[Senate Hearing 116-624]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 116-624

                          THE CHINA CHALLENGE:
                 REALIGNMENT OF U.S. ECONOMIC POLICIES
                TO BUILD RESILIENCY AND COMPETITIVENESS

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON SECURITY

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 30, 2020

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




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                 Available online: http://www.govinfo.gov

                                ______
                                 

                 U.S. GOVERNMENT PUBLISHING OFFICE

52-823 PDF                WASHINGTON : 2023











       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                  ROGER WICKER, Mississippi, Chairman

JOHN THUNE, South Dakota             MARIA CANTWELL, Washington, 
ROY BLUNT, Missouri                      Ranking
TED CRUZ, Texas                      AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska                RICHARD BLUMENTHAL, Connecticut
JERRY MORAN, Kansas                  BRIAN SCHATZ, Hawaii
DAN SULLIVAN, Alaska                 EDWARD MARKEY, Massachusetts
CORY GARDNER, Colorado               TOM UDALL, New Mexico
MARSHA BLACKBURN, Tennessee          GARY PETERS, Michigan
SHELLEY MOORE CAPITO, West Virginia  TAMMY BALDWIN, Wisconsin
MIKE LEE, Utah                       TAMMY DUCKWORTH, Illinois
RON JOHNSON, Wisconsin               JON TESTER, Montana
TODD YOUNG, Indiana                  KYRSTEN SINEMA, Arizona
RICK SCOTT, Florida                  JACKY ROSEN, Nevada

                       John Keast, Staff Director
                  Crystal Tully, Deputy Staff Director
                      Steven Wall, General Counsel
                 Kim Lipsky, Democratic Staff Director
              Chris Day, Democratic Deputy Staff Director
                      Renae Black, Senior Counsel

                                 ------                                

                        SUBCOMMITTEE ON SECURITY

DAN SULLIVAN, Alaska, Chairman       EDWARD MARKEY, Massachusetts, 
ROY BLUNT, Missouri                      Ranking
TED CRUZ, Texas,                     AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska                RICHARD BLUMENTHAL, Connecticut
MARSHA BLACKBURN, Tennessee          BRIAN SCHATZ, Hawaii
MIKE LEE, Utah                       TOM UDALL, New Mexico
RON JOHNSON, Wisconsin               TAMMY DUCKWORTH, Illinois
TODD YOUNG, Indiana                  KYRSTEN SINEMA, Arizona
RICK SCOTT, Florida                  JACKY ROSEN, Nevada








                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 30, 2020....................................     1
Statement of Senator Sullivan....................................     1
Statement of Senator Markey......................................     2
Statement of Senator Wicker......................................     4
Statement of Senator Klobuchar...................................    33
Statement of Senator Blunt.......................................    34
Statement of Senator Rosen.......................................    36
Statement of Senator Capito......................................    38
Statement of Senator Blackburn...................................    42
Statement of Senator Blumenthal..................................    43
Statement of Senator Young.......................................    67
Statement of Senator Cruz........................................    73

                               Witnesses

Hon. Michael Wessel, Commissioner, U.S.-China Economic and 
  Security Review Commission.....................................     5
    Prepared statement...........................................     7
Dr. Rush Doshi, Director, Brookings Institution China Strategy 
  Initiative; Fellow, Yale Law School China Center...............    17
    Prepared statement...........................................    20
Hon. Keith Krach, U.S. Under Secretary of State for Economic 
  Growth, Energy, and the Environment, U.S. Department of State..    49
    Prepared statement...........................................    51
Hon. Nazak Nikakhtar, Assistant Secretary, International Trade 
  Administration, Industry and Analysis, U.S. Department of 
  Commerce.......................................................    57
    Prepared statement...........................................    60

                                Appendix

Letter dated July 1, 2020 from Keith J. Krach, Under Secretary of 
  State for Economic Growth, Energy, and the Environment, U.S. 
  Department of State............................................    79
Letter dated August 18, 2020 from Keith J. Krach, Under Secretary 
  of State for Economic Growth, Energy, and the Environment, U.S. 
  Department of State............................................    81
Response to written questions submitted by Hon. Edward Markey to:
    Hon. Michael Wessel..........................................    84
    Dr. Rush Doshi...............................................    90
Response to written questions submitted to Hon. Keith Krach by:
    Hon. Dan Sullivan............................................    91
    Hon. Rick Scott..............................................    95
    Hon. Edward Markey...........................................    97
Response to written questions submitted to Hon. Nazak Nikakhtar 
  by:
    Hon. Dan Sullivan............................................    98
    Hon. Rick Scott..............................................   101
    Hon. Edward Markey...........................................   102







 
                          THE CHINA CHALLENGE:
                 REALIGNMENT OF U.S. ECONOMIC POLICIES
                TO BUILD RESILIENCY AND COMPETITIVENESS

                              ----------                              


                        THURSDAY, JULY 30, 2020

                               U.S. Senate,
                          Subcommittee on Security,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Dan Sullivan, 
Chairman of the Subcommittee, presiding.
    Present: Senators Sullivan [presiding], Blunt, Cruz, 
Blackburn, Young, Wicker, Capito, Markey, Klobuchar, 
Blumenthal, and Rosen.

            OPENING STATEMENT OF HON. DAN SULLIVAN, 
                    U.S. SENATOR FROM ALASKA

    Senator Sullivan. Good morning. This hearing will now come 
to order.
    I am pleased to welcome our distinguished panels of 
witnesses today as the Economic and Security Subcommittee 
focuses on a very important topic that I think there's a lot of 
bipartisan interest in and that is the economic and 
geostrategic challenge that the rise of China poses for the 
United States not just today but in the future.
    The Communist Party-led People's Republic of China through 
unfair trade practices, intellectual property theft, market 
manipulation, and very prominently, in my view, non-reciprocal 
treatment not just in the economic realm but in many realms has 
been a force in the global economy that undercuts the 
resiliency and strength of the U.S. economy.
    China has been one of the world's fastest-growing 
economies, averaging close to 10 percent growth from 1979 to 
2015. In 2014, China overtook the United States as the world's 
largest economy in purchasing power parity basis, according to 
the International Monetary Fund.
    I believe that there is a strong and bipartisan interest, 
hopefully we will see that today, in establishing a long-term 
economic United States strategy with our allies that focuses on 
reciprocity, intellectual property theft, and ultimately from 
the United States' perspective outcompeting the Chinese.
    In May, the White House issued its document called The 
United States Strategic Approach to the People's Republic of 
China. This document stated, ``The Chinese Community Party's 
expanding use of economic, political, and military power to 
compel acquiescence from nation states across the globe harms 
vital American interests and undermines the sovereignty and 
dignity of countries and individuals around the world.''
    This document is part of the broader national security 
strategy issued a couple years ago by the Trump Administration 
and national defense strategy issued by the Department of 
Defense.
    These documents, although you don't see it in the press, in 
my view, have very strong bipartisan support in the Congress 
for laying out the challenge that our Nation faces with regard 
to China.
    What they lack right now is implementing documents, 
implementing strategies, particularly as it relates to the 
economic challenge that China poses. So what our hearing 
intends to do today is to start the focus on the implementation 
and execution of these strategies.
    As I mentioned, I think these strategies have broad-based 
bipartisan support, but we're going to need to be able to bring 
our government, our society together for the long-term, 
literally decades, like we did in the Cold War with the Soviet 
Union, if we're going to execute these in a way that protect 
American interests, our workers, our economic and national 
security interests.
    I'm hopeful that that's the path that we are beginning on. 
The Trump Administration, in a series of speeches through 
Cabinet members in the last few weeks, has started to lay out 
this strategy. I know that Secretary Pompeo, as we speak, is 
testifying in front of the Senate Foreign Relations Committee, 
and I am hopeful with our two panel witnesses today, government 
witnesses and experts from the private sector and think tank 
community, we'll be able to start informing the Congress on 
this issue, which I think is one of the most important issues 
facing the United States.
    So that's our goal, and I'm excited to have Ranking Member 
Markey as my Ranking Member here. I know he feels the same on a 
lot of the issues with regard to the challenges that China 
poses, and with that, I will turn to the Ranking Member for his 
opening statement.
    Senator Markey.

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Mr. Chairman. Thank you so much 
for convening this hearing and for your continued partnership 
on the Subcommittee, and I want to thank our witnesses for 
their willingness to participate today.
    As the Ranking Member of both this subcommittee and the 
East Asia Subcommittee of the Foreign Relations Committee, I 
believe that meeting the China challenge should be a bipartisan 
priority.
    We must compete against Beijing's efforts to unfairly tilt 
the playing field against American workers and businesses. 
Those actions include state support for companies, intellectual 
property theft, as well as increasingly using multilateral 
institutions to set standards that privilege Chinese companies 
and technology.
    China also uses its vast economic tools to threaten freedom 
around the world. Beijing is already exploiting the size of its 
market to coerce American citizens and business leaders as well 
as foreign governments into self-censorship to protect official 
Chinese Government messaging.
    We know China is using exports and foreign assistance, 
including through the Belton Road Initiative, to embed around 
the world not only surveillance technologies but also the 
values and practices that activate those technologies for 
authoritarian repression.
    As we engage in this competition of systems, we must 
remember that the Chinese Government is testing their 
authoritarian tools, first and foremost, on the people of 
China, and I want to make clear that in today's hearing and 
otherwise, we are focused on the threats posed by the Chinese 
Government.
    But while countries around the world look to the United 
States to lead an international coalition to push back on 
Chinese aggression, they note that the United States has 
retreated from our historic support of democracy and human 
rights as a key pillar of our foreign policy. They note that 
the Trump Administration has abandoned international 
institutions, such as the World Health Organization, while the 
Chinese Government has only stepped up their influence 
campaign, and they note this Administration's unprecedented 
support for a variance over allies.
    Rather than take a leadership role in pulling together a 
global coalition to combat Chinese policy objectives, this 
Administration has pursued an aggressive go-it-alone approach 
that swings between pandering to China, including an apparent 
green light from President Trump for detention camps to the 
closing of the Chinese Consulate in Houston, without any clear 
reason or explanation of what we seek in return.
    We cannot consider our China policy in a vacuum. Every 
policy decision from the past three and a half years impacts 
how the rest of the world views the current conflict. When I 
assess these policy decisions, it's clear to me that we have 
failed to rise to this moment.
    As China steps up its propaganda campaign in the midst of 
the coronavirus, it's hard for the United States to point 
fingers when our own virus response has been so inadequate.
    The President's inexplicable failure to lead a national 
response to the coronavirus crisis and his attacks against 
science, free speech, and the media has left the United States 
flailing as other countries lead in responding to the pandemic.
    As China continues to dominate manufacturing and requires 
companies to bring on Chinese partners and share intellectual 
property, the United States has cut relevant areas of domestic 
spending and hasn't leveraged the full resources of the 
government to spur economic development.
    We should be investing in our research and development and 
technology sectors and putting money into education with a 
particular focus on STEM. We should also be utilizing the 
Defense Production Act to its full potential to mobilize the 
economy during the pandemic.
    As China engages in a comprehensive campaign to exploit 
international institutions for their own purposes, we have 
retreated even further from the world stage. When the United 
States is absent on the world stage, China is only too happy to 
fill the void.
    Competition with China is fundamentally about a free 
society versus authoritarianism. We must utilize all of the 
tools at our disposal to make the United States economy 
competitive and resilient in this as we work with Democratic 
countries around the world which act in a connected way to 
protect the values we hold so dear.
    The challenges are too important, the stakes are too high. 
The United States simply cannot afford to cede leadership.
    So thank you, Mr. Chairman, for this very important 
hearing. Thank you to all of the witnesses who are 
participating today. This is clearly a very important subject.
    Senator Sullivan. Thank you, Senator Markey, and I 
appreciate your partnership on this subcommittee where we've 
had a lot of really good hearings and I think a lot of overall 
bipartisan agreement on a number of issues. I think that's 
important, particularly as it relates to China.
    I noticed that the Chairman of the Commerce Committee, 
Senator Wicker, is here, and I would ask him to give an opening 
statement, as well.
    Mr. Chairman.

                STATEMENT OF HON. ROGER WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    The Chairman. Thank you very much, Mr. Chairman.
    I appreciate your leadership on this issue and that of 
Ranking Member Markey. This is an ambitious two-panel hearing 
this morning and should be quite valuable.
    The focus, of course, is the Chinese Communist Party and 
their predatory economic practices and their impact on American 
companies and workers, both at home and abroad.
    Confronting these practices and protecting our economic 
advantages into the future will require an aggressive U.S. 
Government response supported by congressional action and 
oversight.
    In May, the White House published its Whole of Government 
Response Plan in a document called The United States Strategic 
Approach to the People's Republic of China.
    Today's hearing will focus on the economic dimensions of 
the overall U.S. strategy. As the White House Strategic 
Approach points out, the CCP uses a variety of weapons to 
undermine America's economic competitiveness, including cyber 
attacks, intellectual property theft, force technology 
transfers, and illegal subsidies to state-owned enterprises.
    I hope our witnesses will describe the particular impacts 
of China's campaign with respect to industries under the 
Commerce Committee's jurisdiction, such as telecommunications, 
maritime, aviation, and space.
    America's future economic prosperity is not the only thing 
at stake in this strategic competition. As the COVID-19 
pandemic continues, China is apparently using tactics from its 
predatory playbook against our public health sector.
    Last week, the Department of Justice indicted two Chinese 
hackers for a widespread cyber attack campaign supported by the 
Chinese Intelligence Service. The targets allegedly included at 
least four U.S. pharmaceutical and biotech firms working on a 
COVID-19-related testing and treatment project.
    The COVID-19 crisis has revealed unacceptable 
vulnerabilities caused by years of letting the CCP engage in 
disruptive and damaging economic practices without an effective 
coordinated response. Hopefully that's about to change.
    During the initial phase of the COVID-19 outbreak, for 
example, Chinese exporters and shipping ground to a halt and 
many U.S. businesses were forced to go without essential 
supplies. In particular, the United States pharmaceutical 
industry has been shown to be overly reliant on Chinese 
suppliers. We cannot tolerate having these economic 
vulnerabilities.
    The CCP is unlikely to stop its predatory practices. 
Therefore, the U.S. Government should help our economy become 
more resilient against constant pressure from Beijing.
    I would ask our witnesses from the State Department and the 
Commerce Department, respectively, to detail the measures they 
are taking to support a multi-Cabinet approach.
    Congress can play a significant role in supporting the 
efforts of the executive branch. The Commerce Committee is 
doing its part to help by producing bipartisan legislation, 
such as the recently enacted Secure and Trusted Communications 
Network Act, known as the Rip and Replace, and there are funds 
in the COVID-19 Phase 4 proposal by the Majority Leader in this 
regard.
    This law will help protect American communications networks 
from threats posed by CCP bat suppliers, such as Huawei and 
ZTE, by supporting the removal of that equipment. I would 
welcome suggestions from all of our witnesses on how Congress 
can continue to bolster the Administration's efforts.
    But, Mr. Chairman and Ranking Member Markey, you have both 
been champions in this regard, and I appreciate your bipartisan 
support.
    I thank the witnesses for their time today and look forward 
to their recommendations.
    Thank you very much.
    Senator Sullivan. Great. Thank you, Mr. Chairman.
    I want to welcome our witnesses. I have instructions here 
that say if the witnesses have not taken their seats, please 
ask them to do so. We have no witnesses actually here in the 
room, but I think they've taken their seats virtually. So I can 
see them on the screen.
    I want to welcome Mr. Michael Wessel, Commissioner of the 
U.S.-China Economic and Security Review Commission, and Mr. 
Rush Doshi, Director of the China Strategy Initiative at The 
Brookings Institution.
    Gentlemen, you each will have 5 minutes to deliver an oral 
statement. A longer written statement will be included for the 
record.
    Thanks again for being here. Mr. Wessel, why don't we begin 
with you?

  STATEMENT OF HON. MICHAEL WESSEL, COMMISSIONER, U.S.-CHINA 
             ECONMIC AND SECURITY REVIEW COMMISSION

    Mr. Wessel. Thank you for the invitation to appear before 
you today. The topic of today's hearing directly affects every 
one of our citizens.
    My name is Michael Wessel, and I'm appearing before you 
today as a Commissioner on the U.S.-China Economic and Security 
Review Commission, but as a normal Washington disclaimer, I'm 
speaking for myself, although my comments are informed by my 
service on the Commission and other work I've been involved in 
for many years.
    Today's hearing raises the critical issue of how to respond 
to the China challenge. While China's policies and actions pose 
the greatest current threat to our competitive posture, other 
nations are watching America's response to determine whether 
they should emulate China's actions or whether America will 
stand tall and defend and promote its interests.
    Last week, China's Foreign Minister Wang Yi said that, 
``The current situation in Chinese-U.S. relations is not what 
China desires to see. The United States is responsible for all 
of this.''
    I agree that we don't want the current state of relations 
to continue, but I strongly disagree that the U.S. is solely 
responsible.
    Years of repeated attacks on our industrial base, the 
continuous theft of our intellectual property, countless unfair 
trade practices, massive subsidies of state-owned and state-
supported entities, and many other predatory and protectionist 
policies, along with China's human rights abuses, current 
actions in Hong Kong, and power projections in the South China 
Sea and elsewhere required that we more seriously confront 
China. China's actions led to the response.
    China's leadership has made clear their intentions through 
numerous policy pronouncements and activities. They don't pose 
their approach as being win-win but, rather, winning and 
dominate.
    The Chinese Communist Party's policies have contributed to 
the hollowing out of production, the dangerous reliance on 
uncertain and sometimes risky supply chains, and a loss of 
resiliency. Countless jobs have been lost.
    In my prepared testimony, I outline many of the CCP's 
policies and practices that form the basis for our concerns. 
They're well-documented. The dangerous dependence on China for 
our medicines, medical devices, and personal protective 
equipment has painted a stark picture for the public but that 
dependence exists in many other sectors and could increase if 
the CCP achieves its stated goals.
    But ministry is right as it relates to policy failures here 
in the U.S. that must be addressed. Our inaction on certain 
fronts and actions on others have contributed to the current 
problems.
    After the accession of China, the World Trade Organization, 
many U.S. businesses began to set up operations in China with 
the stated goal of serving the Chinese market. Despite chasing 
requirements for joint ventures, technology transfer, and other 
policies, the amount of investment by U.S. firms in China 
increased as did their employment which rose by almost 600 
percent to 1.7 million people by 2017.
    R&D by U.S. firms in China has increased an average of 13.6 
percent per year since 2003, almost double the rate of their 
domestic R&D here. The promise of serving the Chinese market 
has not yielded all the claimed benefits. Research shows that 
60 percent of China's exports to the U.S. emanate from foreign 
invested enterprises. Not all of those are U.S. but many are.
    Now with China's rising debt load and need for capital is 
beginning to open its financial sector to foreign firms, it's 
not doing that to advantage these firms but to serve its own 
needs. The risk to foreign investors, our investors, is 
significant in economic terms and in terms of advancing China's 
military and technological capabilities.
    Hundreds of billions of dollars may flow into China over 
the next 2 years. This bears careful and strict scrutiny. On 
these and many other fronts, we should examine some policy 
options to promote our interests.
    In my testimony, I identify several recommendations made by 
the Commission as well as several of my own, but we need a 
comprehensive approach, and I believe that emulating the 
congressional effort that foster the Omnibus Trading and 
Competitiveness Act of 1988, which this committee played a 
critical role in, is worth considering.
    We not only need to confront the acts and policy fostered 
by the CCP but need to invest in our own competitiveness and 
adopt rules that will advance our interests.
    We also need to focus not only now on today's challenges 
but those over the horizon.
    Thank you for the opportunity to appear before you this 
morning, and I look forward to your questions.
    [The prepared statement of Mr. Wessel follows:]

  Prepared Statement of Hon. Michael Wessel, Commissioner, U.S.-China 
                Economic and Security Review Commission
    Chairman Sullivan, Ranking Member Markey, Members of the 
Subcommittee. I want to thank you for the invitation to appear before 
you today on ``The China Challenge: Realignment of U.S. Economic 
Policies to Build Resiliency and Competitiveness.'' This is a critical 
issue for U.S. economic and national security interests and directly 
affects every one of our citizens.
    My name is Michael Wessel and I am appearing before you today as a 
Commissioner on the U.S.-China Economic and Security Review Commission 
(Commission), where I have served since its creation in 2001. But, as a 
disclaimer, I am speaking for myself, although my comments are informed 
by my service on the Commission and other work I have been involved in 
for many years.
    The Commission was created by Congress in 2001 in conjunction with 
the debate about the grant of Permanent Normal Trade Relations (PNTR) 
to China, paving the way for its accession to the World Trade 
Organization. The Commission was tasked with monitoring, investigating 
and submitting to Congress an annual report on the national security 
implications of the bilateral trade and economic relationship between 
the United States and the People's Republic of China, and to provide 
recommendations, where appropriate, to Congress for legislative and 
administrative action.
    The grant of PNTR ended the annual debate about whether to extend 
most favored nation status to China. But as it passed PNTR, Congress 
created the Commission because it did not want to forego the annual 
review of our relationship with China. Since the creation of the 
Commission, our mandate has been extended and altered as the U.S.-China 
relationship evolved.
    The Commission is a somewhat unique body: We report to and support 
Congress. Each of the four Congressional leaders appoint 3 members to 
the Commission for 2-year terms. In 7 of the last 10 years, we have 
issued unanimous reports. In the 3 years where it was not unanimous, 
there was only one dissenting vote. In many ways, the evolving 
challenges and opportunities posed by the relationship with China have 
united us in our analysis. All of our hearings, testimony, annual 
reports and research are available at our website www.uscc.gov.
    Today's hearing raises the critical issue of how to respond to the 
China challenge. While China's policies and actions pose the greatest 
current threat to our competitive posture, other nations are watching 
America's response to determine whether they should emulate China's 
actions or whether America will stand tall and defend its interests. 
The long-term question is whether we will shed an ideological, outdated 
approach to trade and competition in favor of an approach based on 
pragmatism and reality that focuses on our economic, health, food and 
national security interests.
The China Challenge
    There is substantial documentation on the unfair, exclusionary and 
predatory trade and economic policies that China has used to promote 
its own interests, at the expense of the U.S. and other countries. 
China, indeed, has been very public in its plans--ranging from its Long 
and Medium Plan for Scientific and Technological Development (which 
included calls for indigenous innovation) to its five-year plans, to 
the Made in China 2025 Initiative, the Standards 2035 program, and 
numerous other industrial policy blueprints. Economists, academics and 
the press have often discounted China's statements, all-too-often to 
the detriment of our own national and economic security.
    The U.S.-China Economic and Security Review Commission has 
documented China's plans, and their impact since China's entry into the 
World Trade Organization in 2001. China has identified the industries 
and sectors it wants to excel in, and often, dominate. China indicated 
that it would allocate more than $1.5 trillion to support the goals of 
its 13th Five Year Plan (2016-2020).
    The USTR's Section 301 ``Investigation into China's Acts, Policies, 
and Practices Related to Technology Transfer, Intellectual Property, 
and Innovation'' is the most comprehensive government study on those 
topics done to date. Various estimates over the years have identified 
hundreds of billions of dollars of lost intellectual property due to 
China's legal and illegal policies. As Dennis Blair and Keith Alexander 
stated in an op-ed for the New York Times upon the initiation of the 
USTR's investigation, ``All together, intellectual-property theft costs 
America up to $600 billion a year, the greatest transfer of wealth in 
history. China accounts for most of that loss.'' \1\
---------------------------------------------------------------------------
    \1\ Dennis C. Blair and Keith Alexander, ``China's Intellectual 
Property Theft Must Stop,'' New York Times, August 15, 2017.
---------------------------------------------------------------------------
    China's IP policies have enhanced their economic and military 
competitiveness and undermined our own. Companies have found their 
ability to profit from their investments in research and development 
undermined by the transfer of technology, which is often a requirement 
based on market access rules and other provisions adopted by the 
Chinese government. And, coupled with exclusionary as well as 
preferential policies, many companies have expanded their R&D and 
production in China, at the cost to our country.
    China has identified market-share allocations for key sectors. For 
example, in robotics, China has indicated that it wants to be 70 
percent self-sufficient by 2025 and has invested money in the sector 
\2\, supported it with preferential policies, identified key foreign 
companies for acquisition (e.g., Germany's Kuka) and engaged in other 
legal and illegal activities to acquire key technologies.
---------------------------------------------------------------------------
    \2\ Mercator Institute for China Studies, Made In China 2025: The 
making of a high-tech superpower and consequences for industrial 
countries, August 12, 2016.
---------------------------------------------------------------------------
    In 5G, a critical communications area, China has a broad array of 
policies in place to advantage its leading players--most notably, 
Huawei. China has allocated a minimum of two-thirds of its 
telecommunications market to domestic companies. Over time, it sought, 
and won, leadership positions on more subcommittees at the standards-
setting International Telecommunication Union than any other nation 
seeking to ensure that international standards promoted and preferred 
the equipment and designs of Chinese manufacturers. It has engaged in 
subsidization, dumping and other policies to spread its technologies 
across the globe--including as part of its efforts via the Belt and 
Road Initiative to create a Digital Silk Road.
    But, let's understand, before 5G is even fully realized or deployed 
at even a fraction of its eventual geographic reach, experts are 
already talking about 6G. Both of China's leading companies--Huawei and 
ZTE--have made public announcements about their work on 6G. We can not 
afford to be left behind.
    As any good soccer player knows, you need to focus not on where the 
ball is right now, but where it will be as you move down the field and 
seek to score. China has a long-term strategy and is committed to 
winning--it's focusing on where the ball needs to be. We need to have a 
similar mindset, be just as committed and define and implement an 
industrial policy to win.
Impact on U.S. Jobs
    The debate about the impact of China's policies and practices on 
the U.S. continues to be divisive. There are some who believe that 
China's willingness to subsidize and dump products into the U.S. with 
lower consumer costs should be the primary measure and, by this 
measure, our people are better off. While fewer and fewer people 
subscribe to this view, some still cling to it.
    I couldn't disagree more and believe that the wealth of opinion has 
come to the conclusion that China's predatory and protectionist trade 
and economic policies undermine U.S. interests. The cost of products 
cannot be the only measure of economic benefit. The public understands 
that, while the flat screen television in their living room may be 
cheaper, that the production jobs to support that product are not here 
in the U.S. They know, all too well, that globalization has increased 
the downward pressure on wages and our standard of living. It has 
contributed to rising income inequality.
    And, predatory pricing can lead to loss of capacity with the 
outsourcing of jobs and offshoring of production. Industry after 
industry has faced this problem. Steel. Aluminum. Solar cells. Rare 
earths. Many others.
    The Economic Policy Institute estimated that ``the growing trade 
deficit with China eliminated 3.7 million U.S. jobs between 2001 and 
2018.'' \3\ In their research for ``The China Shock'' a number of noted 
economists found that ``(a)t the national level, employment has fallen 
in the U.S. industries more exposed to import competition, as expected, 
but offsetting employment gains in other industries have yet to 
materialize.'' \4\ While classic trade theory would suggest that 
displaced workers would migrate to other sectors, many of which would 
be expected to be higher value-added, that has not been the case. China 
has also targeted those sectors for development as well--putting 
pressure on a much broader cross-section of our economy than classical 
theory accounts for.
---------------------------------------------------------------------------
    \3\ Rob Scott and Zane Makhiber, Growing China Trade deficit cost 
3.7 million American jobs between 2001 and 2018, Economic Policy 
Institute, January 30, 2020.
    \4\ David H. Autor, David Dorn, and Gordon H. Hanson, the China 
Shock: Learning from Labor-Market Adjustment to Large Changes in Trade, 
MIT Economics, August 11, 2016.
---------------------------------------------------------------------------
    And, as we have seen, the jobs at stake are not only in the 
manufacturing sector. China's non-market economic policies have 
threatened and undermined our agricultural interests as well. Over 
time, China has used exclusionary and arbitrary policies to limit 
access to many of our agricultural products. In soybeans, for example, 
they have managed their purchases for political gain and have also 
largely refused to allow crushed-soy exports into their country as 
those are value-added jobs.
    In pork, a preferred protein source for the Chinese people, they 
have limited access to their market. As their level of income rose, 
hitting a tipping point where protein consumption increased 
significantly and demand for pork exceeded domestic supply, rather than 
open their market to U.S. exports broadly, a state-supported company 
purchased one of our preeminent pork producers--Smithfield Foods. A 
free-market approach would have produced more general benefits for all 
U.S. producers, rather than a select producer. In the first year after 
their purchase of Smithfield, 97 percent of all China's imports were 
from that company. The percentage has dropped, but the preference is 
still there. And, the Chinese company that purchased Smithfield also 
acquired intellectual property in the form of genetic stock and farming 
techniques--which will advance Chinese domestic production capabilities 
rather than U.S. jobs and economic interests. Only the swine flu 
epidemic has mediated those concerns for the moment.
    In many other sectors, we see the corrosive impact of CCP policies 
and practices on U.S. interests that are hollowing out U.S. production 
and adversely affecting U.S. employment.
Resilience
    More than ever, the American people are uniquely focused on our 
dependence on China for critical supplies and materials. The COVID-19 
crisis has put a spotlight on supply chains for medical supplies, 
medical devices, and Personal Protective Equipment. The outsourcing and 
offshoring of production and jobs and the decline of productive 
capacity in that sector has garnered attention on China as a supplier 
like never before.
    The public learned not only about our loss of production capacity, 
but China's ability to control supplies and use them as foreign policy 
leverage. The failure to have adequate inspections and limited quality 
control all became nightly news stories. Masks sold as meeting the N95 
standard were often found to be almost ineffective--possibly less 
effective than simply using a bandana as a face mask.
    And, in the early days, as we all know, the offshoring of 
manufacturing limited our capacity to surge production of ventilators 
and other critical equipment.
    While the COVID-19 crisis brought all of this to the front pages 
and to the nightly news, the threats to our economic health and 
security have been building for years. In 2014, the Commission held a 
hearing entitled ``China's Healthcare Sector, Drug Safety, and the 
U.S.-China Trade in Medical Products.'' Last July, former Senator Jim 
Talent and I co-chaired a hearing at the Commission, ``Exploring the 
Growing U.S. Reliance on China's Biotech and Pharmaceutical Products''. 
Our work, and the witness testimony we heard, along with staff 
research, identified broad and deep dependence on China for our medical 
needs and deep vulnerabilities.
    We no longer have the fermentation capacity in the U.S. to make 
penicillin and are completely dependent on foreign sources. Eighty 
percent of the active pharmaceutical ingredients (APIs) we use come 
from abroad, with a substantial portion coming from China. Of the 10 
active ingredients in Remdisivir, one of the therapeutics reportedly 
showing promise for treating COVID-19, 8 come from China.\5\ For many 
other products, we are partially, or entirely, dependent on China.
---------------------------------------------------------------------------
    \5\ Mary Denigan-Macauley, written testimony for U.S. House of 
Representatives Subcommittee on Oversight and Investigations, Committee 
on Energy and Commerce, Hearing on Securing the U.S. Drug Supply Chain: 
Oversight of FDA's Foreign Inspections Program, December 10, 2019, 1.
---------------------------------------------------------------------------
    As Christopher Priest, the Acting Deputy Assistant Director of the 
Defense Health Agency told our Commission, ``the national security 
risks of increased Chinese dominance of the global API market cannot be 
overstated.'' \6\
---------------------------------------------------------------------------
    \6\ Christopher Priest, testimony for U.S.-China Economic and 
Security Review Commission, Hearing on Exploring the Growing U.S. 
Reliance on China's Biotech and Pharmaceutical Products, July 31, 2019. 
https://www.uscc.gov/sites/default/files/Priest%20US-China%20Commis
sion%20Statement.pdf.
---------------------------------------------------------------------------
    Today, the focus is on medical supplies, but our dependence on 
China for many products--some of them critical products--is broad and 
deep.
    As you know, China has in many ways cornered the market on rare 
earth minerals--the input needed for rare earth magnets used across the 
defense sector and in critical technology products. Years ago, the U.S. 
mined rare earths in California, but China's predatory pricing policies 
contributed to that facility going bankrupt. That occurred after CFIUS 
approved the sale of Magnequench, a rare earth magnet supplier, to a 
Chinese entity in 1996. The production equipment acquired in that deal 
was moved to China in the early 2000s.
    China has shown its willingness to weaponize these supply chains, 
as it threatened to do with Japan because of a dispute in the East 
China Sea. While that was a decade ago, recent writings show the intent 
is still there: Research by Horizon Advisory shows a Chinese government 
funded research institute indicated that, ``Amid the heated trade 
conflict between China and the United States, China will not rule out 
using rare earth exports as leverage to deal with the situation.'' \7\
---------------------------------------------------------------------------
    \7\ Horizon Advisory, ``Absolute Competitive Advantage: China's 
Rare Earth Leverage and Strategy Planning,'' June 2020.
---------------------------------------------------------------------------
    Mr. Chairman, your home state, along with several other states, has 
rare earth deposits that could be mined, separated, melted and 
transformed into magnets. We should not continue to rely on China for 
these critical minerals.
    After Hurricane Sandy, the East Coast found that rebuilding the 
electric grid, replacing transformers and providing power to many 
communities was hampered by inadequate supplies of grain oriented 
electrical steel. A dumping and subsidy cases to address China and 
other countries unfair trade proved unsuccessful. This Administration 
initiated a Section 232 investigation related to these products because 
our electric transmission system is critical to our economy and 
national security. It's critical that we ensure that there is the 
capacity to meet our needs in this sector.
    Our nation's reliance on other products from China continues to 
grow, reducing our potential resilience. Last year, despite rising 
trade tensions and the imposition of Section 301 tariffs, the U.S. ran 
a trade deficit in advanced technology products with China of more than 
$100 billion and an overall goods deficit of $345 billion. As has been 
seen with 5G, the predatory actions of China's Huawei have undermined 
the ability of market-oriented firms to develop the technology to 
ensure safe sources of supplies. Our dependence on China for telecom 
products has created dangerous vulnerabilities that our Nation is only 
now really grappling with.
    Reliance on China extends to many other sectors. While work has 
been done by this Administration and other entities on single sources 
of supply from China, or dangerous sourcing dependence, Congress should 
carefully evaluate supply chain risks to determine what the potential 
impact is on our national and economic security.
U.S. Business Activity in China and Its Security Implications
    At the beginning of July, the Commission issued a staff paper 
entitled ``Trends in U.S. Multinational Enterprise Activity in China, 
2000-2017.'' \8\ Since China's accession to the WTO in 2001, U.S. 
business operations in China have expanded dramatically. The staff 
report found that ``as U.S. MNE [multinational enterprise] activity in 
China increasingly focuses on the production of high-end technologies, 
the risk that U.S. firms are unwittingly enabling China to achieve its 
industrial policy and military development objectives rises.'' \9\
---------------------------------------------------------------------------
    \8\ Kaj Malden and Ann Listerud, ``Trends in U.S. Multinational 
Enterprise Activity in China, 2000-2017,'' U.S. China Economic and 
Security Review Commission, July 1, 2020.
    \9\ Ibid, at 3.
---------------------------------------------------------------------------
    Summarizing the finding of the report:

   China's vast consumer market and the Chinese government's 
        coercive policies have incentivized many U.S. MNEs to move 
        their manufacturing operations to China. U.S. Department of 
        Commerce Bureau of Economic Activity (BEA) data explored in 
        this report indicates the major destination for goods and 
        services supplied by U.S. MNEs in China is the Chinese market 
        itself. In 2017, U.S. MNE foreign affiliates in China sold 82 
        percent of the goods and services produced in China directly to 
        Chinese customers. At the same time, trade barriers, including 
        localization requirements and export restrictions on key raw 
        materials, have further induced production within China. Sales 
        to Chinese consumers may also constitute sales of intermediate 
        goods and services which might be used in final goods for 
        export to the United States.

   U.S. MNEs employ more people in China than in any other 
        country outside of the United States, primarily in the assembly 
        of computers and electronic products. As of 2017, U.S. MNEs 
        employed 1.7 million people in China, a 574.6 percent increase 
        from the 252,000 people employed in 2000. China ranks as the 
        top destination for all U.S. MNE employment across all 
        manufacturing categories with the exception of food and 
        transportation equipment. Outside of manufacturing, U.S. MNE 
        employment in China is second highest in accommodations and 
        food services, likely due to growing disposable income levels 
        of China's rising middle class, who purchase more services.

   China is the fourth-largest destination for U.S. MNE 
        research and development (R&D) expenditure and increasingly 
        competes with advanced economies in serving as a key research 
        hub for U.S. MNEs. The growth of U.S. MNE R&D expenditure in 
        China is also comparatively accelerated, averaging 13.6 percent 
        year-on-year since 2003 compared with 7.1 percent for all U.S. 
        MNE foreign affiliates in the same period. This expenditure is 
        highest in manufacturing, particularly in the production of 
        computers and electronic products, but has diversified over 
        time. For example, R&D expenditure on the improved manufacture 
        of chemicals, including pharmaceuticals, surged nearly 30-fold 
        from a low base of $13 million in 2000 to $392 million in 2017.

   U.S. MNE capital expenditure in China has focused on the 
        creation of production sites for technology products. This 
        development is aided by the Chinese government's extensive 
        policy support to develop China into a hub for electronics 
        production, address gaps in the domestic production of 
        technology goods, and maximize access to the technical 
        expertise of multinational firms. For example, U.S. MNE capital 
        expenditure in China for the production of semiconductors, a 
        strategically important electronic component, accounted for 
        nearly a third of all U.S. MNE global capital expenditure on 
        semiconductor manufacturing assets in 2017.

   China has grown from the 20th-highest source of U.S. MNE 
        affiliate value added in 2000 ($5.5 billion) to the fifth 
        highest in 2017 ($71.5 billion), driven primarily by the 
        manufacture of computers and electronic products as well as 
        chemicals. The surge is especially notable in semiconductors 
        and other electronic components, which accounted for $5.6 
        billion of total manufacturing value added in 2017, up 250 
        percent from $1.6 billion in 2009. Separately, pharmaceutical 
        manufacturing serves as the largest chemical sector in terms of 
        value added, accounting for $2.6 billion in 2017.

