[Joint House and Senate Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
HOW CHINA USES ECONOMIC COERCION TO
SILENCE CRITICS AND ACHIEVE ITS POLITICAL
AIMS GLOBALLY
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HEARING
BEFORE THE
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 7, 2021
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Printed for the use of the Congressional-Executive Commission on China
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at www.cecc.gov or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-272 PDF WASHINGTON : 2022
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CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
LEGISLATIVE BRANCH COMMISSIONERS
Senate House
JEFF MERKLEY, Oregon, Chair JAMES P. McGOVERN, Massachusetts,
DIANNE FEINSTEIN, California Co-chair
MARCO RUBIO, Florida CHRISTOPHER SMITH, New Jersey
JAMES LANKFORD, Oklahoma THOMAS SUOZZI, New York
TOM COTTON, Arkansas TOM MALINOWSKI, New Jersey
STEVE DAINES, Montana BRIAN MAST, Florida
ANGUS KING, Maine VICKY HARTZLER, Missouri
JON OSSOFF, Georgia RASHIDA TLAIB, Michigan
JENNIFER WEXTON, Virginia
MICHELLE STEEL, California
EXECUTIVE BRANCH COMMISSIONERS
Not yet appointed
Matt Squeri, Staff Director
Todd Stein, Deputy Staff Director
(ii)
C O N T E N T S
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Statements
Page
Opening Statement of Hon. Jeff Merkley, a U.S. Senator from
Oregon; Chair, Congressional-Executive Commission on China..... 1
Statement of Hon. Chris Smith, a U.S. Representative from New
Jersey......................................................... 2
Statement of Hon. Thomas Suozzi, a U.S. Representative from New
York........................................................... 4
Statement of Bonnie Glaser, Asia Program Director, German
Marshall Fund of the United States............................. 6
Statement of Zack Cooper, Senior Fellow, American Enterprise
Institute...................................................... 8
Statement of Jenny Wang, Senior Strategy and Research Associate,
Human Rights Foundation........................................ 9
Statement of Ho-fung Hung, Henry M. and Elizabeth P. Wiesenfeld
Professor in Political Economy, Johns Hopkins University....... 10
APPENDIX
Prepared Statements
Glaser, Bonnie................................................... 35
Cooper, Zack..................................................... 40
Wang, Jenny...................................................... 45
Hung, Ho-fung.................................................... 50
Merkley, Hon. Jeff............................................... 56
McGovern, Hon. James P........................................... 57
Submissions for the Record
Question for the Record from Senator Ossoff for Ho-fung Hung..... 58
CECC Truth in Testimony Disclosure Form.......................... 59
Witness Biographies.............................................. 60
(iii)
HOW CHINA USES ECONOMIC COERCION TO SILENCE CRITICS AND ACHIEVE ITS
POLITICAL AIMS GLOBALLY
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TUESDAY, DECEMBER 7, 2021
Congressional-Executive
Commission on China,
Washington, DC.
The hearing was held from 10:00 a.m. to 11:54 a.m. in Room
106, Dirksen Senate Office Building, Senator Jeff Merkley,
Chair, Congressional-Executive Commission on China, presiding.
Also present: Senators Rubio, Lankford, Ossoff, and Daines,
and Representatives Smith, Suozzi, Steel, Wexton, and Mast.
OPENING STATEMENT OF HON. JEFF MERKLEY, A U.S. SENATOR FROM
OREGON; CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
Chair Merkley. Good morning. Today's hearing of the
Congressional-Executive Commission on China entitled ``How
China Uses Economic Coercion to Silence Critics and Achieve Its
Political Aims Globally'' will come to order.
As the second-largest economy in the world and the largest
trading partner to many countries, China leverages the
attraction of its market and the global economy's deep ties to
supply chains in China to punish critics and reward self-
censorship. This hearing will examine the ways the Chinese
government and Communist Party attempt to use economic coercion
for political aims, such as quashing critical commentary on
China's policies and conduct regarding Taiwan, regarding Hong
Kong, regarding Xinjiang, or anything else China deems
sensitive, or intimidating U.S. and other businesses into
toeing the Communist Party line if they want access to China's
market.
