals currently 
serve as the heads of four of the fifteen U.N. specialized 
agencies. The country with the next highest number of 
leadership positions is France, with two. No other country, the 
United States included, holds more than one leadership 
position.
    The United States must take steps to counter China's 
dominance in these bodies. First, the U.S. must show up in 
these venues even though in the past these lesser-known fora 
may have been viewed as peripheral, or at least not central, 
entities. The recent victory by the Singaporean candidate for 
the position of Director General of the World Intellectual 
Property Organization (WIPO) was a sorely needed success story 
on this front. In this instance, the U.S. and its partners 
realized that China was on the cusp of gaining a fifth U.N. 
specialized agency leadership position. Such an outcome would 
be akin to allowing the fox to guard the henhouse. Fortunately, 
the U.S. and its allies were able to come to a consensus and 
collectively mobilize their diplomats to rally support for the 
Singaporean candidate. This type of cooperation highlights the 
United States' (continuing) ability to organize a successful 
effort to protect U.S. values in a high-stakes contest with 
China.
    The recent WIPO success was not guaranteed and there is 
more that the U.S. can and must do to reinforce its position in 
these international fora, specifically in standards-setting 
bodies. To this end, the Cyberspace Solarium Commission 
recently recommended empowering and sufficiently resourcing the 
National Institute of Standards and Technology (NIST) to 
facilitate robust and integrated U.S. participation from the 
Federal Government, academia, professional societies, and 
industry, in fora that engage in setting information and 
communications technology standards. This participation would 
include not only technical and standards experts from the 
Federal Government, but also skilled diplomats. A more robust 
and integrated approach, between and among U.S. Government 
officials and U.S.- and Western-based businesses will allow the 
U.S. to more vigorously present an alternative and compelling 
position and vision in these venues, so as to expose the 
Chinese position for what it is: a power play that benefits 
China and China alone (with the possible exception of some 
other authoritarian Nation States that may share certain 
Chinese interests and values, such as keeping domestic 
populations in check by all means necessary).
    The U.S. must work energetically with its existing allies--
and seek to cultivate new ones--so as to defend/protect 
existing global standards that support and reflect U.S. 
interests and values, as well as further the elaboration of new 
global norms that are equally in keeping with our interests/
values. Sustained U.S. leadership, exercised in the described 
manner, will go a long way towards thwarting China's bid for 
dominance in this area.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM FRANK J. CILLUFFO

Q.1. In your testimony, you stated that ``the potential for 
continuous and purposeful (adversary) access to our railcar/
transit systems may arise through equipment communications 
links; hardware or software may be compromised; and the 
likelihood of direct access is real.'' \1\ In cybersecurity 
terms, a backdoor is an undocumented method of bypassing 
security controls to covertly access a computer system or 
encrypted data. The cybersecurity firm Cybereason revealed 
mobile phone networks across the globe had been infiltrated 
over a 6-year period using techniques commonly associated with 
Chinese threat actors. \2\
---------------------------------------------------------------------------
     \1\ Testimony of Frank J. Cilluffo, Director, Center for Cyber and 
Homeland Security Auburn University before the Banking Committee, March 
3, 2020.
     \2\ https://www.cybereason.com/blog/operation-soft-cell-a-
worldwide-campaign-against-telecommunications-providers
---------------------------------------------------------------------------
    Currently, rolling stock is purchased with hardware and 
software bundled from the same manufacturer. Do you believe 
that domestic cybersecurity would be improved if the DOT 
prohibited the bundling of hardware and software from the same 
manufacture and instead required an architecture that would 
allow other manufactures to provide alternative hardware and/or 
software options for rolling stock?

A.1. Diversification is often a prudent strategy and the 
proposed context is no exception to the extent that it makes 
little sense to introduce a potential single point of failure 
or vulnerability if there are other equally powerful paths 
forward. However acquiring unbundled hardware and software will 
not resolve the foundational issue in relation to Chinese-
supplied rolling stock--namely, that any manufacturer must be 
tested/vetted and trusted by U.S. authorities before being 
allowed to infiltrate the supply chain of critical U.S. 
infrastructure (or critical national functions).
    Having said that, it would nonetheless be good practice to 
adopt measures that enhance cybersecurity in the context of any 
and all trusted vendors, including American ones.

Q.2. Do you support the Federal Government funding software and 
hardware substitutes for potentially vulnerable transportation 
and other critical infrastructure?