    It is important to recognize that the staff report was prepared 
based on the Department of Commerce's annual Multinational Enterprise 
survey. In my view, the findings understate the impact of U.S. 
multinational outsourcing and offshoring to China as well as business 
relationships with Chinese entities. There are many questions left 
unanswered by the Commerce data. Has outsourcing displaced U.S. exports 
to China and, if so, by how much? What are the overall sourcing 
patterns of U.S. MNEs in China? Are the products they sell in China and 
elsewhere products that could have been produced in the United States, 
but were shifted to China as a result of policy incentives and 
direction? That's just the tip of the iceberg.
    For example, while the MNE survey indicates that firms sold 82 
percent of their products to Chinese customers, that does not tell the 
entire story. Many of those sales are of products that may simply be 
inputs into goods sold to the U.S. As Mary Lovely testified before the 
Commission, 46 percent of China's overall exports emanate from foreign-
invested enterprises with 60 percent of China's exports to the U.S. 
coming from such enterprises.\10\ Foreign firms, all-too-often, use 
China simply as an export platform. Is it really in our interest to see 
more U.S. firms move to China?
---------------------------------------------------------------------------
    \10\ Mary E. Lovely, testimony for U.S.-China Economic and Security 
Review Commission, Hearing on Risks, Rewards, and Results: U.S. 
Companies in China and Chinese Companies in the United States, February 
28, 2019. https://www.uscc.gov/sites/default/files/M%20Lovely_Tes
timony%20for%20the%20USCC%20revised.pdf.
---------------------------------------------------------------------------
    In aerospace one of the two critical limitations on Chinese state-
owned aerospace companies' ability to field competitive commercial 
aircraft has been substandard avionics and limitations on engine 
capabilities. A number of years ago, General Electric was allowed to 
form a joint venture with China's AVIC to share avionics technology. In 
my view, that was a blow to our long-term competitiveness as it has 
assisted China in its development of commercial aircraft which, when 
normal economic conditions return, may enable Chinese-owned firms to 
win more aircraft sales. In addition, the avionics technology can 
potentially assist China in the development of its military 
capabilities.
    In auto production, U.S. firms have, through joint ventures, 
provided enormous technological and production boosts to Chinese firms. 
This was a requirement for market access imposed by China but the 
advantages provided to indigenous Chinese firms cannot be discounted. 
The benefits of this relate not only to direct production and 
development, but in assisting local parts suppliers to become world-
class competitors. Before the outbreak of the pandemic, we saw 
increased plans to ship Chinese-produced vehicles into the U.S. market.
    In terms of market access for U.S. financial services firms, a key 
component of the recently signed Phase One China trade deal, U.S. firms 
will be assisting China in accessing capital from world markets--a 
critical issue as China's rising debt levels demand new sources of 
funds. In combination with China's access to world capital markets--and 
U.S. markets in particular--this advances China's interests while 
potentially jeopardizing the financial security and interests of our 
people.
    For example, MSCI, a financial firm that develops investment 
indexes, expanded its emerging market index to cover equities issued in 
China and increased the weighting of those securities in that fund. 
Included in the index are Chinese firms that have been placed on the 
U.S. ``Entities List'' as well as firms that are engaged in Chinese 
``military-civilian fusion'' activities. As the Senators know, there 
has been concern about the use of the MSCI index in the Thrift Savings 
Plan's ``I fund'' which is an investment vehicle for Federal employees 
and military servicemembers. Thus, their retirement funds could be 
contributing to the development and success of Chinese firms directly 
challenging our own security interests. Between the MSCI equity and 
bond indices, the opening to Chinese firms will result in hundreds of 
billions of foreign funds supporting that country's development.
    And, as we all know, larger investments by U.S. firms in China make 
them susceptible to pressure from the Chinese Communist Party (CCP) to 
engage on policy matters here in Washington. China has made clear that 
it will use every tool in its toolbox to advance its interests and can 
use exclusionary and preferential policies to get its way. China, just 
last week, indicated that it may sanction Ericsson and Nokia as many 
countries seek to protect their security interests by limiting Huawei 
products in their communications networks. Wall Street firms are not 
shy about seeking to influence policymakers as they seek trading and 
deal making fees. And, China has begun to roll-out its Corporate Social 
Credit Score system which may advantage or disadvantage firms based on 
their actions in support of, our counter to, CCP interests.
    In many of the sectors where U.S. companies have invested and 
operate in China, they have helped promote China's rise. Of course, we 
all support the betterment of the Chinese people and the fact that 
hundreds of millions have risen out of poverty is a tremendous success. 
But, increasingly, activities by U.S. firms in China pose risks to our 
economic and national security interests, and we must carefully 
evaluate what policy course must be charted for the future.
Undermining Private Industry in the U.S.
    There is very little work that has been done regarding the 
activities and operations of Chinese companies operating in our market. 
While the investment by Chinese companies in our market has hit some 
speedbumps in the last two and a half years, the presence of these 
companies in our market is extensive. And, while Rhodium, a leading 
investment tracking firm, has indicated that the amount of new Chinese 
foreign direct investment (FDI) in the U.S. has dropped significantly 
since its high of $45.6 billion in 2016, investments are still 
occurring. Indeed, at $444 million, investments in biotech by Chinese 
firms were significant last year. Furthermore, Chinese companies are 
using U.S. markets to raise capital in significant amounts. The 
Commission staff prepared an inventory of listings by Chinese firms on 
our three major exchanges which totaled more than $1.2 trillion in 
capital raised last year.\11\
---------------------------------------------------------------------------
    \11\ A list of the companies is available at https://www.uscc.gov/
chinese-companies-listed-major-us-stock-exchanges
---------------------------------------------------------------------------
    Investments by Chinese companies in the U.S. market, the capital 
they raise, and the operations they maintain, need greater scrutiny. 
The Commission has tried to assess this issue, with limited results. 
There are few sources of comprehensive case studies examining the 
activities of Chinese firms in our market. Do they operate based on 
market principles? What are their key objectives? What are their 
employment practices? Are they profitable? These and other issues are 
of critical interest.
    The last time I checked data from the Internal Revenue Services 
Statistics of Income publication for foreign controlled corporations, 
data indicated that Chinese-controlled entities operating here in the 
U.S. filed 7,360 returns. With total receipts of more than $49 billion, 
their total income tax after credits was only $227 million. That, to 
me, deserves further examination not only to understand and identify 
the more than 7,000 entities filing returns, but to determine how they 
operate. In an earlier period, Congress passed legislation to address 
transfer pricing schemes where foreign input costs were inflated to 
reduce the tax payments here in our market. I believe scrutiny on 
Chinese-controlled entities operating here is also appropriate.
    During a hearing at the Commission we questioned the potential 
negative consequences of Chinese state-owned, state-controlled or 
state-directed entities operating here after potentially receiving 
support from the government in the form of loan subsidies, no-cost 
capital or subsidized inputs. We heard from witnesses that there is no 
provision in U.S. competition law that would allow action by a U.S. 
competitor against what I would view as unfair competition.
    As an example, take a Chinese state-owned steel pipe firm that is 
receiving low-cost, or no cost-financing and, potentially, getting 
subsidized inputs in the form of what is known as ``green pipe'' (i.e., 
pipe that has to only undergo minor finishing operations here). The 
parent company in China could sell that pipe, which is not directly 
entering U.S. commerce, at a subsidized price. Coupled with not having 
to go to the capital markets, their cost of capital would also be 
dramatically lower. The result? They could underprice any of our 
domestic firms, potentially putting them out of business.
    U.S. competition laws require that, to be actionable, a company 
would have to seek ``recoupment.'' As I understand that, it means that 
they would have to have a plan to raise prices later to ``recoup'' lost 
profits for it to violate our laws. If they never planned to recoup 
lost profits because they were acting on behalf of the CCP, their 
domestic competitor would have no recourse.
    CRRC, the State-Owned Chinese rail company has been winning subway 
contracts in major cities in the U.S. by dramatically underbidding 
their competitors. This is supported by massive state subsidies and a 
plan to dominate the world's rail systems. CRRC reportedly already has 
83 percent of world's rail market. This is anticompetitive and it is 
dangerous.\12\
---------------------------------------------------------------------------
    \12\ John Adams, ``Stop China's Infiltration of U.S. Railroads,'', 
Defense One, November 26, 2019.
---------------------------------------------------------------------------
    The impact of the CCP's programs is broad and deep. They use an 
``all of the above'' approach to advancing their interests. For 
example, work by private sector forensic accounting experts \13\ 
uncovered acts of espionage to undermine the market value of firms 
which were later acquisition targets for Chinese firms. In other words, 
they undermined a company's value to put it into a ``distress'' 
situation, to reduce its attractiveness to other companies and to make 
it cheaper for them to acquire.
---------------------------------------------------------------------------
    \13\ Jeffrey Z. Johnson, testimony for the U.S.-China Economic and 
Security Review Commission, Hearing on Chinese Investment in the United 
States: Impacts and Issues for Policy Makers, January 26, 2017.
---------------------------------------------------------------------------
    Chinese state directed and controlled entities have engaged in 
massive cyber incursions in the U.S. The first major indictment on this 
was brought forward by David Hickton, U.S. Attorney for the Western 
District of Pennsylvania, in 2014 alleging that five People's 
Liberation Army hackers had accessed the computer networks of the 
United Steelworkers union and five major U.S. firms to obtain trade 
secrets and other information. The next year, President Obama reached 
an agreement with General Secretary Xi where China agreed that they 
would not engage in hacking for economic gain. The premise of the 
agreement was faulty from the start as China treats economic and 
national security as inextricably intertwined: In short, all hacking 
was for national security reasons and therefore, not covered by the 
agreement.
    Massive hacking continued with incalculable harm. Indeed, press 
reports indicate that China, as well as Russia, have been trying to 
hack into our major medical firms to obtain vaccine information. As 
former FBI Director James Comey said, ``There are two kinds of big 
companies in the United States. There are those who've been hacked by 
the Chinese, and those who don't know they've been hacked by the 
Chinese.'' \14\ The current FBI Director, Christopher Wray, recently 
said ``The greatest long-term threat to our Nation's information and 
intellectual property and our economic vitality is the 
counterintelligence and economic espionage threats from China . . . 
It's a threat to our economic security and, by extension, to our 
national security.'' \15\
---------------------------------------------------------------------------
    \14\ Maria Tadeo, ``FBI's James Comey accuses China of hacking into 
every major American company,'' The Independent, October 6, 2014.
    \15\ Christopher Wray, Director, Federal Bureau of Investigation, 
``The Threat Posed by the Chinese Government and the Chinese Communist 
Party to the Economic and National Security of the United States,'' 
remarks as delivered, Hudson Institute, July 7, 2020.
---------------------------------------------------------------------------
    In the area of medicine, multiple hacks attributed to actors in 
China, have obtained the longitudinal health data of U.S. citizens. 
While today's medicines are largely composed of APIs and chemical 
compounds, tomorrow's medicines are likely to be biosynthetics. With 
the massive amount of data that Chinese entities collect--legally and 
illegally--they have the opportunity to develop new drugs and 
biosynthetics as a faster pace because of ``big data.'' Industries that 
fall under the umbrella of biotechnology are worth hundreds of billions 
of dollars annually, and their development will have a profound impact 
on U.S. economy and national security. There is also the potential to 
enable personalized medicine, to produce vaccines faster and more 
effectively and develop other products which have enormous national 
security implications. Earlier this year, the Theodore Roosevelt 
aircraft carrier was sidelined because of COVID-19. The implications 
are endless.
    Chinese-directed researchers are aggressively working to obtain 
America's secrets. Through China's Thousand Talents Program--with 
bounties of $150,000 or more--China's government seeks to obtain the 
support of some of our best researchers. Chinese-affiliated venture 
capital funds--more than 1,000 according to some estimates--seek to 
invest in, and obtain, technology and trade secrets to support the 
CCP's industrial policies.
    In many other areas the Chinese government and the CCP are 
aggressively pursuing opportunities to advance their interests, often 
at the cost to our own national and economic security.
Recommendations
    The policies of the Chinese Communist Party and the actions of 
their government have already triggered a reaction by the U.S. While 
the honeymoon period after China's entry into the World Trade 
Organization lasted too long, and the period of engagement and dialogue 
yielded too few results, policy makers have identified many actions 
that will make a difference. Among these are provisions advanced by 
Congress to tighten up the underlying authority for the Committee on 
Foreign Investment in the U.S. (CFIUS) and actions to limit the impact 
of China's major telecommunications firms--ZTE and Huawei--to supply 
our critical telecommunications systems. Other provisions are under 
consideration as a vast array of legislative proposals have been 
introduced in both Houses and the National Defense Authorization Act 
for FY 2021 includes additional provisions.
    But the challenges posed by China's policies and practices are 
broad and deep and countering their negative impact on our interests 
will require concerted action. Action is needed not only in the 
economic policy realm, but on the diplomatic, human rights, health 
policy, military and other fronts. Let me, however, offer several 
recommendations for the Subcommittee's consideration. First, I will 
identify some of the recommendations of the Commission in our last two 
annual reports. Second, I will offer several of my own recommendations 
for your consideration. While I would be happy to discuss 
recommendations and issues relating to the pharmaceutical and medical 
supply chain issue, a topic the Commission has addressed, I have not 
included those recommendations here.
                       Commission Recommendations
    Congress enact legislation to preclude Chinese companies from 
issuing securities on U.S. stock exchanges if:

   The Public Company Accounting Oversight Board is denied 
        timely access to the audit work papers relating to the 
        company's operations in China;

   The company disclosure procedures are not consistent with 
        best practices on U.S. and European exchanges;

   The company utilizes a variable interest entity (VIE) 
        structure;

   The company does not comply with Regulation Fair Disclosure, 
        which requires material information to be released to all 
        investors at the same time.

    Congress enact legislation requiring the following information to 
be disclosed in all issuer initial public offering prospectuses and 
annual reports as material information to U.S. investors:

   Financial support provided by the Chinese government 
        including: direct subsidies, grants, loans, below-market loans, 
        loan guarantees, tax concessions, government procurement 
        policies, and other forms of government support.

   Conditions under which that support is provided, including 
        but not limited to: export performance, input purchases 
        manufactured locally from specific producers or using local 
        intellectual property, or the assignment of Chinese Communist 
        Party (CCP) or government personnel in corporate positions.

   CCP committees established within any company, including: 
        the establishment of a company Party committee, the standing of 
        that Party committee within the company, which corporate 
        personnel form that committee, and what role those personnel 
        play.

   Current company officers and directors of Chinese companies 
        and U.S. subsidiaries or joint ventures in China who currently 
        hold or have formerly held positions as CCP officials and/or 
        Chinese government officials (central and local), including the 
        position and location.

    Congress direct the U.S. Department of Justice to reestablish a 
higher education advisory board under the Federal Bureau of 
Investigation. In concert with the U.S. Department of Commerce's Bureau 
of Industry and Security, U.S. Department of Homeland Security, and 
U.S. Department of State, the higher education advisory board would 
convene semiannual meetings between university representatives and 
relevant Federal agencies to review the adequacy of protections for 
sensitive technologies and research, identify patterns and early 
warning signs in academic espionage, assess training needs for 
university faculty and staff to comply with export controls and prevent 
unauthorized transfer of information, and share other areas of concern 
in protecting national security interests related to academic research.
    Congress direct the U.S. Government Accountability Office to 
conduct an assessment on the risks posed by Beijing's efforts to co-opt 
foreign researchers or students at U.S. universities to unlawfully 
appropriate research and other knowledge for the benefit of the 
government, companies, or interests of the People's Republic of China. 
This report should:

   Include the number of foreign students and researchers from 
        China studying in science, technology, engineering, and 
        mathematics fields; past and current affiliations; primary 
        areas of research; duration of stay in the United States; and 
        subsequent employment;

   Identify whether federally funded university research 
        related to emerging technologies may have been unlawfully 
        appropriated by individuals acting on behalf of Chinese 
        entities; and

   Evaluate the efficacy and ability of the U.S. Department of 
        State's visa screening mechanism to mitigate the risk of 
        inappropriate technology transfer to China, including but not 
        limited to: assessing the ability of that process to identify 
        students, researchers, and research entities, through a visa 
        disclosure requirement, that are receiving funding from the 
        government of China or an intermediary entity acting in support 
        of China's government.

    Congress amend Internal Revenue Code Section 41 to extend the 
research and development tax credit to initial stages of deployment for 
new products, processes, computer software, techniques, formulae, or 
inventions that increase the production of final and intermediary goods 
manufactured primarily in the United States. The tax credit should also 
extend to precompetitive commercial development of basic and applied 
research performed in the United States, particularly in industrial 
sectors where the People's Republic of China threatens the 
technological leadership of the United States.
    Congress direct the U.S. Geological Survey, in coordination with 
the U.S. Department of Energy, U.S. Department of Commerce, U.S. 
Department of the Interior, and U.S. International Trade Commission to 
develop and maintain a risk assessment framework that identifies 
materials used in manufacturing industries critical to both national 
security and commercial vitality. Such a framework should provide an 
early warning mechanism for any threats to the U.S. supply of these 
critical materials, including an increasing concentration of extraction 
and processing by another country or entity and acquisition of 
significant mining and processing facilities; increasing export 
restrictions by another country; large gaps between domestic prices for 
these materials in another country versus prices on international 
markets; sharp increases or volatility in price; and substantial 
control in supply of minerals used within the same industry or related 
minerals that serve as substitutes by another country.
    Congress direct the National Science Foundation, in coordination 
with other agencies, to conduct a study on the impact of the activities 
of Chinese government, state-sponsored organizations, or entities 
affiliated or supported by the state in international bodies engaged in 
developing and setting standards for emerging technologies. The study 
should examine whether standards are being designed to promote Chinese 
government interests to the exclusion of other participants.
    Congress direct the Government Accountability Office to conduct an 
assessment of U.S.-China collaborative initiatives in technical 
cooperation. This assessment should describe the nature of 
collaboration, including funding, participation, and reporting on the 
outcomes; detail the licensing and regulatory regime under which the 
initiatives occur; consider whether the intellectual property rights of 
U.S. researchers and companies are being adequately protected; examine 
whether Chinese state-owned enterprises or the military are benefitting 
from U.S. taxpayer-funded research; investigate if any Chinese 
researchers participating in the collaboration have ties to the Chinese 
government or military; investigate if any U.S. companies, 
universities, or labs participating in U.S. government-led 
collaboration with China have been subject to cyber penetration 
originating in China; and evaluate the benefits of this collaboration 
for the United States. Further, this assessment should examine 
redundancies, if any, among various U.S.-China government-led 
collaborative programs and make suggestions for improving 
collaboration.
                          Additional Proposals
    Automatic trade cases. While this and the past Administration have 
initiated action on illegal trade policies, a significant enforcement 
burden still falls on private parties. Existing trade law is expensive 
to access and time consuming to pursue. Relief, when granted, is only 
prospective in nature allowing illegal trade practices to inflict 
considerable harm. A more automatic approach to trade complaints--
primarily antidumping and countervailing duty cases--can be data driven 
and provide more timely and effective relief and create some 
``automaticity'' in the process. There is substantial trade data which, 
coupled with data from other government sources, could identify 
increasing imports, looking at per-unit pricing and domestic demand. 
Where imports are increasing, prices are dropping and domestic demand 
is constant, trade officials could use that as an early warning of 
unfair trade and engage in additional review. Business leaders, and the 
employees, should not have to be significantly injured before market 
forces are restored.
    Review and Reform of Competition Laws: As noted earlier, the non-
market actions of certain Chinese state-owned, state-supported or 
state-directed companies operating in the U.S. market could inflict 
considerable harm without domestic firms having an effective tool to 
respond. Coupled with the fact that the authority for CFIUS is limited 
to acquisitions of existing U.S. firms, rather than establishment of 
new firms, this problem is expected to grow in intensity, should 
current trade tensions diminish. Domestic firms should not have to 
compete here, or internationally, with countries masquerading as 
commercial firms.
    Net economic Benefit Test: Economic and national security interests 
are inextricably intertwined. While the Foreign Investment Risk Review 
Modernization Act of 2018 (FIRRMA) strengthened and expanded the 
authority for CFIUS additional authority should be considered to 
include a net economic benefit test such as Canada and Australia have 
in their laws. The interpretation of the term ``national security'' can 
be too narrowly defined so as to allow for certain transactions to 
proceed although the underlying corrosive impact could be considerable.
    Tax Attributes: As noted, there are more than 7,000 Chinese-
controlled entities filing tax returns in the U.S. Understanding the 
nature of those businesses and their tax attributes is an appropriate 
area for examination by the Internal Revenue Service. There is 
substantial opportunity to mask the true economic returns and resulting 
tax liabilities for companies where intra-company transfers occur.
Conclusion
    America was faced with similar challenges in the 1980s in terms of 
competition with Japan, although the threats from, and impact of, that 
country's policies at that time pale in comparison to the China 
challenge today. I was deeply involved in that debate as a staffer for 
former Democratic Leader Richard Gephardt. Remember that Japan's 
exports of automobiles,--supported by a sanctuary market and industrial 
policies, were a major threat to our Big Three auto companies. In 
semiconductors--an industry where the U.S. had been a leader--Japan was 
threatening our lead. Other sectors were challenged as well.
    Bipartisan calls for action helped invigorate our approach to 
competition. I was one of the lead House staffers helping to put 
together the 1988 Omnibus Foreign Trade and Competitiveness Act which 
cobbled together discreet, but vitally important provisions from a 
variety of committees, to address the problems our country faced. The 
original bill, H.R. 3, was introduced by my former boss. This Committee 
was one of the key Senate Committees involved in the legislation.
    That legislation enhanced the authority for the Committee on 
Foreign Investment in the U.S. (CFIUS). It included a number of other 
provisions including: the creation of what was known as ``Super 301'' 
to help prioritize action on key foreign unfair trade barriers; it 
dealt with export promotion; national security impacts from trade; 
currency manipulation; expanded authority for the National Institute of 
Standards and Technology and created an Advanced Technology Program; 
reformed the Trade Adjustment Assistance program; expanded STEM 
education and language literacy and included a variety of other policy 
initiatives.
    During this period, President Reagan initiated trade negotiations 
with Japan to address their predatory and protectionist policies across 
a range of industries. One of those negotiations was on the so-called 
MOSS talks, or ``market-oriented sector-selective'' negotiations. As 
part of negotiations on semiconductors, a market-share target was used 
as a basic metric to gauge the openness of Japan's market and whether 
``success'' was being achieved.
    The U.S. government also led an effort through a public-private 
partnership known as Sematech to revitalize the domestic semiconductor 
industry and invest in its future. That effort was a key step in 
sending signals to the market, and supporting the industry, that 
America wanted to ensure that an industry it led did not vanish.
    President Reagan, a conservative, joined with liberal Democrats in 
fostering many of those policies. The lessons of that time can help 
guide some of our thinking today, including the focus on bipartisanship 
and Congress playing a leading role in updating our laws and ensuring 
the resources needed to compete are available. In addition to the 
recommendations I have outlined, and the work of this Subcommittee, a 
broader engagement by Congress and a comprehensive set of provisions to 
promote production, employment and innovation is needed.
    I have tremendous faith in America's ability to restore its 
economic footing, to meet the China challenge, and to prosper. But, 
that requires, as your hearing today addresses, a recognition of what 
the problems are and what are some of the solutions that should be 
considered.
    I look forward to your questions and working with you and your 
staff in the coming days.

    Senator Sullivan. Thank you, Mr. Wessel.
    I'd like to now ask Mr. Doshi for his opening statement.

             STATEMENT OF DR. RUSH DOSHI, DIRECTOR,

        BROOKINGS INSTITUTION CHINA STRATEGY INITIATIVE;

              FELLOW, YALE LAW SCHOOL CHINA CENTER

    Dr. Doshi. Thank you very much, Chairman Sullivan, Ranking 
Member Markey, Distinguished Members of the Committee.
    Again, thank you for the privilege of being able to testify 
today at this important hearing on the China Challenge and 
efforts to build U.S. resiliency and competitiveness.
    As requested, I'll be focusing my remarks on three 
subjects. First, Beijing's ambitions for global technology 
leadership; second, Beijing's current activities and the 
challenges they pose to our supply chains and our global 
technology leadership; and third, policy recommendations to 
bolster our competitiveness and resilience, what some call 
super power marathon with China.
    So, first, I'll talk about China's technology ambitions. 
Beijing is pursuing a robust state-back effort to displace the 
United States from global technology leadership. China's 
leaders believe we're in the middle of the fourth industrial 
revolution made up of artificial intelligence, quantum 
computing, 5G, applied technology, et cetera, and it wants to 
lead that revolution. That desire is not driven purely by 
commercial motivations. It's also driven by geopolitical ones.
    According to party texts, Beijing argues that the last 
three industrial revolutions caused a divergence that allowed 
some countries to become geopolitical leaders and left others 
as geopolitical laggards. Their overview of that history is 
worth surveying.
    It argues that the first industrial revolution brought 
steam power and coal and helped build the British Empire. The 
second industrial revolution, which brought electrification, 
made the United States a leading state, and the third 
industrial revolution which brought information technology and 
kept the U.S. a leading state.
    Beijing missed out on these revolutions but now it hopes to 
ride the fourth industrial revolution to global leadership. Top 
party-connected scholars in China almost all agree that 
technology is the main battlefield between the U.S. and China.
    That leads to a second subject. What is China doing to 
seize global technology leadership? Here, there are a few broad 
activities.
    First, China's R&D spending already in some cases is equal 
to ours, if not greater, even though China has a smaller 
economy. For example, in the technology central to the fourth 
industrial revolution, China may be outspending us. It spends 
10 times what we do on computing in one clear case.
    Second, Beijing believes its industrial policies give it an 
advantage. Beijing has a $1.4 trillion plan to build 5G across 
China. It launched a Made in China 2025 Initiative to gain 
leadership in 10 sectors of power in the industrial revolution.
    They have spent multibillions of dollars to acquire foreign 
technology and, of course, it has a hundred scientific 
technology plants with varying degrees of success.
    They have engaged in predatory behavior in state-backed 
takeovers and, of course, technology transfer, all to close the 
gap with the United States.
    Chinese sources agree--rather, they argue that although the 
U.S. is better at innovation, we cannot bring our products to 
market without first-class factories, which gives China an 
opportunity to use reverse engineering and force technology 
transfer to catch up and surpass the United States.
    Beijing understands that post-COVID, the free world is 
trying to diversify supply chains away from China. For that 
very reason, General Secretary Xi Jinping has declared that 
protecting China's supply chains is now one of the country's 
top national priorities and so far, the European and American 
Chambers of Commerce in China have indicated that the vast 
majority of their members are not yet considering leaving the 
country.
    It's not all about cost. China is the world's factory and 
center of supply chains and it keeps those companies stocked 
and in many cases adversely affecting our security and our 
technological leadership.
    That leads to a third and final broad question. What can we 
do about this? I have much more in my submitted testimony, but 
I'll say here that I do not believe that China's advantages are 
insurmountable.
    As a bipartisan committee of people thinking about how to 
compete and have resilience and the ideas I'll offer come from 
some of those individuals.
    First, we need information on our supply chains. We need to 
know where we're vulnerable with Beijing and that requires some 
kind of entity that can audit our supply chains, stress test 
them, and build institutionalized knowledge about them to 
perhaps assist in our reporting requirements.
    Second, we need better coordination. Some of this is at the 
strategy level and we have a strategy document. We don't have a 
national strategy yet for competitiveness and resilience. Some 
of us at the agency level, as well, and in fact, Taiwan is 
inspiring this regard.
    We're the only government that's been successful in 
penalizing reshoring from China over 33 billion since 2019 and 
one way they did it was to have one office serves as a one-stop 
shop for all businesses thinking about moving back to Taiwan.
    Maybe we should consider a corporate structure. Congress 
could consider pushing our corporations to look beyond 
quarterly earnings cycles, for example, with tax policies, 
encourage shareholders to hold equity positions longer, and we 
need pro-competition approaches, as well.
    On the innovation frontier, companies are making big 
speculative bets on the future. If we only have one company in 
the high-tech industry and it makes the wrong bet on aviation 
or semi-conductors, we're out of luck. If we have multiple 
companies making multiple bets, then we've got multiple options 
and that's an advantage that we can uniquely have relative to 
china's more consolidated industrial policy approach.
    Finally, we should reinvest in America's strengths, fixing 
our immigration system and, of course, Federal spending.
    In closing, our super power marathon with China is as much 
about what we do at home as it is about what we do abroad. This 
committee will, of course, be the center of those efforts.
    Thank you very much for your time and your consideration. I 
look forward to your questions.
    [The prepared statement of Dr. Doshi follows:]
 Prepared Statement of Dr. Rush Doshi, Director, Brookings Institution 
    China Strategy Initiative; Fellow, Yale Law School China Center
             The United States, China, and the Contest for 
                  the Fourth Industrial Revolution \1\
---------------------------------------------------------------------------
    \1\ This testimony draws from the author's forthcoming book. See 
Rush Doshi, The Long Game: China's Grand Strategy to Displace American 
Order (Oxford: Oxford University Press, 2021).
---------------------------------------------------------------------------
Introduction
    Chairman Sullivan, Ranking Member Markey, distinguished members of 
the Committee, thank you very much for the opportunity to testify at 
today's hearing on the China challenge and efforts to build U.S. 
resiliency and competitiveness. As requested, I will be focusing my 
remarks on three subjects. First, I will discuss Beijing's challenge to 
U.S. global technology leadership and its ambitions to dominate what it 
often refers to as the ``Fourth Industrial Revolution.'' Second, I will 
discuss some of the challenges the United States faces in reshoring or 
diversifying supply chains presently based in China as well as in 
sustaining its technology leadership. Finally, I will offer 
recommendations for U.S. policy focusing on a few broad categories of 
effort: (1) information gathering; (2) government coordination; (3) 
immigration and basic science; (4) reforms of corporate and financial 
incentives; and (5) coordination with likeminded stakeholders. It is 
hoped that these policies might build long-term U.S. resilience and 
competitiveness as we enter what some call a ``superpower marathon'' 
with China.\2\
---------------------------------------------------------------------------
    \2\ Michael Brown, Eric Chewning, and Pavneet Singh, ``Preparing 
the United States for the Superpower Marathon with China,'' The 
Brookings Institution, April 2020, https://www.brook
ings.edu/wp-content/uploads/2020/04/
FP_20200427_superpower_marathon_brown_chewning
_singh.pdf
---------------------------------------------------------------------------
I. China's Challenge to U.S. Global Technology Leadership
    It is increasingly clear to most observers that China is pursuing a 
robust, state-backed effort to displace the United States from global 
technology leadership. This effort is not driven entirely by commercial 
considerations but geopolitical ones as well. Beijing believes that the 
competition over technology is about more than whose companies will 
dominate particular markets. It is also about which country will be 
best positioned to lead the world.
    China's leaders have often seen technology and economic exchange 
through a political lens, particularly as a way to create or avoid 
dependency, strengthen China's ``comprehensive power,'' and build 
order. This perspective appears to be rooted in the Party's Leninist 
and mercantilist traditions as well as in its nationalist history. 
China's ``century of humiliation,'' which stretches from the Opium Wars 
to the founding of the People's Republic of China in 1949, is seen as a 
product of the country's failure to achieve ``wealth and power'' 
[Chinese] relative to the industrialized West and Japan.\3\ 
Accordingly, technological advancement has long been seen as a means to 
achieving ``wealth and power,'' whether during China's pursuit of 
strategic weapons during Mao Zedong's leadership or its push to achieve 
what his successor Deng Xiaoping labeled as the ``fourth 
modernization'' of science and technology progress--both of which were 
self-consciously styled as efforts to boost China's power. Now, as 
China perceives a new period of technological change, the Chinese 
Communist Party's writings suggest geopolitics is again at the 
forefront.
---------------------------------------------------------------------------
    \3\ Orville Schell and John Delury, Wealth and Power: China's Long 
March to the Twenty-First Century (New York: Random House, 2013).
---------------------------------------------------------------------------
China's Ambitions--Seizing the Fourth Industrial Revolution
    The Chinese Communist Party believes that the world has entered a 
period of ``great changes unseen in a century.'' At the core of these 
changes is a shift in the balance of power between the United States 
and China, and one key driver of that change is the onset of a new 
round of technological innovation which Xi Jinping and others have 
sometimes referred to as the ``Fourth Industrial Revolution'' 
[Chinese].
    Although the idea of a ``Fourth Industrial Revolution'' initially 
emerged from the World Economic Forum in 2015, the concept has been 
embraced by the Chinese Communist Party. As Xi Jinping argued in a 2018 
speech: ``From the mechanization of the first industrial revolution in 
the 18th century, to the electrification of the second industrial 
revolution in the 19th century, to the informationization of the third 
industrial revolution in the 20th century,'' each round of ``disruptive 
technological innovation'' has shaped history.\4\
---------------------------------------------------------------------------
    \4\ ``What is the Fourth Industrial Revolution? Xi Jinping 
described the blueprint like this! [Chinese].'' Qiushi [Chinese], July 
27, 2018. http://www.qstheory.cn/zhuanqu/2018-07/27/c_1123
186013.htm.
---------------------------------------------------------------------------
    China's leaders believe the next decade will largely determine who 
leads the next industrial revolution. ``The next ten years will be a 
key decade,'' Xi argued, ``a new round of technological revolution and 
industrial change--artificial intelligence, big data, quantum 
information, and biotechnology--are gathering strength.'' They would 
bring ``earth-shaking changes'' while offering an ``important 
opportunity to promote leapfrog development,'' allowing China to bypass 
legacy systems and overtake competitors.\5\
---------------------------------------------------------------------------
    \5\ ``Xi Jinping: Follow the trend of the times and achieve common 
development [Chinese].'' People's Daily [Chinese], July 26, 2018. 
http://cpc.people.com.cn/n1/2018/0726/c64094-30170
246.html.
---------------------------------------------------------------------------
    China's leaders have long employed the phrase ``catch up and 
surpass'' [Chinese] to describe their technological ambitions, with the 
United States and West seen as the critical benchmark. But 
revolutionary technological changes, in the eyes of some Chinese 
commentators, now make this lofty goal actually achievable.\6\ The 
Fourth Industrial revolution could create the kind of ``great 
divergence'' that accompanied past industrial revolutions, where some 
countries and early adopters leapt ahead of rival competitors with 
historical implications for global politics. And while Party officials 
are generally guarded in describing China's ambitions in this fashion, 
many commentaries and think tank pieces seem to suggest that surpassing 
the United States in high technology would end its era of global 
leadership, and presumably, usher in one of Chinese leadership.
---------------------------------------------------------------------------
    \6\ Julian Baird Gewirtz, ``China's Long March to Technological 
Supremacy,'' Foreign Affairs, August 27, 2019, https://
www.foreignaffairs.com/articles/china/2019-08-27/chinas-long-march-
technological-supremacy.
---------------------------------------------------------------------------
    A wide range of Chinese commentators all agree that technology is 
increasingly at the center of U.S.-China competition. ``In the next 
decade. . .the competition for the fourth industrial revolution will 
begin between China and the United States,'' writes Jin Canrong, a 
well-known international relations professor and a dean at Renmin 
University.\7\ ``Scientific and technological capabilities have become 
an important indicator of a country's comprehensive strength, and it 
has also become the main battlefield for great power competition,'' 
argues Zhu Feng, another well-known scholar and professor at Nanjing 
University.\8\ And countless other prominent scholars express similar 
sentiments.
---------------------------------------------------------------------------
    \7\ Jin Canrong [Chinese]. ``Jin Canrong: The Fourth Industrial 
Revolution is mainly a competition between the U.S. and China, and 
China has a greater chance of winning [Chinese].'' Guancha [Chinese], 
July 29, 2019. https://www.guancha.cn/JinCanRong/2019_07_29_511
347_s.shtml.
    \8\ Zhu Feng [Chinese]. ``A Summary of Recent Academic Research on 
`Great Changes Unseen in a Century' [Chinese].'' People's Forum, 
Academic Frontier [Chinese], no. 7 (2019).
---------------------------------------------------------------------------
    A typical discourse on the geopolitical stakes of technology 
competition comes from an authoritative and apparently pseudonymous 
commentary posted on the website of the Central Party School journal 
Study Times [Chinese] roughly two months after Xi's 2018 address on the 
Fourth Industrial Revolution.\9\ ``Britain seized the opportunity of 
the first industrial revolution'' which provided it an empire; 
afterwards, when the second industrial revolution arrived, ``the United 
States seized the dominant power of advanced productivity from Great 
Britain and jumped into position as the world's number one industrial 
power, laying a solid foundation for establishing global hegemony.'' 
Then, ``the third industrial revolution originated in the United 
States,'' and the United States seized it and boosted its 
``comprehensive strength,'' providing the foundation for American 
hegemony. China now sees an opportunity to wield what it believes is a 
superior system to follow in the footsteps of Britain and the United 
States, seize a new industrial revolution, and become the world's 
leading state.
---------------------------------------------------------------------------
    \9\ Li Jie [Chinese]. ``Deeply understand and grasp the world's 
``great changes unseen in a century [Chinese].'' Qiushi [Chinese], 
September 3, 2018. http://www.qstheory.cn/llwx/2018-09/03/
c_1123369881.htm.
---------------------------------------------------------------------------
China's Advantages--What China Thinks it Does Better than the United 
        States
    China believes it is well-positioned to outcompete the United 
States in the competition for the Fourth Industrial Revolution and that 
it has four main advantages: (1) heavy investment in R&D (2) superior 
institutions and industrial policies supporting China's ambitions; (3) 
manufacturing prowess and centrality to global supply chains; and (4) a 
more robust operation to set the global technology standards that could 
determine the future of key industries.
    First, China has learned from U.S. history in crafting its own 
approach to basic science research. Beijing recognizes, as the United 
States once did, that such research cannot be supported entirely by the 
market and the private sector and instead must be supported by the 
public. China's investments have been enormous. The National Science 
Foundation estimates that China's total R&D spending is roughly 
equivalent to U.S. spending even though China's economy is smaller.\10\ 
By some estimates, China's government-funded R&D also already exceeds 
U.S. Federal R&D spending. And in the technologies central to the 
Fourth Industrial Revolution, the differences are significant. China 
spends roughly $2.5 billion annually, a modest sum that is nonetheless 
estimated to be more than ten times what the U.S. spends in a sector 
with critical economic and strategic potential.\11\ In addition to that 
annual spending, Beijing also plans to spend some $10 billion to build 
the National Laboratory for Quantum Information Sciences.\12\ 
Similarly, in artificial intelligence, China spends at least as much as 
the United States and likely more, according to estimates from 
Georgetown's Center for Security and Emerging Technology.\13\
---------------------------------------------------------------------------
    \10\ Beethika Khan, Carol Robbins, and Abigail Okrent, The State of 
U.S. Science and Engineering 2020 (Washington, DC: National Science 
Foundation, 2020), https://ncses.nsf.gov/pubs/nsb20201/global-r-d.
    \11\ Arthur Herman, ``The Quantum Computing Threat to American 
Security,'' Wall Street Journal, November 10, 2019, https://
www.wsj.com/articles/the-quantum-computing-threat-to-american-security-
11573411715.
    \12\ Neel V. Patel, ``China is beating the U.S. when it comes to 
quantum security,'' MIT Technology Review, December 12, 2019, https://
www.technologyreview.com/2019/12/12/131600/china-is-beating-the-us-
when-it-comes-to-quantum-security/#::text=Prisco%20says%20the%20
China%20is,although%20this%20number%20is%20disputed).
    \13\ Ashwin Acharya and Zachary Arnold, Chinese Public AI R&D 
Spending: Provisional Findings (Washington, DC: Center for Security and 
Emerging Technology, 2019), https://cset
.georgetown.edu/wp-content/uploads/Chinese-Public-AI-RD-Spending-
Provisional-Findings-1.pdf.
---------------------------------------------------------------------------
    Second, China believes its institutions are better designed to 
mobilize the state, society, and market to wield industrial policy to 
achieve the country's technological ambitions. For example, the Study 
Times commentary cited previously noted that institutions are key to 
seizing technological leadership, which in turn buttresses hegemonic 
ambitions--this is why, it argued, Britain replaced Spain, the United 
States replaced Britain, and why China might supplant the United 
States. The commentary followed countless similar commentaries in China 
arguing that the polarized U.S. political system was underperforming 
relative to China's system.\14\ As a result, it argued, ``the emergence 
of a new round of scientific and technological revolution and 
industrial transformation is conductive to China's institutional 
advantages and to achieving `overtaking by curve,' '' a reference to 
sprinting ahead as a competitor slows down or mishandles a turn around 
a racetrack.
---------------------------------------------------------------------------
    \14\ These sources are discussed in greater detail in Rush Doshi, 
The Long Game: China's Grand Strategy to Displace American Order 
(Oxford: Oxford University Press, 2021). For a typical example, see 
Zhang Yunling [Chinese], Yang Guangbin [Chinese], Wei Ling [Chinese], 
Zhu Feng [Chinese], Jin Canrong [Chinese], and Xie Tao [Chinese]. ``How 
to recognize and understand the great changes in a century [Chinese].'' 
Charhar Institute [Chinese], March 28, 2019. http://www.charhar.org.cn/
newsinfo.aspx?newsid=14706.
---------------------------------------------------------------------------
    How do these supposed institutional advantages manifest themselves 
in practical terms? China's leaders have been explicit about the 
superiority of their industrial policy programs which are intended to 
help China seize the commanding heights of the Fourth Industrial 
Revolution.\15\ For example, in the aftermath of COVID-19, China's 
National People's Congress approved a plan to spend $1.4 trillion in 
five to six years to build fifth generation wireless networks, install 
cameras and sensors to create smart cities, and integrate this network 
with industry to accelerate progress in smart manufacturing. Earlier 
this year, China had about 200,000 5G towers in use; by the end of the 
year, it will have more than half a million with an ultimate goal of 5 
million.\16\
---------------------------------------------------------------------------
    \15\ ``Li Keqiang: The Internet + Double Innovation + Made in China 
2025 Will Give Birth to a `New Industrial Revolution' [Chinese].'' 
Xinhua [Chinese], October 15, 2015. http://www
.xinhuanet.com/politics/2015-10/15/c_1116825589.htm.
    \16\ Anjani Trivedi, ``China Is Winning the Trillion-Dollar 5G 
War,'' Washington Post, July 12, 2020, https://www.washingtonpost.com/
business/china-is-winning-the-trillion-dollar-5g-war/2020/07/12/
876cb2f6-c493-11ea-a825-8722004e4150_story.html.
---------------------------------------------------------------------------
    In addition, China has released more than 100 science and 
technology plans, including detailed plans for leadership in AI by 2030 
and in standard-setting by 2035.\17\ It has several special purpose 
funds allocating tens of billions towards specific research areas. And 
it has developed its flagship industrial policy initiative, Made in 
China 2025, which targets ten high-tech industries: information 
technology; smart manufacturing; aerospace; maritime engineering; 
advanced rail; electric vehicles; electrical equipment; new materials; 
biomedicine; and agricultural machinery and equipment. Made in China 
2025 seeks to indigenize these key technologies, gain favorable 
positions in global supply chains, win market share within China, and 
ultimately capture global market share from foreign markets. To do so, 
it wields the full power of the state and the market power of the 
Chinese economy to elevate local champions over their high-tech foreign 
competitors globally, with specific quotas set in each industry for 
China's anticipated share.\18\ The initiative relies on technology 
transfer, market access restrictions, state-backed foreign 
acquisitions, and subsidies. While Beijing has formally deemphasized it 
in its official discourses following backlash from the United States 
and Europe, the core of the initiative remains very much alive.
---------------------------------------------------------------------------
    \17\ Tai Ming Cheung et al., Planning for Innovation: Understanding 
China's Plans for Technological, Energy, Industrial, and Defense 
Development (Washington, DC: U.S.-China Economic and Security Review 
Commission, 2016), https://www.uscc.gov/sites/default/files/Research/
Planning%20for%20Innovation%20-
%20Understanding%20China's%20Plans%20for%20Tech%20
Energy%20Industrial %20and%20Defense%20Development072816.pdf.
    \18\ Made in China 2025: Global Ambitions Built on Local 
Protections (Washington, DC: United States Chamber of Commerce, 2017), 
https://www.uschamber.com/sites/default/files/final 
_made_in_china_2025_report_full.pdf.
---------------------------------------------------------------------------
    Third, Chinese sources suggest an understanding even though the 
United States may have superior innovation capabilities relative to 
China, in many industries, that advantage matters little without 
manufacturing capabilities and will almost certainly evaporate unless 
they return. Chinese scholars see the country's centrality to global 
manufacturing and supply chains as an enormous strategic advantage; in 
contrast, they argue that the United States has allowed ``the hollowing 
out of its industrial base'' which means it cannot convert its 
innovations into products without China's factories. This dependence on 
China's manufacturing capability--when combined with China's large 
numbers of engineers, its penchant for reverse-engineering, and robust 
state support--gives it long-term advantages in the competition with 
the United States.\19\ As the researcher Dan Wang notes, ``China 
remains unmatched as a manufacturing site given its numbers of skilled 
workers, deep supplier networks and the government's credible public 
support for manufacturers and provision of reliable infrastructure.'' 
\20\ Even amid the pandemic, companies like Tesla are deeply invested 
in China while others like Honeywell have announced new investments in 
Wuhan, China.
---------------------------------------------------------------------------
    \19\ Jin. ``Jin Canrong: The Fourth Industrial Revolution is mainly 
a competition between the U.S. and China, and China has a greater 
chance of winning [Chinese].''
    \20\ ``Can the U.S. End control of the Global Supply Chain,'' 
Bloomberg, June 9, 2020, https://www.bloombergquint.com/global-
economics/why-the-u-s-can-t-easily-break-china-s-grip-on-supply-chains
---------------------------------------------------------------------------
    Fourth, China is increasingly focused on setting standards in 
technical bodies relative to the United States. China's objectives 
include promoting its industries, earning lucrative royalties when its 
patents are used, and embedding its values and governance approaches in 
the architecture of technology. This year, China released its China 
Standard 2035 Plan as part of an effort to advance its standards 
globally. Even before this plan was announced, however, China had 
already grown influential in key bodies like the Third Generation 
Partnership Project (3GPP) and the International Telecommunication 
Union (ITU) and in some cases sought to shift standard-setting 
discussions to bodies where its influence was greater. Chinese firms 
are expected to gain enormous royalties from having succeeded in the 
competition over 5G standards. Moreover, with respect to governance, 
Chinese companies like ZTE have proposed standards for street light 
architecture that would allow video monitoring capabilities to be built 
in; for facial recognition that would require specific and extraneous 
demographic and biometric data to be stored; and for a new Internet 
architecture that would advantage monitoring, censorship, and 
control.\21\ Beijing's success in these bodies is in part a product of 
its successful investments in next-generation technologies like 5G but 
also the more ``hands-on'' approach the Party appears to take relative 
to the more industry-led and ``hands-off'' approach that the United 
States takes. Although many standard-setting bodies are primarily 
comprised of companies that are supposed to vote based on their own 
interests, at least in China's cases, companies like Lenovo that 
initially voted to endorse approaches backed by U.S. companies were 
criticized by nationalists for doing so and pressured to instead 
endorse approaches backed by major Chinese companies like Huawei. As 
Lenovo's leadership team noted in an apologetic message posted online, 
``We all unanimously believe that Chinese companies should unite and 
should not allow outsiders to play them against each other.'' \22\ If 
China's efforts continue to be successful, Beijing may be able to lock-
in its approaches and extend its lead in certain key global 
technologies to the detriment of universal values and U.S. interests.
---------------------------------------------------------------------------
    \21\ Lindsay Gorman, ``The U.S. Needs to Get in the Standards 
Game--With Like-Minded Democracies,'' Lawfare, April 2, 2020, https://
www.lawfareblog.com/us-needs-get-standards-game
%E2%80%94-minded-democracies.
    \22\ ``Take action and fight to the death to win Lenovo's honor 
defense war! [Chinese!],'' WeChat Post, May 16, 2018, https://
mp.weixin.qq.com/s/JDlmQbGFkxu-_D2jsqNz3w.
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II. Challenges to U.S. Reshoring, Diversification, and Technology 
        Competition
    Despite a growing consensus across the political spectrum that the 
erosion of U.S. manufacturing and technology leadership has weakened 
U.S. resilience, competitiveness, and security, efforts to reverse 
these trends face a wide range of challenges.
Challenges to Reshoring Industry and Diversifying from China
    Several advanced economies are launching efforts to ``reshore'' 
manufacturing currently in China or to diversify supply chains to 
markets outside China. Taiwan was one of the first to do so, and in 
pursuit of what it called a ``non-red supply chain,'' it began mounting 
a robust effort to lure Taiwanese manufacturers currently in China back 
to Taiwan.\23\ Others have followed suit. Japan has subsidized exit 
from China for eighty-seven companies, expending $2 billion on efforts 
to bring production back to Japan or to diversify it into Southeast 
Asia.\24\ Similar discussions are underway in the EU as well, with top 
officials discussing the possibility of reshoring or diversification of 
some critical industries.\25\ And of course, the United States is also 
considering a variety of instruments to promote reshoring and supply 
chain diversification, including through low-interest loans, corporate 
tax cuts, a dedicated fund, and proposals to pay 100 percent of a 
company's reshoring expenses.\26\
---------------------------------------------------------------------------
    \23\ Matthew Fulco, ``Is Taiwan Winning the U.S.-China Trade 
War?,'' Taiwan Business Topics--AmCham Taipei, August 16, 2019, https:/
/topics.amcham.com.tw/2019/08/taiwan-winning-trade-war/.
    \24\ Simon Denyer, ``Japan helps 87 companies to break from China 
after pandemic exposed overreliance,'' Washington Post, July 21, 2020, 
https://www.washingtonpost.com/world/asia_pacific/japan-helps-87-
companies-to-exit-china-after-pandemic-exposed-overreliance/2020/07/21/
4889abd2-cb2f-11ea-99b0-8426e26d203b_story.html.
    \25\ ``Introductory statement by Commissioner Phil Hogan at 
Informal meeting of EU Trade Ministers,'' European Commission, April 
16, 2020, https://ec.europa.eu/commission/commissioners/2019-2024/
hogan/announcements/introductory-statement-commissioner-phil-hogan-
informal-meeting-eu-trade-ministers_en.
    \26\ Jodi Xu Klein, ``Is TSMC's Arizona project a U.S. tech supply 
chain win? Or a cautionary tale?,'' South China Morning Post, June 10, 
2020, https://www.scmp.com/tech/innovation/article/3088489/tsmcs-
arizona-project-us-tech-supply-chain-win-or-cautionary-tale.
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    These efforts are meeting with mixed success. While some 
manufacturing has left China for Vietnam, Bangladesh, India, Mexico, 
and Taiwan, among others, many companies are unwilling or unable to 
relocate. The European Chamber of Commerce in China found that only 
about 11 percent of its members were considering relocation out of 
China; similarly, the President of AmCham China noted that the majority 
of the group's members are not planning on exiting China.\27\ For these 
firms, the rationale goes beyond cost alone. As the Paulson Institute 
scholar Damien Ma argues, it is hard for Americans to quit Amazon 
because it is the ``everything store,'' and it is hard for 
manufacturers to quit China because it is the ``make everything 
country.'' \28\ Surveys of American and Chinese businesses demonstrate 
that most are not presently thinking of shifting out of China because 
their access to a diverse range of suppliers in China is an enormous 
advantage that offsets the value of reduced labor costs, subsidies, or 
tax credits. At the same time, China is working to counteract 
offshoring. General Secretary Xi Jinping has declared that protecting 
China's supply chains is one of the country's six national priorities 
in the wake of COVID-19.
---------------------------------------------------------------------------
    \27\ Joe McDonald, ``Companies prodded to rely less on China, but 
few respond,'' Associated Press News, June 29, 2020, https://
apnews.com/bc9f37e67745c046563234d1d2e3fe01 and ``Supply Chain 
Challenges for U.S. Companies in China,'' AmCham China, April 17, 2020, 
https://www.amchamchina.org/about/press-center/amcham-statement/supply-
chain-challenges-for-us-companies-in-china.
    \28\ Damien Ma (@damienics), Twitter Post, June 30, 2020, 4:54 
p.m., https://twitter.com/damienics/status/1278114690871300101?s=20.
---------------------------------------------------------------------------
Challenges to Retaining the U.S. Technology Base
    Even as some industries are reluctant to leave China, others have 
already exited or are considering exiting the U.S. market. For example, 
Intel announced that it would likely outsource most of its cutting-edge 
chip manufacturing given ``process slips'' it has encountered in 
manufacturing 7nm semiconductors--a decision that comes even as the 
U.S. government has made it clear that the semiconductor industry is a 
priority for U.S. reshoring and despite a new round of tax credits and 
subsidies meant to support it.\29\ Some financial analysts have 
suggested that this is the right decision for Intel, and that it would 
be efficient for it to sell its plants and focus on design, and allow 
other companies focused on production alone to manufacture for Intel. 
But what is efficient would be seriously damaging for the U.S. 
industrial base and for an industry critical to U.S. security and 
competitiveness since the outsourcing of manufacturing by the country's 
largest chipmaker would allow whatever chipmaking knowledge exists in 
the United States to essentially atrophy, thereby making any future 
manufacturing in that industry significantly less likely for decades to 
come. Meanwhile, despite the difficulties and costs, China remains 
determined to acquire these same manufacturing capabilities because it 
recognizes efficiency is not the only relevant value and has benefited 
directly from the ways in which manufacturing prowess has produced 
tacit knowledge and technical expertise that can seed a larger 
industrial ecosystem.
---------------------------------------------------------------------------
    \29\ Ian King, ``Intel Plunges as It Weighs Exit from Manufacturing 
Chips,'' Bloomberg, July 23, 2020, https://www.bloomberg.com/news/
articles/2020-07-24/intel-considers-what-was-once-heresy-not-
manufacturing-chips.
---------------------------------------------------------------------------
    A critical reason that Intel is looking abroad is Taiwan and South 
Korea have made enormous investments in an ecosystem of physical and 
human capital within this industry and have some resilience--if one of 
their firms misjudge the next wave of semiconductors as Intel did, they 
may have more ``cushion'' because of that broader ecosystem that 
supports the industry. In contrast, the United States lacks a 
comparable ecosystem of specialized engineering capability, tacit 
knowledge, and professional networks in chip production. Its industry 
therefore has little resilience.\30\ Onshoring chip manufacturing, in 
other words, is about more than the provision of capital--it requires a 
larger supporting ecosystem that can create that resilience. That kind 
of ecosystem will not be built overnight, it will in part have to be 
created with patience, and in some cases with better immigration 
policies, some careful experimentation with incentivizing localization, 
subsidies and credits where appropriate, and several other instruments.
---------------------------------------------------------------------------
    \30\ David P. Goldman, ``Intel is making a mockery of reshoring,'' 
Asia Times, July 25, 2020, https://asiatimes.com/2020/07/intel-is-
making-a-mockery-of-reshoring/.
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Considerations for Competitiveness and Resilience
    The geoeconomic challenge China poses is so significant that the 
United States will need to explore instruments beyond simple tax 
credits and subsidies if it hopes to reshore or diversify its supply 
chains and sustain its position in the Fourth Industrial Revolution.
    This kind of broad strategy is sometimes referred to as 
``industrial policy,'' which is in turn often mistakenly seen as a 
narrow effort to pick winners and losers in an industry. The reality, 
however, is that many mundane government practices might qualify as 
``industrial policies'' and are not designed to pick winners and 
losers. Indeed, if industrial policy is generally understood to be 
``government intervention in a specific sector which is designed to 
boost the growth prospects of that sector and to promote the 
development of the wider economy''--particularly in cases where the 
market is believed to be inadequate--then many practices might fall 
under the broad umbrella of so-called industrial policy.\31\ In this 
sense, industrial policy is everywhere, and it includes policy 
instruments such as tax incentives, subsidies, trade agreements, 
regulation, investments in infrastructure, support for a skilled 
workforce, among countless others. What many effectively mean when they 
use the term ``industrial policy'' is a state strategy to boost 
competitiveness and resilience in a particular sector, a phraseology 
which is far less controversial but effectively similar in meaning.\32\ 
The question is not whether the United States should pursue such a 
strategy--there has long been bipartisan consensus that it should--but 
how it can do so in a way that avoids waste and capture and that 
instead sustains resilience, competitiveness, security, and 
technological leadership relative to China.
---------------------------------------------------------------------------
    \31\ Uri Dadush, ``Industrial Policy: A Guide for the Perplexed,'' 
OCP Policy Center, January 2016 https://carnegieendowment.org/files/
OCPPC-PB-1605industrialpolicy.pdf.
    \32\ Reda Cherif and Fuad Hasanov, ``All the Way to the Top: 
Industrial Policy, Innovation, and Sustained Growth,'' IMFBlog, 
November 13, 2019, https://blogs.imf.org/2019/11/13/all-the-way-to-the-
top-industrial-policy-innovation-and-sustained-growth/.
---------------------------------------------------------------------------
    First, with respect to reshoring and supply chain diversification, 
other states have adopted practices in this vein that might be 
instructive for U.S. policymakers. Despite efforts by a wide range of 
governments to reshore or diversify supply chains currently based in 
China, only Taiwan has so far been particularly successful. Beginning 
in 2019, Taiwan pursued a ``non-red supply chain'' in key advanced 
industries including telecommunications, electronics, smart machinery, 
biomedicine, and green energy.\33\ To lure manufacturers back from 
China, Taiwan used a wide range of policy instruments that went far 
beyond tax credits and subsidies, relying on measures like rent 
assistance, cheap finance, land acquisition, and simplified provisions 
on reinvestment, among others. The effort self-consciously addressed 
what Taiwan calls its ``five shortages'': land, water, power, manpower, 
and talent to entice companies to return. Most critically, the 
initiative was housed in the ``InvestTaiwan'' office at the Ministry of 
Economic Affairs (MOEA), which the head of the office described as a 
``a one-stop shop to help manufacturers return home smoothly.'' \34\ 
Since its establishment in 2019, the office has succeeded in achieving 
$33 billion worth of reshoring in terms of investment which has boosted 
Taiwan's economic growth. The office's success was no doubt partly 
boosted by U.S. tariffs, but it was also due to the ease with which one 
office could serve as a single point of contact for all firms thinking 
about leaving China and the willingness of that office to proactively 
work with businesses to address a wide range of concerns beyond 
questions of credits and subsidies.
---------------------------------------------------------------------------
    \33\ Fulco, ``Is Taiwan Winning the U.S.-China Trade War?.''
    \34\ Fulco, ``Is Taiwan Winning the U.S.-China Trade War?.''
---------------------------------------------------------------------------
    Second, with respect to efforts to boost competitiveness and 
resilience in high-tech industries, a range of states have adopted 
``industrial policy'' plans. China, as discussed, has its Made in China 
2025 strategy and now a $1.4 trillion digital infrastructure plan. For 
its part, Germany has Industry 4.0, the United Kingdom released an 
Industrial Strategy, and a wide range of other states are experimenting 
with similar efforts.
    Over the last twenty years, had the United States government been 
more willing to experiment with these tools and techniques to promote 
its high-technology industries, it is possible--though by no means 
guaranteed--that the competitive landscape with China could have looked 
very different today. The kind of approach that helped restore the U.S. 
semiconductor industry in the 1980s with SEMATECH and helped catalyze 
the genomics industry in the same period with the Human Genome Project 
could potentially have been attempted in other industries. And at the 
very least, more robust efforts to save floundering high-tech 
industries could have also been consequential. Indeed, at various times 
over the last two decades, the United States intervened to save 
industries like finance, automotives, and insurance. Those efforts, 
however, did not generally extend to companies that were at the cutting 
edge of high technology. For example, the United States government did 
not intervene to save Motorola or Lucent, companies that today could 
have formed the foundation of an American 5G industry. Similarly, if 
the United States had mounted a more robust technology innovation 
policy to sustain semiconductor manufacturing, it is possible that the 
deterioration of that capability--and its potential loss of Intel 
outsources production--could have been avoided. Rather than lamenting 
what might have been, the past can be a useful guide to a more 
competitive future. Accordingly, it is worth noting that if Washington 
makes the right moves now, it is likely that the competitive landscape 
with China over the next two decades could be significantly and 
positively impacted.
    For the United States then, as the experience with Intel 
demonstrates, the core question will be how Washington can reverse the 
loss of expertise and experience in key industries and, in a few 
specific cases, attract foreign companies to come to the United States 
and build reservoirs of tacit knowledge that could form the foundation 
for future manufacturing resilience. These efforts will likely require 
a wide range of policy instruments to boost U.S. manufacturing or 
incentivize others to manufacture in the United States. These might 
include subsidies, tax breaks, investments in education and training, 
use of government procurement policies to encourage local production, 
state-mandated production (e.g., under the Defense Production Act), 
carefully structured trade agreements that advantage domestic 
manufacturing, and export controls.\35\ In the past, particularly given 
the allure of the U.S. market, similar efforts have helped attract 
Japanese auto manufacturers to the United States, with companies like 
Toyota producing 70 percent of the cars they sell to Americans at their 
U.S. factories. By going beyond simple subsidies and tax credits, the 
United States could build a broader ecosystem that will sustain and 
attract advanced industries.
---------------------------------------------------------------------------
    \35\ Geoffrey Gertz, ``How to Deglobalize,'' Foreign Policy, July 
24, 2020, https://foreign
policy.com/2020/07/24/how-to-deglobalize/
---------------------------------------------------------------------------
    Some of the policies critical to this effort are explored below.
III. Recommendations for U.S. Policy
1. Information Gathering for Economic Strategy
   The U.S. Congress should consider creating an entity that 
        can audit the U.S. supply chain and craft robust reporting 
        requirements on supply chains for industry. China has 
        demonstrated a willingness to use its nodal position in modern 
        supply chains as leverage against other countries. If the 
        United States has a less sophisticated understanding of global 
        supply chains than China, it will not be well-positioned to 
        resist or help allies resist these efforts. Moreover, as the 
        recent pandemic has shown, the Federal government often has 
        little idea until it is too late just how dependent certain 
        critical industries (like the pharmaceutical sector, or PPE 
        manufacturing) are on imports from China and other countries. 
        Accordingly, the United States needs reliable information on 
        supply chains within and across industries. Efforts already 
        undertaken to audit supply chains in critical minerals and in 
        medical supplies should be expanded into a wide range of 
        critical and high-tech industries, institutionalized in a 
        Federal government entity, and bolstered through mandatory 
        reporting requirements for industries.\36\ This entity could 
        conceivably be staffed or supported by other economic 
        statistics-producing agencies, including the U.S. Census 
        Bureau, the Department of Commerce's Bureau of Economic 
        Analysis, or the International Trade Commission, among others.
---------------------------------------------------------------------------
    \36\ Geoffrey Gertz, ``How to Deglobalize,'' Foreign Policy, July 
24, 2020, https://foreignpolicy.com/2020/07/24/how-to-deglobalize/ and 
Nedal T. Nassar et al., ``Evaluating the mineral commodity supply risk 
of the U.S. manufacturing sector,'' Science Advances 6, no. 8 (2020), 
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7035000/. Also see the 
text for the Coronavirus Aid, Relief, and Economic Security (CARES) Act 
on the National Academies of Sciences, Engineering, and Medicine 
website: https://www.nationalacademies.org/ocga/public-laws/
coronavirus-aid-relief-and-economic-security-cares-act.