Increasingly, those that run afoul of these aims can see
their products targeted, from Australian wine to Norwegian
salmon to Philippine bananas to Taiwanese pineapples. The
Chinese government has also ramped up the intensity of its
coercive behavior, as seen in its wide-reaching campaign
against Australia in response to calls for an independent
inquiry into the origins of COVID-19. This Commission has also
been on the receiving end of formal sanctions, just like other
parliamentarians, government officials, non-governmental
organizations, researchers, and others who speak out against
human rights abuses in China.
For this Commission, like many groups around the world, the
intimidation, harassment, and economic coercion directed at
critics of the Chinese government and Communist Party only
reinforces our resolve to shine a light on this behavior. But
for many other groups, the threat of retaliation by the Chinese
government or market casts a very long shadow. Earlier this
year, the Commission held a hearing with the top U.S.-based
sponsors of the Olympic Games. Even after being confronted with
many of the most egregious human rights violations of this
century, the companies' testimony largely served to demonstrate
how the pull of the Chinese market continues to incentivize
self-censorship.
That's because it's not easy to stand up to a government so
willing to use its country's economic clout as a cudgel to
bully individuals, corporations, and sovereign states. We saw
this dynamic in action in recent weeks when a Marriott hotel in
Prague turned away the World Uyghur Congress because of
concerns about ``political neutrality.'' Yet not everybody is
cowed into silence by the bullying. The recent actions by the
Women's Tennis Association to suspend tournaments in China in
response to the treatment of Chinese tennis star Peng Shuai
inspire me and inspire many members of this Commission.
Clearly this is an evolving landscape. For the United
States to be able to defend American businesses and citizens
from censorship and intimidation or to work with other
countries to help insulate one another from coercive economic
tools that undermine basic political rights, we need to better
understand the nature, the scale, and the scope of this
challenge. We need to identify the tools that will be effective
in response--and those that won't be effective--as well as
where China's economic coercion is headed.
Those are the questions we're hoping to grapple with in
this hearing. The panel of experts we'll hear will help us do
that. Today's witnesses will shed light on the range of
measures China employs, on pertinent trends, on particular
impacts on U.S. businesses, on the risky environment Hong Kong
is becoming for multinational corporations, and on
recommendations for policymakers in the United States and
globally. Just as last month's hearing on techno-
authoritarianism highlighted the ways in which China exports
authoritarian values through technology, this hearing will
examine the ways in which it exports and imposes authoritarian
values through trade and business ties. I look forward to
learning from our expert witnesses how we can resist the
erosion of civil, political, and human rights threatened by
these developments.
I'd now like to recognize Congressman Smith for his opening
remarks.
STATEMENT OF HON. CHRIS SMITH,
A U.S. REPRESENTATIVE FROM NEW JERSEY
Representative Smith. Mr. Chairman, thank you very much for
convening this very important hearing. Mr. Chairman, as we all
know, the motto of the 2022 Beijing Olympic Games is ``Together
for a Shared Future,'' ostensibly expressing an ideal of global
solidarity and good will that is cherished globally. No one
betrays this motto more flagrantly and violently than the
Chinese Communist Party.
With its increased global stature and power, the People's
Republic of China has been given an opportunity to become a
responsible member of the global community, although my
reservations have never abated. During forty-one years in
Congress, I have had deep concerns about the Chinese Communist
Party, and indeed, I chaired four congressional hearings--the
first 22 years ago, on December 8, 1999, on why China should
not be accepted into the WTO until systematic human rights
violations that are pervasive were stopped. Yet, the global
community, from businesses, to governments, to the
International Olympic Committee, continues to welcome China
with open arms.