A.2. As I stated in my previous answer, unbundled hardware and 
software will not resolve the foundational issue in relation to 
Chinese-supplied rolling stock--namely, that any manufacturer 
must be tested/vetted and trusted by U.S. authorities before 
being allowed to infiltrate the supply chain of critical U.S. 
infrastructure (or critical national functions).
    However, while banning or limiting market access to ``high-
risk'' vendors (like Huawei, ZTE, Hikvision, or others) can 
limit supply-chain vulnerabilities, without secure, cost-
competitive substitutes, America's own domestic infrastructure 
development may be slowed or stymied. The United States must 
take steps to build a stronger, more secure industrial base for 
critical materials, components, and technologies for critical 
infrastructure sectors where there is a growing dependence on 
China or untrusted vendors. This ``industrial base strategy'' 
should draw upon lessons from the past and take a holistic 
approach, utilizing a ``Sematech-like'' model to spur domestic 
innovation and capacity. We should also look for opportunities 
to expand this model beyond our borders, leveraging the 
industrial might of our allies and partners to establish 
common, trusted foundries able to compete with and provide 
alternatives against insecure, State-backed Chinese products.
    This also means the United States must take steps to 
consciously diversify its supply chains away from 
``concentrated dependencies'' on any one foreign Nation. While 
a blanket ``decoupling'' from China would likely not serve U.S. 
interests, the United States must take stock of its most 
critical materials, components, and technologies and seek to 
provide incentives or subsidies for companies to move their 
manufacturing elsewhere. Geographic diversity in America's 
global manufacturing base is critical in ensuring the 
resilience of supply in peacetime and in crisis. The Cyberspace 
Solarium Commission highlighted the need for this sort of 
industrial strategy to preserve U.S. resilience in IT hardware 
and software capabilities.
    Bottom line: the United States must invest heavily to build 
domestic markets and manufacturing capabilities in critical 
areas; and should work to encourage our Five Eyes partners and 
other U.S. allies to invest accordingly as well.

Q.3. Policymakers often discuss mitigating cybersecurity 
attacks in terms improving cyberdefenses, but another method to 
combat State-sponsored cyberattacks would be to enact strong 
deterrents. Which specific deterrents do you believe would be 
effective against potential Chinese State-sponsored 
cyberattacks?

A.3. An effective deterrent strategy in cyberspace requires a 
strong defense working in tandem with other elements of 
national power. The Cyberspace Solarium Commission recently put 
forward a strategy termed ``layered cyberdeterrence'' to reduce 
the frequency, scope, and scale of adversary malicious 
cyberoperations. This strategy is composed of three layers. 
Shape behavior: the United States must work with allies and 
partners to promote responsible behavior in cyberspace. Deny 
benefits: the United States must deny benefits to adversaries 
who have long exploited cyberspace--to their advantage, to 
American disadvantage, and at little cost to themselves--by 
securing critical U.S. networks in collaboration with the 
private sector to promote national resilience and increase the 
security of the cyberecosystem. Impose costs: the United States 
must maintain the capability, capacity, and credibility needed, 
in all instruments of national power, to retaliate against 
actors who target America in and through cyberspace.
    The Solarium Commission assessed that deterrence was not 
working in cyberspace, and that significant investment is 
needed in all three areas, but especially in the deterrence-by-
denial layer. To this end, significant U.S. investment is 
needed in the defense and security of our national critical 
infrastructure--much of which is owned and operated by the 
private sector. The concomitant need for public-private 
collaboration presents a further challenge as we try to build/
enhance effective deterrent capability.
    As your question implies, deterrence must be tailored to 
the specific actor whose behavior the United States seeks to 
change. All three of the enumerated layers are required to 
deter Chinese aggression in cyberspace.
    In the case of China, we must marshal all elements of 
statecraft--economic, political, diplomatic, military, law 
enforcement, intelligence, and so on--in order to change the 
Chinese decision-making calculus. Accordingly, attribution, 
indictments, sanctions, joint and concerted action with allies, 
declaratory statements backed up by demonstrated abilities and 
capacities plus a willingness to act--all of these are 
important elements in the U.S. toolkit and should be invoked as 
circumstances warrant. Lashing up ever more tightly the efforts 
of the FBI, NSA, DOD, and DHS to better support U.S. critical 
infrastructure and critical national functions will also serve 
to deter in a more effective way than ever before, particularly 
if a more forward-leaning posture is adopted.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                     FROM FRANK J. CILLUFFO

Q.1. What are the threats to American passengers riding on a 
China Railway Rolling Stock Corporation railcar with Huawei 
technology operating in the U.S.?

A.1. At the high end of the spectrum of potential concerns is 
disruptive or destructive action. In this regard, the threat 
centers on the potential for continuous and purposeful 
(adversary) access to our railcar/transit systems through 
equipment communications links (hardware or software may be 
compromised); and some of the consequences that could follow: 
China could shut down U.S. trains and disrupt transit 
operations. Knock-on effects could hit other critical U.S. 
infrastructure sectors. Major U.S. cities that depend strongly 
on rapid transit systems could experience significant economic 
effects, particularly if an incident were to disrupt systems 
for a lengthy period. In addition, China could engage in 
espionage that affects not just systems and infrastructures, 
but individual Americans (however there are many easier ways 
for China to pursue this particular end). Huawei having an 
additional ``foothold'' in the manner set out in your question 
would compound the situation (negatively).
              Additional Material Supplied for the Record
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