   The U.S. Census Bureau should restart and expand its Current 
        Industrial Reports program: These reports which were produced 
        annually produced rich and detailed information on U.S. 
        industries and created teams of individuals with deep, 
        institutionalized knowledge on each industry. That information 
        will be essential for crafting and implementing strategies to 
        boost U.S. resilience and competitiveness, reshoring, supply 
        chain security, reversing deindustrialization, and competing 
        with China.\37\
---------------------------------------------------------------------------
    \37\ ``Comprehensive List of the Commission's Recommendations,'' 
from 2019 Report to Congress of the U.S.-China Economic and Security 
Review Commission (Washington, DC: U.S.-China Economic and Security 
Review Commission, 2019), https://www.uscc.gov/sites/default/files/
2019-11/2019%20Recommendations%20to%20Congress.pdf,538.

   The U.S. government should undertake supply chain stress 
        tests of companies in critical industries. The proliferation of 
        just-in-time manufacturing and lean production has reduced 
        inventory in supply chains, leaving little ``slack'' in the 
        system when confronted with foreign economic coercion, natural 
        disasters, or other supply chain shocks. Just as the United 
        States and European Union mandated stress tests for banks after 
        the financial crisis, supply chain stress tests would involve 
        efforts to determine how long a particular node in the supply 
        chain could function after a supply shock and how long it might 
        take to recover normal functionality.\38\
---------------------------------------------------------------------------
    \38\ David Simchi-Levi and Edith Simchi-Levi, ``We Need a Stress 
Test for Critical Supply Chains,'' Harvard Business Review, April 28, 
2020, https://hbr-org.cdn.ampproject.org/c/s/hbr.org/amp/2020/04/we-
need-a-stress-test-for-critical-supply-chains. Also see Gertz, ``How to 
Deglobalize.''
---------------------------------------------------------------------------
2. Coordinating Economic Policy and Strategy
   The U.S. Congress should consider mandating a quadrennial 
        national strategy on competitiveness and resilience. The United 
        States government has published a series of annual strategy 
        reports, including the Quadrennial Defense Review (now the 
        National Defense Strategy), the Quadrennial Diplomacy and 
        Development Review, the Quadrennial Energy Review, the 
        Quadrennial National Health Security Review, and roughly a 
        dozen strategic plans for various U.S. government departments, 
        among other efforts. Vanderbilt Law Professor Ganesh Sitaram 
        has proposed a similar effort for U.S. competitiveness. The 
        document and the process of drafting it could help create 
        sustained attention on U.S. economic and technological 
        leadership, align various agencies, and force long-term 
        thinking about domestic and international trends.\39\
---------------------------------------------------------------------------
    \39\ Ganesh Sitaraman, ``On Agency Structure,'' American Compass, 
June 10, 2020, https://americancompass.org/essays/on-agency-structure/.

   The U.S. Congress should consider various models that could 
        integrate the U.S. government's various economic agencies and 
        ensure coordinated approaches to competitiveness and 
        resilience: When Taiwan sought to reshore supply chains based 
        in China, the government created a ``one-stop shop'' within one 
        of its ministries for that very purpose, thereby streamlining 
        corporate engagement with Taiwan's government and ensuring 
        timely and comprehensive and bespoke attention to various 
        challenges each company faced. Other governments that pursue 
        technology policies or industrial policies similarly integrate 
        a wide range of economic agencies within mission-specific 
        offices or even entire ministries. Similar approaches could be 
        considered within the U.S. government. On the modest side, 
        these approaches might involve offices comprised of economic 
        officials from a variety of agencies with a specific and 
        discrete task, such supply chain reshoring or diversification. 
        As the Brookings Institution scholar Geoffrey Gertz has noted, 
        the United States Commercial Service assists firms with exports 
        while other entities work to attract foreign investment.\40\ 
        Similar entities could presumably be created to focus on 
        reshoring or diversification. On the expansive side, as some 
        like Ganesh Sitaram suggest, this could involve a 
        reorganization and streamlining of U.S. economic agencies to 
        better implement ``industrial policy'' or national strategies 
        for competitiveness and resilience, with strong protections to 
        ensure accountability and prevent capture.\41\
---------------------------------------------------------------------------
    \40\ Geoffrey Gertz, ``How to Deglobalize,'' Foreign Policy, July 
24, 2020, https://foreignpolicy.com/2020/07/24/how-to-deglobalize/
    \41\ Ganesh Sitaraman, ``On Agency Structure,'' American Compass, 
June 10, 2020, https://americancompass.org/essays/on-agency-structure/.
---------------------------------------------------------------------------
3. Boosting American Strengths in Immigration and R&D
   The U.S. Congress should facilitate high-skilled immigration 
        to the United States: American openness is an enormous strength 
        that has long allowed the United States to attract the best 
        foreign minds to bolster its science and technology 
        capabilities. U.S. labs at the forefront of the Fourth 
        Industrial Revolution largely depend on graduate students from 
        a wide range of countries. For example, roughly 80 percent of 
        graduate students in electrical engineering and computer 
        science are foreign nationals.\42\ Most prefer to stay in the 
        United States following the completion of their degrees--with 
        vast majorities staying a decade after graduation--though 
        increasingly many are unable to do so.\43\ Similarly, U.S. 
        companies also rely on foreign talent to fill shortfalls in 
        science and technology, though the total number of those visas 
        has been capped since 2005 at 85,000, with only 20,000 reserved 
        for those with graduate degrees.\44\ Reforms are needed to 
        ensure that the United States has access to the world's best 
        high-tech talent. Per a report by Georgetown's Center for 
        Security and Emerging Technology, the U.S. Congress should (1) 
        raise the cap on H1-B visas; (2) automatically grant green 
        cards (exempt from green card caps) to postgraduate degree 
        holders, particularly in STEM; (3) emulate Canada's dedicated 
        post-graduation employment visa for international students; (4) 
        create a visa program for entrepreneurial graduate students who 
        wish to start companies after graduating; (5) codify the 
        Optional Practical Training program in statute, among other 
        policies.\45\
---------------------------------------------------------------------------
    \42\ ``The Importance of International Students to American Science 
and Engineering,'' National Foundation for American Policy, October 
2017, http://nfap.com/wp-content/uploads/2017/10/The-Importance-of-
International-Students.NFAP-Policy-Brief.October-20171.pdf.
    \43\ Boris Granovskiy and Jill H. Wilson, ``Foreign STEM Students 
in the United States,'' Congressional Research Service, November 1, 
2019, https://crsreports.congress.gov/product/pdf/IF/IF11347. The 
report notes that, ``According to the National Science Foundation's 
2017 survey of STEM doctorate recipients from U.S. IHEs, 72 percent of 
foreign doctorate recipients were still in the United States 10 years 
after receiving their degrees. This percentage varied by country of 
origin; for example, STEM graduates from China (90 percent) and India 
(83 percent) stayed at higher rates than European students (69 
percent).''
    \44\ Ely Ratner et al., Rising to the China Challenge: Renewing 
American Competitiveness in the Indo-Pacific (Washington, DC: Center 
for a New American Security, 2020), https://www.cnas.org/publications/
reports/rising-to-the-china-challenge.
    \45\ Remco Zwetsloot et al., Keeping Top AI Talent in the United 
States: Findings and Policy Options for International Graduate Student 
Retention (Washington, DC: Center for Security and Emerging Technology, 
2019), https://cset.georgetown.edu/wp-content/uploads/Keeping-Top-AI-
Talent-in-the-United-States.pdf, 29-35.

   The United States Congress should increase Federal R&D 
        spending by four-fold to keep pace with China, and it should 
        ensure increases go beyond the life sciences. Federal R&D 
        spending has declined for decades. As a percentage of GDP, the 
        U.S. Federal government spends only .61 percent of GDP on R&D--
        the percentage is one of the lowest in seventy years, lower 
        than ten other science powers, and lower even than pre-Sputnik 
        funding. Moreover, half of Federal R&D spending goes to life 
        sciences alone.\46\ While it is true that business has 
        contributed significantly to U.S. R&D spending, particularly in 
        applied research, basic research generally comes from the 
        Federal government and has historically formed the foundation 
        for major breakthroughs--including radar, computing, and 
        nuclear power.\47\ One more recent example, as economist 
        Jonathan Gruber notes, is the $3 billion Congress spent 
        beginning in the 1980s to map the human genome. That investment 
        catalyzed the genomics industry, which employs 280,000 people 
        in the United States and generates taxes of $6 billion 
        annually.\48\ Meanwhile, as U.S. government research spending 
        falls, China's is growing rapidly and may well exceed 2.5 
        percent of GDP in coming years. For that reason, a doubling or 
        tripling of Federal research spending is in order, would allow 
        us to keep pace with China, and would restore us to levels last 
        seen in the 1960s.
---------------------------------------------------------------------------
    \46\ James Pethokoukis, ``US Federal research spending is at a 60-
year low. Should we be concerned?,'' American Enterprise Institute, May 
11, 2020, https://www.aei.org/economics/us-federal-research-spending-
is-at-a-60-year-low-should-we-be-concerned/.
    \47\ M. Anthony Mills and Mark P. Mills, ``The Science Before the 
War,'' The New Atlantis (Winter 2020), https://www.thenewatlantis.com/
publications/the-science-before-the-war.
    \48\ James Pethokoukis, ``Jonathan Gruber on jump-starting 
breakthrough science and reviving economic growth: A long-read Q&A,'' 
American Enterprise Institute, June 3, 2019, https://www.aei.org/
economics/johnathan-gruber-on-jump-starting-breakthrough-science-and-
reviving-economic-growth-a-long-read-qa/.
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4. Reforms to Stimulate Long-Term Planning and Competition
   The U.S. Congress should consider anti-monopoly measures to 
        build U.S. resilience in critical industries: True resilience 
        requires ensuring that the United States has several viable 
        competitors in any given industry, particularly those essential 
        to American health and security. At the innovation frontier, 
        companies frequently make bets about the progress of future 
        technology, some of which prove prescient and others of which 
        prove mistaken. When only one state champion is left in a given 
        industry, the price of making the wrong bet can be devastating 
        for the wider economy and for the country's technological 
        leadership. In contrast, when there are multiple companies 
        operating in a critical industry, the odds that one will make 
        the right bet and sustain the country's leadership in that 
        industry are far greater. When market structure sometimes 
        complicates efforts at ensuring competition, Congress can 
        assist weaker competitors, a policy approach it has used in the 
        past to ensure a competitive defense industrial base.\49\ Then, 
        as now, competition between leading firms in these essential 
        industries is more likely to produce lower prices, higher 
        quality products, industrial resilience, and greater 
        innovation--advantaging the United States relative to outright 
        mercantilist competitors with one leading state champion.
---------------------------------------------------------------------------
    \49\ Matt Stoller, Goliath: The 100-Year War Between Monopoly Power 
and Democracy (New York: Simon & Schuster, 2019).

   The U.S. Congress should consider financial sector and tax 
        policy reforms that reduce the short-termism of corporate 
        America and encourage a focus on longer-term decision-making: 
        The shareholder revolution of the 1980s helped usher in a focus 
        on returns on capital at the expense of longer-term planning. 
        Most shares of stock are held for less than a year now compared 
        to eight years in the 1950s; CEO tenure is now near a historic 
        low of roughly five years; and the pressure to generate 
        financial returns often disincentivizes manufacturing relative 
        to other more lucrative business activities. Efforts to adjust 
        the institutionalized ``short-termism'' of U.S. capital markets 
        will be difficult and controversial, but some prominent 
        executives like JPMorgan Chase CEO Jaimie Dimon and Berkshire 
        Hathaway CEO Warren Buffet are publicly supportive. As Michael 
        Brown, Eric Chewning, and Pavneet Singh note in an April report 
        from the Brookings Institution, Congress could incentivize the 
        creation of new benchmark metrics that include longer 
        timeframes as well as tax policy that encourages holding equity 
        positions for longer periods.\50\
---------------------------------------------------------------------------
    \50\ Michael Brown, Eric Chewning, and Pavneet Singh, ``Preparing 
the United States for the Superpower Marathon with China,'' The 
Brookings Institution, April 2020, https://www.brookings.edu/wp-
content/uploads/2020/04/FP_20200427_superpower_marathon_brown
_chewning_singh.pdf
---------------------------------------------------------------------------
5. International Efforts with Like-Minded Stakeholders and in Key 
        Institutions
   The U.S. Congress should encourage greater basic science 
        research collaboration between the United States and its key 
        allies and partners, who together comprise two times more 
        spending than China. Basic science research is already an 
        increasingly international endeavor, and U.S.-China scientific 
        cooperation is increasingly common. But while the United States 
        and China spend roughly equivalent amounts on R&D presently, 
        the combined total spent by Japan, Germany, South Korea, India, 
        France, and the UK exceeds the U.S. and China respectively. The 
        U.S. Congress should relax some of the people-to-people 
        impediments to greater allied and partner collaboration (e.g., 
        visa policies) while also encouraging basic science research 
        organizations to engage more with allies and partners. Greater 
        diffusion across allied and partner channels could help sharpen 
        the American technological edge, allowing the country to 
        benefit from others. Moreover, formal partnerships could 
        involve efforts to ``set standards and values around sharing 
        data, transparency, reproducibility and research integrity,'' 
        as Georgetown's Center for Strategic and Emerging Technology 
        argues.\51\
---------------------------------------------------------------------------
    \51\ Alison Snyder, ``Allies could shift U.S.-China scientific 
balance of power,'' Axios, June 18, 2020, https://www.axios.com/
scientific-research-expenditures-america-china-743755fe-3e94-4cd3-92cf-
ea9eb1268ec2.html.

   Congress should support efforts to advance coordinated 
        domestic and multilateral approaches to standard setting: While 
        many standard-setting bodies are comprised of companies rather 
        than countries, China's top-down effort to shape standards 
        requires a response from the U.S. government. This is 
        particularly urgent during times when standard-setting 
        processes might be inaugurating new paradigms in critical 
        industries, including telecommunications (e.g., O-RAN) and the 
        Internet of things, that could long shape the future. First, 
        Congress could support establishment of interagency working 
        groups on standards that could coordinate internally. For 
        example, OSTP could establish an interagency working group on 
        technology standards that brings together the departments of 
        State, Commerce, Justice, and Defense as well as the U.S. 
        intelligence community and NIST--and that also consults with 
        U.S. industry.\52\ Second, to build coalitions among different 
        companies and countries, Congress could support the 
        establishment of offices within the departments of Commerce and 
        State to coordinate U.S. approaches with like-minded 
        stakeholders.\53\
---------------------------------------------------------------------------
    \52\ Ely Ratner et al., Rising to the China Challenge: Renewing 
American Competitiveness in the Indo-Pacific (Washington, DC: Center 
for a New American Security, 2020), https://www.cnas
.org/publications/reports/rising-to-the-china-challenge.
    \53\ Lindsay Gorman, ``The U.S. Needs to Get in the Standards 
Game--With Like-Minded Democracies,'' Lawfare, April 2, 2020, https://
www.lawfareblog.com/us-needs-get-standards-game
%E2%80%94-minded-democracies.

    Senator Sullivan. Well, thank you, gentlemen. Outstanding 
opening statements by both of you, giving us a lot to think 
about but again I think a lot to agree on.
    So let me begin by asking both of you some kind of very 
general open-ended questions. I've spent a lot of time actually 
in China and working on this relationship from a lot of 
different perspectives, but one core principle that I think we 
need to focus on, I think it's again something that's 
considered and viewed as very bipartisan, is the issue of 
reciprocity.
    Right now in the U.S.-China relationship across so many 
spheres, the relationship is not reciprocal and at the end of 
the day, reciprocity really is an issue of fairness. What we 
enable Chinese, say, journalists or businesses or academic 
institutions to do in America, we can't do over there. It's a 
very long list across many spheres of the relationship and in 
my meetings with the Chinese, they sometimes even acknowledge 
this.
    Remarkably, what they do when they say the relationship is 
non-reciprocal, they say, well, and I've heard this as a U.S. 
Senator, I've heard it in other positions, Senator, it's 
because we're still a developing country and you're a developed 
country. I heard that from the Ambassador about a year and a 
half ago. Pretty ridiculous statement.
    But I'd like the two of you to comment on this issue of the 
lack of reciprocity and reciprocity as a core principle that we 
need in the relationship between the United States and China, 
and, second, if you can talk about an issue that I refer to as 
promise fatigue, promise fatigue.
    This is the issue of over the last three decades, almost 
every major agreement that the Chinese have undertaken with 
regard to the United States, they don't follow through on.
    Two examples. During the Obama Administration, President 
Obama led the effort to have a comprehensive agreement on 
intellectual property theft. The Bush Administration prior to 
the Obama Administration did this. They continued to steal 
intellectual property probably at higher levels.
    In 2015, Xi Jinping, next to President Obama in the Rose 
Garden, said we will not militarize the South China Sea. 
President of China said that in the Rose Garden next to the 
President of the United States. Within weeks, they were 
breaking that promise.
    So promise fatigue is another issue that I'd like the two 
of you to address. So if you can look at reciprocity, promise 
fatigue, as kind of opening questions in this hearing. Thank 
you.
    Mr. Wessel. Thank you for that excellent question which 
really goes to the heart of the relationship at this point and 
the challenges we face.
    Let me first go to promise fatigue and then I'll address 
the question of reciprocity. I'm a Democrat, but one of the 
great statesmen, Ronald Reagan said, ``Trust but verify,'' and 
I think we've failed to have the kind of provisions in place 
that would do just that, meaning that when a promise is made, 
we need to implement automatic provisions to ensure that 
promises are kept.
    Too often, we rely on those promises and hope for the best 
and find out many years later or even quicker sometimes that 
the promises are broken and then we look at what tools might be 
available to fix that. We need more automatic trade measures 
and provisions to put in place, Number 1.
    Number 2, and I'll rely on my colleague, who is skilled in 
the Chinese language, we need to have a much better 
understanding of what China actually says. That means and 
requires reading their core documents.
    When one looks at the bilateral agreement on cyber hacking, 
for example, it was a fundamental misunderstanding here because 
the Chinese said that they would not hack for economic benefit 
alone. The fact is they view economics and military security as 
inextricably intertwined and the result is when they hack for 
economic gain, it is for military and national security gain. 
So we were using different definitions.
    Finally and quickly on reciprocity, I think reciprocity is 
an appropriate tool to use in certain sectors, potentially not 
across the board. We don't want to be like the Chinese, but we 
want them to understand that when they take certain actions 
that are adverse to our interests, they have to expect the same 
here. So I believe reciprocity has a role in a number of 
sectors.
    Senator Sullivan. Let me just--before I have Mr. Doshi 
answer that, just on reciprocity, I posed this issue to the 
Chinese when I was in Beijing a couple years ago, that the lack 
of reciprocity in areas like journalists, they have hundreds, 
if not thousands, of journalists in our country pretty much 
free roaming. We don't have that in their country. They have 
Confucius Institutes at our universities.
    When I was in Beijing, the Ambassador told me they couldn't 
even get on the campus of Beijing University without an escort. 
I posed these all to the Chinese. I said if you want Confucius 
Institutes at hundreds of universities, then we should be able 
to have James Madison Institutes of Freedom and Liberty on your 
universities. I just made the term up, but the point was that 
there's not a reciprocal relationship. Their answer was that 
Confucius Institutes only teach culture and language. A James 
Madison Institute of Freedom and Liberty would teach 
propaganda. I think that's a fundamental misunderstanding of 
James Madison, but these are examples of the lack of 
reciprocity.
    Mr. Doshi, would you care to comment on these questions 
quickly before I turn to some of the other Senators who have 
questions for the two of you?
    Dr. Doshi. Thank you very much, Senator. I'll simply say 
that I agree with my colleague, Commissioner Wessel. 
Reciprocity should be the cornerstone of our relationship.
    Of course, the question is where we want to insist on 
reciprocity, where we may not want to. I'll note that back in 
the Cold War, U.S. and Soviet Union actually had a very 
reciprocal relationship on when it came to journalists. We had 
equivalent numbers in each other's countries. We don't have 
that approach now. Some could say that it benefits the United 
States to have a bit more access than it does presently, but 
it's unlikely that China would provide it because they see 
reciprocity sometimes as a direct threat to the Chinese 
Communist Party's hold on power.
    And so for them, reciprocity becomes, you know, a direct 
challenge to everything that is what they are and it becomes 
very difficult for us to insist on it successfully.
    Senator Sullivan. Sorry to interrupt you. So they booted a 
bunch of our journalists from China recently. If they allow 
five American journalists in all of China, is it in our 
interest to say, OK, then you get five Chinese journalists? We 
know a lot of them are, you know, mouth-pieces for the Chinese 
Communist Party anyways. Some of them aren't even journalists, 
I suspect, but would that make sense? Should we just say, all 
right, you get five journalists in America? If we can't have 
James Madison Institutes of Freedom and Liberty on your 
universities, we'll boot all your Confucius Institutes off our 
universities. Does that make sense?
    Dr. Doshi. Thank you, Senator. It's an important question. 
I think that the answer will vary from issue area to issue 
area, and I think that with any luck, we'll be able to find 
some kind of an arrangement where we'll have better access to 
China in the long-term, but for now, it's the case that the 
five journalists they have in the United States, if they were 
to have reciprocity with us, would not do nearly as much for 
China as our five would do for the United States in Beijing. 
They're able to tell us more about what was happening on the 
ground.
    So that's an area where we get more from that perfect 
reciprocity than they might since their mouthpieces aren't 
particularly effective, you know, and our journalists can be 
particularly effective in shaping global media coverage, for 
example.
    But you raise a very important question, Senator, and I'm 
not sure I have a perfect answer for it.
    Senator Sullivan. Great. And do you have a view on promise 
fatigue real quick before we turn to Senator Klobuchar?
    Dr. Doshi. Absolutely. I completely agree that promise 
fatigue is a significant issue. There are so many promises that 
have been broken across issue areas and that the key goes back 
to what Commissioner Wessel said, trust and verify.
    Senator Sullivan. Great. Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Chairman Sullivan 
and Ranking Member Markey, for holding this important hearing 
today.
    I've long been critical of China's unfair methods of 
competition. It hit right at home with steel dumping in 
Northern Minnesota, and I think we know it's not just 
manufacturing and trade in which we need to be vigilant. China 
is using both old and new tools, including expansion of state-
owned businesses, required disclosures from private companies 
doing business in China, and outright theft of intellectual 
property, and as we have seen during this pandemic, our 
dependence on China has highlighted weaknesses in ensuring 
access to critical medical supplies.
    I'll start with you, Mr. Wessel. I mentioned this steel 
dumping and both under the Obama Administration at the very end 
we took this on in a big way and actually made a difference and 
that continued into the advocacy that I have made with the 
Trump Administration on this issue.
    Do you agree with the importance of standing up to illegal 
and unfair trade practices that harm our workers, such as 
illegal steel dumping, Mr. Wessel?
    Mr. Wessel. I couldn't agree more. The fact is that when 
our workers work hard, play by the rules, they deserve to know 
that those rules are going to be enforced and that they'll have 
a fair chance to compete.
    China has not only in steel but in so many other industries 
a broad cross-section of protectionist and predatory practices 
designed not to promote win-win but to win and dominate and 
steel is a perfect example where, as you know, they will have 
close to a billion metric tons of capacity, far more than they 
need, far more than the government and the global community can 
consume, and that over-capacity is simply skewing market forces 
and under-mining the ability of our companies and our workers 
to survive. That covers steel, aluminum, rubber, fiber optics, 
and probably 15 to 17 separate sectors.
    So standing up to their non-market activities is vital for 
the preservation of our own industry but also for our own 
economic success.
    Senator Klobuchar. Very good. In your testimony, you also 
note reports that intellectual property theft costs America up 
to $600 billion a year. China, according to your testimony, 
accounts for most of that loss.
    Do you believe that the Administration's response to 
Chinese intellectual property theft has been sufficient to 
protect our economy from harmful influence?
    Mr. Wessel. I believe they've taken some initial steps that 
are helpful, but as they have pointed out and so many analysts, 
myself included, believe is that stage 1 or phase 1 of their 
agreement was insufficient. It does not get to many of the 
structural issues, subsidies, state-owned enterprises, and the 
basic core structure of Chinese non-market forces.
    It is also somewhat problematic to believe that 
intellectual property will change as a result of the Phase 1 
agreement. We've already seen the indictments that continue to 
be issued virtually every day, continued cyber hacking, theft, 
et cetera, and the cost of doing business in China is still 
dependent on joint ventures in so many sectors.
    Those joint ventures often require U.S. companies to share 
their intellectual property. It's a cost of doing business and 
that hasn't changed.
    Senator Klobuchar. Exactly. So this would mean trade 
alliances and other things to try to push on these issues and 
China sees, I think, you'd agree, the continuing weakening of 
U.S. alliances and dis-engagement around the globe as an 
opportunity to fill the vacuum left by U.S. leadership.
    How should the U.S. respond to efforts by China, and I 
guess I'll last ask this of Mr. Doshi, as well, to expand its 
influence with our largest economic partners in regions around 
the globe? Specifically, what role should strengthening 
alliances and U.S. leadership in multilateral institutions play 
in this effort? Can we just go it alone against China or do we 
have to work with the rest of the world?
    Mr. Wessel. Well, I think we've seen that going it alone is 
not working as well as it should. We are engaging, as you've 
seen recently, Great Britain has turned the corner, I believe, 
on the question of Huawei, what Chairman Wicker talked about 
earlier, and the leadership of this committee on Rip and 
Replace and looking at that threat.
    We have to reform organizations like the WTO to make sure 
that they work for us and I think we're past the point where, 
as it was in the past, that our allies would hold our coat 
while we bloodied our nose. They realize now or increasingly 
realize that the China Challenge is not just posed to U.S. 
interests but their own, as well. They need to come to the 
forefront and work with us. If they don't, we need to go it 
alone because we need to protect our industry and our people, 
but I think the world is waking up. We have to work on 
reforming those organizations, doubling down and participating 
where it can be helpful, but where we need to go it alone, 
we've got to do it for our people.
    Senator Klobuchar. Thank you.
    Senator Sullivan. Thank you, Senator Klobuchar.
    Senator Blunt.