Unfortunately, the PRC has used its power and stature to
coerce as a means to achieve their ends, what the CCP deems as
fitting Chinese national interests, at the expense of fair and
transparent international relations, giving the lie to the
saccharine sweet ``shared future'' Olympic Games rhetoric. We
used to worry about the PRC cultivating soft power and
persuasive policy tools, and that is a concern. But that worry
was misplaced. There is nothing soft about the CCP's
increasingly naked tactics of economic coercion. As our expert
witnesses will likely tell us today, the PRC's first notable
act of economic retaliation occurred in 2010 as China blocked
salmon imports from Norway after the Nobel Committee awarded
the Peace Prize to Chinese human rights activist Liu Xiaobo.
For the Philippines, teeth were bared after the country
confronted China in 2012 at Scarborough Shoal in the South
China Sea. The Philippines discovered that its tropical fruit
exports to China were quarantined due to alleged infestation.
Mongolia was targeted after hosting the Dalai Lama. For South
Korea, the economic retaliation came after deploying the U.S.
missile defense system. For the U.K., it was for supporting
pro-democracy protesters in Hong Kong, while China retaliated
against the Czech city of Prague for signing a sister-city deal
with Taipei. Hardly a week goes by without some reporting of
Chinese economic coercion. The most recent targets seem to be
Australia and Lithuania, and on multiple fronts. In sum, the
list just keeps growing and it's not just restricted to any
certain industry or region.
Indeed, perhaps countries could take heart from the brave
resistance to the PRC by Lithuania, a country that suffered
firsthand from the degradations of communism. Because of the
openness and closer ties with Taiwan, and its withdrawal from
the Beijing-led 17+1 group of mostly Central and Eastern
European countries, the PRC has stopped clearing exported goods
from Lithuania through customs and has interfered with the
workings of the Lithuanian embassy in Beijing, in violation of
the Vienna Convention on Diplomatic Relations.
Rather than buckling under, Lithuania announced that its
officials would not be attending the genocide Olympic Games in
Beijing. Indeed, perhaps Lithuania would have gone even further
had the U.S. led by example and fully boycotted the genocide
Olympics unless the venue were moved from the PRC to another
country. If the Chinese Communist Party truly desired to lead
globally, it would cultivate trust and friendship. Yet even
this short-term reliance on bullying seems to be backfiring.
The adverse effect of China's counterproductive tactic of
economic coercion truly is now seeing some consequences.
According to the Carnegie Endowment for International
Peace, in April of 2020 an internal report was circulated by
the Chinese Institutes of Contemporary International Relations,
a government-affiliated think tank associated with the PRC's
top intelligence agency. This report concluded that, ``global
anti-China sentiment is at its highest since the 1989 Tiananmen
Square crackdown. Even in Asia, where strong economic ties with
China are construed to be critical to development, anti-Chinese
sentiment is indeed growing. Last year Vietnam issued its first
defense white paper in 10 years in which it rejected Beijing's
claims and criticized China's maritime tactics, citing
``unilateral actions, power-based coercion, violation of
international law, militarization, change in the status quo,
and infringement upon Vietnam's sovereignty, sovereign rights,
and jurisdiction as provided in international law.''
Malaysia and the Philippines are building up their
militaries. They're strengthening outposts that would help push
back against Chinese expansion. The New York Times recently
reported that anti-Chinese sentiment in South Korea has also
grown so much this year that China has replaced Japan, its
former colonial ruler, as the country regarded most unfavorably
in South Korea. China is reporting approaching challenges from
within, tottering along a demographic precipice. From 2020 to
2050 it will lose 200 million working-age adults and gain 200
million senior citizens--all of which will impose monumental
social and economic costs, severely testing China's leadership.
And all of that is attributable, of course, to child limitation
policies, including the almost 40-year one child per couple
policy.
Moreover, China is running out of resources, too. Water has
become scarce, and the country has imported more energy and
food than any other nation. It is evident that were its
leadership rational, the PRC would change its behavior to
obtain global support and cooperation. Yet, under Xi Jinping,
the genocide dictator, it does not do so. Today's hearing is
yet more evidence that the PRC's economic coercion and its
attempt to silence critics have not gone unnoticed. Again, I
thank you for putting this together, Mr. Chairman.
Chair Merkley. Congressman Suozzi, do you have opening
remarks?