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Thank you, Chairman.
    To both of the panelists, a couple of questions. One is, 
what has China done in their effort to make it difficult for us 
to have ownership and other things in China that makes it easy 
for us to leave and two is, how are the dramatic demographic 
changes in China going to impact their ability to continue to 
compete, to keep wages low?
    We have a country that's going to be dramatically changing 
in terms of what it looks like, and how's that going to affect 
their global position and their continuing economic model? To 
both of you, let's start with Mr. Wessel and then Mr. Doshi.
    Mr. Wessel. Thank you for that question. It really is the 
key question in terms of how China is going to approach its own 
future.
    As we've seen, they have an aging population with over time 
fewer replacement workers and that's going to put new stresses 
and strains on their system.
    One where it would seem, you know, one of the most evident 
changes is in health care where, with their 1.4 billion people 
aging quickly or aging at a faster pace than had expected, 
that's why they're trying to dominate the biotechnology, 
synthetic biology, and medical supply areas to meet their own 
needs and also to dominate worldwide.
    It also, of course, puts enormous stress on the need for 
them to promote economic growth, productivity, and efficiency, 
and as a result, they are trying to move up the value chain in 
terms of products they've produced.
    When China entered the WTO, the old view was it was about 
toys and textiles. Now it's about quantum computing, 
biotechnology, AI, and other critical industries. So all of 
their demographic changes are helping influence their economic 
choices.
    Rush?
    Dr. Doshi. Thank you, Senator, for that question, and I 
think it's exactly the question that President Xi Jinping is 
worried about or General Secretary Xi Jinping is worried about 
in China.
    First, they're trying to make it hard for companies to 
leave. They know that wages are rising in China and that is 
illuminating some of their advantage. So they're hoping to move 
toward automation, toward smart manufacturing with a massive 
$1.4 trillion bioG grid, hoping to make sure that they use 
pressure sometimes to prevent companies from leaving, and 
therefore to make themselves at the center of those global 
supply chains. So that's, you know, the first thing they're 
trying to do is make sure, as General Secretary Xi has 
mentioned, that they have dominance in those supply chains.
    The second area, on demographics, you're absolutely right. 
Their demographic challenge is enormous. They have some of the 
least favorable demographics of any great power in the world 
today and they know it and they're worried about it. They're 
worried they're going to get old before they get rich and 
that's exactly why they're stepping up their industrial policy 
approaches to target our high-tech industry because they're 
hoping they can grasp that vine before they let go of the last 
one, which was lower wage manufacturing.
    So they have enormous challenges and this is a moment of 
transition and that is in many ways why we are seeing so much 
money being spent on Chinese industrial policy.
    Senator Blunt. What about the impact of what we've been 
doing so far? I heard the comment that we need to have more 
help coming. Certainly Australia and some of our friends have 
stepped up to resist the Chinese inability to be willing to 
work with others.
    What about moving forward and where are the likely friends 
in this economic fight that we should be thinking come next? 
Are they the transpacific countries or tell me what you think 
happens there, and again both of you?
    Mr. Wessel. Well, Senator, it's a great question. You know, 
again as I had said, I think, you know, countries are now 
beginning to appreciate better the China Challenge. For a long 
time, they looked to the U.S. to lead, whether it was at the 
WTO or elsewhere, and they would not always follow. So on 
overcapacity, where there were multilateral talks, we got 
little to no help from our allies.
    I think the last two or three years and certainly what's 
happened with the pandemic has awoken many of our trading 
partners, many of our allies to the dangerous vulnerabilities, 
the lack of resiliency, the, you know, unacceptable dependence 
on Chinese supply chains, and I think we are entering an era 
where there is opportunity to have greater allied support, but 
we need to chart a course that they see themselves winning in, 
as well, and we need to have institutions which are able to 
enforce those measures. Those enforcement measures and 
institutions right now are limited in their impact.
    Senator Blunt. Mr. Doshi.
    Dr. Doshi. Thank you, Senator.
    China believes that our allies are our single biggest 
advantage. They think our alliance structure is the most 
important thing that we have going for us and they're worried 
we're actually going to work with them, particularly in the 
economic and technological spaces.
    Now, as Michael Wessel just mentioned, post-COVID, approval 
ratings for China are plummeting around the world, including in 
many of the countries that we have very close ties with, 
including in European countries and India, parts of the Asia 
Pacific, and so we have the opportunity now to work with those 
countries, to create coalitions at the forefront of technology.
    People have talked about a D10, a coalition of democracies 
to work together on 5G, but there's no reason we couldn't 
expand that and work with other countries outside that 
coalition on a variety of issues, everything from biotechnology 
to medical supply chains to artificial intelligence.
    So in many ways, the future of American power and 
competition and technology is going to be coalition and I think 
that that is the direction we're gradually beginning to move 
in, in large part accelerated by China's own poor diplomacy 
post-COVID-19.
    Senator Blunt. Thanks to both of you, and thank you, Mr. 
Chairman.
    Senator Sullivan. Thank you, Senator Blunt.
    Mr. Doshi, that's a very insightful comment on the allies. 
The D10 is something I had not heard of before.
    Senator Rosen.

                STATEMENT OF HON. JACKY ROSEN, 
                    U.S. SENATOR FROM NEVADA

    Senator Rosen. Well, good morning, Mr. Chairman. Thank you 
for holding this important hearing today.
    I want to thank both our witnesses not just for being here 
but your thoughtful testimony so far. A lot of your work is 
what we need to learn from it and the lessons we take away.
    But I want to talk a little bit about the STEM workforce 
shortfall. You know, technology, of course, increasingly at the 
center of U.S.-China economic competition. So I think we can 
all agree that to boost our competitiveness with China, we must 
invest in the STEM-capable workforce.
    To continue being the most innovative country in the world, 
we need to maintain a workforce that can innovate, and the 
United States is expected to face a shortfall of nearly 3.4 
million skilled and technical workers in just a few years, by 
2022.
    A recent study found that less than half of the K through 
12 students are getting any cyber-related education. So to 
promote our STEM work force, I have introduced multiple 
bipartisan bills, ones that prepare Junior ROTC students for 
careers in STEM education.
    Excuse me. I had something caught in my throat right before 
I started. I apologize. I'm going to go right to my question.
    Mr. Wessel, in your testimony, you point out that the 
growing trade deficit with China has eliminated millions of 
American jobs in manufacturing and agricultural sectors, that 
these jobs have not migrated to other industries.
    What kind of programs do you think we should be investing 
in to better prepare our students to enter the work force?
    Mr. Wessel. Thank you for that excellent question and you 
are spot on in terms of the question of the need to invest in 
our children, our young adults, and our workers in terms of not 
just STEM but, of course, lifelong learning. We need to make 
sure that our workers have the skills to compete in the world 
economy.
    It also requires, though, that we fight more for some of 
those high-tech jobs, the new jobs of the future, whether 
they're in biotechnology or quantum computing or anything else, 
so that the investments that workers make in their own success, 
that families make in their students can achieve a good return, 
that they know that they have a bright future ahead of them.
    But without the skills, we don't have the critical input we 
need to succeed and every industry now is an advanced industry, 
whether it's agriculture, which, as you know, I was on farms in 
Iowa for a portion of last summer, you know, every tractor is 
high-tech, you know.
    When you look at any factory, there's computer-assisted 
support. You know, it's very different than the factories of a 
hundred years ago. We need to constantly upgrade our skills and 
STEM education is one of the key ingredients.
    Senator Rosen. I'm going to ask both of you. You know, 
China, of course, they prioritize STEM as a national security 
issue. They mandate its inclusion in primary school. They've 
launched an action plan, and the United States, in contrast, is 
mostly offering an approach that doesn't meaningfully include 
STEM. In a lot of ways, it doesn't include our nonprofits and 
it doesn't include our industry partnerships.
    So for both of you, how can we best help our states, our 
school districts, and our schools? What can we again invest in, 
public-private partnerships, government here with legislation, 
grants, and help? What can we do to create an action plan of 
our own and really support our school districts? That's where 
the learning's going to happen.
    Dr. Doshi, I guess we can start with you this time.
    Dr. Doshi. Thank you, Senator. I think that's exactly the 
right question and your diagnosis of China's advantages in STEM 
is exactly right.
    My belief in part is formed by the fact that our research 
and development spending has historically supported STEM 
research and education both. In fact, of course, at our 
universities, the funds that come from our Federal grant-making 
institutions when it comes to science and technology support 
professors. They support graduate students, and they can 
support them more effectively if we have more funds.
    But right now, of course, as many of us know, our research 
and development spending is .61 percent of GDP at the Federal 
level. That is, our Federal Government only spends .61 percent 
of GDP on science and technology research. That is far lower 
than at during any point during the Cold War.
    It's also interestingly to me lower than what we spent for 
Sputnik and Sputnik was, of course, what catalyzed our science 
and technology sector. So we're actually below what we were 
before Sputnik.
    There's a lot that we can do there, even a simple doubling 
which is a significant amount of money, but we only raise that 
amount to $200 billion compared to the several hundred that 
China's putting in would make it possible for us to better 
educate our population and do both good research at the same 
time. The two goals, in my view, are complementary, Senator.
    Senator Rosen. Well, I believe my time's expired, but I 
like to think of this as an investment. It has a calculated 
return and we can project the economic return by investing in 
STEM early at all levels, K through 12, universities. If we 
don't do it, we're going to be left behind.
    So I thank you both for being here today.
    Senator Sullivan. Thank you, Senator Rosen.
    Senator Capito.

            STATEMENT OF HON. SHELLEY MOORE CAPITO, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Capito. Thank you, Chairman Sullivan and Ranking 
Member Markey, for having the hearing today.
    As we know, this is a very complicated and ever-evolving 
relationship. Can you hear me OK there? I got a little feedback 
there.
    Senator Sullivan. We're good now. Thanks.
    Senator Capito. We're good. OK. Yes. It's complicated. In 
January, I was pleased that the Administration and Chinese 
officials raised the Phase 1 Trade Agreement.
    Commissioner Wessel, as you know, trade discussions remain 
ongoing between the United States and the U.K. Concerns have 
been brought to my attention that a heavily subsidized U.K. 
steel company was recently acquired by a Chinese steel 
manufacturer.
    China leads the globe in steel production and consumption 
and hurts our American products and continues to acquire and 
make direct investment in European countries, such as the one 
that I mentioned in the U.K.
    Has the Commission conducted any research into the impacts 
that China direct investment in the U.K. would have on our own 
domestic steel industry?
    Mr. Wessel. Thank you for that question.
    No, the Commission has not yet addressed that, but let me 
just point out quickly I also am the staff chair for the Labor 
Advisory Committee, which advises U.S. Department of Labor, and 
that issue has come up.
    The question of whether a Chinese state-owned entity, which 
has acquired, as you point out, the largest steel company in 
Great Britain, how that's going to be dealt with in the U.S.-
U.K. agreement, and our trade policies need to deal not only 
with what's happening in our own market, your state has been 
ground zero for much of this, but also what's happening with 
our partners, like the potential U.S.-U.K. agreement.
    Senator Capito. So let me just ask you this in terms of 
let's say take ourselves out of U.K. If we're negotiating other 
trade agreements, say, with India, and other countries, are we 
digging down to the passive ownership issue that, although I 
don't think there is passive ownership in the steel company in 
the U.K., but, I mean, is that something of concern whether or 
not--they're not the primary owner but we hear that they're 
funneling materials and other things through other countries. 
How do you address that issue?
    Mr. Wessel. Well, it is a fundamental problem and you're 
right, and it is a problem, I think, that's going to be of 
increasing importance. So thank you for raising it.
    How China invests around the globe, what they do to support 
those entities? So the U.K. or India, they may be providing 
either zero or no-cost financing. They may be providing inputs, 
like green pipe, which goes through only minor transformation 
in that country and then comes here and dramatically under-
prices our own firms.
    That has to be dealt with in these trade agreements. We 
cannot allow non-market activities that China seeks to export 
and create a platform in another country be used as a platform 
to undermine our interests.
    Senator Capito. Yes. I have great concerns about that on a 
lot of different products.
    I'm going to go to a different product that's applicable to 
West Virginia and that's our hardwood lumber and metallurgical 
coal industries.
    They've been very hard hit by the Chinese retaliatory 
tariffs in response to the Section 301 Investigation, but when 
the Phase 1 negotiations provided us positive news on both of 
those, but they're still not living up to their purchase 
agreements.
    Do you think that's tied to this overall economy or is this 
something that is consistent across all product lines, and what 
can I tell my hardwood and metallurgical coal folks to expect 
in the future whether they will live up to their purchase 
requirements?
    Mr. Wessel. Well, Senator, thank you for the question.
    I have to say I have to do a bit more research on those 
particular products and others where I've looked, for example, 
soy. We saw that China was actually buying soy from Brazil 
rather than from the U.S.
    Each product is different, but again, as I said earlier, 
and as the Chairman raised in terms of promise fatigue, we need 
to make sure that the promises made to the industries and 
workers in your state are kept. If not, that there is a swift 
and sure response.
    Senator Capito. Well, I think that's absolutely critical as 
we move forward, and I think that that's something certainly 
it's going to impact all different products all across the 
state.
    The last thing I would mention, and I don't know, this 
isn't part of trade, but it is something that we see popping 
up, recently in our state, two individuals who were tied to 
China were prosecuted for income tax fraud and other things, 
but they were heavily connected to Chinese universities and to 
China in general.
    I think that's cascading across the country as we look at 
what's happening in our universities and colleges. Is this part 
of what you look at or is that--am I out of your wheelhouse 
here?
    Mr. Wessel. We do look at that on both a classified and 
unclassified reporting scenario every year.
    Clearly, the FBI and other law enforcement as well as 
intelligence services have been diving much deeper over the 
last two or 3 years into the activities of individuals. We've 
seen it at various universities, as you point out, researchers, 
et cetera.
    Senator Capito. Right.
    Mr. Wessel. We need to have a much clearer understanding of 
what's going on.
    In my testimony, I talk about re-engaging between the FBI 
and our university systems so that they have a better 
understanding of what not only the rules are but what to look 
out for and we need to have a much more coherent strategy. Some 
of that's been done but much more remains to be done.
    Senator Capito. Yes. I am very supportive of that and the 
realization, too, that a lot of these things have been embedded 
for not just a couple of years but maybe even as many as 
decades.
    So thank you very much for your service, and thank you, Mr. 
Chairman, for the opportunity.
    Senator Sullivan. Thank you, Senator Capito.
    Gentlemen, I'm going to continue on. I think we have a few 
more Senators who are going to be attending this questioning of 
the first panel, but let me, in the meantime, ask a few follow 
up questions from this very interesting discussion.
    You know, of course, there are challenges, but in any 
relationship, if it's going to be sustainable, there are 
opportunities, as well, with regard to the economic 
relationship between the United States and China.
    We talked about the Trump Administration's Phase 1 approach 
with regard to trade and that was something that I was quite 
involved in trying to ensure that the President, the U.S. Trade 
Rep, the entire team was focused on many different sectors of 
the U.S. economy, including our fisheries sector, and that was 
something that I was very focused on.
    You know, Alaska is the super power of seafood, as I like 
to call it. Over 60 percent of all seafood harvested in the 
United States comes from Alaska's waters and we export a lot.
    So you may have seen when the President announced Phase 1, 
he did talk about the aspects of that agreement that include 
China's commitment to dramatically increase its purchases of 
American seafood, dramatically increase that. However, I worry 
again that we might be into another promise fatigue moment with 
regard to Phase 1.
    Can either of you talk about how we press as we're really 
in many ways re-evaluating the relationship but still look at 
opportunities for American workers, American fishermen, farmers 
to take advantage and benefit from the market? It's a balance, 
isn't that correct? I'll open that up to both witnesses.
    Mr. Wessel. Thank you for that question, and, Rush, I'll 
turn to you quickly.
    Look, seafood and----
    Senator Sullivan. I'm talking beyond seafood. I'm just 
talking about the market for American exports.
    Mr. Wessel. I understand. No, no, no. I understand, but, 
you know, I guess, you know, seafood has been under-appreciated 
and does deserve particular attention.
    As Chinese incomes have risen, the desire or the demand for 
sources of protein rises with income and so there are new 
markets for U.S. seafood. You're aware of not only all the 
products from your state but Maine has lobster and many others.
    You know, China has a critical problem in its fisheries 
area, primarily around seafood safety because of their factory 
farming techniques. As you're well aware, many of their 
shipments of seafood to the U.S. have been denied entry because 
of concerns about the safety and healthiness of their products.
    But China needs to understand that if it doesn?t open its 
market to our products, it's going to have an increasingly 
difficult time selling here to the U.S. and we need to work 
with our allies, as well, to make sure that they understand 
from your initial question that reciprocal market access has to 
be the approach that's taken with China when they so limit 
access to prefer their own companies. We need to take a 
responsive approach.
    Senator Sullivan. Thank you, Mr. Wessel.
    Mr. Doshi, you have a view on that? Just the opportunities 
that also exist exporting, balancing that with, of course, the 
many challenges?
    Dr. Doshi. Thank you, Senator, for that question.
    I agree very much with Commissioner Wessel that there are a 
lot of opportunities, particularly in some quantities where 
China has dependence on the United States--well, not 
specifically the United States but partial dependence on the 
United States, and, you know, if you look at China's food 
security, it's a major concern for party leadership.
    They'd like to be able to make sure they were more secure 
in every aspect of agriculture, which is why you see the party 
sometimes push to purchase overseas plots of land so they can 
sort of reimport that food back in and have stability.
    This is all a very long way of saying there are places 
where there are opportunities for us to export to them and it's 
in their interests to import, and I think that we'll be able to 
make progress on those if we're able to kind of speak in a more 
clear-eyed way about our trade disagreements.
    I would also argue, Senator, that, in addition to exports 
of commodities, there's also the question of, you know, more 
high-technology exports, finished industrial goods, et cetera.
    In those cases, we have a much more direct competition with 
China that it would be a little bit harder to work out specific 
areas of agreement, but again we see that China repeatedly asks 
for some American high-technology which we, you know, 
rightfully sometimes are unwilling to provide.
    So there are areas that we can make progress, but we'll 
have to be very careful about managing the risks and the 
rewards.
    Senator Sullivan. Great. Thank you very much for that.
    Senator Blackburn.

              STATEMENT OF HON. MARSHA BLACKBURN, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Blackburn. Thank you, Mr. Chairman, and I am so 
pleased that we are doing this hearing today, and I know that 
it is difficult many times for you all to join us virtually, 
but we do appreciate that you're doing that.
    Let me--I want to ask you all and this is a question for 
the panel. So I would appreciate that a response from each one.
    Looking at the budgets for R&D, as we talk about China, as 
we talk about great power competition, as we look at China and 
the fact that you never know where their commercial complex and 
their military complex begin and end, and China has 
traditionally brought about new products in their country not 
by innovation that is from them but what they do is to reverse 
engineer and to steal information and looking at what they've 
spent on R&D, 2000, they were not spending much on R&D at all.
    They have gone through some explosive growth with their R&D 
budgets, and in 2017, I was looking at what the commitment was 
from the U.S. for R&D and it was $549 billion and China spent 
$496 billion on R&D.
    So can each of you comment on the potential consequences 
that this will have as we look at the next century, as we look 
at great power competition, as we talk about their Digital Silk 
Road Initiative and their Belt and Road Initiative?
    I would like--and also as we talk about Huawei and 5G, 
which is another bucket of issues that is worthy of our time to 
discuss, but let's look at those R&D numbers and then I would 
like to hear from you all of your take on the consequences of 
these expenditures.
    Mr. Wessel. Rush, would you like to go first?
    Dr. Doshi. Sure. Thank you.
    I'll start, Senator, by saying that this is such an 
important question and it's one that I'm thinking about, as 
well.
    When we have R&D, we have, you know, the Federal component 
of R&D spending and there's also a business component. When we 
add those together, the U.S. and China are actually almost even 
according to some estimates, even though China has a much 
smaller--well, not a much but a smaller economy, they're still 
pulling even with us on total R&D spending which is concerning.
    When you look at simply the government component and in our 
system, the government component, of course, supports research 
but also supports STEM education as well as labs that do a wide 
variety of different things, some commercial, some basic 
science.
    Our Federal component has been, you know, essentially 
falling as a percentage of GDP for a long time and right now 
it's at the lowest level in almost 60 years, certainly one of 
the lowest levels, whereas China sees that and thinks the 
United States had a great R&D system during the Cold War, let's 
emulate that.
    So in many ways, China looks at our successes and says we 
should do a little bit more of what the United States does. The 
United States forgets some of its successes and stops doing 
what it used to do so well.
    So I'm very concerned about our R&D spending and I think 
it's an area where we could--or even relatively small sums of 
money increases could actually make an enormous difference.
    Senator Blackburn. Let me ask you this just to add on to 
that.
    Dr. Doshi. Yes, Senator.
    Senator Blackburn. If you would address where are they 
primarily focusing their R&D or do you know? Is it intel 
communications? Is it in super computing? Is it in artificial 
intelligence? What is gaining their attention?
    Dr. Doshi. Thank you, Senator.
    There's a lot of opacity about specifically where all the 
R&D funds go. We have some big numbers, though, and some party 
documents suggest where the numbers can't give us the answer, 
the documents sometimes indicate that a lot of that investment 
or, rather, R&D spending is going to the technologies of the 
so-called Fourth Industrial Revolution. So that includes many, 
Senator, of the ones you mentioned.
    Artificial intelligence is probably at the top of the list. 
Smart manufacturing is very high up there. Telecommunications 
is very high, $1.4 trillion just allocated to build out a 
telecom 5G across all of China.
    So it's many of these extraordinarily advanced sectors 
where R&D is going and there are many of them are identified in 
China's Made in China 2025 Plan which targets 10 specific 
sectors for R&D spending and for state support, but I can work 
with your staff and get you more specific answers after the 
hearing.
    Senator Blackburn. We would appreciate that. We're very 
concerned about the national labs and the focus that is there 
with our national labs. Of course, in Tennessee, we have Oak 
Ridge. We have the world's fastest computer. We are looking at 
those applications to hypersonic 21st Century warfare, 
artificial intelligence, autonomous vehicles. So additional 
information would be appreciated.
    I yield back.
    Senator Sullivan. Senator Blumenthal.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thanks, Mr. Chairman, and thanks to 
both of the witnesses who are here today.
    This morning, Senator Hawley and I are sending a letter to 
the Department of Justice requesting a national security 
investigation into Zoom and TikTok. As tens of millions of 
Americans turn to both Zoom and TikTok, few of them know that 
they are vulnerable to surveillance, data harvesting, and 
censorship by the Chinese Government.
    There are now a number of reports that Zoom and TikTok 
engaged in censorship on behalf of the Chinese Government. 
Those reports are reliable and they are truly alarming. For 
example, in early June several Chinese pro-democracy advocates, 
including a prime dissident based in the United States, were 
suspended by Zoom following a demand by the Chinese Communist 
Party.
    What were their crimes? Holding a peaceful commemoration of 
the Tiananmen Square Demonstrations on Zoom.
    Senator Hawley and I, along with other Members of Congress, 
have repeatedly sought answers from both companies about who 
has access to the personal data of American users and how 
decisions about content moderation are made? TikTok and Zoom 
have utterly failed to answer even the most basic questions 
about their business operations. In the case of the Tiananmen 
vigil, Zoom has still failed to answer the question of whether 
it turned over information to the Chinese Government about 
people who attended that meeting and that failure, among 
others, simply supports the request we've made for an 
investigation by the Department of Justice.
    So my question to both of you is do you agree with me that 
reports about Zoom and TikTok censoring, collecting 
information, disclosing information to the Chinese Government, 
based on requests from that government, are alarming and merit 
investigation?
    Mr. Wessel. Thank you for that question, Senator, and thank 
you for your leadership along with Senator Hawley on this and 
others.
    The fact is this is a critical issue. We have seen it not 
only with these two platforms but others, putting the very 
lives of citizens at risk, as well as our own economic and 
intelligence and security interests. So what you're doing is 
critical.
    For me, I, quite frankly, don't trust the answers of those 
companies because Chinese basic law requires--their national 
security law requires that any Chinese firm hand over when 
requested the information that the government requests. We have 
seen over many years, you know, criticisms of the security and 
confidence we can have of Chinese-based platforms and 
equipment, Huawei, TikTok, and others, as you note, and time 
after time, we have seen both from law enforcement and the 
intelligence community but also the private sector continuing 
cyber intrusions, the lack of security, the espionage, the 
shipment of data through multiple hacks of U.S. citizens, that 
for the weegers, for those of the Falun Gong, for those in Hong 
Kong and many others, their very lives are put at risk.
    Senator Blumenthal. Thank you, Mr. Wessel.
    Mr. Doshi.
    Senator Markey. Thank you, Senator, for your leadership on 
this.
    I just wanted to add, if I may, that the Chinese Communist 
Party, as a form of propaganda, has a form of discourse on how 
it feels about social media platforms and instruments like 
them, and it argues clearly that the party needs to control 
those platforms because if it doesn't, it's simply going to be 
an information content provider. It's not sufficient to simply 
put out propaganda. You need to actually control platforms 
themselves to shape public opinion and so part of my concern 
with TikTok in particular isn't simply via information that 
might be stolen but also the possibility for electoral 
interference should TikTok even become more central to 
elections than before as it becomes a more popular social media 
platform.
    Senator Blumenthal. Thank you both for your comments.
    I think there is really strong bipartisan agreement that 
the United States needs to protect our privacy and our 
liberties from this kind of invasive and potentially illegal 
action.
    The Committee on Foreign Investment in the United States, 
CFIUS, is currently considering new conditions and how 
Bytedance operates TikTok, but so far this government has 
failed to act to protect Americans and that's why I believe 
that investigation by the Department of Justice and action is 
necessary, and I'm so glad that you are supporting it and I 
hope we can have action by this committee, as well.
    Thanks, Mr. Chairman.
    Senator Sullivan. Thank you, Senator Blumenthal, and thanks 
for your work on these important issues, as well.
    I agree with you. The vast majority of this is bipartisan 
and I think we need to keep it that way because this issue is 
too important for the future of our own nation to have it turn 
into a partisan issue.
    So I want to ask the witnesses, as we get ready for our 
second panel, I was asked to give a speech at the Heritage 
Foundation last year, last September, and I entitled the 
speech, ``Winning the New Cold War with China and How the 
United States Should Respond.''
    I emphasized five areas of response that I thought could 
gain bipartisan support, but we've talked about a number today, 
but I'd like each of the witnesses to just comment on these and 
what you see as important elements of a strategy, and I'm sure 
we are missing things in a broad-based U.S. strategy. What 
would those be?
    I'm going to also submit this speech for the record. 
Without objection.
    [The information referred to was unavailable at time of 
printing.]
    Senator Sullivan. But the focus that I had in my remarks 
last year were, as we talked about, demanding reciprocity, 
we've already talked about this next one, reinvigorating 
American competitiveness to outcompete China, rebuilding our 
military strength and capability, have not talked about that, 
deepening and expanding our global network of alliances, we 
have talked about that, and, importantly, and I think it was a 
critical element of winning the Cold War, employing our 
democratic values as a comparative advantage in countering 
China's global authoritarians influence.
    I think all authoritarians at the end of the day fear their 
own people and just look at what's going on in Hong Kong and I 
think that this is an enormous comparative advantage we have. 
It's certainly benefited us during the long twilight struggle 
of the Cold War with the Soviet Union who also feared their own 
people.
    Would you gentlemen care to comment on any of those key 
aspects of a strategy, and what do you think we're also 
missing?
    Mr. Wessel. Senator, thank you for the question. Thank you 
for the leadership on looking at this across the various 
platform sectors of policy that are critical.
    I think you've hit all the major areas and appreciate that 
and they all need to be dealt with at the same time with an 
understanding or a public understanding of what a clear, 
comprehensive, and consistent policy is. The fact is that we 
failed on the last point to identify consistency to the Chinese 
at times, also to our business community and our people, so 
that they know what our plans are, what our red lines are, and 
what our objectives are.
    So in each of the areas you identified, we need to be even 
clearer. We need to have more comprehensive identified plans of 
what the limits are, what our plans are as has been noted from 
your colleagues, everything from STEM education to dealing with 
the surveillance platforms, et cetera, so that China 
understands what we view as acceptable and unacceptable 
behavior, and again sees a quick and fairly automatic response 
when those lines are crossed.
    Senator Sullivan. Thank you.
    Mr. Doshi, you have any views on that?
    Dr. Doshi. Thank you, Senator. I do, and I thank you for 
your leadership and I remember your speech and I very much 
agree with those five areas of focus. I think it's extremely 
comprehensive.
    I would only add to them a very small point, which is 
simply that this will be a long-term competition. It will 
continue for many years to come, as you mentioned, Senator, at 
the beginning, and I wanted to ask that, you know, or, rather, 
indicate that I think it's important for there to be public 
support for this approach going forward, as well, and that will 
take, of course, your leadership as well as there should be a 
consistent approach across Administrations and that will often, 
I think, be housed within Congress and I'm inspired by the fact 
that there has been so much bipartisan cooperation from FERMA 
to deal with Chinese predatory finance, from The BUILD Act to 
deal with Belt and Road, and the recent Acts on Hong Kong and 
review of human rights, and all of that to me indicates that 
there is a greater consensus which is going to be the bedrock 
for any sustainable grand strategy going forward.
    So I'll just simply leave it there, that I think the most 
important thing will be having a consistent grand strategy over 
time that takes those five areas and make sure that we continue 
to make progress in each of them in a systematic way.
    Senator Sullivan. Kind of like the strategy of containment 
which defined our relationship with the Soviet Union. It was 
very bipartisan, consistent over decades, and it ended up 
successfully winning the Cold War, correct?
    Dr. Doshi. Yes, absolutely, Senator. That's exactly what 
I'm thinking about, the kind of consistency of strategic 
purpose that we've sometimes marshaled in the past will need to 
be again marshaled in the present, and it will take multiple 
parts of society and will have to have business onboard, the 
public onboard, and, of course, consistent bipartisan 
leadership, which we in many ways already have.
    Thank you.
    Senator Sullivan. Great. Let me ask one final question 
before we turn to our next panel.
    Both of you have testified about the importance of securing 
our supply chains. In the National Defense Authorization Act, I 
was proud to have a provision included--there was a very strong 
bipartisan vote just last week on that bill that passed the 
Senate--on critical minerals which we rely on way too much with 
regard to China and yet we have in our own nation, certainly 
have in my great state, the great state of Alaska, where we can 
mine and process and produce these in a much more 
environmentally responsible way than the Chinese do and yet we 
continue to rely on China's rare earth elements and other 
things.
    Of course, the supply chains, there has been a big focus 
with regard to medicines, with PPE, given the pandemic. The 
Republican HEALS Act that we are debating now and hopefully 
we're going to have some compromises with our Democratic 
colleagues to get to some additional relief for the American 
people during this pandemic, again broad bipartisan support, I 
believe, in some of the issues that we're discussing today, but 
on making sure that we're not relying on China for medicines, 
for PPE, for semi-conductors, for critical minerals.
    There's a lot of legislation. Like I said, my provision in 
the NDDA passed a bill that Senator Murkowski and I have co-
sponsored is in the current version of the bill that we're 
debating and trying to move forward in the Senate now on 
critical minerals.
    Can you two talk briefly about the importance and the long-
term importance and benefit to America of securing our supply 
chains in a way where we're not so vulnerable to China, where 
enhanced manufacturing can help our workers? To me, it's a 
silver lining of this pandemic that we're already starting to 
see bipartisan legislation on and I think we need to continue 
it.
    Mr. Wessel. Thank you, Senator, for your leadership with 
NDDA and with other actions that you and the Committee have 
taken, as well.
    The fact is that I think the American public has woken up 
because of the pandemic as to our dangerous dependence and 
reliance on China. China, as you well know, going to the rare 
earths, which your state and several others have deposits of, 
has shown its willingness to weaponized supply chains to 
achieve its goals. It did that with Japan with rare earths. 
It's done it otherwise and as we also saw with this pandemic, 
it used PPE as a diplomatic tool to try and gain access and 
concessions from many of our allies.
    The fact is we do have the ability to reclaim many of these 
supply chains if we have a concerted plan in rare earths. We 
have the ability to have a fully mines-to-magnets strategy. We 
used to produce rare earths here not only at a facility in 
California, but we also had in Indiana, a magnet quench which 
did the smelting and the production of magnets.
    In 1996, as you know, we sold that facility to the Chinese. 
I believe that was short-sighted and Chinese predatory 
practices put the California mine into bankruptcy.
    We have to make clear what our long-term needs are, what 
the key to our economic success and our technological and 
military competitiveness, and we need to invest and ensure that 
we have the ability to meet our needs with allies at times but 
clearly meet our needs where the interests of the American 
public are paramount.
    Senator Sullivan. Thank you very much for that, Mr. Wessel. 
Excellent answer, and your service on these issues is very 
commendable.
    Mr. Doshi, final question.
    Dr. Doshi. Thank you, Chairman.
    I wanted to add to Mr. Wessel's excellent point just a few 
thoughts. It's clearly the case that China recognizes it has a 
nodal position and General Secretary Xi Jinping wants to keep 
that nodal position. So we're going to have to work against 
those efforts. It will be a long-term competition to sort of 
diversify the supply chains.
    There are indications, of course, that Chinese media has 
suggested that we face repercussions for some of our political 
stances when it comes to PPE export, rare earth export time and 
again. That's been hinted at in official and unofficial levels. 
So we need a different approach and what concerns me the most 
would be that we're not always sure exactly where we're 
vulnerable to Beijing.
    So we need some kind of entity that I think can more 
effectively audit the entirety of our supply chain, at ties 
perhaps even stress test certain companies the same way we 
stress test financial institutions, and build institutionalized 
knowledge about the nature of those interconnections, and I 
think if we have that, we'll be in a better position to 
compete, not just know where things are going off the track but 
also think a little bit more effectively about how the whole 
global economy fits together around China and where we can put 
our efforts.
    The last item I'll say here is, Senator, just that Taiwan 
has been very inspiring in this regard. They've been very 
successful with over $30 billion in reshoring and I think we 
can learn a little from some of those approaches.
    Senator Sullivan. Well, thank you for that very detailed 
and wise answer.
    I want to thank our witnesses again. I think this is 
exactly what we need not only in the Senate but with regard to, 
as you mentioned, the American public. There is growing 
bipartisan support, you saw it in the strong participation of 
numerous Senators on both sides of the aisle, in this first 
panel, and expertise, and I want to thank both of the witnesses 
who showed very strong expertise and insights on what I believe 
is going to be an issue that is really at the forefront of 
American domestic and foreign policy for the next 50 to a 
hundred years, and we need to wake up to it, we have, and we 
need to address it and execute it in a bipartisan way and I 
think we are and that's an important beginning, but again to 
our first panel of witnesses, thank you again.
    I'm sure there are going to be additional questions for the 
record and you are now excused.
    [Panel Excused.]
    Senator Sullivan. We are going to turn to the second part 
of our hearing today, and I'm very pleased to actually have in 
the Hearing Room two senior Administration officials who can 
talk more specifically with regard to the policies that the 
Trump Administration is not only formulating but beginning to 
implement and that is Mr. Keith Krach, who is the Under 
Secretary of State for Economic Growth, Energy, and the 
Environment, and has been given a very important role in the 
Executive Branch on the development and implementation of 
America's U.S.-China strategy, particularly as it relates to 
the Economic and Geostrategic Realm, and the Assistant 
Secretary for Industry and Analysis from the U.S. Department of 
Commerce, Ms. Nazak Nikakhtar, and she is also an expert in 
this area.
    So I want to welcome them physically here to the Committee 
and, Secretary Krach, the floor is yours. You will have a 5-
minute opening statement and your longer written statement will 
be submitted for the record, if you so desire.
    Mr. Secretary, welcome.

 STATEMENT OF HON. KEITH KRACH, U.S. UNDER SECRETARY OF STATE 
             FOR ECONOMIC GROWTH, ENERGY, AND THE 
             ENVIRONMENT, U.S. DEPARTMENT OF STATE

    Mr. Krach. Great. Well, thank you, Chairman Sullivan and 
Ranking Member----
    Senator Sullivan. You need to turn your mic on.
    Mr. Krach. Thank you, Chairman Sullivan and Ranking Member 
Markey and Members of the Subcommittee on Security. I 
appreciate the opportunity to discuss the China Challenge 
because it's at the epicenter of the economic security threat 
landscape.
    Last week in his landmark speech, Secretary Pompeo said, 
``Today, we are sitting wearing our masks and watching the 
pandemic's body count rise, reading new headlines every day of 
repression in Hong Kong and Xinjiang, seeing staggering 
statistics of Chinese trade abuses, watching the Chinese 
military grow stronger on the back of stolen American clean 
innovation.''
    I've experienced the CCP's economic warfare firsthand. I 
grew up in small town Ohio where my father ran a five-person 
machine shop and I saw China wield its weapons of mass 
production gutting my father's shop. His pain was not lost on 
me.
    I went on to be a Vice President of General Motors where I 
learned when you build a plant in China, you get access to 
their market. You don't just give them the blueprints, you give 
them the process engineering and train their labor force.
    I spent the rest of my career in Silicon Valley where I had 
my intellectual property ripped off and I saw firsthand China's 
strategy of seducing with money while reinforcing with 
intimidation and retaliation.
    I started the world's first B2B commerce company called 
Ariba. It's now the largest. Seven trillion of commerce was 
conducted over the Ariba network last year, and I remember in 
the late 1990s we welcomed Chinese visitors to our headquarters 
only to have them clone one of our concepts. That company was 
Ali Baba.
    A couple of years ago, while running DocuSign, I spent two 
weeks in China exploring what I thought might be market 
opportunities. I've been going there since 1981, but this time 
it was different. I met with Politburo members who spoke so 
passionately about their grand strategy for global domination 
and I saw how cleverly they depositioned the United States.
    Then I got an in-depth look at their technology. That's 
when it hit me. As soon as I got back, I went to Washington and 
spoke to anyone who would listen and asked, ``do you understand 
the country with the best technology usually wins?'' And that's 
when I was asked to serve and that's why I'm here today because 
of the China Challenge.
    My first week on the job, Secretary Pompeo gave me the 
charge to develop and operationalize a global strategic plan 
that maximized national security, combats Chinese economic 
aggression.
    The strategy we've developed consists of three pillars. The 
first is to turbo-charge economic impediments by driving 
productivity and prioritizing 10 emerging technology key areas 
that are critical to economic growth and security, such as 5G 
and semi-conductors.
    China is also gunning for the lead in each of these as we 
speak. I can tell you the Communist Party's biggest fear is the 
United States would have a Sputnik moment.
    The second pillar of the strategy is safeguarding America's 
assets, including our intellectual property, financial system, 
and core freedoms. Securing these will require the U.S. and 
partners to demand reciprocity, transparency, and enforcement 
of laws.
    We must also understand they've used our assets against us, 
including our openness and our values. We must view every 
Chinese action with skepticism. As Secretary Pompeo recently 
said, ``Distrust and verify.''
    The next part of the plan turns the table on the CCP by 
reclaiming our core freedoms as our strength. We will answer 
Secretary Pompeo's call to build a new alliance of democracies 
to oppose China.
    We would envision this to be comprised of like-minded 
countries, companies, and civil society that operate under a 
set of trust principles for all areas of economic collaboration 
and those trust principles are American values, things like 
integrity, accountability, transparency, reciprocity, respect 
for Rule of Law, respect for property of all kinds, respect for 
sovereignty of nations, respect for the planet, respect for 
human rights.
    When I talk to my counterparts from other countries about 
this concept, their reaction is it's about time. We've been 
waiting for an alternative, as one of the Southeast Asian 
nations said, to China's One Belt One-Way Toll Road to Beijing.
    The new alliance of democracies represents a unifying and 
equitable clean alternative.
    Speaking of the clean, let me update you on the State 
Department's Clean Campaign which is unlocking a global 
movement.
    Secretary Pompeo also said last week, ``We've urged 
countries to become clean countries so that their citizens' 
private information doesn't end up in the hands of the Chinese 
Communist Party,'' and it starts with the 5G Clean Network.
    For years, the CCP has strong-armed nations to purchase 
Huawei's 5G infrastructure. Huawei is the backbone of CCP's 
surveillance state and extends the great one-way China firewall 
where data comes in but not out and reciprocally propaganda 
goes out but the truth does not come in.
    The State Department is leading by example through our 5G 
Clean Path Initiative which requires all data entering or 
exiting U.S. diplomatic facilities to transit only across 
trusted equipment.
    We're making a difference and encouraging our partners to 
join the 5G Clean Path and turning the tide against Huawei and 
toward clean vendors.
    As a result, Huawei's deals are evaporating. You saw it 
earlier this month with the U.K. and last week with France. 
There are now about 35G clean countries and many of the most 
largest telco companies have become clean telcos, also 
recently, Telco Italia, Telefonica, the top three telcos in 
Singapore, and the top three telcos in Canada.
    So the Clean Campaign's been so successful that we're 
preparing to expand it beyond just clean networks and to clean 
systems, including clean apps, clean store, clean cloud, clean 
cable, and even clean currency.
    It's also important to have clean supply chains with clean 
labor. Recently, the State Department joined other agencies to 
issue a business advisory regarding supply chain exposure to 
entities engaged in forced labor and other human rights abuses 
in Zhing Zhang.
    As I said in a follow up letter to all U.S. CEOs and their 
boards, I said, ``Your institutions have a moral 
responsibility, perhaps a fiduciary duty, to establish clean 
governance principles and divest from companies that contribute 
to human rights abuses.'' They should at a minimum disclose the 
Chinese companies they invest in.
    Soon, President Trump's Working Group on Financial Markets 
will make recommendations to the President on the transparency 
of Chinese public companies to enhance investor protections and 
ensure American exchanges remain the gold standard for the 
world.
    So, Senators, in conclusion, tackling the many facets of 
the Chinese Challenge require all three branches of the 
government, our powerful private sector, and as Secretary 
Pompeo said, ``A new alliance of democracies.'' America's 
moment is now to choose a path, a clean path to the future for 
the sake of our children and our grandchildren.
    Thank you very much, and I look forward to your questions.
    [The prepared statement of Mr. Krach follows:]

 Prepared Statement of Hon. Keith Krach, U.S. Under Secretary of State 
 for Economic Growth, Energy, and the Environment, U.S. Department of 
                                 State
Introduction
    Good afternoon Chairman Sullivan, Ranking Member Markey, and other 
esteemed Members of the Subcommittee on Security. It is a pleasure to 
be here with you today and I very much appreciate the opportunity to 
discuss the State Department's role in addressing economic security. 
Now more than ever, as we live through this time of incredible 
uncertainty, the economic security challenges facing our Nation are 
acute and worthy of a robust, whole-of-government response. The China 
challenge sits at the epicenter of the economic security threat 
landscape.
    On July 23, in a landmark speech at the Nixon Library, Secretary 
Pompeo delivered a summary indictment of the Chinese Communist Party 
(CCP). As he said, ``Today we sit wearing masks and watching the 
pandemic's body count rise, reading new headlines every day of 
repression in Hong Kong and Xinjiang, seeing staggering statistics of 
Chinese trade abuses, watching the Chinese military grow stronger on 
the back of stolen American innovation.''
    I have experienced the long reach of Beijing firsthand, starting 
when I was growing up in small-town Ohio, where my father ran a machine 
shop. My dad's customers were suppliers to the big three car companies 
in Detroit, and his fortunes were tied to theirs. As China offered 
cheap and subsidized labor--its ``weapons of mass production''--
manufacturing was shipped overseas, and many of my dad's orders dried 
up. I saw him go through the agonizing process of laying off trusted 
employees. His pain was not lost on me.
    I went on to be a vice president of General Motors, where I saw the 
same story play out from a different angle. I saw the lust over China's 
cheap manufacturing capabilities. And I saw the fallout: When you build 
a plant in China, you don't just give them your blueprints, you give 
them the process and engineering skills they need to steal your design 
and create it for themselves.
    I spent the rest of my career in Silicon Valley, where I went on to 
start the world's first business-to-business e-commerce company called 
Ariba in 1996. We took it public and $7 trillion of commerce was 
conducted over the Ariba network last year. In 2009, I became CEO and 
Chairman at a 50-person company called DocuSign that had a simple dream 
of automating the signature process. After recently completing 10 years 
there, it is now a $40 billion public company and recognized worldwide 
for its transformative impact on the way business is done.
    But in Silicon Valley, the CCP's economic weapons were aimed right 
at us: including widespread theft of intellectual property and 
predatory joint ventures. Two years ago, I traveled to China to explore 
market opportunities. I heard five of the top seven Politburo members 
speak about China's plans for the future, and I saw their technology. 
As soon as I came back stateside, I went to Washington and spoke to 
anyone who would listen. I said, ``Do you understand that the country 
that has the best technology usually wins?'' And that's when I was 
asked to serve. It has been the privilege of my life.
    During my confirmation hearing, I stated that ``I fully appreciate 
the enormity and gravity of this role, especially in a time where the 
reality we face as a nation is one of ever-increasing cyber warfare and 
seemingly ceaseless variations of intense, perhaps even weaponized, 
economic competition.''
    I also said, ``It is comforting to know that both sides of the 
aisle understand that China is playing the long game, and they are 
playing for keeps--a four-dimensional game of economic, military, 
diplomatic, and cultural chess with little respect for human rights, 
intellectual property, rule of law, transparency, the environment, or 
the sovereignty of other nations.''
    During the hearing, when asked how I would accomplish my 
objectives, I said ``my focus would be on embracing this opportunity 
and harnessing three powerful areas of competitive advantage: 
strengthening our partnerships with friends and allies, leveraging the 
innovation and resources of the private sector, and amplifying the 
moral high ground of our American values and enduring optimism to 
advance peace and prosperity for our country and for the world.''
    My life's work has been focused on creating innovative companies 
and transformative social causes by building high-performance teams 
that challenge the status quo. I believe the team with the best people 
wins and that diversity of thought on any team is the catalyst for 
genius.
Framing Global Economic Security
    My charge at the State Department, which Secretary Pompeo gave me 
in my first week, is to develop and operationalize a framework for 
global economic security combats the PRC's economic aggression, drives 
economic growth, maximizes national security, and advances peace and 
prosperity. It's been my honor to work with many in Congress to shape 
this strategy.
    As the President has often stated, economic security is national 
security. We live in a world of determined competitors, asymmetric 
threats, and networked technology. I have heard the same sentiment from 
Congress and leaders in the private sector. Most importantly, I hear it 
from my international counterparts.
    Last year, Congress passed the bipartisan Championing American 
Business Through Diplomacy Act, which bolsters U.S. business 
competitiveness abroad. It does so by empowering the Department of 
State to now work alongside the Department of Commerce to coordinate 
interagency efforts to leverage our diplomatic missions to promote U.S. 
economic and business around the world. The bill is aimed at countering 
China's economic aggression by promoting U.S. business values that 
reflect high quality standards, transparency, and agility in adapting 
to the unique demands of individual foreign markets.
    Adveraries and strategic competitors, such as China, are targeting 
our national assets with a range of malign practices including theft, 
deception, unfair trade practices, intimidation, financial seduction, 
frivolous litigation, cyberattack, forced technology transfer, 
propaganda, corruption, coercion, and retaliation. Securing America's 
assets requires the U.S. private and public sectors to continue to work 
with like-minded nations and demand reciprocity, transparency, and 
solidarity.
    We must continue to work with allies and friends to halt China's 
aggression. It's about viewing every PRC action, whether an investment 
in an American firm or the opening of a new Confucius Center at an 
American university, with appropriate skepticism. As Secretary Pompeo 
noted in July, President Reagan's Cold War mantra of ``trust but 
verify'' doesn't apply here. When it comes to the CCP, we must 
``distrust and verify.''
    Our strategy for advancing global economic security and combating 
China's economic aggression has yielded results. To give you a sampling 
of the breadth and the depth of our efforts, I am highlighting our work 
in the following six areas: 5G, semiconductors, supply chains, 
institutions of higher learning, the One Belt One Road, and the 
environment.
5G Networks
    5G and 6G will be cornerstones of our economies and societies in 
the future. Many aspects of our lives will flow over these networks, 
which is why it is critical to secure them--and why the design, 
development, and control of such technology, in the wrong hands, they 
can be incredibly dangerous.
    The CCP is posturing to leverage 5G-enabled technology to create 
and export George Orwell's version of ``1984'' into the 21st century, 
with an all-encompassing web technologies that can be exploited for 
information gathering and surveillance. Huawei is the backbone of the 
CCP's surveillance state and extends the great one-way China firewall, 
where data comes in but not out and, reciprocally, propaganda goes out, 
but the truth doesn't come in.
    For years, the CCP has strong-armed nations to purchase Huawei's 5G 
infrastructure and services. Untrusted, high-risk vendors like Huawei 
and ZTE provide the CCP's authoritarian government the capability to 
weaponize critical applications, information, and infrastructure, and 
to provide technological advances to China's military forces. Huawei is 
also on the Commerce Department's Entity List for engaging in 
activities contrary to the national security and foreign policy 
interests of the United States.
    It should surprise no one that Huawei is under indictment in the 
United States for bank fraud, wire fraud, conspiracy, violating 
sanctions, racketeering, and misappropriating intellectual property 
from six U.S. tech companies. And we know that it deploys these same 
tactics in Europe and wherever else it can get a foothold.
    To turn the tide, on April 29, 2020, Secretary Pompeo announced 
that, in response to requirements in Section 889 of the 2019 National 
Defense Authorization Act, the State Department will require a Clean 
Path for all standalone 5G network traffic entering and exiting U.S. 
diplomatic facilities at home and abroad. 5G Clean Path is an end-to-
end communications path for our diplomatic facilities that does not use 
any transmission, control, computing, or storage equipment from 
untrusted vendors. The Department of State has asked other countries to 
join us in requiring a 5G clean path for their overseas diplomatic 
facilities.
    Further, we our working to infom international partners and allies 
on the risk posed by untrusted information and communications 
technology and services (ICTS), and convince them to join our effort to 
address these risks through collaborative action. To that end, we 
conducting international outreach, describing existing U.S. actions and 
efforts, and encouraging foreign partners to take similar actions to 
secure their ICTS ecosystem, while maintaining an open and fair market 
for products and services from U.S. and trusworhty international 
technology vendors.
Semiconductors
    In the face of a newly aggressive and technologically empowered 
China, the United States urgently needs similar success in 
semiconductors. A recent onshoring win of TSMC was a good first step 
for us, but there's more work to be done.
    Semiconductors enable thousands of products and functions--from 
cell phones to automobiles to 5G to artificial intelligence, along with 
a litany of activities crucial to our national security. American 
companies invented semiconductor technology and are leaders in its 
design and development and are still global leaders in this area, yet 
our output lags behind China, Taiwan, and South Korea, in semiconductor 
manufacturing. We now produce only 12 percent of the world's chips, 
half of our share of 24 percent in 2000. China now produces 19 percent 
of global output, up from only 2 percent in 2000.
    China shows no signs of stopping its pursuit of this economic and 
national security imperative. China's intentions of technological 
supremacy are documented in its Made in China 2025 plan: It's using all 
of its tools of national power--including below-market lending and 
equity, direct grants, tax concessions, and industrial and scientific 
espionage--to dominate this critical global industry. It has already 
invested $60 billion to develop an indigenous semiconductor industry, 
with plans to invest another $100 billion over the next 10 years.
    Chinese leaders understand that, as steam and steel were the 
guarantors of economic and military strength in the 19th century and 
the atom in the 20th, so will silicon be in the 21st. They understand 
that a country that can't produce its own semiconductors can't defend 
itself. And that is precisely the risk to the United States if our 
technological dominance is eclipsed by Communist China. Further, as we 
learned from recent shortages in the wake of COVID-19, there are risks 
to relying on supply chains for critical products that are largely 
manufactured in one country.
    That's why we worked to secure a new commitment from the world's 
leading semiconductor manufacturing companies to open the most advanced 
chip factory in the United States. Taiwan Semiconductor Manufacturing 
Company (TSMC) which, along with Samsung, is one of only two companies 
capable of producing cutting-edge five-nanometer chips, has announced 
plans for a cutting-edge facility in Arizona.
    This facility will boost American competitiveness by ensuring that 
the United States will have the capability to produce the chips 
powering everything from 5G base stations to smart phones to F-35 
fighter jets. It will also create tens of thousands of new U.S. jobs, 
both in the semiconductor industry and throughout the high-tech supply 
chain.
    The TSMC plant is a tremendous step to jumpstart a new era of U.S. 
high tech leadership, but we must keep moving with speed and purpose to 
create a level playing field for American tech leadership to thrive.
    New Federal incentives should be made available to any company, 
domestic or foreign, that would undertake such a project anywhere in 
the United States.
    These initiatives will enable the United States to build 
semiconductor manufacturing capacity, and in turn generate a domestic 
supply chain for materials, equipment, parts, components, and services. 
For example, when TSMC completes the construction of its planned 
facility in Arizona, eight major suppliers plan to open new operations 
here. If other companies replicate TSMC's decision, it will create the 
ecosystem we need to maintain and grow our U.S. leadership in this 
critical sector.
    The U.S. commercial space industry has demonstrated that our Nation 
can overcome even the most daunting challenges. Success in 
semiconductors is measured in nanometers, not miles. By restoring 
America's rightful place in leading a semiconductor manufacturing 
capacity, we will create greater security and more jobs for our 
citizens. We will secure an American legacy of innovation that has made 
us the most prosperous nation in history.
Supply Chains
    In a recent letter to U.S. business leaders, I asked corporate 
boards to keep their supply chains clean from any of the human rights 
abuses in Xinjiang, including forced labor. We are asking financial 
institutions, pension funds, index funds, and university endowments to 
keep their investments clean and free from Chinese companies that 
violate human rights, profit from forced labor, build advanced 
weaponry, or contribute to the erosion of Hong Kong's autonomy and 
freedoms.
    Up to this point, the CCP has concealed the forced labor and other 
human rights abuses in Xinjiang and beyond that serve American 
companies all over China. What makes matters worse is that the average 
U.S. investor in companies that do business in China has been 
unknowingly supporting the CCP's authoritarian machine. And American 
technology has been transferred to, bought, or stolen by the CCP to 
create a dystopian surveillance state that history's most repressive 
dictators could have only dreamed of.
    Addressing these critical challenges starts with the most 
fundamental business principle: transparency is visibility, and 
visibility is accountability.
    To help shine the light of transparency, the State Department 
joined the Departments of the Treasury, Commerce, and Homeland Security 
on July 1 to issue a business advisory regarding potential supply chain 
exposure to entities engaged in forced labor and other human rights 
abuses in Xinjiang. This is a start, particularly when coupled with the 
addition to the Commerce Department's Entity List of 48 PRC 
institutions and financial sanctions on persons involved in human 
rights abuses.
    As I said in my follow up letter to CEOs all across our country, 
the boards of their institutions have a moral responsibility and 
perhaps even a fiduciary duty to ensure the institutions divest from 
companies that contribute to human rights abuses, and to establish 
governance principles that prevent these investments going forward. 
Pension funds, university endowments, mutual funds, insurance 
companies, venture capital firms, institutional investors, and 
particularly emerging index funds should, at a minimum, disclose to 
their constituents the Chinese companies they invest in.
    However, the biggest ``difference makers'' in ending human rights 
and labor abuses like the ones in Xinjiang are every day citizens. At 
the end of the day, the American people are accountable, and they have 
more power than they think. As my 94-year-old mother says, ``If it is 
to be, it is up to me.''
    How? If they have a pension plan, if their brokers invest in an 
emerging index fund, if their universities have an endowment fund, if 
they invest in a mutual fund, ETF, private equity or venture fund, 
every day Americans can ask these entities to disclose their Chinese 
investments. If not, they can ask to get a list of the Chinese 
companies they invest in. If these entities can't or won't provide the 
information, then investors should consider whether they are 
comfortable with this lack of information.
One Belt One Road
    As developing nations reel from the shock of the China-born 
pandemic, they are also coming to terms with another Chinese pandemic 
that can't be cured by a vaccine and will ravage developing nations for 
years: a rising wave of unsustainable debt owed to the PRC.
    For years, the PRC has couched its debt-financed One Belt One Road 
(OBOR) initiative in the language of cooperation, development, 
connectivity, and win-win. Nothing could be further from the truth. 
Follow the money, and you see that OBOR lending is part of the CCP's 
covert, corrupt, and coercive toolkit for pursuing its geostrategic 
interests.
    China has used this predatory OBOR lending in an attempt to 
dominate the Eurasian landmass in one massive supply network with China 
at its head, locking in global access to rare-earth minerals, critical 
materials, oil, natural gas, cotton, lumber, and other natural 
resources to feed their industrial-military machine.
    Almost all Chinese overseas lending is extended by the Chinese 
government and various state-owned entities, not by private banks. This 
makes China by far the world's largest official bilateral creditor, 
with outstanding claims in 2017 surpassing those of all 22 Paris Club 
governments combined.
    China frequently requires its sovereign loans be backed by 
collateral. Ecuador's billions in debt to China--comprising oil-backed 
and investment loans that the previous administration contracted in 
secret with PRC state-owned companies--are a classic example giving 
China the right to claim Ecuadorean state assets in the event of missed 
payments.
    For developing economies to rebuild in the wake of the pandemic, 
the carnage of Chinese debt must end. Therefore, to help the poorest 
countries respond to pandemic-related shocks, the G20 and Paris Club 
are freezing 2020 government loan payments under the Debt Service 
Suspension Initiative, which was developed by the G7 under the Treasury 
Department's leadership. While the Chinese government signed onto the 
initiative, it is excluding some claims of its largest government 
creditors, such as China EXIM and the China Development Bank, from the 
effort.
    The United States is calling on all Chinese creditor agencies to 
fully and transparently implement the G20-Paris Club Debt Service 
Suspension Initiative, waive nondisclosure clauses, and refrain from 
using them in the future. Just as important, we must join in calling on 
all citizens, companies, and countries of the world to object to the 
CCP's opaque predatory lending.
Protecting U.S. Higher Education
    During this unprecedented period in modern history, American 
universities and colleges are on the frontlines of addressing many of 
the challenges presented by the pandemic. At the same time, these great 
institutions are at the forefront of an equally serious challenge 
brought on by the authoritarian influence of the CCP described in this 
Letter that has broad implications for ensuring academic freedom, 
honoring human dignity, protecting university endowments, and 
safeguarding intellectual property.
    At the U.S. Department of State, one of our primary missions is to 
monitor and advocate for freedom, including academic freedom, around 
the world. American institutions of higher learning are the envy of the 
world and have always been an invaluable partner in that mission. That 
is especially true now as we join hands to work through myriad 
challenges brought on by the pandemic so that we can continue welcoming 
students from around the world to America's shores. This includes an 
orderly resumption of student visa issuances as the situation dictates 
at our embassies and consulates around the world.
    As a former Chairman of the Board of Purdue University, I recognize 
that when addressing a long-term strategic issue of this magnitude, the 
responsibility sits squarely on the shoulders of each and every board 
member. Our concern is with the malign actions of the CCP and specific 
individuals, not with the Chinese people or the overwhelming majority 
of Chinese students in the United States. Our goal is to see an 
improved, open, and transparent environment in which U.S. and Chinese 
scholars can engage with greater trust. We seek your assistance in an 
effort to safeguard U.S. technology and institutions, and to ensure our 
national and economic security remain safe and free from foreign 
interference.
    After spending many years leading public companies, I have learned 
that leadership in the face of challenges starts with that magical 
principle of transparency. Good leaders know that visibility is 
accountability. And this is where university and government leaders are 
partners once again.
    A number of American universities and colleges are home to 
Confucius Institutes, partially funded and controlled by the PRC. As 
the American Association of University Professors noted in a 2014 
report, ``Confucius Institutes function as an arm of the Chinese state 
and are allowed to ignore academic freedom.''
    While ostensibly intended to teach Americans about Chinese language 
and culture, they also exert malign influence on U.S. campuses and 
disseminate CCP propaganda. There is increasing evidence that Confucius 
Institutes spread PRC influence by providing institutions with 
financial incentives to abstain from criticizing PRC policies; putting 
pressure on faculty to self-censor; monitoring overseas students for 
loyalty to the party; and undermining freedom of expression by 
disrupting campus events deemed controversial to the CCP.
    CCP propaganda has also spread into our K-12 schools through the 
Confucius Classrooms program. Designed to provide Chinese language and 
cultural education, Confucius Classrooms teach PRC-approved curriculum 
to thousands of students across the United States.
    Our goal is to shine a light on Confucius Institutes programming, 
PRC citizen staffing, funding and operations. With this increased level 
of transparency, U.S. stakeholders, including universities andlocal 
school districts, can make more informed choices about the PRC 
influence exerted on their communities.
    Studies have shown that the majority of the U.S. university 
endowment fund portfolios include PRC stocks listed on American 
exchanges either directly or indirectly through emerging markets index 
funds.
    The U.S. academic community is in the crosshairs of not only 
foreign competitors contending for the best and brightest talent, but 
also our most valuable intellectual property. America built successful 
research universities on certain values: reciprocity, integrity, merit-
based competition, and transparency. These values foster a free 
exchange of ideas, encourage the most rigorous research results to 
flourish, and ensure that researchers receive the benefit of their 
intellectual property. In turn, America attracts the best and 
brightest.
    The PRC, however, seeks to exploit America's openness by 
implementing a well-financed, whole-of-government campaign to recruit 
foreign experts through its more than 200 talent recruitment plans. As 
of 2017, China reportedly has recruited 7,000 researchers who focus on 
or have access to cutting-edge research and technology. For the CCP, 
international scientific collaboration is not about advancing science, 
it is about advancing the PRC national security interests.
    Just as our fine institutions vet employees for scientific rigor or 
allegations of plagiarism, we also must vet for financial conflicts of 
interests and foreign sources of funding. If our researchers can assess 
potential collaborators' experience and past publications, they should 
also assess any government affiliations and ulterior motivations. My 
experience in the business, education, and government sectors tells me 
that there is tremendous power in uniting those sectors as a force for 
good if we are all armed with the truth. The world is watching, and the 
integrity of our democracy and educational institutions is in our 
hands.
China's Assault on the Environment
    The CCP's actions wreak havoc on the Earth's air, water, and land--
Beijing can and must change course, but only if the international 
community unifies in public pressure, rather than placating. The PRC 
claims to be a ``torchbearer'' on global environmental issues--but like 
so many of its claims, this is an outright lie. Beijing is the largest 
emitter of numerous pollutants and greenhouse gases and irresponsibly 
exploits natural resources for its own selfish and often pernicious 
ends.
    The PRC has been the largest emitter of carbon dioxide since 2006. 
Armies of Chinese workers move in to perform the work and leave a trail 
of environmental destruction in their wake.
    The PRC is also responsible for nearly 30 percent of the plastic 
pollution filling the world's oceans and harming marine life. 
Unfortunately, persistent PRC market barriers, including those related 
to protection of intellectual property, hamper trade in U.S. 
environmental technologies that could help China address this and other 
challenges.
    The PRC is one of the world's biggest offenders when it comes to 
illegal, unreported, and unregulated (IUU) fishing and overfishing 
agreed-upon limits--endangering species and devastating local 
economies. At the same time, the PRC is also the world's top subsidizer 
of fishing activities. With its own fisheries already depleted from 
overfishing, massive subsidies create incentives for the PRC's distant 
water fleet to plumb the high seas and other nations' waters. Just ask 
our friends in beautiful Ecuador, where waste from Chinese vessels is 
washing up on the shores of the Galapagos Islands, a World Heritage 
site, and important fish stocks are threatened. Beijing can and must 
stop its irresponsible fishing practices.
    The PRC manipulates Mekong River flows for its own profit at great 
cost to downstream nations. Through the Mekong Water Data Initiative, 
the United States is helping empower the people in the Mekong region to 
advance transparent river management, even as they suffer from PRC 
efforts to impede the water flow for the use of their people.
    While the United States advocates for sustainable forestry 
practices and supports the Trillion Trees initiative, China is the 
world's largest consumer of illegal timber products. Perhaps most 
sadly, China is the biggest consumer of illegal wildlife products. 
Wildlife ``wet markets'' create extreme risks for diseases of animal 
origin like COVID-19 to transmit to the human population. I echo 
Secretary Pompeo's call for Beijing to shut down these markets 
immediately and permanently.
    When exposed, Beijing knows how to change its tune. In 2008, U.S. 
diplomats installed air quality monitors on top of the U.S. Embassy in 
Beijing. We shared the data publicly and revealed what residents 
already knew: the air quality was dangerously worse than the CCP was 
willing to admit. That small act of transparency catalysed a revolution 
in air quality management, and Beijing made air quality a priority. 
From that experience, we know the CCP can change--especially if we 
shine a light on their hypocrisy and deceit. Countries, companies, and 
every day citizens can make it clear that it is up to the PRC to end 
these selfish, damaging practices, and protect the air, water, and land 
on which life itself depends.
Conclusion
    Tackling the many facets of the China Challenge will require the 
whole government, our powerful private sector, I appreciate all the 
dedication, energy and leadership of this subcommittee in promoting 
security in our Nation's commerce and advancing America's economic 
security abroad.
    This requires acknowledging the true aspirations of despotic 
regimes. It requires a bold vision for how we can win the international 
economic competition, protect American assets, catalyze a new era of 
prosperity and innovation, create enduring advantages for the American 
people, and spread the success of free enterprise around the world.
    The United States is taking the difficult but necessary steps to 
begin to address the threat now. If we do not, we risk letting the 
opportunity pass and forever regretting that we did. I thank you for 
the opportunity to appear before you today and I look forward to 
working with each of you as we join together to confront a dangerously 
ascendant China and take the steps necessary to safeguard American 
economic security.

    Senator Sullivan. Thank you, Mr. Secretary.
    Secretary Nikakhtar.

          STATEMENT OF HON. NAZAK NIKAKHTAR, ASSISTANT

         SECRETARY, INTERNATIONAL TRADE ADMINISTRATION,

       INDUSTRY AND ANALYSIS, U.S. DEPARTMENT OF COMMERCE

    Ms. Nikakhtar. Thank you, Chairman Sullivan, Ranking Member 
Markey, and Members of the Subcommittee.
    Good morning, and thank you for the opportunity to testify.
    We are at a historic crossroads in the U.S.-China 
relationship and the steps we take now will chart the course of 
U.S. economic and technological leadership for decades to come.
    In 2017, the U.S. began for the first time to confront 
head-on the challenges posed by China's predatory practices. 
Those practices had been ignored for decades and as a result 
the United States lost capabilities in sector after sector in 
manufacturing and technology that are so critical to this 
Nation's security.
    In order to understand the PRC's predatory economic 
strategy, it's important to understand the specific tactics or 
tools that it deploys. Indeed, China's most effective tools by 
design are those that are governed by weak or non-existent 
international rules and disciplines.
    Case in point, the PRC takes advantage of the absence of 
international rules over state-owned enterprises to funnel 
massive amounts of resources to SOEs with the intent of 
dominating strategic sectors worldwide.
    The government also distorts prices and costs throughout 
its economy to distort land and property, energy, wages, and 
raw material prices in order to export under-valued goods and 
services worldwide.
    The goal is to under-price competitors to force them out of 
the market. The goal is to hollow out our industries.
    Next, the PRC Government takes advantage of the dearth of 
rules governing global overcapacity to flood world markets with 
goods at uncompetitive prices. This has been its strategy in 
steel, aluminum, chemicals, and optical fiber cables--the 
infrastructure for 5G.
    I fear critical industries, like semi-conductors in many 
parts of the China 2025 Plans, will be targets next.
    The PRC is further exploiting opportunities abroad to 
monopolize strategic assets. For example, the PRC's increasing 
control of the raw materials necessary for high-tech products 
by purchasing mines abroad, cobalt, graphite, lithium, nickel, 
and platinum, to name a few.
    The impacted countries are the United States and our allies 
and because these critical materials are finite assets that 
cannot be replaced, China is able to exert influence over the 
rest of the world by withholding access to them.
    Next, as we know the PRC regularly supports and directs the 
theft and misappropriation of U.S. intellectual property. This 
is well understood, but what's less discussed is this. Even 
when Chinese firms are perceived to collaborate in 
technological development, take, for example, Huawei's 
announcement that it's planning to build in the U.K. a $1.2 
billion optical fiber cable research facility, the gains are 
only one-sided.
    Chinese companies will benefit from collaboration with 
international scientists abroad and then repatriate the 
technology to China to generate overcapacity to eliminate 
competition and obtain a monopoly position.
    In sectors like 5G where optical cables provide the 
infrastructure, the national security implications are obvious.
    China's engagement in international standards as a way to 
influence global technology market is also of great concern.
    Finally, it's worth emphasizing that because China is a 
sovereign state, foreign laws can never be sufficient to fully 
address its conduct. It is not an actor that has shown a great 
interest in adhering to international laws at all.
    Of course, the past policies of the U.S. have failed to 
prevent China's rise as a predatory economic actor. To build 
our seemingly efficient supply chains, we flocked to China as a 
low-cost producer and traded our most sensitive intellectual 
property in exchange for short-term market access and profits. 
As a result, we willingly transferred our debt and exported our 
manufacturing capabilities and jobs to a non-market economy 
where market principles and transparency do not exist.
    By doing this, we created a global economy where distorted 
prices and non-market conditions are allowed to proliferate 
rather than market-based ones.
    By understanding what has led to the erosion of our supply 
chains, then it stands to reason that a comprehensive reshoring 
strategy must remedy those causes.
    At the outset, the United States must systematically 
identify all items that are critical to our national security 
to assess our dependency on imports. This Administration, my 
office in particular, on behalf of the White House, has begun 
to do this. We need to continue to do this on a permanent 
basis.
    A second essential component is incentivizing inward 
investments in domestic R&D and manufacturing capabilities. 
We've begun doing this through tax cuts to boost innovation and 
economic growth. Let's do more.
    Third, U.S. Government procurement authority. This is 
critical to providing capital to new American investments and 
to generate immediate demand for those new production 
operations. This will compel companies to take a leap of faith 
and reinvest in the United States.
    And it is, of course, axiomatic that for U.S. investments 
to grow, we must have a strategy to fight back against 
predatory import competition, low-cost imports that aim to 
undercut U.S. production and growth.
    These foregoing elements are essential to a comprehensive 
reshoring strategy. It will require a whole of government 
approach, but I can tell you as a trade lawyer and an 
economist, they will be effective in rebuilding supply chains 
that are robust and are resilient.
    I'd like to conclude by emphasizing that the global economy 
of the 20th Century was developed by the United States and 
although China is aggressively seeking to shape the global 
economic order of the 21st Century, it is not too late to act.
    Our supply chain vulnerabilities are too great to await yet 
another national security crisis that may expose this country 
to even more peril.
    Thank you.
    [The prepared statement of Ms. Nikakhtar follows:]