STATEMENT OF HON. THOMAS SUOZZI,
A U.S. REPRESENTATIVE FROM NEW YORK
Representative Suozzi. Thank you, Mr. Chairman. Thank you
so much for yet another hearing where we are trying to call to
people's attention what the Chinese Communist Party is up to
and what they are trying to do to impose their will throughout
the world. I sound like a broken record, and I've said this
before, that ever since the 1970s when Nixon went to China, we
thought that the more that China was exposed to the United
States and to the West generally, the more they would become
like us and the more they would look at the ideas of democracy
and of human rights and of capitalism. And that just has not
happened. They do not share our values in any way whatsoever.
In the 1980s, we were worried about the car companies from
Japan and Germany taking over our manufacturing base, and they
did a pretty good job of it. But we changed the way we did
business and we really moved aggressively with technology and
globalization, looking for the best prices wherever we could
throughout the world. China was a great opportunity for us to
reduce the cost of consumer goods here in the United States of
America, but now we are paying the price. China has become one
of the world's dominating forces, and they are breaking the
rules on a regular basis. That's why this hearing is so
important--to talk about how they're using their power.
You know, we talk in America all the time about the whole
of government. Well, the Chinese Communist Party is certainly
using the whole of government to advance their ideas and to try
to hide from the world how they treat even their own people--
whether it's the Uyghurs in the Xinjiang region, or the
students in Hong Kong, or the Buddhists in Tibet. They just
subjugate people, and ethnic minorities, religious minorities,
because they want to have uniformity in their country. They're
using every single possible tool at their disposal, whether
it's intellectual property theft, whether it's forced
technology transfer, state intervention in markets, and
certainly the Belt and Road Initiative.
Now we see that whenever anybody dares to speak out about
their treatment of the Uyghurs, or to speak out about their
treatment of the press or the students in Hong Kong, or their
treatment of the Buddhists, they will do everything they can
using the whole of government to try and hurt them
economically, whether it's the NBA basketball teams, or
celebrities, or major corporations of the United States of
America, or manufacturers, or hotel chains. They will do
whatever they can to withhold economic benefit, to sanction, to
hold American and international companies accountable for
saying something that they disagree with.
We need to continue to wake up the people of the United
States of America and the world community as to the abuses by
the Chinese Communist Party. And we need to recognize that
they're pretty effective. They have managed to use the whole of
government--they use every tool in their toolbox--to suppress
discussion about their human rights violations, about their
unfair trade practices, and about their attempts to try and
become the global power economically, militarily,
technologically. We have such an important role, and I thank
you, Mr. Chairman, for holding this hearing to call everyone's
attention to what the Chinese Communist Party is up to and the
power and effectiveness they are using to do that.
Tom Lantos, a Holocaust survivor and former member of
Congress, and certainly one of our great advocates for human
rights, said, ``The veneer of civilization is paper thin. We
are its guardians, and we can never rest.'' That's why this
hearing, and the other hearings you've held, Mr. Chairman, are
so important. And we thank you for doing it. I appreciate the
witnesses for being here today to share their thoughts. Thank
you.
Chair Merkley. Thank you, Congressman.
I'd now like to introduce our panel. Bonnie Glaser is the
Director of the Asia Program at the German Marshall Fund of the
United States. She was previously a Senior Advisor for Asia at
the Center for Strategic and International Studies. Ms. Glaser
is a Nonresident Fellow with the Lowy Institute in Sydney,
Australia, and Senior Associate with the Pacific Forum.
Zack Cooper is a Senior Fellow at the American Enterprise
Institute and Co-director of the Alliance for Securing
Democracy. He also teaches at Princeton University, is a
partner at Armitage International, and co-hosts a net
assessment podcast for War on the Rocks. He previously served
on staff at the Pentagon and White House and has conducted
research at the Center for Strategic and International Studies
and the Center for Strategic and Budgetary Assessments.