    Prepared Statement of Hon. Nazak Nikakhtar, Assistant Secretary,
        International Trade Administration, Industry & Analysis,
                      U.S. Department of Commerce
    Good morning. Chairman Sullivan, Ranking Member Markey, and Members 
of the Subcommittee, thank you for providing me the opportunity to 
testify today regarding the United States' economic relationship with 
the People's Republic of China (PRC). We are at historic cross-roads in 
the U.S.-China relationship, as the steps we take now will chart the 
course for U.S. economic and technological leadership, and will shape 
the landscape for the democratic world for decades, and possibly 
centuries to come.
    The Department of Commerce's International Trade Administration is 
responsible for strengthening the competitiveness of U.S. industry in 
the United States and global marketplace, increasing investments in 
America, monitoring compliance with U.S. trade agreements, and 
enforcing U.S. trade laws. At Industry and Analysis (I&A), we are, in 
particular, responsible for working with businesses to develop 
international trade and investment strategies for a range of industries 
from the manufacturing sector to the financial services sector, 
including industries that are critical to the United States' national 
security interests. I&A also leads the Commerce Department's 
participation in the Committee on Foreign Investment in the United 
States (CFIUS), a committee that reviews certain specific foreign 
investments and real estate transactions in the United States for their 
impact on U.S. national security.
    Today, I would like to speak about challenges to the United States' 
national security industries and set the stage for the successful 
commercial growth of our most critical sectors. In 2017, the U.S. 
Government began, for the first time, to confront head-on the 
challenges posed by China's predatory practices. Those challenges had 
been ignored for decades and, as a result, over the course of the past 
40-plus years, the United States has continuously lost capabilities in 
sector after sector in manufacturing, technology, and services that are 
essential to our national security. In goods alone, the offshoring of 
manufacturing has created supply chain vulnerabilities across hundreds 
of critical products, ranging from semiconductor and electronics 
manufacturing to the development of active pharmaceutical ingredients. 
This has led to job losses of between 3.4 to 3.7 million between 2001 
to 2018.\1\ In key sectors such as communications equipment, 
electronics and computer technology, we ceded up to 40 percent of the 
domestic market share to Chinese imports, and globally China has 
captured 40 percent of market share in those sectors as well.
---------------------------------------------------------------------------
    \1\ Scott, Robert; Mokhiber, Zane, Economic Policy Institute, 
``Growing China Trade Deficit Cost 3.7 Million American Jobs Between 
2001 and 2018,'' (Jan. 30, 2020) https://www.epi.org/publication/
growing-china-trade-deficits-costs-us-jobs/; also Census Data and 
Department of Commerce calculations.
---------------------------------------------------------------------------
    To underscore with examples of where that leaves us, the United 
States does not have the domestic supply chains required to manufacture 
many key electronic components for our telecommunications systems, or 
many active pharmaceutical ingredients for medicines to serve America's 
health needs. Nor does the United States process the rare earth 
elements that produce magnets that are essential for military and 
weapons uses, as processing is now dominated by China. Even the more 
mature steel and aluminum industries have been experiencing existential 
challenges, as global overcapacity continues to weaken American firms. 
Where the United States was once the undisputed leader in technological 
innovation and industrial advancements across the board, it is now 
struggling to remain competitive in many key industries.
    There are two classes of state actors in the global economy. The 
first class is comprised of nations that generally adhere to their 
obligations under the rules and principles of the global economic and 
trading system, as enshrined in international organizations such as the 
United Nations, International Monetary Fund, Organization for Economic 
Cooperation and Development, and the World Trade Organization (WTO). 
The second class is comprised of nations that either do not adhere (or 
selectively adhere) to these rules and norms, or actively circumvent 
them. While both classes of nations can introduce distortions into the 
global economic order--for example, through corporate subsidies and 
discriminatory nontariff barriers--the distortions can be managed when 
dealing with rules-based state actors and market-oriented economies. 
Here, international agreements may provide viable legal mechanisms to 
address non-competitive, market-distorting behavior, and states have 
historically adhered to their binding commitments or improved their 
practices when compliance fell short.
    The Chinese Communist Party (CCP), on the other hand, does not just 
fall within this second class of state actors. It is also, by far, the 
most distortive economic actor that the global trading system has ever 
encountered. Not only are the current rules of international trade and 
monetary policy largely ineffective when dealing with China but, as a 
non-market economy under the tight control of the CCP, the government 
of the People's Republic of China flagrantly flouts those rules when it 
believes it is in its interest to do so, and shows no intention of 
reforming to a market-based system or adhering to its international 
obligations when those rules frustrate its national industrial goals. 
And because of China's size and scale, it has been able to weaken 
international supply chains and disrupt the global economy 
significantly. In this respect, the threat from China is formidable, 
and it is the largest threat the United States has encountered to date.
    But we need to remember that this threat is nothing new, it has its 
roots in the Cold War. Khrushchev famously said ``We,'' meaning the 
Sino-Soviet bloc, ``declare war upon you,'' the United States, ``in the 
peaceful world of trade. We will declare a war; we will win over the 
United States.'' Again, quoting from the Prime Minister of the Soviet 
Union, ``We,'' again referring to the Communist states, ``value trade 
less for economic reasons and most for political reasons.'' The hearing 
transcript for the Trade Act of 1962 includes these powerful 
statements. Perhaps in response to this threat, in the ``Statement and 
Purpose'' subsection of the Trade Act of 1962, 19 U.S.C. 1801, Congress 
explicitly enacted into law the goal of Chapter 19; it is inter alia, 
``through trade agreements affording mutual trade benefits'' to 
``prevent Communist economic penetration.'' This provision is still 
valid today precisely because the threats continue today. And after 
1979, when the United States formally normalized trade relations with 
China, the PRC government accelerated its plan to augment global 
economic and military strength in a quest that it concedes will 
ultimately lead to a great power struggle against the United States.
    The PRC government's weapon of choice is predatory economic 
tactics, and it has successfully used such tactics to disrupt global 
supply chains and weaken the technological advancements of the United 
States and its Western allies. China has transformed itself into the 
epicenter of global commerce, has centralized manufacturing and 
research and development (R&D) hubs within its own borders and, with 
this, it has accumulated the power to influence all economies that are 
dependent on it.
CHINA'S USE OF PREDATORY ECONOMIC TACTICS TO CAPTURE 
        CRITICAL SUPPLY CHAINS AND TECHNOLOGY
    In order to understand the PRC government's predatory economic 
strategy, it is important to understand the specific trade tools that 
it deploys. Indeed, China's most effective tools, by design, are those 
that are governed by weak or non-existent international rules and 
disciplines. To understand a ``strategic competitor'' or an 
``adversary,'' one has to understand their tactics. To counter those 
tactics, we need to consider how our laws need to be strengthened.
    Case in point: China's economy has grown in large part because of 
the massive subsidies it provides to industries, and the lack of 
transparency on the subsidies it provides results from its failure to 
notify them completely to the WTO, as well as the absence of effective 
WTO rules governing the types of market-distorting industrial subsidies 
used in China.\2\ It is difficult to legally challenge what we do not 
know about or what the rules do not cover. Moreover, China leverages 
its self-designated developing country status to avoid complying with 
existing WTO rules and obligations, and WTO rules are generally silent 
on how a member state can challenge another country's self-designated 
status.
---------------------------------------------------------------------------
    \2\ Examples include Chinese government subsidies that constitute 
unlimited guarantees to corporations, subsidies to insolvent or ailing 
enterprises lacking credible restructuring plans (also known as 
``zombie'' companies), subsidies that encourage global overcapacity, 
subsidies to firms unable to obtain long-term financing from 
independent commercial sources that are operating in sectors or 
industries in overcapacity, and direct debt forgiveness.
---------------------------------------------------------------------------
    Next, the PRC government takes advantage of the absence of 
applicable international rules over state-owned enterprises (SOEs) to 
funnel massive amounts of capital and other resources to SOEs with the 
well-publicized intent of dominating strategic sectors worldwide. The 
PRC government also distorts prices and costs throughout its economy 
(e.g., land and property, energy, wages, and raw materials) through 
direct price controls and to export undervalued goods and services 
worldwide, thereby weakening the competitive positions of market-based 
firms. Dangling possible access to China's large consumer market and 
making available cheap labor, goods and services are also how China 
lures foreign manufacturing capacity and technological know-how into 
its own borders. And as the CCP controls the government of a sovereign 
state, it knows full well that its non-market economic system is 
unaffected by legal challenges or the prospect thereof by the rest of 
the world; even possible losses of legal challenges at the WTO may not 
be incentive enough to compel China to reform a system that has served 
it so well and eroded the competitive positions of its adversaries so 
quickly.
    Just as alarming, the PRC government takes advantage of the dearth 
of rules governing global overcapacity to flood world markets with 
distortedly low-priced goods. In 2019, China's overcapacity 
significantly depressed global prices in the fiber optical cable 
market. Its strategy is to eliminate competitors and obtain absolute 
control over this critical 5G infrastructure asset. The PRC government 
has previously deployed the same strategy in the steel and aluminum 
sectors, among many others, and the same strategy will create excess 
capacity in new sectors in the future. And notwithstanding the fact 
that the 2020 coronavirus pandemic has dramatically reduced demand for 
steel and aluminum products worldwide, China has once again ramped up 
steel and aluminum production and dramatically increased inventories, 
contributing to drastic global price depression. This illustrates the 
national security threat to our steel and aluminum industries and why 
the President imposed Section 232 tariffs to address the impact of 
overcapacity and the threat posed by steel and aluminum imports. 
Outside the United States, however, the global surge continues and 
China's actions are still destabilizing the global steel and aluminum 
industries.
    The PRC government is further exploiting opportunities abroad to 
monopolize strategic ports and mines (among other assets). State-backed 
Chinese investors own 10 percent or more of equity in ports in Europe, 
and it has major deals in Greece, Italy, Spain, France, the 
Netherlands, and Belgium. This is in addition to a growing number of 
investments in more than 40 ports in North America, South America, 
Eastern Europe, the Middle East, Africa, Central Asia, South and 
Southeast Asia, Australia, and the Pacific. The PRC government is 
similarly increasing control of the raw materials necessary for 
manufacturing high-technology products (e.g., phones, vehicles, 
advanced energy storage systems, and magnets) that are sourced from a 
small number of countries, and for which substitutes are unavailable. 
Operating in niche markets with limited transparency, often in 
politically unstable countries, Chinese firms continue to capture 
supplies of cobalt, graphite, lithium, nickel, niobium, and platinum, 
to name just a few. Because these minerals and metals are finite assets 
that cannot be replaced, China is able to exert influence over the rest 
of the world by withholding access to these assets to compel nations to 
bend to its will.
    Additionally, in its never-ending quest for technological 
superiority and control over key positions in the industrial value 
chain, the PRC government regularly has supported or directed the theft 
and misappropriation of U.S. technology and intellectual property (IP). 
Monetary damages accrued to the United States are estimated to range 
from $50 billion to as high as $600 billion annually. Moreover, by 
making short-lived market access promises to cutting-edge technology 
companies, the PRC government pressures the most technologically-
advanced firms to transfer IP and sensitive data to it. The PRC 
government ultimately uses the IP it extracts from companies to 
displace them from the market. China's increased dominance in key 
segments of the industrial value chain further cements its technology 
transfer approach. Even where Chinese firms are perceived to 
``collaborate'' in technology development, take for example Huawei's 
announcement that it plans to build a $1.2 billion optical fiber 
research facility in the United Kingdom, the gains are only one 
sided.\3\ Chinese companies will, as directed by the PRC government, 
benefit from scientific research and collaboration with international 
scientists abroad, resulting in some cases in the repatriation of 
technology to generate overcapacity to eliminate competition and obtain 
a monopoly position. In sectors like 5G, where optical fiber cables 
provide the infrastructure for an impending technology revolution, the 
national security implications are obvious.
---------------------------------------------------------------------------
    \3\ Gold, Hadas, CNN, ``Huawei to Build $1.2 Billion Cambridge 
Facility as It Faces Uncertain UK Future,''(June 25, 2020) https://
www.cnn.com/2020/06/25/tech/huawei-cambridge-uk/index.html.
---------------------------------------------------------------------------
    It is also reported that the Chinese government, this year, is 
implementing a nationwide credit rating system for all corporations--
foreign-owned or Chinese-owned--operating within China. Companies 
handling sensitive personal data and proprietary technical information 
will be required to transfer that data to the Chinese government. The 
European Chamber reports this credit rating system as amounting to 
``life or death'' for companies.\4\
---------------------------------------------------------------------------
    \4\ European Chamber of Commerce, ``European Chamber Report on 
China's Corporate Social Credit System, A Wake Up Call for European 
Businesses in China,'' (Aug. 28, 2019), https://
www.europeanchamber.com.cn/en/press-releases/3045/
european_chamber_report_on_china_s
_corporate_social_credit_system_a_wake_up_call_for_european_business_in_
china.
---------------------------------------------------------------------------
    China's engagement in international standards as a way to influence 
the global technology market also is of great concern, but it is often 
not fully understood. To illustrate this attempted influence, take for 
instance the fact that, from 2011 to 2019, the number of Chinese-led 
technical committees in the International Organization for 
Standardization, one of the largest international standards setting 
organizations, increased by 75 percent.\5\ Further, China has 
strategically increased its participation in the International 
Telecommunication Union (ITU), an agency of the United Nations 
responsible for coordinating telecommunications operations and 
services, with the hopes of expanding its influence around the globe. 
In fact, in key technology working groups of the ITU, China alone 
comprises 40 percent of participants.\6\ Moreover, China's press into 
international standardization ranges from introducing weak proposals 
into the standards development process, flooding the organizations with 
low-quality proposals that detract from and take resources away from 
sound proposals, to making financial contributions as a way to wield 
power over those organizations and to punish member companies and 
countries that do not side with its agenda. Indeed, China's 
participation in international organizations has become a vehicle to 
advance its One Belt One Road Initiative, and the more influence China 
has over standards development, the more likely this initiative will 
succeed.
---------------------------------------------------------------------------
    \5\ Kamensky, Jack, China Business Review, ``China's Participation 
in International Standards Setting: Benefits and Concerns for U.S. 
Industry,'' (Feb. 7, 2020) https://www.chinabusiness
review.com/chinas-participation-in-international-standards-setting-
benefits-and-concerns-for-us-industry/.
    \6\ Department of Commerce calculations.
---------------------------------------------------------------------------
    Additionally, China uses other international organizations to 
advance its global ambition, including the Belt and Road Initiative. To 
illustrate, it has been reported that the head of the UN Department of 
Economic and Social Affairs used his position to discriminate against 
people and organizations who were drawing attention to the CCP's 
repression of the Uighur ethnic group. The World Health Organization's 
capture by the Chinese government, by failing to alert countries to the 
rapid transmission of the coronavirus, is yet another recent example. 
Even more to the point, if the Chinese government is currently 
threatening to retaliate against Nokia and Ericsson for the EU's 
possible move to ban Huawei from their 5G systems,\7\ imagine the types 
of influence that China could wield if it is able to dominate global 
standards organizations and the standards themselves.
---------------------------------------------------------------------------
    \7\ Lin, Liza; Woo, Stu; Wei, Lingling, ``China May Retaliate 
Against Nokia and Ericsson If EU Countries Move to Ban Huawei,'' Wall 
Street Journal (July 20, 2020), https://www.wsj.com/articles/china-may-
retaliate-against-nokia-and-ericsson-if-eu-countries-move-to-ban-
huawei-1159525
0557.
---------------------------------------------------------------------------
    Finally, it is worth emphasizing that because China is a sovereign 
state, foreign laws can never be sufficient to fully address its 
conduct. In fact, the PRC government takes advantage of the United 
States' lack of an extradition treaty with it to advance cyberattacks 
on sensitive U.S. assets. The attacks not only obtain proprietary trade 
secrets from companies and sensitive personal information about 
American citizens from servers, but these attacks also target crucial 
weapons systems and sensitive military technology (well-documented 
examples include attacks that extracted sensitive information about 
U.S. submarines, cryptographic systems, the F-35 Joint Strike Fighter, 
and anti-ship missiles that are crucial for deterrence and developing 
countermeasures). China's medium of cybertheft also includes stealing 
computer software source codes, design technology, and technical 
product specifications. And the PRC government continues to violate its 
2015 bilateral commitment to the United States in which it had vowed to 
refrain from stealing and misappropriating U.S. IP.
    The tactics used by the PRC government over the course of the past 
40 plus years have enabled the country to move its economy from the 
12th largest in the world ($191 billion gross domestic product, GDP 
(current prices), in 1980) to the second largest ($14 trillion GDP 
(current prices) in 2019); become the second largest foreign holder of 
U.S. debt at $1.09 trillion in 2019 (the first largest being Japan 
holding $1.27 trillion), and grow as the world's largest exporter of 
goods. Indeed, the United States' largest bilateral trade deficit is 
with China ($345.6 billion in deficit in goods in 2019). In addition, 
China today holds uniquely powerful positions in the most critical 
supply chains in the world including rare earths elements, medical 
equipment and supplies, pharmaceuticals, and electronics.
    The past policies of the United States did not effectively impede 
or curtail China's rise as a predatory economic actor. To build our 
seemingly efficient supply chains, we flocked to China as the low-cost 
producer of virtually every link in the chain, allowed the PRC 
government to build reserves of U.S. dollars which it used to devalue 
its currency, traded our most sensitive intellectual property in 
exchange for short-term market access and profits, and did not 
adequately use legal enforcement tools to protect our industries. Our 
motives were short-sighted, and we failed to sufficiently anticipate 
the vulnerabilities that this trading relationship would create.
    As a result, we willingly transferred our debt and exported our 
manufacturing capabilities (and jobs) to a non-market economy where 
market principles, transparency, and predictability do not exist. By 
doing this, we created a global economy where distorted prices and non-
market conditions are allowed to proliferate. We also put China in 
control of our revenue stream. This vulnerability is often not 
discussed among policymakers, but it is important to emphasize: within 
our highest-technology sectors, substantial revenue comes from U.S. 
exports to China. This means that China, by controlling America's 
revenue stream, also controls America's ability to earn income and fund 
R&D. This is an extraordinary vulnerability that, if unaddressed, will 
be used by the PRC government to further halt America's technological 
progress.
RESHORING CRITICAL SUPPLY CHAINS
    Traditionally, economists have viewed calls for countries to pursue 
policies aimed at protecting national security production capacity 
skeptically. They argued that a nation could, in a globalized world, 
always turn to other countries if the domestic supply chains eroded at 
home. However, what we have learned from the coronavirus crisis is that 
borders do matter because any state has the sovereign right, and 
ability to, restrict exports to the rest of the world. Indeed, the PRC 
government strategically withholds exports: (1) as a bargaining chip to 
extract concessions from trading partners; or (2) to punish trading 
partners that do not bend to its will. Even our allies introduced 
earlier this year--at the height of the pandemic--emergency export 
restrictions over much needed medical equipment in order to provide for 
their own citizens to the detriment of neighbors in need.
    These facts should serve as an important reminder to the United 
States that the security of domestic supply chains is essential, and it 
must be regained because the basic political and economic unit should 
always remain the nation-state. Indeed, the protection of American 
citizens requires that the United States' vulnerable supply chains be 
strengthened, and a major component of supply chain resiliency must be 
reshoring. But how can the United States reverse the excessive 
offshoring that has occurred over the course of the past 40 years?
    The problem is complex, but it can be solved through a whole-of-
Government approach. That is, if we collectively are prepared to tackle 
difficult policy questions, even those that may run counter to long-
held economic biases. To the extent that those biases once formed 
policies that incentivized critical industries to offshore, then 
logically they need to be revised or reversed.
    Understanding what has led to the degradation of our supply chains, 
then it stands to reason that a comprehensive reshoring strategy must 
remedy those causes. At the outset, the United States must 
systematically and routinely identify all products, goods, and 
technologies that are critical to national security to address the 
country's dependency on imports from strategic competitors, whether in 
a time of war, cyber-attack, pandemic or other national emergency. This 
Administration--my office in particular on behalf of the White House--
has begun doing this. We need to continue this on a permanent basis. An 
additional component here is measuring the flow of technology if it is 
now as equally as important, and in many instances more important, than 
the traditional ``national security good.''
    A second essential component of a reshoring strategy is 
incentivizing inward investments in domestic manufacturing and R&D 
activities. We have begun doing this to boost innovation and economic 
growth through tax cuts. A whole-of-Government approach, in partnership 
with Congress, will continue to make this effort successful.
    Third, we have in our arsenal of tools powerful U.S. Government 
procurement authority, including the Defense Production Act authority, 
to provide capital to new American investments and also as a tool to 
generate demand, through U.S. Government purchases, for national 
security-related items that are produced within the United States. 
Reliance on Government procurement authority is what will compel many 
companies to take a leap of faith and re-invest in the United States. 
This is an important tool that we are using and should be empowered to 
use even more.
    Fourth, it is, of course, axiomatic that U.S. investments must be 
encouraged to grow to commercial scale in order to compete against more 
mature foreign competitors. Further, an industry's commercial viability 
will generate robust upstream and downstream supply chains, draw in new 
market entrants to enhance production efficiency and moderate prices, 
attract greater private sector investments, and encourage competition 
to accelerate R&D. These are the fundamental building blocks of a 
resilient domestic supply chain.
    Finally, we have the ability to increase exports of all U.S. 
firms--including those that re-shore to the United States--through 
trade agreements. We have begun to increase exports thorough the U.S.-
Mexico-Canada Trade Agreement and the U.S.-Japan Trade Agreement, and 
we should continue to encourage greater exports through new trade 
deals.
    With the support of Congress, we can build the strongest supply 
chain in the world, enhance our comparative advantage with allies, and 
create an ecosystem where market-based principles prevail and market 
distortions are eliminated. We have begun doing this; we can do more 
together, which is why this hearing is so important.
CONCLUSION
    Historically, through times of adversity, the United States has led 
the world out of war and economic turbulence into recovery. And now 
too, the world will look to the United States to lead the way in 
solving today's supply chain challenges. It should not be forgotten 
that the global economy of the 20th century was developed by the United 
States and, although China is aggressively seeking to shape the global 
economic order of the 21st century, it is not too late to act. While 
the United States remains the largest economic power in the world (a 
status that is not guaranteed as China's exponential growth continues), 
it has the ability and leverage to act in coordination with allies. 
Time is of the essence, and our supply chain vulnerabilities are too 
great to await another national security crisis that may expose this 
country to even more devastation and destruction.

    Senator Sullivan. Thank you, Secretary Nikakhtar and Mr. 
Secretary, thank you.
    I want to begin with you on really, I think, kind of the 
critical question here and that is this issue of alliances. 
Some of my colleagues have been critical of the Trump 
Administration's approach. I believe that certainly our 
previous panel mentioned something that I believe we are an 
ally rich nation, China is an ally poor nation, maybe North 
Korea is their only true ally, and a strategy of deepening and 
expanding our alliances is one that I think is very important.
    I actually think that this Administration has been working 
hard on that in areas, such as Vietnam, India, but your 
statement about a new coalition, the previous panel actually 
talked about the idea of a D10 democracy coalition.
    Can you talk about that in more detail and what you and 
Secretary Pompeo are starting to do in that regard and the 
success you're seeing and how we in the Senate, and I think 
there's strong bipartisan support to help you with this, how we 
can support that?
    Just one of many anecdotes. Of course, we see a number of 
world leaders and senior officials from all over the world that 
come through the Senate. A number of them have been saying it 
has to be the United States to lead on this coalition against 
China. We want it to happen, but if we step out, a smaller 
country, we feel that we'll get really creamed by the Chinese. 
If the United States leads, we will support that under U.S. 
leadership.
    So can you give us a little bit more detail on what you 
talked about in your opening testimony which I think is very 
promising and will have strong support in the Senate?
    Mr. Krach. So you're absolutely right, Senator.
    Senator Sullivan. Mike.
    Mr. Krach. You're absolutely right. The biggest elephant in 
the room is China's retaliation. It terrifies countries and it 
terrifies companies and this is the whole reason for an 
alliance of democracies which would also include the private 
sector because there is strength and power and unity and 
solidarity and if you look at China's tactics, they're a bully, 
and we've all----
    Senator Sullivan. Do you believe like the panelists that 
testified before that China recognizes that this is our 
ultimate strength right now, our long-term deep global network 
of alliances that we have and that they pretty much don't have 
at all?
    Mr. Krach. Yes. So if you--by the way, if you look at what 
our strategy's comprised of, it's taking our comparative 
advantages and amplifying those and actually create component 
advantages and a big one is our like-minded partners and our 
friends and so it's time to turn the table on them and use that 
against actually China because they've been using it against 
us.
    I think the biggest delta in terms of opportunity of 
strategy is--and I said this when I got confirmed--is for the 
strengthening of our relationship with our allies and friends, 
leveraging the innovation and resources of private sector and 
amplifying the moral high ground of American values.
    So to be able to combine that all into one is huge and, you 
know, bullies back down when they're confronted. We've all 
experienced them at some point and they really back down if you 
have your friends by your side and that's why, for example, 
when Boris Johnson said, hey, we're going to reconsider that 
Huawei decision. That was a few months ago. You could see 
immediately the retaliation by the CCP.
    Beijing threatened the HSBC Bank and the Chinese U.K. 
Ambassador threatened to take away their $100 billion 
infrastructure investment in the U.K.
    Secretary Pompeo stood right up and he said, look, we stand 
with our allies. We stand with the U.K. against this China 
bully. We'll stand up for anybody, whatever we need to do and 
that is the most powerful concept because what China's done is 
they've fragmented. They go after the weakest gazelle of the 
herd and----
    Senator Sullivan. So we're starting to see success in that 
realm in terms of building a coalition of democracies in other 
countries?
    Mr. Krach. Sure. So what we see is in this coalition is to 
build a network of trusted partners and the fastest way to 
build a network is to build that network of networks.
    So here are some of the things that have been going on. The 
Blue Dot Network, which is a network for infrastructure, for 
high-quality private sector-led infrastructure around the 
world, particularly in developing nations.
    Another one is the 5G Clean Initiative. That in essence is 
a network, as well. There's another one in rare earth minerals 
that we announced and Secretary Pompeo signed off at UNGA last 
year. Nine initial nations and we're growing that.
    We envision an energy security network, as well, and also a 
health care and prosperity network and really if you think of 
it, the pandemic's really kicked that into big gear.
    So if you look at these different networks, it's all areas 
of collaboration. So it is investment, it's trade, it's 
commerce, it's energy, digital, infrastructure, research, 
education, and those are the things that we're going to take 
advantage of that momentum, and it's going to be based on those 
trusted principles, and as Nazak said, they're trying to take 
over international standards.
    The way to counter that is to have an overriding set of 
principles that all these standards have to comply with and you 
can't participate unless you do. So if you have a national 
intelligence act that requires any Chinese company, state-owned 
or otherwise, any citizen, to turn over any proprietary 
technology, intellectual property or data upon request or 
suffer the consequences, then need not apply.
    Senator Sullivan. Well, Mr. Secretary, I think focusing on 
our allies and what you're talking about, networks is something 
that will have strong support here, bipartisan support here. 
Your focus on critical minerals, energy, that's certainly 
important in my state, the great state of Alaska, but it's 
important to America.
    These are really important comparative advantages. So we 
want to help you with that.
    Senator Young.
    Mr. Krach. Thank you.

                 STATEMENT OF HON. TODD YOUNG, 
                   U.S. SENATOR FROM INDIANA

    Senator Young. Thank you, Mr. Chairman, and welcome, Mr. 
Under Secretary, grateful for the incredible service you're 
doing over at E.
    We know that a new power competition is unfolding before 
the eyes of the world. America's predominant challenger, China, 
is an unscrupulous authoritarian regime that doesn't share our 
values. In fact, their values are the inverse of our own and to 
meet these challenges, we have to once again show America has 
the resiliency and dynamism that it has shown over the last 
century.
    We can harness our economy. We can renew the American 
project itself if we make the right moves during this moment in 
history.
    The Endless Frontier Act is a piece of legislation I co-
authored with Senator Schumer and we believe that it will 
provide the rocket fuel for America's innovators and 
entrepreneurs moving forward.
    In this bill, we propose bolstering U.S. leadership in 
science and tech innovation and boldly increasing premarket 
investment in emerging tech. We propose providing in this 
Endless Frontier Act $100 billion of strategic investment in 
the National Science Foundation to bolster science and tech 
research and to deliver $10 billion to establish regional tech 
hubs around various areas of the country where there are 
existing pockets of expertise in particular sectors and 
technologies. That will lead to the launching of innovative 
companies, reviving American manufacturing and the creation of 
new jobs across the country.
    In coming years, it will strengthen American power. It will 
increase our prosperity and it will carry on America's never-
ending quest to continuously improve the world through 
innovation. We've done this before. See the 20th Century.
    Under Secretary Krach, do you believe the U.S. Government 
should ramp up investment in large-scale domestic innovation 
efforts to ensure American leadership in key technologies?
    Mr. Krach. Absolutely. And by the way, I want to thank you, 
Senator Young, as well as Senator Schumer, for the Endless 
Frontiers Act because that will tremendously move the needle in 
these 10 critical national security sectors and will be a great 
catalyst for kicking off that Sputnik moment that I talk about.
    One thing that I've learned out in Silicon Valley is that 
American innovation entrepreneurs are the best in the world, 
but you also got to give them time and time equals money and so 
talking about a $100 billion is huge and as we've discussed 
before, we believe we could get some serious match from the 
private sector. We believe if we choose, we could get it from 
our allies, too.
    Senator Young. Well, let's explore that a little further. 
How could we utilize our relationships? Arguably, our greatest 
geopolitical resources, a country, which are those alliances 
that we've developed, how can we leverage those relationships 
with close partners and allies to speed up development and 
broaden the base of innovation?
    Mr. Krach. Yes. So an example, and I think Chairman 
Sullivan alluded to a similar concept, we call it the TD10, 
Techno-Democracy 10. It would start off with 10 of our closest 
technological allies and it would really be with two main 
objectives.
    One is protect the strategic assets for these allies, but 
the other would be from an offensive position in terms of joint 
collaboration, joint research, all of that, as well as 
collaboration in terms of export controls and investment 
screening.
    There's no doubt about it that in the China Competition, 
the battlefield is high-tech. Their soft underbelly is they 
need hard currency and to be able to put this amount of funds 
and to get it coupled with the private sector is going to 
dramatically move the needle.
    Senator Young. So as we think about competition with China, 
what I hear you saying is we shouldn't only play defense,----
    Mr. Krach. Absolutely.
    Senator Young.--to use a sports analogy, right? Not only 
apply tariffs, although tariffs have a role, not only encourage 
our partners and allies to forswear Huawei technologies, if 
there's a fear of a back door, not only ensure that our 
partners and allies are aware of the implications of accepting 
foreign aid through the Belt and Road Initiative, but also 
invest in ourselves, outgrow, outcompete, out-innovate the 
Chinese, which is arguably the most important thing we did to 
take down the Soviet Union.
    Mr. Krach. By the way, that is by far the Number 1 thing. 
If there's anything I've learned about economic state graft, 
because that's what we practice out in Silicon Valley, is the 
best defense is a strong offense. So this puts us on the 
offensive and gets us out of a reactionary posture and this is 
the Communist Party's biggest fear is that we really turn up 
the heat on developing these new technologies and put a serious 
amount of money behind it.
    Senator Young. So let me change my line of inquiry 
momentarily and you've been very thoughtful. We've met 
privately on this matter before, but do you envision, Mr. Under 
Secretary, a future where countries around the world have to 
choose between either the United States or China? Can we avoid 
this, some call it, decoupling, this economic decoupling 
between China and the United States?
    Mr. Krach. You know, when we envision with, for example, 
the alliance of democracies is we're not asking them to choose 
between the United States and China. We're giving them an 
opportunity to participate because when you talk to them,--by 
the way, I've probably had 80 bilateral meetings with my 
foreign counterparts, you know, ministers of finance or 
economics, and I'll say how's your relationship going with 
China? What's it like? They'll go one of importance, you know. 
They're a big trading partner, and then they'll lean in. 
They'll look both ways. This will be a bilateral meeting. They 
go but we don't trust them.
    You know, if you look at those values that we talk about, 
those American values, those trust principles, they form the 
basis of trust, and you do business with people that you trust. 
So think about it.
    Senator Young. I referred to arguably our greatest 
geopolitical resource is that alliance system. I challenge 
people. Name one ally the Chinese Communist Party, the People's 
Republic of China has. They have none.
    Mr. Krach. North Korea.
    Senator Young. They have vassal states. They have vassal 
states, Mr. Chairman, like North Korea. They don't have genuine 
alliances.
    Mr. Krach. By the way, I did write an op-ed last week in 
the Wall Street Journal about the tyrannical twins that deal 
between China and Iran and, I mean, here's two countries that 
they haven't honored an agreement. It's like the Hitler-Stalin 
pact.
    Senator Young. By the way, you're absolutely right. Your 
point is they would carve up Poland.
    Mr. Krach. Yes.
    Senator Young. That's not an alliance.
    Mr. Krach. That's right.
    Senator Young. That's a marriage of convenience subject to 
divorce at any time.
    Mr. Krach. That's right, and that's why you hear these 
developing nations describe the One Belt One Road as the One 
Belt One Way Toll Road to Beijing because they're getting the 
resources sucked up. They're getting their hard currency sucked 
up. There's a lot of things that are going on.
    Senator Young. Thank you for your support and encouragement 
as it pertains to the Endless Frontier Act. I'm grateful for 
the service of you and your team over there at E. You have 
clearly elevated that department. I know Colonel Sullivan 
served there before and I didn't think it could be elevated any 
further, but, no, I mean, it's an especially important period 
of time to ensure that our economic state craft is properly 
scoped and I'm grateful for your presence here today.
    I yield back.
    Senator Sullivan. Thank you, Senator Young, for your 
leadership on all these issues----
    Mr. Krach. Thank you.
    Senator Sullivan.--and it's important that you're 
highlighting how important the E Section of the U.S. State 
Department is that the Under Secretary leads.
    Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman, and thank you 
both for being here today, both witnesses. Thank you for your 
service to our country.
    I don't know whether you were here for the last panel to 
hear my questions to Mr. Wessel and Mr. Doshi, but let me 
repeat them for you.
    This morning, Senator Hawley and I wrote to the Assistant 
Attorney General of the United States Department of Justice, 
John Demers, asking for an investigation of Zoom and TikTok 
because of their reported, reliably reported and repeated 
surveillance of United States citizens, possible censorship of 
participants on their platforms, and essentially suppression of 
rights and liberties by people in this country, and those 
reports of censorships and other abuses led us to ask for an 
Investigation by the Justice Department.
    Senator Hawley and I, along with other Members of Congress, 
have written repeatedly to Zoom and TikTok asking them about 
their practices of collecting information about Americans and 
about providing it to China, the Government of China, and they 
both failed to answer these basic questions.
    So we have turned to the U.S. Government to protect United 
States citizens.
    Is the Administration aware of the cooperation between Zoom 
and TikTok and the company that apparently owns it, Bytedance, 
with the People's Republic of China, and what do you plan to do 
about it?
    Mr. Krach. Well, I think that picks up right where I was 
talking about, the 5G Clean Program and Huawei.
    So if you look at apps like TikTok, WeChat, if you look at 
the cloud providers, if you look at drones, if you look at 
underwater cable, it's all part of that nervous system of 
China's surveillance state and that's why we're preparing plans 
now, not just the clean network side, the 5G side, but the 
entire system, and I couldn't agree with you more because what 
these are is they're appendages to that surveillance state.
    So, you know, I think what you're going to see is you're 
going to see a similar campaign to what we did with 5G and I 
just couldn't agree with you more, Senator.
    Senator Blumenthal. Well, I appreciate that. I think that 
support is very meaningful, and I hope you will take that view 
to the Department of Justice because if the Administration is 
really going to put its money where its mouth is,----
    Mr. Krach. Yes.
    Senator Blumenthal.--so to speak, an Investigation by the 
Department of Justice has to begin right away. It has to be 
swift and sure and fair, but this kind of surveillance and 
censorship and the tracking of Americans, the providing of data 
to the Government of China is a direct intrusion on our civil 
liberties, and I hope that you will be in touch with the 
Department of Justice. Will you do so?
    Mr. Krach. And they've been great allies. They're actually 
working arm-in-arm with us in defining the clean apps, clean 
cloud, clean store, and all these different areas. They've been 
great. They really have. So they've been great partners.
    Senator Blumenthal. I'm glad they?ve been great. I hope 
they will send a message and respond to Senator Hawley and 
myself and respond favorably, but I'm glad that you will 
support it and I appreciate your public endorsement of it.
    Let me ask you. Are there measures, such as a CFIUS review, 
that could impose on Chinese firms collecting information about 
Americans real assurances that the data will not wind up in the 
hands of the Chinese Government?
    Mr. Krach. So can you state your question again, Mr. 
Senator? I didn't quite catch it.
    Senator Blumenthal. Are there measures, like a review by 
the Committee on Foreign Investment in the United States, known 
as CFIUS, that would impose on Chinese firms collecting 
information about Americans a barrier or prohibition against 
sharing that information with the Chinese?
    Mr. Krach. Yes. By the way, I think there are a number of 
tools in the U.S. Government. Obviously CFIUS is a good one 
and, by the way, on that dimension, it's an ever-changing 
landscape. Even since I've been in office, I've seen it change 
and there are all kinds of ways to get around mitigation and 
those kind of things.
    The other is the Executive Order with regard to the ICT 
industry, in particular focused on China. I think that is a 
great tool. I don?t want to get out ahead of the President on 
that one, but that pretty much gives us all the tools we really 
need to do what you're talking about.
    Senator Blumenthal. You mentioned drones. Tell us why we 
should be concerned about drones?
    Mr. Krach. Well,----
    Senator Blumenthal. Eighty percent of the world's drones 
are made by the Chinese. They're sold in the United States. 
They can collect information and send it right back to the 
Chinese, correct?
    Mr. Krach.--they do. So if you look at a company called 
DGI, they probably have about 90 percent market share. So 
imagine you're like a drone hobbyist or you're doing something 
with your son or something like that. You know, you want to 
kind of take the video from up there. Well, those feeds go 
directly back to China, unless, you know, you're pretty tech 
savvy and you go through about seven different menu picks and 
you can have it then just download right to your iPhone, but 
otherwise it's going there.
    Obviously drone technology is some of the scariest military 
technology and, by the way, that was one of the things that I 
saw on my last trip to China and why I came out to Washington 
as I saw their swarm drone technology and, by the way, I don't 
know how you defend against it. Hopefully, I know we're working 
on it.
    So, by the way, that's one of the other ones that we're 
working on is clean drones because those are dangerous. It's 
one more appendage.
    Senator Blumenthal. Well, you say you don't know how we 
defend against it.
    Mr. Krach. Well, from a military aspect, I don't want to 
get into that with their swarm drone technology.
    Senator Blumenthal. I'm on the Armed Services Committee as 
is Senator Sullivan, but I'm talking about ordinary civilian 
uses.
    Mr. Krach. By the way,----
    Senator Blumenthal. I need percent of the market and the--
--
    Mr. Krach. I am, too, for the drone hobbyist. Because it's 
doing the same thing TikTok is, sending your video feeds back. 
So they're collecting information on our children. I've got 
five children. I don't want the Chinese spying on my children.
    Senator Blumenthal. So should we just ban Chinese drones?
    Mr. Krach. By the way, I think that's a very important 
thing to heavily consider. Once again, I don't want to get out 
in front of it, but it is on the table.
    Senator Sullivan. We need to be able to manufacture our 
own.
    Senator Blumenthal. Exactly.
    Mr. Krach. By the way, that gets back to Senator Young, is 
the best defense is a good offense. We have to invest in our 
drone business because they have--I mean, last I checked and 
Nazak may know better than me, but I think they have about 90 
percent market share.
    Senator Sullivan. We held a hearing on that topic in this 
subcommittee.
    Mr. Krach. Yes.
    Senator Blumenthal. And I might just say that Senator 
Sullivan is absolutely right that in order to ban the product, 
we have to be able to manufacture it in this country and I 
would submit as a matter of national security that we do it in 
this country because that's the only way to in fact defend or 
protect our rights and liberties but that's easier said than 
done.
    As you well know, a company with 90 percent of the market 
share can undersell or outcompete, in fact engage in predatory 
pricing to squelch competition.
    Mr. Krach. Yep.
    Senator Blumenthal. So I'd like to know from you in the 
future, you know, when you say it's on the table, I'm hoping 
that you will report back to us. I'd ask you for a report back 
on what is planned.
    Mr. Krach. By the way, you got it,----
    Senator Blumenthal. Thank you.
    Mr. Krach.--Senator, because you're absolutely right. We 
have the technologists. We have the entrepreneurs to build 
market drone companies and, you know, the problem is, as you 
pointed out, the Chinese subsidize it. It takes capital. It 
takes money and, you know, the way China ink works, it all 
comes out of the same pot and I know and I deeply appreciate 
what the Congress is doing to make sure we get those funds.
    Another great example is the semi-conductor business. It 
was our God-given right to have the semi-conductor fabrication 
business in the United States. We started it. We invented it. 
What happened is Asian countries came over and they bought it 
from us and they subsidized the semi-conductor business between 
30 and 50 percent. We were able to get Taiwan semi-conductor to 
kind of bet a little bit on the come, so to speak, and you 
passed the CHIPS Act 96 to 4 last week and a hundred percent in 
the House and that money goes for the entire semi-conductor 
industry to help bring it back on to United States shores 
because only 12 percent of semi-conductor fabrication is done 
in the United States and that is the key for our semi-conductor 
equipment manufacturers.
    So these things make a difference and it's a tipping point, 
so, and it boils down to money.
    Senator Sullivan. Let me turn to Senator Cruz here, Mr. 
Secretary.
    Senator Cruz.
    Thank you, Senator Blumenthal.
    Senator Cruz.

                  STATEMENT OF HON. TED CRUZ, 
                    U.S. SENATOR FROM TEXAS

    Senator Cruz. Thank you, Mr. Chairman. Thank you to both of 
the witnesses for your service. Thank you for your testimony 
today.
    I want to start with something that was discussed in the 
first panel, as well, which is supply chain issues. I am deeply 
concerned about China's control of our supply chain, 
particularly insofar as it affects critical infrastructure, and 
one area that poses a serious national security threat to the 
United States concerns rare earth and critical minerals 
supplies.
    I've introduced legislation, The Onshoring Rare Earths Act, 
the ORE Act, to bring rare earth mining back to the United 
States.
    How does the Administration view the threat of Chinese 
control of rare earth minerals and what should we be doing to 
fix the problem?
    Mr. Krach. Absolutely. Because we collaborate on this one, 
Nazak?
    Ms. Nikakhtar. OK. Thank you for the question. So rare 
earth----
    Senator Sullivan. Please turn on your mike.
    Ms. Nikakhtar. I'm sorry. Thank you.
    Rare earth has been one of sort of a comprehensive 
reshoring strategy, the comprehensive reshoring strategy that 
is being led by the White House, my office is taking the lead 
on. Rare earth is very much a part of it, cannot underscore the 
importance of it.
    My office did the Critical Minerals Report of 2018 and 
really when you look at rare earths and critical minerals, one 
after another, our supply chain vulnerabilities are great.
    China threatens to withhold access to rare earths, as we 
know, to basically have countries bend to its will. We can't 
stand for that.
    So the solution which is what we're discussing in the 
Administration is going to have certain pillars, right. One of 
the first pillars is really providing financial incentives for 
processing in the United States. That is what gives companies 
the leap of faith to invest in the United States.
    The next part of it is technology sharing with our allies. 
One of the things that I'm personally trying to stress is that 
if our supply chains are located far away and if China 
decides--or if we decide with any adversary that tensions are 
going to escalate, we're not going to have enough ships to 
basically fight a war and ship rare earths back and forth to 
one another.
    So we need to enhance the processing and the technologies 
associated with clean processing for both ourselves and our 
allies. Till we get there, collaborate on all fronts but every 
country or the U.S. and our allies, we have to basically be 
able to be self-reliant in this respect.
    Finally, so we have the investments for R&D in terms of 
incentivizing investments and processing, but at the end of the 
day, what company is actually going to invest in the United 
States if they know that the cheap rare earths from China are 
ultimately going to displace them, right, and so then we need 
to look at how do we--what is the delta and the cost and what 
measures are we going to seriously think about?
    I know this is taboo. I know nobody likes to talk about 
restricting imports, quotas, tariffs, or whatever, but what is 
the other alternative, and I'm speaking as an economist, what 
is the other alternative when China's predatory low prices, 
which is its key strategy, displaces.
    So we need to have a serious conversation about that, and 
then certainly we need to look at the downstream impacts, 
right. Rare earths are more expensive and what are the 
downstream impacts and think about financial incentives to 
bolster those companies that rely on rare earths in the defense 
sector in particular, and what are some of the measures we can 
put in place to again prevent the predatorily priced imports 
from coming in and eroding our defense base.
    So I appreciate what you're doing. We've studied this 
through the economic and legal lens a lot and I think these are 
the steps that are going to give us a resilient supply chain.
    Senator Cruz. Well, I think you made a very important 
point, that China's strategy here in terms of slashing prices. 
Their objective is not profit maximization and the way the 
Chinese Communist Government has approached the United States 
is I believe they are engaged in a battle for global domination 
and they have deliberately identified key vulnerabilities of 
America and they have determined to dominate and so when 
they're pricing it, it's not even simply predatory pricing in, 
say, the antitrust context.
    It is in fact these are not money-making endeavors. Their 
objective is not to earn a profit. These are military dominance 
efforts and so their efforts are to attack America.
    Let me ask for someone watching at home, as a practical 
matter, why do rare earth and critical minerals matter? Why 
should we care that China has a stranglehold on them?
    Ms. Nikakhtar. Well, because, I mean, they're essential. 
They're essential to our micro-electronics. They're essential 
to our defense systems, really everything that is today 
critical to national security, they underpin.
    I want to raise an interesting quote which I think you're 
going to very much appreciate. We almost treat sort of the 
China hollowing out our industries as a new thing, and I have 
this in my written statement. It actually has its root in the 
Cold War.
    Khrushchev famously said, ``We, meaning the Sino-Soviet 
Bloc, declare war upon you, the United States. In the peaceful 
world of trade, we will declare a war. We will win over the 
United States.'' Again quoting from Khrushchev, ``We, again 
referring to the Communist States, value trade the least for 
economic reasons and most for political reasons.'' This is from 
the hearing transcript of the 1962 Trade Act.
    Interestingly, the Trade Act 19 USC 1801 in the Statements 
on Purpose, one of the purposes is ``through trade agreements 
affording mutual trade benefits to prevent the Communist 
Economic Penetration.'' This is the problem that was back in 
the 1950s, and in the 1962 Trade Act it was discussed. It is 
the same problem we're dealing with today and guess how much 
progress we've made on it. Zero.
    The Administration, I think, for the first time and 
rightfully so is tackling all of these problems almost 
simultaneously. We're looking very hard at it. We're looking 
closely at it. We welcome, we welcome congressional support 
because these are complex problems that have been decades in 
the making and we're trying to solve them now and guess what. 
Time isn't on our side. We need to do it now.
    Senator Cruz. Thank you very much.
    Senator Sullivan. Thank you, Senator Cruz.
    I just want to comment on the rare earths and other 
critical minerals. We have them in America. We certainly have 
them in my state and, by the way, our record on mining them and 
producing them is much higher in terms of the environmental 
standards than the Chinese by far.
    So if we have them and it's good jobs and it's important 
for national security and we have a strong record on 
environmental protection on mining them, then we should utilize 
that.
    Mr. Krach. And I would say you're absolutely right. In the 
United States, rare earth minerals aren't that rare, but----
    Senator Sullivan. Well,----
    Mr. Krach.--what the Chinese have done is they put our 
processing plants out of business by subsidizing pricing. I 
mean because, you know, I agree with you, Senator Cruz. Their 
aim is not just to compete. Their aim is to drive you out of 
business. Then they can do two things. They can jack up prices 
and feed that giant kitty where they're going off and doing it 
to the next sector and they're very good at this. It's a 
strategic pinch point underlying everything and they've studied 
it.
    The one thing I must say, it has been great to see in this 
Administration coming in, is that when you look at what the 
work Nasaki is done at Commerce, what we're doing at State, the 
NSC, in terms of really analyzing strategic pinch points in the 
supply chain. I don't know if it was ever done before.
    Then you have to get to a level of specificity where it's 
like what's the plan, what's the company, what's the product, 
and how do we get the over here or how do we, you know, get 
them in our allies' hands. Ideally, it's in the United States 
and you really have to really, really dig in.
    Senator Sullivan. Well, I want to thank Senator Cruz again 
for his leadership on rare earths and critical minerals and 
we're making progress on that in an important way.
    Let me turn to one final question, Mr. Secretary, Madam 
Secretary, both of you. I'd like your comment on this very 
challenging issue that we've seen really over decades and 
that's the temptation, I would call it, by U.S. companies that 
want to access the Chinese market and then what ends up 
happening is that the U.S. companies are either forced to 
transfer their technology beyond probably what they want to do 
or they in some ways kowtow to Chinese interests, think the 
NBA, on broader kind of statements that China finds 
objectionable and we have American companies or organizations 
that start to tow the China line.
    So it's a dilemma because a lot of this has taken place in 
decades in the private sector. CEOs making these calls may be 
for short-term profit to access the China market but longer-
term in terms of U.S. strategy, it might be undermining our 
broader strategic goals as a nation if some of our best 
companies are selling out their own IPR to gain access to the 
Chinese market.
    So what should we as a government, this is beyond just 
State or Commerce, do about this very important issue where our 
private sector is leveraged to get access to the market of 
China but then has to give up things or tow the line on broader 
issues relating to Taiwan or other things where they're almost 
forced to make statements that are in line with Chinese 
Communist Party objectives? I'd like to hear from both of you.
    Go ahead.
    Ms. Nikakhtar. Yes. I'll start just to kind of give the 
economist perspective, right. When you're a company and you 
have no choice but to deal with the Chinese under-valued 
export, your only way of survival is actually to go into the 
Chinese market and benefit from the same distorted cost 
structures.
    So what ends up happening? I mean, you not only have to 
transfer your technology but also now you're even flooding the 
global market more with distorted prices, right.
    So in many ways, the companies, in terms of market access, 
as you said, or just, you know, in order to compete with their 
own Chinese competitors have to flock to that market.
    What's really interesting that I've noticed happening is a 
few things. China has announced the implementation this year of 
a corporate credit rating system, kind of like the social 
credit rating system, where any time it can ask companies 
operating in China to hand over their data, most sensitive 
technology, and their IP.
    The European Chamber of Commerce has deemed this to be 
essentially life or death for companies because if you don't, 
you will be sanctioned by the Chinese Government. I think 
companies are starting to get spooked.
    Two, with respect to Huawei, Huawei made some pretty 
significant threats against Nokia and Erickson, European 
companies, but they basically said if Europe is going to ban 
Huawei from--the EU is going to ban Huawei from its 5G 
networks, then it's going to put restrictions on the exports of 
Nokia and Erickson from China.
    So now it's causing Nokia and Erickson to rethink their 
operations----
    Senator Sullivan. If I may, what should we be doing in 
terms of government policy? This is mostly taking place in the 
sphere of the private sector. What should we be doing? I mean, 
there's one view that we should punish our own companies for 
doing this. I think that might backfire.
    What is the Government of the United States, the executive 
branch, view that we should be doing to really in some ways 
give these CEOs backbone not to comply with these demands that 
we certainly--this goes to reciprocity. We certainly don't do 
this to Chinese companies, but as government policy, what 
should we be doing? I need a succinct answer.
    Ms. Nikakhtar. Yes. This is exactly what I was getting at. 
So if it's cheaper to operate in China, right, to compete with 
China, then we've got to figure out how to give these companies 
a financial boost so they cannot compete offshore to another 
country.
    Two, we have to amplify as the U.S. Government the risks of 
doing business with China now. Given everything I said with the 
Chinese threats to companies, the European companies and U.S. 
companies, amplify the risks and give them a way to be cost 
competitive if they leave China.
    Thank you.
    Senator Sullivan. Mr. Secretary, do you have a view on 
that? It's a very----
    Mr. Krach. Yes.
    Senator Sullivan.--important topic. I'm sure you've seen it 
both in your government position but also in the private 
sector.
    Mr. Krach. Yes. I would make three points. You've hit on 
the really, really important issue and so when I hosted 
Secretary Pompeo out at Silicon Valley for 4 days at the 
beginning of the year, one of the things we did at dinner at my 
home in San Francisco, I had like 36 of the top CEOs, said, 
guys, you know, we say corporate responsibility, social 
responsibility. It's also national security because this is a 
real and urgent threat to democracy but it's a real and urgent 
threat to your companies because they want to put you out of 
business.
    Now the elephant in the room is the retaliation and so it's 
all about standing up to that bully with your friends behind 
you and so if you think of the laws that we put in place in 
terms of anticorruption, U.S. company, it's illegal to give a 
bribe. By the way, we might think of some of the things that 
we--where the U.S. companies need to be able to say to China I 
can't do that. It's against our law because they will obey the 
laws.
    Senator Sullivan. So doing that and getting our allies to 
do that would give us leverage globally over Chinese practices 
that we certainly don't want to help promote but we want to 
prohibit but if we do it with our allies, you think that's a 
leverage point that could start to help on that?
    Mr. Krach. It's huge, and this is also one where I might 
recommend in terms of developing laws like this collaboration 
with the private sector because they'll tell you because it's 
got to be--you know, that's got to be crafted just right 
because it is a big point.
    The other thing we do have to do is we have to shine the 
light on China, yes, but sometimes we have to shine the light 
on ourselves.
    Senator Sullivan. Yep.
    Mr. Krach. And, I mean, if you look at what Chinese 
companies on our American Stock Exchanges, these are the only 
companies that don't obey Sarbanes-Oxley and can't get audited. 
Honest to God, I was taking three companies public, it kind of 
makes me mad, but that's not the point.
    The point is it puts our American investors at risk and, by 
the way, it also creates an unlevel playing field for our 
companies because anybody, you know, in the business world 
understands that financial strategy is a key part of your 
competitive strategy and this allows them to misstate their 
earnings, hide subsidized revenue, count things as perpetual 
revenue versus not. Lucky Coffee is a great example. American 
investors lost $300 million. So it gives the Chinese company a 
competitive advantage.
    The third thing is, is that it sacrifices the gold standard 
of our American exchanges, and then the other thing, too, is 
that the average American bond holder has financed the One Belt 
One Way Road and, you know, the emerging index funds. It's all 
buried in there and, by the way, that's why one of the things 
that I wrote in an op-ed is that it is incumbent on U.S. 
companies to disclose who are the financial institutions or who 
are the Chinese companies they invest into, particularly state 
pension funds, university endowments, mutual funds, and I think 
shining that light in terms of disclosure is a great tool, just 
like reciprocity is a great tool, just like enforcement is a 
great tool.
    So we should really use that to the full extent we can 
because those concepts are just simple, right on, and easy to 
understand.
    Senator Sullivan. Well, listen, I want to thank you. I know 
that there are a number of other Senators who will be 
submitting questions for the record here, but I want to thank 
both the witnesses. I think that, as I mentioned, this is the 
important beginning of not only laying out the strategy but the 
implementation and execution.
    I believe it's very bipartisan if you saw from the number 
of Senators, both sides of the aisle, focusing on many of the 
same concepts, and to both of you, we're hoping that this 
really starts to begin to establish a policy that can be 
utilized and implemented for decades like the containment 
policy against the Soviet Union that was well-regarded, well-
accepted, and continued throughout Administrations.
    I think we're at the beginning of that moment in our 
country's history, and I think this hearing is a helpful 
beginning.
    So with that, the record will remain open for two weeks for 
this hearing. During this time, Senators may submit questions 
for the record. Upon receipt, we respectfully ask witnesses to 
submit their written answers as soon as they can back to this 
committee but by no later than Friday, August 14.
    I want to thank both of our witnesses again for appearing 
here, for the good work you're doing, for educating the broader 
American public on these challenges.
    We have a lot of work to do, but I think we're finally 
realizing the challenge and we're off to a good start.
    With that, this hearing is adjourned.
    [Whereupon, at 12:34 p.m., the hearing was adjourned.]

                            A P P E N D I X

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


   Response to Written Questions Submitted by Hon. Edward Markey to 
                          Hon. Michael Wessel
    Question 1. The pandemic has highlighted shortcomings in U.S. 
supply chain resiliency and demonstrated just how strong China's 
control over supplies has become in some sectors. While there is 
agreement on the need to address dependence on China for critical 
supply chains, Beijing is working actively to counteract such efforts. 
President Xi has said that protecting supply chains is one of China's 
six national priorities in the wake of COVID-19. How have other 
countries succeeded in diversifying and rehoming their supply chains?

   Supply chain realignment is in its early stages and will be 
        challenging to achieve. The United States and other countries 
        are just beginning to formulate and implement supply chain 
        reshoring and diversification initiatives. It is too early to 
        assess which governments have been successful on this score. 
        Unfortunately, with supply chains in China, the outsourcing and 
        offshoring that has occurred is also a result of deeply-
        embedded and supported industrial policies designed to promote 
        China's interests often at the expense of other countries. 
        While many of the dependencies have existed for some time, the 
        current pandemic has elevated attention on these issues in the 
        United States and in other nations.

   Some governments are making concerted efforts to mitigate 
        supply chain risks. Although the intricacy of global supply 
        chains and China's outsized role in global production make 
        supply chain restructuring highly complex, some governments are 
        taking proactive steps toward this end:

    a.  Taiwan: The Taiwan government has accelerated efforts to reduce 
            the Taiwan economy's reliance on China. The urgency of this 
            pursuit has elevated in recent years against the backdrop 
            of U.S.-China trade frictions and the COVID-19 pandemic in 
            2020. In July 2019, Taipei launched ``Invest Taiwan,'' a 
            three-year program incentivizing Taiwan firms, particularly 
            those with manufacturing operations in the Mainland, to 
            increase their domestic investment through preferential 
            loan financing, land rental concessions, assistance in 
            ensuring stable water and electricity supplies, and other 
            perks.\1\ Taipei set a target for the initiative to 
            generate $45.7 billion in domestic private sector 
            investment and create 118,000 new jobs by December 31, 
            2021.\2\ Taiwan is on track to meet these targets ahead of 
            schedule, with $36.8 billion in investment already 
            generated and more than 90,000 new jobs created as of late 
            August 2020.\3\ Taiwan businesses returning from China have 
            underpinned this success, accounting for nearly three 
            quarters ($26.6 billion) of total investment and 71.2 
            percent (64,232) of new jobs created.\4\
---------------------------------------------------------------------------
    \1\ Invest Taiwan, Three Major Programs for Investment in Taiwan 
(Chinese language). Translation. https://investtaiwan.nat.gov.tw/
showPagecht1135?lang=cht&search=1135; Taiwan's Executive Yuan, Three 
Major Programs for Investment in Taiwan--Government Encourages Taiwan 
Firms to Invest at Home (Chinese language), April 23, 2020. 
Translation. https://www.ey.gov.tw/Page/5A8A0CB5B41DA11E/af6d44ca-f3df-
467e-8538-b4213684bbf6.
    \2\ Taiwan's Executive Yuan, Three Major Programs for Investment in 
Taiwan--Government Encourages Taiwan Firms to Invest at Home (Chinese 
language), April 23, 2020. Translation. https://www.ey.gov.tw/Page/
5A8A0CB5B41DA11E/af6d44ca-f3df-467e-8538-b4213684bbf6.
    \3\ InvesTaiwan, Three Major Programs for Investment in Taiwan 
(Chinese language). Translation. https://investtaiwan.nat.gov.tw/
showPagecht1135?lang=cht&search=1135.
    \4\ Bryan Chuang, ``Taiwan Makers Invest Nearly NT$780 Billion 
Domestically,'' DigiTimes, July 28, 2020. https://www.digitimes.com/
news/a20200728PD203.html.

    b.  Japan: As part of a stimulus package deployed in April to 
            contain the COVID-19 pandemic's economic fallout, Tokyo 
            earmarked $2.2 billion to subsidize manufacters' relocation 
            of production out of China and diversify supply chain 
            risks.\5\ So far, 57 companies have received a total of 
            $535 million to open new factories in Japan while another 
            30 companies have received $220 million to expand 
            production in Vietnam, Myanmar, Thailand, and other 
            Southeast Asian countries.\6\ Separately, the Japanese 
            government has recently initiated discussions with the 
            governments of India and Australia to establish a 
            trilateral supply chain resilience initiative.\7\ According 
            to a joint statement issued by the trade ministers of each 
            country, the initiative will focus on ``enhancing the 
            resilience of supply chains in the Indo-Pacific region'' 
            and promoting a ``stable trade and investment 
            environment.'' \8\
---------------------------------------------------------------------------
    \5\ Isabel Reynolds and Emi Urabe, ``Japan to Fund Firms to Shift 
Production out of China,'' Bloomberg, April 8, 2020. https://
www.bloomberg.com/news/articles/2020-04-08/japan-to-fund-firms-to-
shift-production-out-of-china?sref=FlHD1WjR.
    \6\ Hiroyuki Akiyama, ``Japan Companies Line Up for `China Exit' 
Subsidies to Come Home,'' Nikkei Asian Review, September 9, 2020. 
https://asia.nikkei.com/Economy/Japan-companies-line-up-for-China-exit-
subsidies-to-come-home; Simon Denyer, ``Japan Helps 87 Companies to 
Break From China After Pandemic Exposed Overreliance,'' Washington 
Post, July 21, 2020. https://www.washingtonpost.com/world/asia_pacific/
japan-helps-87-companies-to-exit-china-after-pandemic-exposed-
overreliance/2020/07/21/4889abd2-cb2f-11ea-99b0-8426e26d203b_story
.html
    \7\ Pranab Dhal Samanta, ``India-Japan-Australia Supply Chain in 
the Works to Counter China,'' Economic Times, August 19, 2020. https://
m.economictimes.com/news/economy/foreign-trade/india-japan-australia-
supply-chain-in-the-works-to-counter-china/amp_articleshow/
77624852.cms.
    \8\ Japan's Ministry of Economy, Trade, and Industry, Australia-
India-Japan Economic Ministers' Joint Statement on Supply Chain 
Resilience, September 1, 2020. https://www.meti.go.jp/press/2020/09/
20200901008/20200901008-1.pdf.

   Companies are also restructuring their supply chains as 
        market conditions change. It is important to note that 
        companies themselves are already diverisyfing production and 
        supply lines away from China. Against the backdrop of NAFTA 
        renegotiations in 2017 and particularly the escalation of U.S.-
        China trade frictions in 2018, multinational companies are 
        moving to regionalize production around key markets. In the 
        automotive sector, for example, production is increasingly 
        hubbed around Mexico to serve North American consumers; eastern 
        Europe and Morocco to serve European consumers; and Southeast 
        Asia and China for Asian consumers.\9\
---------------------------------------------------------------------------
    \9\ Economist, ``Supply Chains for Different Industries Are 
Fragmenting in Different Ways,'' July 11, 2019. https://
www.economist.com/special-report/2019/07/11/supply-chains-for-differ
ent-industries-are-fragmenting-in-different-ways.

   The U.S. government is taking preliminary steps to bring 
        supply chains closer to home. In May 2020, the Trump 
        administration authorized the Development Finance Corporation 
        to execute loans using the Defense Production Act's Title III 
        authorities to shore up domestic production of strategic 
        resources needed to respond to the COVID-19 pandemic.\10\ 
        Adminsitration officials are also reportedly considering 
        establishing a $25 billion ``reshoring fund'' to subsidize U.S. 
        companies' movement of manufacturing activity out of China.\11\
---------------------------------------------------------------------------
    \10\ White House, ``EO on Delegating Authority Under the DPA to the 
CEO of the U.S. International Development Finance Corporation to 
Respond to the COVID-19 Outbreak,'' May 14, 2020. https://
www.whitehouse.gov/presidential-actions/eo-delegating-authority-dpa-
ceo-u-s-inter
national-development-finance-corporation-respond-covid-19-outbreak/.
    \11\ Andrea Shalal, Alexandra Alper, and Patricia Zengerle, ``U.S. 
Mulls Paying Companies, Tax Breaks to Pull Chains from China,'' 
Reuters, May 18, 2020. https://www.reuters.com/article/us-usa-china-
supply-chains/u-s-mulls-paying-companies-tax-breaks-to-pull-supply-
chains-from-china-idUSKBN22U0FH.

   But U.S. companies continue their China sourcing strategies 
        for a variety of reasons. U.S. businesses' deep commitment to 
        the Chinese market may frustrate U.S. policy efforts to reshore 
        production. In its September 2020 China Business Report, for 
        example, the American Chamber of Commerce in Shanghai found 
        just 4 percent of U.S. member companies surveyed plan to shift 
        production to the United States.\12\ Instead, more than three 
        quarters of these firms plan to stay in China.\13\ While 
        reaching China's consumers is a factor, the Chinese Communist 
        Party continues to pursue policies that prefer domestic 
        production to serve the market, rather than having an open and 
        fair import climate. Companies continue to be pressed to 
        produce there if they want to sell there, based on a variety of 
        formal and informal policies. It is notable that 46 percent of 
        China's exports emanate from foreign-invested enterprises.\14\ 
        China is still an export platform for many U.S. and 
        multinational firms.
---------------------------------------------------------------------------
    \12\ Bruce Einhorn, ``U.S. Businesses in China Not Heeding Trump's 
Call to Return Home,'' Bloomberg, September 9, 2020. https://
www.bloomberg.com/news/articles/2020-09-09/u-s-businesses-in-china-not-
heeding-trump-s-call-to-return-home?sref=FlHD1WjR.
    \13\ AmCham Shanghai, ``AmCham Shanghai Releases 2020 China 
Business Report,'' September 9, 2020. https://www.amcham-shanghai.org/
en/article/amcham-shanghai-releases-2020-china-business-report.
    \14\ Mary E. Lovely, testimony before the U.S.-China Economic and 
Security Review Commission, Hearing on Risks, Rewards, and Results: 
U.S. Companies in China and Chinese Companies in the United States, 
February 28, 2019. https://www.uscc.gov/sites/default/files/Mary%20
Lovely_Testimony.pdf.

    Question 2. In your testimony, you lay out robust recommendations 
for policymakers to address the challenges discussed at the hearing. In 
your view, what are the most important steps that Congress can take in 
---------------------------------------------------------------------------
the short term?

   Address critical U.S. dependence on pharmaceuticals from 
        China. As I noted in my testimony to the Committee, 80 percent 
        of active pharmaceutical ingredients (APIs) in U.S. 
        pharmaceuticals--key inputs into finished drugs--are sourced 
        from abroad, and China is the world's leading source of APIs. 
        Critical medicines like penicillin and doxycycline contain APIs 
        that originate from China and are no longer produced in the 
        United States. We are dependent on China for many life-saving 
        and life-sustaining drugs. Indeed, our U.S. dependence on China 
        for certain pharmaceutical ingredients is directly related to 
        potential COVID-19 treatments. For example, of the active 10 
        ingredients in Remdisivir, one of the therapeutics reportedly 
        showing promise for treating COVID-19, eight come from 
        China.\15\ Congress can play an important role in assessing the 
        productive capacity of the U.S. pharmaceutical industry and 
        identifying the risks of U.S. dependence on Chinese 
        pharmaceuticals and active ingredients. Therefore, the 
        Commission recommended in 2019:
---------------------------------------------------------------------------
    \15\ Mary Denigan-Macauley, written testimony for U.S. House of 
Representatives Subcommittee on Oversight and Investigations, Committee 
on Energy and Commerce, Hearing on Securing the U.S. Drug Supply Chain: 
Oversight of FDA's Foreign Inspections Program, December 10, 2019, 1.

    a.  Congress hold hearings assessing the productive capacity of the 
            U.S. pharmaceutical industry, U.S. dependence on Chinese 
            pharmaceuticals and active pharmaceutical ingredients 
            (APIs), and the ability of the U.S. Food and Drug 
            Administration (FDA) to guarantee the safety of such 
            imports from China, with a view toward enacting legislation 
---------------------------------------------------------------------------
            that would:

      i.  Require the FDA to compile a list of all brand name and 
            generic drugs and corresponding APIs that: (1) are not 
            produced in the United States; (2) are deemed critical to 
            the health and safety of U.S. consumers; and (3) are 
            exclusively produced--or utilize APIs and ingredients 
            produced--in China.

      ii.  Require Medicare, Medicaid, the U.S. Department of Veterans 
            Affairs, the U.S. Department of Defense, and other 
            federally funded health systems to purchase their 
            pharmaceuticals only from U.S. production facilities or 
            from facilities that have been certified by the FDA to be 
            in compliance with U.S. health and safety standards and 
            that actively monitor, test, and assure the quality of the 
            APIs and other components used in their drugs, unless the 
            FDA finds the specific drug is unavailable in sufficient 
            quantities from other sources.

      iii.  Require the FDA, within six months, to investigate and 
            certify to Congress whether the Chinese pharmaceutical 
            industry is being regulated for safety, either by Chinese 
            authorities or the FDA, to substantially the same degree as 
            U.S. drug manufacturers and, if the FDA cannot so certify, 
            forward to Congress a plan for protecting the American 
            people from unsafe or contaminated drugs manufactured in 
            China.

   Bring listing standards for Chinese companies in line with 
        those applied to U.S. companies. The Commision has longstanding 
        concerns about how Chinese companies use U.S. exchanges to 
        raise capital in significant amounts, which affords them 
        additional advantages that U.S. companies do not enjoy. In our 
        first hearing of this year's annual report cycle, expert 
        witnesses were unanimous in underscoring that existing U.S. law 
        enabling the delisting of Chinese issuers noncompliant with 
        U.S. accounting standards must be upheld and better enforced. 
        The lack of disclosure, oversight, and enforceability in 
        listing of Chinese companies on U.S. stock exchanges opens the 
        door to adverse activities such as insider trading and 
        accounting fraud, among other things.* Such issues 
        remain present in U.S. capital markets in 2020, as evidenced by 
        revelations of accounting fraud at Chinese headquartered and 
        formerly Nasdaq listed Luckin Coffee.\16\ Congress must act to 
        ensure compliance with U.S. listing standards and protect the 
        integrity of U.S. capital markets. To this end, in 2019, the 
        Commission recommended:
---------------------------------------------------------------------------
    \*\ For a comprehensive introduction to U.S. regulatory concerns 
regarding insufficient oversight of U.S.-listed Chinese companies, see 
Jay Clayton et al, ``Emerging Market Investments Entail Significant 
Disclosure, Financial Reporting and Other Risks; Remedies are 
Limited,'' U.S. Securities and Exchange Commission, April 21, 2020. 
https://www.sec.gov/news/public-statement/emerging-market-investments-
disclosure-reporting.
    \16\ Luckin Coffee, ``Luckin Coffee Announces Formation of 
Independent Special Committee and Provides Certain Information Related 
to Ongoing Internal Investigation,'' April 2, 2020. https://
investor.luckincoffee.com/news-releases/news-release-details/luckin-
coffee-announces-formation-independent-special-committee.

    a.  Congress enact legislation to preclude Chinese companies from 
---------------------------------------------------------------------------
            issuing securities on U.S. stock exchanges if:

      i.  The Public Company Accounting Oversight Board is denied 
            timely access to the audit work papers relating to the 
            company's operations in China;

      ii.  The company disclosure procedures are not consistent with 
            best practices on U.S. and European exchanges;

      iii.  The company utilizes a variable interest entity (VIE) 
            structure;

      iv.  The company does not comply with Regulation Fair Disclosure, 
            which requires material information to be released to all 
            investors at the same time.

   Strengthen our ability to analyze U.S.-China economic 
        relations. The development of approaches to preserve and 
        protect U.S. economic competitiveness will necessitate more 
        granular data on the profile of U.S.-China economic relations. 
        As I noted in my testimony, there are many questions concerning 
        the scope and scale of U.S. multinational firms' business in 
        China that are left unanswered by data aggregated by the U.S. 
        Department of Commerce. Enhanced collection of data on U.S.-
        China commercial ties will enable the United States to more 
        readily assess supply chain vulnerabilities with respect to 
        China and determine where we should prioritize our efforts to 
        strengthen economic resilience. The Commisson thus recommended 
        in 2019:

    a.  Congress enact legislation requiring the collection of data on 
        U.S.-China economic relations. This legislation would:

      i.  Direct U.S. economic statistics-producing agencies, including 
            the U.S. Census Bureau, the U.S. Department of Commerce's 
            Bureau of Economic Analysis, and the U.S. International 
            Trade Commission, to review methodologies for collecting 
            and publishing not only gross trade flows data, but also 
            detailed supply chain data to better document the country 
            of origin for components of each imported good before it 
            reaches U.S. consumers.

      ii.  Direct the U.S. Census Bureau to restart data releases in 
            its Current Industrial Reports at the ten-digit industry 
            level.

      iii.  Direct the U.S. Department of the Treasury to coordinate 
            with the U.S. Census Bureau to match U.S. firm-level data 
            with their U.S. employees' data.

    Question 3. Has the Trump administration done enough to work with 
partners and allies to build a coalition to oppose China's increasing 
power at international institutions, particularly when it comes to 
technology and business interests?

   Coordination with allies and partners is key to responding 
        to China's undue influence in international organizations. This 
        issue has not been given adequate attention. Disunity among the 
        United States and its European allies amid the election of the 
        Food and Agriculture Organization director-general in June 2019 
        enabled Beijing to split the vote and allow its preferred 
        candidate, Qu Dongyu, to secure 108 out of 191 votes from the 
        organization's 194 member countries.\17\ Contrastingly, ahead 
        of the March 2020 election of the director-general for the 
        World Intellectual Property Organization, the United States 
        coordinated its vote with key allies such as the United 
        Kingdom, Japan, and Australia to ensure Daren Tang, the Chief 
        Executive of the Intellectual Property Office of Singapore, won 
        the election.\18\ Such coordination must be sustained, as 
        Chinese officials currently hold leadership positions in four 
        out of 15 UN specialized agencies, far more than those from any 
        other country (see Table 1).
---------------------------------------------------------------------------
    \17\ Colum Lynch and Robbie Gramer, ``Outfoxed and Outgunned: How 
China Routed the U.S. in a UN Agency,'' Foreign Policy, October 23, 
2019. https://foreignpolicy.com/2019/10/23/china-united-states-fao-
kevin-moley/.
    \18\ David Ignatius, ``Trump's Pushback Against China Pays Off with 
an Important Win,'' Washington Post, March 10, 2020. https://
www.washingtonpost.com/opinions/global-opinions/us-dip
lomats-scored-a-quiet-but-important-win-against-china/2020/03/10/
64dd0fdc-62fb-11ea-845d-e35b0234b136_story.html.

                  Table 1: UN Special Agency Leadership
------------------------------------------------------------------------
                                        Leadership
           Organization                Nationality        Next Election
------------------------------------------------------------------------
Food and Agriculture Organization  Chinese              Jun. 2023
------------------------------------------------------------------------
International Civil Aviation       Chinese              Oct. 2022
 Organization
------------------------------------------------------------------------
International Fund for             Togolese             Feb. 2021
 Agricultural Development
------------------------------------------------------------------------
International Labour Organization  British              Nov. 2021
------------------------------------------------------------------------
International Maritime             South Korean         Nov. 2022
 Organization
------------------------------------------------------------------------
International Monetary Fund        Bulgarian            Nov. 2022
------------------------------------------------------------------------
International Telecommunications   Chinese              Nov. 2022
 Union
------------------------------------------------------------------------
United Nations Educational,        French               Oct. 2021
 Scientific and Cultural
 Organization
------------------------------------------------------------------------
United Nations Industrial          Chinese              Nov. 2021
 Development Organization
------------------------------------------------------------------------
Universal Postal Union             Kenyan               2020-TBD
------------------------------------------------------------------------
World Bank Group                   U.S.                 Apr. 2024
------------------------------------------------------------------------
World Health Organization          Ethiopian            May 2022
------------------------------------------------------------------------
World Intellectual Property        Singaporean          May 2026
 Organization
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World Meteorological Organization  Finnish              Dec. 2023
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World Tourism Organization         Georgian             Dec. 2021
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    Source: Various.\19\
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    \19\ World Intellectual Property Organization, ``Daren Tang of 
Singapore Appointed as WIPO Director General,'' May 8, 2020. https://
www.wipo.int/pressroom/en/articles/2020/article_00
11.html; Bishar A. Hussein, ``Postponement of 27th UPU Congress, 
Abidjan,'' April 20, 2020. http://www.upu.int/uploads/tx_sbdownloader/
circularLetterPostponementOf27ThUpuCongress
AbidjanEn.pdf; World Bank Group, ``David R. Malpass, 13th President of 
the World Bank Group,''2020. https://www.worldbank.org/en/about/people/
d/david-malpass; World Meteorological Organization, ``Petteri Taalas 
Secretary-General,'' 2020. https://public.wmo.int/en/about-us/
secretariat/petteri-taalas; International Civil Aviation Organization, 
``ICAO Assembly Elects New Council for Three-Year Term,'' October 1, 
2019. https://www.icao.int/Newsroom/Pages/ICAO-Assembly-elects-new-
Council-for-three-year-term-A40.aspx; International Monetary Fund, 
``Kristalina Georgieva,'' October 1, 2019. https://www.imf.org/en/
About/senior-officials/Bios/kristalina-georgieva; Food and Agriculture 
Organization, ``Candidates for the Post of FAO Director-General 
Announced,'' March 4, 2019. http://www.fao.org/news/story/en/item/1183
644/icode/; Julian Bray, ``Kitack Lim Wins Re-Election to Lead IMO amid 
Regulatory Upheaval,'' TradeWinds November 22, 2018. https://
www.tradewindsnews.com/legal/kitack-lim-wins-re-election-to-lead-imo-
amid-regulatory-upheaval/2-1-483743; International Telecommunications 
Union, ``Secretary-General,'' November 1, 2018. https://www.itu.int/
web/pp-18/en/home/electionResult; UN World Tourism Organization, ``New 
Year Message by UNWTO Secretary-General, Zurab Pololikashvili,'' 
January 5, 2018. https://www.unwto.org/global/press-release/2018-01-05/
new-year-message-unwto-secretary-general-zurab-pololikashvili; UN 
International Development Organization, ``Director General Re-Appointed 
for Second Term as 17th UNIDO General Conference Opens,'' November 27, 
2017. https://www.unido.org/news/director-general-re-appointed-second-
term-17th-unido-general-conference-opens; World Health Organization, 
``World Health Assembly Elects Dr Tedros Adhanom Ghebreyesus as New WHO 
Director-General,'' May 23, 2017. https://www.who.int/news-room/detail/
23-05-2017-world-health-assembly-elects-dr-tedros-adhanom-ghebreyesus-
as-new-who-director-general; International Labour Organization, ``Guy 
Ryder Re-elected as ILO Director-General for a Second Term,'' November 
7, 2016. https://www.ilo.org/global/about-the-ilo/newsroom/news/
WCMS_534283/lang--en/index.htm; Post and Parcel, ``Kenya's Bishar 
Hussein Elected As New UPU Director General,'' October 10, 2012. 
https://postandparcel.info/51121/news/breaking-news-kenyas-bishar-
hussein-elected-as-new-upu-director-general/; International Fund for 
Agricultural Development, ``IFAD Governing Council to Elect President 
for Next Four Years,'' September 24, 2012. https://www.ifad.org/en/web/
latest/news-detail/asset/39069474; UN Education, Scientific, and 
Cultural Organization, ``Director-General, Audrey Azoulay.'' https://
en.unesco.org/director-general.

   The Chinese government seeks to bring the UN system in line 
        with its preferences. Beijing's expanding leadership in 
        international organizations and subsequent accumulation of 
        geopolitical and economic influence threatens U.S. interests. 
        Beijing increasingly exploits this influence within UN 
        organizations to advance its political objectives, including 
        promotion of Chinese companies and technical standards and 
        marginalization of Taiwan.*
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    \*\ For example, in early 2020 Beijing exerted pressure on both the 
World Health Organization and International Civil Aviation Organization 
to suppress information about the novel coronavirus outbreak within 
China's borders and marginalize Taiwan from international coordination 
and global pandemic response. Anastasya Lloyd-Damnjanovic, ``Beijing's 
Deadly Game: Consequences of Excluding Taiwan from the World Health 
Organization during the COVID-19 Pandemic,'' U.S.-China Economic and 
Security Review Commission, May 12, 2020, 1.

    Question 4. What steps can the United States take to reassert U.S. 
influence, particularly in bodies that directly impact American 
businesses like the International Telecommunication Union (ITU) which 
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sets standards for communications technologies worldwide?

   The United States needs to first show up to reassert its 
        influence. In the United States and in international standards-
        making bodies, technical standards are developed in response to 
        commercial need and adopted by consensus. In contrast, Beijing 
        uses standards as a policy tool to elevate its technological 
        leadership. Beijing has been especially 
        active in international standards setting for technologies that 
        will support application of artificial intellifence, such as 
        the Internet of Things and 5G. Tactics deployed include placing 
        Chinese nationals or companies in leadership positions within 
        standards-setting bodies focused on connected technologies and 
        coordinating between firms to ensure their participation in 
        international processes is unified.\20\ This enables Beijing to 
        influence international norms to China's strategic and economic 
        advantage.\21\
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    \\ The Chinese government is expanding its presence in 
international standards-setting bodies to increase the adoption of 
Chinese technology abroad and shape how emerging technologies are 
deployed. China now leads 64 out of roughly 750 technical committees 
and subcommittees in the International Standards Organization, compared 
to 104 for the United States, and 11 out of 196 technical committees 
and subcommittees in the International Electrotechnical Commission, 
compared to 26 for the United States. As the Chinese government's 
prominence in such standard-setting bodies rises, it is able to 
undermine U.S. technological leadership. Adam Segal, written testimony 
for U.S.-China Economic and Security Review Commission, Hearing on A 
``China Model?'' Beijing's Promotion of Alternative Global Norms and 
Standards, March 13, 2020, 4-5.Cui Gang, ``Press Briefing on the 
Results of China's Standardization Reform and Development (Chinese 
language here),'' State Council Information Office, September 11, 2019. 
Translation. http://www.scio.gov.cn/xwfbh/xwbfbh/wqfbh/39595/41645/
zy41649/Document/1664162/1664162.htm; Eric Thun and Timothy Sturgeon, 
``When Global Technology Meets Local Standards: Reassessing China's 
Communications Policy in the Age of Platform Innovation,'' in Loren 
Brandt and Thomas G. Rawski, eds., Policy Regulation and Innovation and 
China's Electricity and Telecom Industries, Cambridge University Press, 
2019, 184-189, 207.
    \20\ John Chen et al., ``China's Internet of Things,'' SOSi Special 
Programs Division (prepared for the U.S.-China Economic and Security 
Review Commission), October 25, 2018, 69-81.)
    \21\ U.S.-China Economic and Security Review Commission, Hearing on 
Technology, Trade and Military-Civil Fusion, written testimony of 
Jeffrey Ding, June 7, 2019, 6-7.

   U.S. engagement in standards-setting needs to be both broad, 
        but also targeted. In order to determine where the United 
        States should prioritize engagement, policymakers must first 
        determine where Beijing's influence is most pervasive and 
        harmful to U.S. interests. To this end, in 2019, the Commission 
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        recommended:

     Congress direct the National Science Foundation, in 
            coordination with other agencies, to conduct a study on the 
            impact of the activities of Chinese government, state-
            sponsored organizations, or entities affiliated or 
            supported by the state in international bodies engaged in 
            developing and setting standards for emerging technologies. 
            The study should examine whether standards are being 
            designed to promote Chinese government interests to the 
            exclusion of other participants.

   U.S. participation in the global standards-setting process 
        must be sustained and appropriately funded. In our third 
        hearing of this year's annual report cycle, expert witnesses 
        underscored that the U.S. government should attach more 
        importance to its participation in international standards 
        setting processes moving forward. For example, Naomi Wilson, 
        Senior Director for Policy, Asia at the U.S. Information 
        Technology Industry Council, recommended the U.S. government 
        establish consistent standards participation as a U.S. priority 
        related to maintaining U.S. technological competitiveness and 
        innovation.\22\ Ms. Wilson also recommended ensuring multi-year 
        funding lines for U.S. government staff to participate in 
        standards bodies and streamline processes for their sustained 
        participation.\23\
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    \22\ Naomi Wilson, written testimony for U.S.-China Economic and 
Security Review Commission, Hearing on A ``China Model?'' Beijing's 
Promotion of Alternative Global Norms and Standards, March 13, 2020, 8.
    \23\ Naomi Wilson, written testimony for U.S.-China Economic and 
Security Review Commission, Hearing on A ``China Model?'' Beijing's 
Promotion of Alternative Global Norms and Standards, March 13, 2020, 8.
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                                 ______
                                 
   Response to Written Questions Submitted by Hon. Edward Markey to 
                             Dr. Rush Doshi
    Question 1. The pandemic has highlighted shortcomings in U.S. 
supply chain resiliency and demonstrated just how strong China's 
control over supplies has become in some sectors. While there is 
agreement on the need to address dependence on China for critical 
supply chains, Beijing is working actively to counteract such efforts. 
President Xi has said that protecting supply chains is one of China's 
six national priorities in the wake of COVID-19. How have other 
countries succeeded in diversifying and rehoming their supply chains?
    Answer. A number of countries have sought to ``reshore'' 
manufacturing currently in China or to diversify supply chains to 
markets outside China. Japan has subsidized exit from China for eighty-
seven companies, expending $2 billion on efforts to bring production 
back to Japan or to diversify it into Southeast Asia. Similar 
discussions are underway in the EU as well, with top officials 
discussing the possibility of reshoring or diversification of some 
critical industries. And of course, the United States is also 
considering a variety of instruments to promote reshoring and supply 
chain diversification, including through low-interest loans, corporate 
tax cuts, a dedicated fund, and proposals to pay 100 percent of a 
company's reshoring expenses.
    Most of these efforts at reshoring undertaken by other leading 
economies have not had great success yet. China retains significant 
advantages in manufacturing and continues to function as the world's 
workshop. Moreover, its large domestic economy means that many firms 
will retain capacity there for China's domestic market, even as they 
consider duplicating supply chains outside of China to serve foreign 
markets.
    Taiwan has attempted a fairly ambitions program of reshoring that 
has met with mixed success, but more than other economies. Taiwan's 
effort to develop a ``non-red supply chain'' offers the outlines of an 
approach the United States could adopt. To lure manufacturers back from 
China, Taiwan used a wide range of policy instruments that went far 
beyond tax credits and subsidies, relying on measures like rent 
assistance, cheap finance, land acquisition, and simplified provisions 
on reinvestment, among others. The effort self-consciously addressed 
what Taiwan calls its ``five shortages'': land, water, power, manpower, 
and talent to entice companies to return. Most critically, the 
initiative was housed in a dedicated office serving as a ``one-stop 
shop'' for manufacturers considering reshoring. The United States could 
create a similar single point of contact for its manufacturers to 
proactively work with businesses and to address a wide range of 
concerns beyond questions of credits and subsidies.

    Question 2. In your testimony, you lay out robust recommendations 
for policymakers to address the challenges discussed at the hearing. In 
your view, what are the most important steps that Congress can take in 
the short term?
    Answer. In the short term, there is much Congress could do 
immediately that does not require creating new government agencies or 
capacities. A technology ecosystem requires skilled workers and human 
capital as much as it does financial capital. The United States could 
increase funding for basic science research, ideally doubling it from 
.6 percent of GDP to something closer to 1.2 percent, though this would 
still remain below China's levels. In immigration, Congress could also 
(1) raise the cap on H1-B visas; (2) automatically grant green cards 
(exempt from green card caps) to postgraduate degree holders, 
particularly in STEM; and (3) emulate Canada's dedicated post-
graduation employment visa for international students. Foreign students 
flows to the United States have fallen in light of the coronavirus 
pandemic and visa restrictions. If the United States is to remain at 
the technological frontier, it needs to plan now to attract those 
students once more after the pandemic abates.
    Other recommendations in the testimony are also critically 
important, but because they involve creating new administrative 
capacity in some cases, they are more complex and less immediately 
implementable, and therefore may not qualify as ``short-term.''

    International Institutions. I am concerned that the United States 
has fallen sorely behind in terms of our engagement at international 
institutions, and with our allies, in support of our own interests. For 
instance, the decision to withdraw from the World Health Organization 
will leave the United States out of important public health decisions, 
such as the development of the seasonal flu vaccine, and hand China an 
even greater opportunity for influence.

    Question 1. Has the Trump administration done enough to work with 
partners and allies to build a coalition to oppose China's increasing 
power at international institutions, particularly when it comes to 
technology and business interests?
    Answer. I do not believe that the Trump administration has done 
enough to work with allies and partners to build a coalition to 
counteract China's increasing influence in international institutions. 
Four of fifteen UN special agencies are led by Chinese nationals, and 
no other country approaches this number. Some officials--like former 
undersecretary general for the UN Department of Economic and Social 
Affairs Wu Hongbo--have been explicit that they see themselves not 
primarily as international civil servants but more specifically as 
Chinese civil servants advancing Chinese interests.
    The U.S. agenda on international institutions is broad, but it is 
unique as an area of competition in that the United States need not 
invest enormous sums to be competitive. An agenda for the future should 
involve ratifying UNCLOS, contesting elections for leadership of key 
bodies (as the Trump administration did for the World Intellectual 
Property Organization), refusing to cede institutions to China (as the 
Trump administration did with its withdrawal from the UN Human Rights 
Council and World Health Organization), and paying attention to the 
composition of senior management at a given institution. We cannot 
exercise influence if we do not show up. This is doubly true for 
standard setting bodies and other UN agencies that focus on technology, 
business, or development where there are important implications for 
U.S. companies and workers.

    Question 2. What steps can the United States take to reassert U.S. 
influence, particularly in bodies that directly impact American 
businesses like the International Telecommunication Union (ITU) which 
sets standards for communications technologies worldwide?
    Answer. First, in standard setting bodies that involve states, the 
United States needs to engage them more vigorously, pay attention to 
the politics of their membership, consult closely with business--and, 
critically, ensure the United States government has offices with the 
capability and institutional memory to engage them effectively over the 
long term.
    Second, in bodies that primarily involve companies, the United 
States cannot be a bystander and leave decisions entirely up to 
industry. Instead, as China does, it should take efforts to work with 
U.S. industry and companies in allied and partner states, play a role 
in coordination among them, keep informed of the activities of Chinese 
companies within these bodies, and consider the implications of 
standards for security as well as the health of the industrial base. 
Not all standards will require U.S. government intervention, though 
others might. Knowing the difference is not possible without greater 
U.S. capacity and attention.
    Third, the United States should build democratic and allied 
technology coordination bodies that can collectively exert pressure and 
influence on other standard setting bodies when necessary. A ``D10'' or 
``D11'' as some have proposed would do this. While some fear that such 
ad hoc coalitions would fragment technology standards, these bodies 
need not adopt contradictory standards but simply threaten to do so in 
cases where standards evolve in ways unfavorable to democratic values 
or allied interests. The credible threat of exit can exert pressure. 
Moreover, when necessary, coordination prior to exit from another 
process can actually minimize fragmentation.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Dan Sullivan to 
                            Hon. Keith Krach
    For us to compete effectively, we have to have good people on the 
ground who can advance our economic and commercial partnerships. That's 
certainly true in every region, but especially in the Indo-Pacific. 
There have been calls for shifting more U.S. government personnel to 
the Indo-Pacific region, and that would include Econ Officers at the 
Department of State and Foreign Commercial Service officers--something 
I've looked at as Co-Chair of the Senate Foreign Service Caucus and an 
issue that was and addressed in SFRC Chairman Risch's recently 
introduced STRATEGIC Act.

    Question 1. What are both the Departments of State and Commerce 
doing to ensure that your personnel footprint matches the strategic 
importance of the Indo-Pacific region?
    Answer.

  1.  More than anything else we must lead while we amplifying American 
        values.

  2.  At State, we are shifting more personnel into that region from a 
        few other ones

  3.  Bringing in more Econ officers.

  4.  Significantly increasing the level of partnership, communication, 
        planning and leveraging strengths between State and Commerce. 
        We set a goal a year ago to make the level of partnership 
        between State and Commerce so tight that it would serve as the 
        role model of teamwork in the interagency. So far, I'm pleased 
        with the progress. Here is an example:

  5.  I launched with my partner Commerce Acting Under Secretary Joe 
        Semsar the first DC Central Deal Team on February 18 at the 
        State Department. The DC Central Deal Team is tracking, 
        promoting, and marshaling government support, to secure new 
        business opportunities for U.S. companies in key economic 
        sectors abroad. While U.S. government agencies have unique 
        mandates, I believe the whole is greater than the sum of its 
        parts and all the agencies share the common goal of 
        accelerating economic growth that is key to economic security. 
        The DC Central Deal Team is a new and proactive multi-agency 
        initiative. It will advance U.S. strategic economic interests 
        by: facilitating and identifying new business opportunities for 
        U.S. companies abroad; proactively supporting U.S. companies 
        competing for contracts; developing a common methodology and 
        sharing best practices for Embassy Deal Teams; ensuring 
        integration of the multiple programs at various U.S. government 
        agencies and financial entities to support U.S. companies 
        abroad. DC Central and Embassy Deal Teams are an important part 
        of establishing a level playing field for U.S. businesses and 
        taking economic statecraft to the next level. The agencies 
        represented in the DC Central Deal Team (DCC) include the 
        Departments of Agriculture, Commerce, Energy, State, 
        Transportation, and Treasury; the United States Agency for 
        International Development (USAID), the U.S. Trade and 
        Development Agency (USTDA), the Export-Import Bank of the 
        United States (EXIM), the U.S. International Development 
        Finance Corporation (DFC), and the Millennium Challenge 
        Corporation (MCC).

    President Trump has identified advancing a free and open Indo-
Pacific region as a top priority, and United States prosperity and 
security are inextricably linked to its future development and 
progress. The Department is optimizing its diplomatic presence and 
programmatic engagement in the region to: ensure the freedom of the 
seas and skies; insulate sovereign states from the coercion, cooption, 
and control of authoritarian nations; promote market-based economies, 
open investment environments, reciprocal trade, clean technology 
systems, and clean infrastructure; and support good governance and 
respect for human rights. The Department recently concluded a global 
review of strategic priorities and associated resource needs and, as a 
result, expects to internally realign a considerable number of 
positions to the region. The Department of State is working in close 
coordination with the Department of Commerce to advance economic 
interests in the Indo-Pacific.

    Question 2. What more needs to be done?
    Answer. Three critical things:

  1.  Leverage even more the innovation and resources of the private 
        sector, taking our partnership to the next level.

  2.  Further strengthen our relationships with our allies and 
        partners.

  3.  Build a trusted network of partners comprised of many like-minded 
        countries, companies, and civil society that operates under a 
        set of trust standards for all areas of economic collaboration.

    In the Department's recent global review of strategic priorities 
and associated resources, we identified the need to internally realign 
positions to the Indo-Pacific region. We may request additional 
resources to keep pace with strategic competitors in this critical 
region, including the President's $105 million FY 2022 request for 
regional programs. The Department is bolstering our efforts in the 
region, increasing our diplomatic engagement, amplifying our messaging, 
promoting the Clean Network, and expanding our programming. For 
instance, our economic diplomacy is promoting opportunities for U.S. 
firms to enter and compete in clean infrastructure projects through the 
Blue Dot Network and improving investment climates to facilitate free, 
fair, and reciprocal trade.

    Question 3. Do your Departments need any flexibility to make these 
shifts? How can Congress be helpful in that regard?
    Answer. Yes, thank you for asking.

  1.  The Department is grateful for the funding Congress has provided 
        us. In order to have the greatest impact with these funds 
        however, it is important that the funds have flexibility on how 
        and where they can be spent. Conditions change on the ground 
        extremely fast. The most important competitive weapon is speed. 
        Statutorily directed spending extremely limits our degrees of 
        freedom to direct funding to skillful use and slows us down in 
        deploying it. My recommendation is that you dramatically reduce 
        earmarks for funds dedicated to combat China's economic 
        aggression. We know what to do with these resources. The 
        current restrictions are a constant frustration for us and 
        impede our ability to get the job done.

  2.  In addition to speed, we need to be proactive on the ground. We 
        need to free up the time to do that. Congressionally mandated 
        reports are a big time consumer. My recommendation is that we 
        double down on efforts to combine reports or eliminate those 
        that no longer make sense, freeing up time for our economic 
        officers to conduct economic diplomacy in the field.

  3.  We continue to explore ways to further increase our linkages with 
        the private sector. I have run an experiment by bringing in 12 
        senior advisors from the private sector Silicon Valley and 
        teamed each one of them up with career officers. It is 
        synergistic and magical.

    Department leadership continually evaluates priorities and resource 
needs to determine where tradeoffs must be made to meet our strategic 
objectives, including in the Indo-Pacific region. Congress can support 
the Department's regional objectives by reinforcing with foreign 
governments, the private sector, and civil society our key goals there: 
preventing China from expanding its surveillance state and establishing 
regional hegemony; addressing the Democratic People's Republic of 
Korea's illicit nuclear and ballistic missile programs; and assisting 
our partner countries on their journeys to self-reliance. In addition, 
reducing statutorily directed spending and providing additional 
discretionary funding, as we are provided with in the Countering 
Chinese Influence Fund, is a useful mechanism that allows us to bolster 
our programs and is something Congress could consider using elsewhere.

    China is rolling out a network of corporate social credit systems. 
In 2018, the Civil Aviation Administration of China pressured multiple 
international airlines to change their websites' descriptions of 
Taiwan, threatening to lower their social credit records if they 
didn't. This issue is a major focus in the STRATEGIC Act introduced by 
Chairman Risch last week, and it's important to both the Foreign 
Relations Committee and this Committee.

    Question 4. What are the U.S. government's views on the corporate 
social credit system?
    Answer.

  1.  This is a great question because the implications are enormous. 
        The corporate social credit system also allows the CCP to 
        reward behavior that they want to see. So, for companies they 
        use it as a carrot and a stick.

  2.  There are two choices for companies, treat the symptom by having 
        companies game the system or attack the problem. This is the 
        aim of the Clean Network.

  3.  The Clean Network is the U.S. State Department's comprehensive 
        effort to address the long-term threat to data privacy, 
        security, human rights, and trusted collaboration posed to the 
        free world from authoritarian malign actors, such as the CCP. 
        The Clean Network is rooted in internationally accepted digital 
        trust standards and reflects our commitment to an open, 
        interoperable, reliable, and secure global Internet based on 
        shared democratic values and respect for human rights. This 
        effort represents the execution of a multi-year, enduring 
        strategy built on a coalition of trusted partners.

    The Chinese Communist Party (CCP) has explicitly described the 
corporate social credit system as a tool for ``enhancing China's soft 
power and international influence,'' and is another example of the 
willingness of the People's Republic of China to weaponize its economic 
leverage to coerce countries and companies to toe Beijing's political 
line. Just as the individual social credit system is intended to 
increase CCP control over all aspects of PRC citizens' lives, the 
corporate social credit system seeks to control the behavior of 
companies that do business in or with China. We oppose CCP efforts to 
extend its influence through intimidation and retaliation. That is why 
we are encouraging companies to join the Clean Network, which is 
intended to keep their critical technology systems and supply chains 
free from the control of malign actors, including the CCP.

    Question 5. How is it affecting U.S. companies?
    Answer.

  1.  Though the corporate social credit system remains in a pilot 
        phase, over 30 million entities already have been enrolled in 
        this system.

  2.  Once fully active, businesses with low corporate social credit 
        scores may be subject to more frequent audits and inspections 
        and may face exclusion from public procurement opportunities 
        and commercial incentive programs.

  3.  Several behaviors, ranging from tax fraud and sustained 
        noncompliance with environmental regulations to spreading false 
        information online, can result in a company's inclusion on a 
        blacklist.

  4.  Inclusion on the blacklist would effectively prevent a firm from 
        doing business in or with PRC firms. This is a prime example of 
        the CCP's strategy of seduce with money and reinforce with 
        intimidation and retaliation.

    Question 6. What role do you think the U.S. government should be 
playing when it comes to the Chinese government putting pressure on 
U.S. companies to comply with this system?
    Answer.

  1.  The U.S. government will continue using diplomatic and commercial 
        engagement to ensure U.S. companies enjoy fair treatment, a 
        level playing field, and reciprocal market access.

  2.  We will continue our work to build a Clean Network of companies 
        and countries that are free from the influence or control of 
        authoritarian malign actors, such as the Chinese Communist 
        Party.

  3.  To turn the tide, on April 29, 2020, Secretary Pompeo announced 
        that, as part of the 2019 National Defense Authorization Act, 
        the State Department will require a Clean Path for all 
        standalone 5G network traffic entering and exiting U.S. 
        diplomatic facilities at home and abroad. Last month, he 
        announced the expansion of the Clean Network to include Clean 
        Carrier, Clean Store, Clean Apps, Clean Cloud, and Clean Cable.

  4.  Momentum for the Clean Network initiative is accelerating. The 
        United States calls on our allies and partners in government 
        and industry around the world to join the growing tide to 
        secure our data from the CCP's surveillance state and China's 
        Great Firewall.

  5.  By building a coalition of partners, we will enhance efforts to 
        protect our citizens' data and our freedoms. The Clean Network 
        protects national security and preserves the open global 
        Internet. It maximizes connectivity without the risks from 
        untrusted vendors, counters the CCP's balkanization of apps 
        while safeguarding user data privacy, and takes down the CCP's 
        Great Firewall inside the U.S. that is censoring Americans' 
        free speech.

  6.  The network will provide strength in numbers to help all parties 
        overcome the threat of CCP retaliation or intimidation.

    In May, the White House published the U.S. Strategic Approach to 
the People's Republic of China announcing a multi-faceted posture 
towards China on several fronts. For the economic aspect, this strategy 
document announced a whole-of-government approach to support fair 
trade, advance U.S. competitiveness, promote U.S. exports, and break 
down unjust barriers. Part of accomplishing this, is the creation of an 
Economic Security Strategy, which, in my opinion, is long overdue.

    Question 7. In crafting our Economic Security Strategy, how do you 
view the security risk that is posed by China's ownership of over $1 
trillion in American debt?
    Answer.

  1.  People's Republic of China (PRC) ownership of U.S. debt, by 
        itself, does not pose a security risk. Countries hold U.S. debt 
        due to the soundness of the U.S. economy and the liquidity of 
        our debt instruments.

  2.  While the PRC owns a large amount debt in absolute terms, it only 
        owns approximately 15 percent of the U.S. debt held by 
        foreigners, five percent of U.S. debt held by the public, and 
        four percent of total U.S. debt outstanding.

  3.  Nonetheless, we should be prepared to ensure that the CCP does 
        not use this debt as an attempt to gain any sort of undue 
        leverage over the United States, including considering all 
        appropriate preemptive moves that signal we are serious about 
        protecting our financial markets and demanding a level playing 
        field as described in the question below.

    Question 8. By calling in our loans, is China able to use this 
credit as a pressure point for economic leverage over the United 
States?
    Answer. No, because the United States dollar is the world's reserve 
and settlement currency. There is ample demand for U.S. assets both 
domestically and internationally to limit the consequences to the 
United States of a PRC divestiture, and the United States is capable of 
managing any short-term market disruption. Moreover, the PRC stands to 
lose economically if it attempts to use this credit as a pressure 
point. Divesting a portion of its holdings of U.S. debt would depress 
the value of its remaining U.S. debt. If the PRC were to sell off all 
its holdings of U.S. debt at the same time, the resulting market 
disruption would likely damage the PRC's own economy and reduce the 
value of the People's Bank of China's foreign reserves.
    In addition, due to the United States' and the U.S. dollar's 
central roles in the global financial system, we have far more leverage 
than they do. Therefore, we can insist that PRC firms abide by the same 
standards of transparency that are required for U.S. companies in order 
to access U.S. financial markets. We need to do much more to safeguard 
our financial systems from the PRC's national securities laws designed 
to withhold critical audit papers for accounting oversight purposes in 
order to protect our citizens investments and create a level playing 
field for our companies. The President's Working Group of Financial 
Markets does not go into effect until 2022. In the meantime, I sent a 
letter to all U.S. CEOs and then another one to all the Governing 
Boards of American Universities and Colleges making them aware the 
risks associated with investing Chinese companies' stocks and emerging 
market index funds.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Rick Scott to 
                            Hon. Keith Krach
    Under Secretary Krach, we have seen Communist China employ an array 
of unfair business practices, like luring U.S. companies to the 
mainland China to force technology transfers. Some of these same U.S. 
companies operating in Communist China fear retribution from the 
government of they speak up against these practices.

    Question 1. Do you believe that our focus on short-term prosperity 
in dealing with Communist China has severely impacted the United 
States' long-term economic success?
    Answer.

  1.  Absolutely. The 800-pound elephant in the room is PRC retaliation 
        for companies as well as countries.

  2.  The CCP's doctrine is seduce with money and reinforce with 
        intimidation and retaliation. The CCP is a bully. Bullies back 
        down when they're confronted. They really back down when 
        they're confronted with your friends by your side.

  3.  The Department continues to expand coordination and joint efforts 
        with allies and partners. There is strength in numbers, and 
        power in solidarity and unity.

  4.  This is the beauty of the Clean Network comprised of like-minded 
        countries and companies. The CCP can't retaliate against all of 
        us at once. Their strategy has been to divide and conquer.

    As Secretary Pompeo recently noted, the United States for years 
allowed the PRC to engage in unfair business practices and exploit our 
country. It's time to see the PRC as it is, not as we wish it to be. 
This Administration has prioritized a global strategy that aims to both 
protect our national and economic security interests and ensure U.S. 
long-term economic success. We are strengthening U.S. economic 
competitiveness in key emerging technologies. We are protecting our 
firms and workers from unfair competition, rampant intellectual 
property theft, forced technology transfer, and infiltration from the 
CCP's surveillance state. And we are building networks of trusted 
partners--democracies and the private sector--to push back against 
unfair practices, and through the Clean Network, to ensure that our 
supply chains do not wittingly or unwittingly support PRC human rights 
violations and abuses.
    Under Secretary Krach, earlier this month you sent a letter to U.S. 
business leaders bringing attention to the Department of State's 
Xinjiang Supply Chain Business Advisory, where you state, ``corporate 
responsibility is social responsibility.''

    Question 2. Do you find it hypocritical that American companies, 
including some that have been in the news recently for fighting against 
``social injustices'', have spent years profiting off slave labor in 
China?
    Answer. No, because many leaders of U.S. companies have not been 
sufficiently aware of conditions in Xinjiang, China. I would point out 
three factors behind their lack of awareness:

  1.  Many of them had no idea of the magnitude and scope of horrific 
        human rights abuse and did not understand that the forced labor 
        is shipped all over China. (This was one of the purposes of the 
        business advisory that went out.)

  2.  U.S. Government officials had not previously reached out to them 
        directly about this matter in such a formal way. (That is why I 
        sent a letter directly to U.S. business leaders as well as to 
        all American universities drawing their attention to the issue 
        and the Supply Chain Business Advisory.)

  3.  They often lack detailed information because it is difficult to 
        conduct supply chain due diligence within China.

    As I stated in my recent letter to U.S. business leaders, all U.S. 
businesses have a moral and perhaps even a fiduciary duty to ensure 
that they are not doing business with Chinese firms that engage in or 
benefit from forced labor. Most U.S. businesses take seriously the law 
that prohibits importation of goods produced by forced labor into the 
United States. What has changed in recent years is that the Chinese 
Communist Party has engaged in large-scale human rights abuses against 
Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and members of other Muslim 
minority groups in Xinjiang, including forced labor involving members 
of these groups outside Xinjiang. The Supply Chain Business Advisory 
called attention to certain firms and entities that are complicit in 
these abuses, so that U.S. businesses can make informed decisions about 
with whom they do business and how to begin mitigating these risks. In 
order to mitigate potential reputational, operational and legal risks, 
businesses should implement human rights due diligence policies and 
procedures and should also consider disclosing their investments in or 
relationships with suspect Chinese firms and entities.

    Question 3. Did you receive any responses or outreach from the 
companies who received the letter?
    Answer.

  1.  Absolutely. The CEOs were very appreciative of the letter because 
        it was personal in nature and in the spirit of partnership from 
        someone who has been a Chairman/CEO of three public companies.

  2.  They also appreciated understanding the magnitude of the human 
        rights abuse and what the government's position and 
        recommendations are.

  3.  Also very enthusiastic response from trade associations as well 
        such as Trade groups Such as the U.S. Chamber of Commerce, 
        Motion Picture Association of America, PhRMA, National 
        Association of Manufacturers and others when they also 
        distributed the letter to their members.

  4.  Stripe CEO Patrick Collison tweeted ``As a U.S. business (and 
        tech) community, I think we should be significantly clearer 
        about our horror at, and opposition to, the atrocities being 
        committed by the Chinese government against its own people.''

  5.  It was a great exchange when I talked to the NBA CEO Adam Silver 
        about his experiences in Xinjiang. He shared the NBA's 
        governance policies and position on its training camp in 
        Xinjiang. So, it also educated me. I sent a similar letter to 
        all the Governing Boards of American institutions of higher 
        education but this time as the former Chairman of the Board of 
        Purdue University which also got tremendous pick up in the 
        press and TV.

        https://www.wsj.com/articles/state-department-urges-
        universities-to-disclose-
        china-stocks-held-in-index-funds-11598015636

        https://www.bloomberg.com/news/articles/2020-08-18/state-
        department-urges-
        colleges-to-divest-from-chinese-companies?sref=RfJLbe1B

        https://money.usnews.com/investing/news/articles/2020-07-02/
        state-depart
        ment-warns-top-us-firms-over-supply-chain-risks-linked-to-
        chinas-xinjiang

  6.  The University letter about the CCP threat covered the broad 
        implications for ensuring academic freedom, honoring human 
        dignity, protecting university endowments, and safeguarding 
        intellectual property.

  7.  AGB CEO sent out this tweet after he got my letter: ``We deeply 
        appreciate Under Secretary of State Krach's letter to the 
        Boards of our institutions and our partnership with the U.S. 
        Department of State, in dealing the authoritarian influence of 
        the Chinese Communist Party on our campuses,'' said Association 
        of Governing Boards' CEO Henry Stoever. ``As the former 
        Chairman of Purdue, Under Secretary Krach recognizes ensuring 
        academic freedom, honoring human dignity, protecting university 
        endowments, and safeguarding intellectual property is a 
        responsibility that sits squarely on the shoulders of all 
        institution's board members.''

    The response to the letter was overwhelmingly positive. U.S. 
businesses of all kinds have expressed their continued support and 
focus on identifying and eradicating forced labor from their supply 
chains. They want to make sure their operations adhere to U.S. values 
such as transparency, accountability and respect for human rights. As I 
often tell my team: U.S. business leaders are patriots.

    Question 4. How do you think U.S. companies should rethink their 
foreign supply chains?
    Answer. This is what I tell my fellow CEOs--keep five things top of 
mind:

  1.  Corporate responsibility is national security. You are an 
        American company first.

  2.  Demand reciprocity for how we treat foreign companies in the 
        United States.

  3.  Insist on transparency. For everything.

  4.  Never be overly dependent on one country.

  5.  Always get advice from the United States State Department and 
        Commerce Department. (Before I came to government, I had no 
        idea the level of resources available to U.S. businesses and, 
        conversely, how much the government needs advice from the 
        private sector.)

    COVID-19 has highlighted the risks of overreliance on single 
suppliers of goods that are critical to national security. The PRC has 
a long history of anti-competitive practices, including market access 
restrictions, subsidies, forced technology transfers, and intellectual 
property theft. These practices allow PRC companies to compete unfairly 
and create economic dependency that Beijing exploits to advance its 
political agenda. To protect our businesses and prosperity, it is 
essential that we diversify global supply chains by prioritizing 
investment not in countries with a record of predatory economic 
policies, but rather in countries where the rule of law is respected, 
where businesses can compete on a level playing field, and where 
institutions are accountable to citizens and consumers.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Edward Markey to 
                            Hon. Keith Krach
    Question. You described in your testimony the Administration's plan 
to form a group ``comprised of like-minded countries, companies, and 
civil society [organizations] that operate under a set of `trust 
principles.'' One of the principles you have mentioned is ``respect for 
the planet.'' Please explain how, specifically, environmental concerns 
will be translated into principles and implemented by the Economic 
Prosperity Network, the name you have previously used to describe such 
a group.
    Answer. In my testimony, I referenced several of the principles 
that underpin American values, including: integrity, accountability, 
transparency, reciprocity, respect for rule of law, respect for 
property of all kinds, respect for sovereignty of nations, respect for 
human rights, and respect for the planet. These principles are 
interrelated, each supporting the others. Respect for the planet 
requires adherence to these same principles. Environmental concerns 
feature prominently in our efforts to build a network or an alliance of 
democracies to oppose malign actions by the People's Republic of China 
(PRC).
    The PRC claims to be a ``torchbearer'' on global environmental 
issues, but the facts point to the opposite.

   Beijing is the largest emitter of numerous pollutants and 
        greenhouse gases, and irresponsibly exploits natural resources 
        around the globe, threatening the world's economy and 
        environment.

   The PRC is the largest source of plastic pollution, which 
        harms marine life and clogs the world's oceans. According to 
        its own experts, in 2017 the PRC released up to one million 
        tons of plastic waste into the ocean, and China's marine debris 
        costs the global economy billions of dollars each year.

   The PRC subsidizes the world's largest distant water fishing 
        fleet. Many PRC-flagged vessels engage in illegal, unreported, 
        and unregulated (IUU) and irresponsible fishing, stealing 
        resources from nations across the globe and further depleting 
        declining fish stocks.

    As Secretary Pompeo stated, it may be time for a new grouping of 
like-minded nations, a new alliance of democracies to advance 
international actions that push the PRC to change its problematic 
behaviors and hold it accountable. We work with partners and like-
minded countries to expose and push back against the PRC's harmful 
activities that diminish natural resources, create global health risks, 
and negatively impact economic prosperity globally. We expect this 
alliance to operate under the same set of trust principles that apply 
to all areas of economic collaboration.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Dan Sullivan to 
                          Hon. Nazak Nikakhtar
    For us to compete effectively, we have to have good people on the 
ground who can advance our economic and commercial partnerships. That's 
certainly true in every region, but especially in the Indo-Pacific. 
There have been calls for shifting more U.S. government personnel to 
the Indo-Pacific region, and that would include Econ Officers at the 
Department of State and Foreign Commercial Service officers--something 
I've looked at as Co-Chair of the Senate Foreign Service Caucus and an 
issue that was and addressed in SFRC Chairman Risch's recently 
introduced STRATEGIC Act.

    Question 1. What are both the Departments of State and Commerce 
doing to ensure that your personnel footprint matches the strategic 
importance of the Indo-Pacific region?
    Answer. Recognizing the importance of the Indo-Pacific region, the 
International Trade Administration (ITA) is reallocating resources to 
ensure that by the summer of 2021 it will add: a second Commercial 
Service Officer in Australia to engage on Pacific Island Country (PIC) 
outreach; a third Commercial Service Officer in Thailand to work on 
Thai and ASEAN matters; and a third Commercial Service Officer in 
Singapore to support commercial interests in the region. We are adding 
a Commercial Liaison detail to INDOPACOM in Honolulu in early FY21 to 
support expanded PIC outreach.
    Additionally, the Bureau of Industry and Security (BIS) has fully 
staffed a contingent of five new Export Control Officers (ECOs) in our 
embassies and consulates in the Indo-Pacific region, which includes two 
ECOs in Beijing, one in Hong Kong, one in Singapore, and one in New 
Delhi. These transitions are underway, consistent with travel 
restrictions related to COVID-19, and will ensure compliance with U.S. 
export controls in the region.
    With regard to the PIC outreach initiative, ITA is providing 
technical assistance to multiple congressional committees to enhance 
the U.S. presence in the PICs through a pilot project using Locally 
Engaged Staff (LES). Managed by ITA Senior Foreign Commercial Service 
Officers in Australia and Japan, the LES would focus on expanding U.S. 
commercial engagement in this strategic region by promoting U.S. 
exports, strengthening bilateral trade, and ensuring a strong U.S. 
commercial presence across the Indo-Pacific. The PIC pilot project 
would build upon ITA Asia's existing footprint in the Indo-Pacific 
region that currently covers 27 cities in 14 markets. Although the PIC 
pilot project would be a commercial diplomacy initiative intended to 
foster bilateral economic ties with, and American economic interests 
in, the PICs, it also would play an important role in broader U.S. 
efforts to counter strategic competitors and potential adversaries that 
are attempting to expand their spheres of influence in the Indo-Pacific 
region.
    The Administration has a forward-leaning agenda in the Indo-Pacific 
region. ITA's presence in overseas markets is needed to support that 
agenda. ITA is working with U.S. allies to advance bilateral, multi-
lateral and sector-specific initiatives that will ensure free and fair 
trade for U.S. businesses in the region. This includes efforts in the 
Asia-Pacific Economic Cooperation (APEC) to promote telehealth, 
cybersecurity, and data privacy. It also includes private sector 
engagement in the energy sector as part of the Asia Enhancing 
Development and Growth Through Energy initiative, or Asia EDGE (See 
below). These efforts to work with our allies and partners in the Indo-
Pacific region will strengthen our economic and national security 
relationships.
    In addition, the Department of State has recently completed its 
Strategic Staffing Initiative, which resulted in almost 100 positions 
realigned from within existing resources based on Administration 
priorities. Many of these realignments involved moving Political, 
Economic, and Public Diplomacy positions in the Indo-Pacific Region.

    Question 2. What more needs to be done?
    Answer. The Administration is implementing the Indo-Pacific 
Strategy as a whole-of-government strategy to champion the values that 
have served the Indo-Pacific so well: (1) respect for sovereignty and 
independence of all nations; (2) peaceful resolution of disputes; (3) 
free, fair, and reciprocal trade based on open investment, transparent 
agreements, and connectivity; and (4) adherence to international law, 
including freedom of navigation and overflight.
    Additionally, ITA is directly engaging with our Indo-Pacific 
partners to ensure that regional standards and regulatory practices for 
emerging technology allow U.S. companies to compete. As I mentioned in 
my statement, China is taking aggressive action in international 
bodies, such as standards organizations, to influence the development 
of technology markets. If Chinese practices are adopted across the 
region, it will put U.S. technology leadership at risk.
    Another way the United States can counter this risk is by 
participating in regional fora. ITA is working with APEC countries to 
foster policy discussions with regional partners that simultaneously 
allow technology markets to grow in a way that fits the needs of the 
partner country and also enable U.S. companies to continue to compete.
    The United States must also ensure U.S. companies have the 
information they need to compete for business in the region. As one 
example, ITA leads the Communications, Industry Engagement, and 
Outreach Sub-Committee of the Asia EDGE Secretariat. Asia EDGE is a 
whole-of-government effort to grow sustainable and secure energy 
markets in the Indo-Pacific. Further, ITA is currently hosting a 10-
part series of virtual workshops from June to December 2020 to deepen 
private sector engagement. The Asia EDGE Virtual Workshop Series 
convenes U.S. private sector stakeholders and U.S. Government (USG) 
officials across nine Federal agencies to: (1) ensure U.S. firms 
understand Asia EDGE priorities and current programming; (2) increase 
access to the strategic tools and resources available to U.S. companies 
pursuing energy projects in the Indo-Pacific region; and (3) leverage 
U.S. private sector feedback to inform future Asia EDGE programming.
    We are also leveraging our BIS colleagues in the region to enhance 
the effectiveness of export control implementation by our partners in 
the region, including through government capacity building, outreach to 
industry, and enforcement liaison.

    Question 3. Do your Departments need any flexibility to make these 
shifts? How can Congress be helpful in that regard?
    Answer. Within our existing authorities and appropriations, we are 
focusing our resources as appropriate on the Indo-Pacific region in 
support of the USG's strategy. We are working closely with the State 
Department, which has provided funding for the ITA-directed APEC 
programs noted above in question 2.

    Question 4. China is rolling out a network of corporate social 
credit systems. In 2018, the Civil Aviation Administration of China 
pressured multiple international airlines to change their websites' 
descriptions of Taiwan, threatening to lower their social credit 
records if they didn't. This issue is a major focus in the STRATEGIC 
Act introduced by Chairman Risch and it's important to both the Foreign 
Relations Committee and this Committee.
    What are the U.S. government's views on the corporate social credit 
system?
    Answer. We are very concerned by many aspects of China's corporate 
social credit system (CSCS), a Chinese program to use big data to track 
and score companies' behavior. First, there is, as Vice President Pence 
has pointed out, the Orwellian aspect of a system that seeks to rate 
and punish companies based on their `social behavior.' More 
specifically, we are concerned about the data protection implications 
of requiring firms to transfer the large amounts of data necessary to 
comply with the system; the system's potentially extraterritorial 
reach; the lack of transparency into how scores will be calculated, 
including lack of clear procedures to challenge an adverse score; the 
potential for the system to be misused to induce the production of 
information or changes to company policies that are disfavored by the 
Chinese Communist Party; and the cost and difficulty of compliance, 
including monitoring the compliance of suppliers and the possibility 
for numerous enforcement authorities to impose penalties for a single 
alleged compliance problem. The European Chamber of Commerce in China 
stated that this program could spell life or death for individual 
companies.
    The CSCS is situated within a broader ecosystem of Chinese laws and 
policies--including Military-Civil Fusion, the Cyber Security Law, the 
National Intelligence Law, and the National Security Law--designed to 
enhance the Chinese government's influence and its ability to access 
information held largely by the private sector. For example, CSCS 
intersects with Made in China 2025 (MIC 2025) because the next-
generation information technologies China is developing under MIC 2025 
will be integral to gathering data needed to support the CSCS. China's 
July 2019 Guiding Opinion on Accelerating the Building of the Social 
Credit system and Building a Credit-based Monitoring System focuses on 
making ``full use of next-generation information technologies such as 
big data and artificial intelligence to achieve comparable credit 
monitoring data.'' CSCS is also explicitly identified in the State 
Council's 2014 planning outline as a means of ``enhancing China's soft 
power and international influence'' and is intended to impact firms 
operating outside of China.

    Question 5. How is it affecting U.S. companies?
    Answer. U.S. companies operating in China are expected to meet the 
political demands of the Chinese Communist Party (CCP), but in recent 
years these demands have increased, which has increased the difficulty 
of operating in China. The CSCS is being implemented this year, and it 
is one of several recent legal initiatives aimed at augmenting the 
Chinese government's coercive exercise of power.
    Given this history of economic coercion and corporate intimidation, 
Beijing may very well use the CSCS to extraterritorially pressure 
companies to comply with party doctrine and penalize those companies 
that do not toe the CCP line. This system may be used against U.S. 
companies directly, by preventing them from being able to operate in 
China unless their behavior meets Chinese government standards. It 
could similarly be used against U.S. companies' employees, as a means 
of influencing or controlling their personal behavior.
    In practice, the CSCS could be used to further China's efforts to 
acquire data from foreign firms for reasons not directly related to the 
CSCS. The rating system could be leveraged as a means to acquire 
personal information and access intellectual property. Threatening a 
company with a low social credit score may compel companies to hand 
over information they would not otherwise have chosen to share or 
engage in other behaviors not otherwise in their interest.
    As noted, China's CSCS model may be applied beyond Mainland China. 
The recently passed Hong Kong National Security Law has also raised 
concerns that the CSCS will have serious implications for U.S. firms 
and Americans conducting business in the financial hub.

    Question 6. What role do you think the U.S. government should be 
playing when it comes to the Chinese government putting pressure on 
U.S. companies to comply with this system?
    Answer. The Administration continues to press China to on market 
principles, and compliance with principles of fair trade, the rule of 
law, transparency, and the right to privacy.
    However, as I noted in my testimony, because China is a sovereign 
state, foreign laws may never be sufficient to fully address China's 
predatory conduct. It is also not an actor that has shown a great 
interest in adhering to international laws. Part of the USG response 
must include decreasing the United States' overall reliance on China so 
that the impact of programs like the CSCS on U.S. firms and people can 
be minimized. Protecting the innovations, creations, and inventions 
that power our country are vital to our economic prosperity and 
national security. This Administration is committed to keeping 
persistent pressure on China to keep it from taking advantage of the 
United States.

    Question 7. In November 2019, the Bureau of Economic Analysis at 
the U.S. Department of Commerce announced it would solicit new 
information in its surveys of U.S. multinational enterprise activity 
abroad, including on R&D employment and sales of digital services such 
as cloud computing.
    How will the resulting data and information collected enable the 
U.S. government to better assess U.S.-China commercial ties?
    Answer. The Bureau of Economic Analysis (BEA), a statistical 
agency, conducts surveys of U.S. multinational enterprises to collect 
detailed information about their U.S. and foreign activities that is 
used to produce and publish economic statistics on foreign direct 
investment. The mandatory annual and benchmark surveys collect 
financial and operating data for U.S. parent companies and their 
foreign affiliates in all countries where they operate. Data items 
include employment and compensation of employees; property, plant, and 
equipment; research and development expenditures; balance sheet and 
income statement details; sales or gross operating revenues; and data 
used to calculate value added. The statistics are needed to understand 
and evaluate the impact of the activities of U.S. multi-national 
enterprises (MNEs) on the economies of the United States and foreign 
host countries. They help business leaders make more informed 
investment decisions, aid policymakers' decisions on international 
trade and investment policy, and have been extensively used by the 
academic research community. The data are collected for statistical 
purposes only and the information on individual companies is 
confidential by law.
    For the 2019 benchmark survey of U.S. direct investment abroad that 
is currently underway, BEA added questions about collaborative R&D 
agreements, such as cost-sharing agreements, and revenues related to 
the provision of digital services. The questions about R&D agreements 
will provide information on the production and use of intellectual 
property in global value chains, and the questions related to digital 
services will contribute to BEA's ongoing efforts to measure the 
digital economy. These questions, like all others on the survey, are 
collected from foreign affiliates in all countries, including China. 
This is the first time these data will be collected on the survey, and 
BEA will assess the robustness of the data before deciding how best to 
present them in its publications and whether to continue collecting 
these measures in the future.

    Question 8. Is there other information the U.S. government ought to 
be soliciting from U.S. companies operating in China?
    Answer. BEA regularly updates the content of its surveys to provide 
relevant and timely information to meet the evolving needs of data 
users in understanding the activities and economic significance of 
multinational enterprises. For example, in past benchmark surveys BEA 
has collected additional destination information on foreign affiliate 
sales and information on contract manufacturing services, based on 
suggestions by data users. BEA consults with key users in the academic 
and business communities, as well as users from across the government, 
and these efforts are particularly comprehensive during the planning 
stages of benchmark surveys, conducted once every five years. Changes 
to the survey are submitted to OMB for approval and are highlighted in 
notices published in the Federal Register to solicit public comment. In 
reaching decisions on what questions to include in the survey, BEA 
considers the government's need for the data and resources for 
processing the data, the burden imposed on respondents, the quality of 
the likely responses (e.g., whether the data are readily available on 
respondents' records), and BEA's experience in previous surveys.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Rick Scott to 
                          Hon. Nazak Nikakhtar
    Question 1. Assistant Secretary Nikakhtar, our Nation has become 
too reliant on imports from adversaries like Communist China, which was 
become even more apparent in this pandemic. I believe we can no longer 
rely on countries like Communist China for our critical supply chains 
like PPE, and we can no longer accept Chinese technology that could be 
used to spy on us.
    In your opinion, are there other industry sectors where the United 
States is overly reliant on the global supply chain that we should be 
addressing? If so, what are they?
    Answer. The International Trade Administration (ITA) is analyzing 
critical supply chains and overall industry competitiveness, performing 
assessments of industries weakened by predatory import competition and 
foreign direct investment practices, and developing policy 
recommendations. This work has been used to develop U.S. policy 
responses on a range of topics, from Section 301, to solutions to 
encourage U.S. 5G competitiveness, to addressing vulnerabilities in the 
national security supply chain. In many cases, this work ties directly 
back to Chinese government activities that impede the competitiveness 
and national security of the United States. In this context, we are 
also leading the Administration's reshoring initiative, including 
working through ITA's SelectUSA unit to leverage interagency efforts 
and engage companies to encourage them to reshore supply chains to the 
United States.
    Supply chain resiliency concerns have been brought to the spotlight 
by COVID-19. I note that Senators Portman and Peters recently proposed 
legislation to address U.S. vulnerabilities in PPE such as masks and 
gloves. Our dependence on China for a range of health and safety 
products remains an issue of national concern, and we are working to 
resolve this through our reshoring strategy.
    It is worth noting that Chinese companies, strongly supported by 
Chinese government policies--including distorted domestic prices, 
intellectual property misappropriation, and enormous subsidization--
dominate global production in key areas. Below are some areas where my 
office is working with other USG agencies and the private sector to 
advance U.S. industry competitiveness and domestic supply chain 
resilience:

    Advanced Energy Storage: Chinese companies, strongly supported by 
Chinese government policies, dominate global production for lithium-ion 
batteries for electric vehicles, for example. ITA's Industry and 
Analysis unit is currently working with the Department of Energy and 
others on policy options for encouraging the advanced energy storage 
industry in the United States.
    Critical Minerals: As we stated in the Department of Commerce's 
2019 report A Federal Strategy to Ensure Secure Reliable Supplies of 
Critical Minerals, the United States is highly dependent on imports of 
some critical minerals. The Commerce Department has been working 
holistically to support the six calls to action laid out in that 
report.
    Large Power Transformers and High Voltage Circuit Breakers: The USG 
has had long-standing concerns about large power transformers (LPTs) 
due to their criticality to the bulk power system and their difficulty 
to replace. High Voltage Circuit Breakers are critical to the safe and 
reliable operation of the bulk power system at both the transmission 
and sub-transmission system.
    On May 1, the President signed Executive Order No. 13920 on 
``Securing the United States Bulk-Power System,'' which prohibits 
acquisitions of LPTs and other ``bulk-power system electric equipment 
designed, developed, manufactured, or supplied, by persons owned by, or 
controlled by, or subject to the jurisdiction or direction of a foreign 
adversary'' when the transaction is determined to pose an undue or 
unacceptable risk to national security or the security and safety of 
U.S. persons. High voltage circuit breakers also fall within the scope 
of this Executive Order, which applies to acquisitions by both public 
and private sector entities. The Secretary of Energy is tasked with 
implementing this Executive Order, and in the coming months the 
Department of Energy's Office of Electricity will coordinate with 
Commerce and other interagency counterparts listed in the Executive 
Order to formulate rules and procedures for implementation.
    Semiconductors: The semiconductor industry is critical to U.S. 
economic growth, underpinning many of the advanced technologies that 
consumers depend on including smart phones, transportation safety 
applications, advanced medical devices, and telecommunications. TSMC's 
announced investment in the United States will reinforce American 
leadership in cutting-edge semiconductor design and manufacturing and 
will further accelerate Arizona's rise as a global hub for the 
technology industry.
    Civil Nuclear: China and Russia's efforts to displace the United 
States in the international civil nuclear market are detrimental to 
global nonproliferation, safety, and security culture and harm U.S. 
national security, the U.S. economy, and U.S. influence in the global 
energy sector. ITA supports the policy recommendations noted in the 
Department of Energy's Strategy to Restore American Nuclear Energy 
Leadership. We will work with other USG agencies to implement these 
recommendations. Action on the Report's recommendations will help to 
revitalize and strengthen the U.S. civil nuclear industry so that it 
can compete effectively in the global civil nuclear energy market.
    Solar Energy: The United States is the second largest consumer of 
solar power in the world but is largely dependent on China for the 
solar panels (modules) that are being deployed throughout the country. 
Due in part to the Section 201 safeguard remedy, for which President 
Trump signed a Presidential Proclamation in January 2018, solar module 
manufacturing is making a comeback in the United States. However, these 
U.S. manufacturers still struggle to compete with the massive scale of 
Chinese manufacturing and injurious Chinese imports, despite the huge 
domestic demand for solar.

    Question 2. Beyond additional Federal spending when our Nation is 
already severely in debt, what actions or policies can we implement to 
incentivize the growth of U.S. industry bases and further U.S. 
competitiveness?
    Answer. Many of the actions the Administration has taken over the 
past four years were designed to incentivize the growth of U.S. 
industries. This includes enforcing our trade laws to protect our 
industries against the predatory practices of foreign governments, 
negotiating new trade agreements to ensure free and fair trade between 
nations, and removing burdensome, unnecessary regulations that make our 
companies less competitive. In addition, the Department of Commerce 
provides a robust set of products and services to U.S. businesses and 
our state and local partners to help U.S. companies compete and win in 
the international marketplace.
    From technical assistance and development grants to export support 
and supply chain analysis, the Commerce Department is at the forefront 
of providing American businesses and workers with the resources needed 
to support the growth of U.S. industry bases and further U.S. 
competitiveness. The Department of Commerce will continue to identify 
new and effective ways to leverage its existing resources to advance 
these important objectives.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Edward Markey to 
                          Hon. Nazak Nikakhtar
    Question 1. Has the Department of Commerce identified the relevant 
international laws and agreements to which China is viewed to be 
noncompliant? If so, which international laws and agreements are 
included?
    Answer. The Administration has published many documents detailing 
China's unfair practices that impact U.S. businesses. The Commerce 
Department provided significant input to the Office of the United 
States Trade Representative's (USTR) Section 301 Report into China's 
Acts, Policies, and Practices Related to Technology Transfer, 
Intellectual Property, and Innovation, published in March 2018. Further 
information on China's practices with respect to intellectual property 
are described in the 2020 Special 301 report also published on USTR's 
website.
    The Commerce Department is a key part of the Administration's work 
in closely monitoring China's compliance with its international trade 
obligations. For example, the 2020 National Trade Estimate Report 
devotes 26 pages to outlining China's trade practices of concern. Even 
more detail is provided in USTR's 128-page annual report on China's 
World Trade Organization Compliance. The Administration has not 
hesitated to challenge Chinese practices that violate China's WTO 
obligations, and in fact has pursued a number of WTO dispute settlement 
cases against China for failure to comply with its WTO obligations, 
ranging from China's antidumping and countervailing duty actions to its 
agricultural subsidies to its restrictions on electronic payment 
services to its restrictions on the export of important raw materials. 
Examples of cases include:

   That China's unilateral decision to adopt retaliatory duty 
        and tariff measures on 3 billion dollars-worth of U.S. products 
        violated the General Agreement on Tariffs and Trade (GATT) 
        1994's Article I:1 most-favored nation provision and Article 
        II:1(a) and (b). This matter is still pending in the WTO.

   That China's insufficient and discriminatory intellectual 
        property protection for foreign right holders violated Articles 
        3, 28.1 & 28.2 of the Trade-Related Aspects of Intellectual 
        Property Rights (TRIPS) Agreement. This matter is still pending 
        in the WTO.

   That China's subsidies to domestic producers of primary 
        aluminum violated Articles 5(c), 6.3(a), 6.3(b), 6.3(c) and 
        6.3(d) of the Agreement on Subsidies and Countervailing 
        Measures (SCM Agreement), and Article XVI:1 of the GATT 1994. 
        This matter is still pending in the WTO.

   That China's administration of tariff rate quotas (TRQs) on 
        wheat, short-and medium-grain rice, long-grain rice, and corn 
        violated Article X:3(a), XI:1, and XIII:3(b) of the GATT 1994 
        and Part 1 of China's Protocol of Accession. In particular, the 
        United States argued that China failed to administer its TRQs 
        in a transparent, predictable, and fair basis, and failed to 
        clearly specify requirements and administrative procedures in a 
        manner that would not inhibit the filling of each TRQ. The WTO 
        Panel agreed with the U.S. complaint in part.

   That China's ``market price support'' and subsidies program 
        for domestic agricultural producers, which exceeded the level 
        set out in Section I of Part IV of China's Schedule of 
        Concessions on Goods (CLII), violated Articles 3.2., 6.3, and 
        7.2(b) of the Agreement on Agriculture. The WTO Panel agreed 
        with the U.S. complaint in full.

   That China's export duties and quantity restrictions on 
        various forms of antimony, cobalt, copper, graphite, lead, 
        magnesia, talc, tantalum, and tin violated Part 1 of China's 
        Accession Protocol. This matter is still pending in the WTO.

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