Jenny Wang is a Senior Strategy and Research Associate at
the Human Rights Foundation, where she works on Asia-related
research, projects, and campaigns, and spearheads the
organization's Oslo Freedom Forum in Taiwan. She is co-author
of the Human Rights Foundation's report, ``Corporate
Intimidation and Censorship in China: Recommendations for
Foreign Companies.''
Ho-fung Hung is the Henry M. and Elizabeth P. Wiesenfeld
Professor in Political Economy at Johns Hopkins University's
Paul H. Nitze School of Advanced International Studies. He is
the author of ``City on the Edge: Hong Kong under Chinese
Rule,'' ``Clash of Empires: From `Chimerica' to the `New Cold
War,' '' ``China Boom: Why China Will Not Rule the World,'' and
``Protest with Chinese Characteristics.''
Our witnesses will now proceed in that order. Ms. Glaser,
you are first.
STATEMENT OF BONNIE GLASER, ASIA PROGRAM DIRECTOR, GERMAN
MARSHALL FUND OF THE UNITED STATES
Ms. Glaser. Chairman Merkley and distinguished members of
the Commission, thank you for holding this important hearing
and inviting me to participate. As the world's top trading
nation and second-largest market and one of the largest
providers of development finance, the PRC has the potential to
wield significant influence by using both economic sticks and
carrots. In the past decade, there have been dozens of
instances of PRC economic coercion, which include threats and
the imposition of economic costs by a state on a target with
the objective of extracting a policy concession.
China's employment of economic coercion and positive
economic inducements have had only limited success in
compelling targets to change their behaviors. Beijing has
successfully deterred countries and companies from undertaking
actions harmful to Chinese interests, including refraining from
criticizing PRC policies. There are known instances where
Chinese officials have threatened economic consequences against
countries that refuse to side with China in votes at the UN
Human Rights Council.
Since 2010, the PRC has used economic coercion more and
more frequently, and in virtually every case the targets have
been companies and industries in democratic states, based on an
apparent calculation that pressure on influential business
constituencies in democracies will mobilize them to lobby their
governments to change policies detrimental to China. Unlike
traditional economic sanctions, Beijing's economic coercion
usually relies on informal measures that provide plausible
deniability and enable China to ratchet pressure up or down as
needed. Chinese economic coercion tactics include import and
export trade restrictions, tourism curbs, popular boycotts, and
other measures. Over the years, Beijing has become increasingly
bold in the use of such tactics. In two recent cases, the PRC
has banned the import of almost a dozen products from Australia
and blocked all imports from Lithuania, in violation of WTO
rules.
Despite limited success and occasional blowbacks, Beijing
continues to view economic coercion as a valuable tool in its
economic statecraft toolkit. This is likely because it judges
that the cost to China is negligible. Recent developments, such
as the AUKUS deal and the pending EU anti-economic coercion
tool, suggest that countries are willing to band together to
impose greater economic costs on China. The United States
should undertake unilateral steps, as well as with like-minded
partners, to counter and deter potential Chinese economic
coercion, as well as prepare measures to limit potential damage
to companies and industries.
First, the most effective defense against trade coercion is
to diversify trade relationships. The U.S. should identify
sectors which are overly dependent on Chinese markets on both
the export and import side, and therefore vulnerable to
coercive trade practices. National and local governments should
actively promote trade diversification.
Second, the United States should help potential targets of
economic coercion to develop tools to identify cases of trade
coercion and respond quickly. Trade associations and other
stakeholders should be encouraged to work closely with U.S.
Government agencies. A mechanism should be created for sharing
information and best practices.
Third, American companies should have plans in place to
respond to potential Chinese coercion. They should be
encouraged to report all instances of coercion to appropriate
U.S. Government entities. Congress should explore how to
appropriate funds for a vehicle to compensate companies
affected by such coercion.
Fourth, Congress should examine whether companies should be
required to report or disclose when they are subject to
pressure or benefits from Chinese measures, including
subsidies. Also worth considering is requiring disclosure of
significant import or export dependence on China in sectors
closely linked to national security.
Fifth, encourage private sector trade associations to
develop a voluntary code of conduct regarding China. Such a
code would include commitments by American companies to refrain
from self-censorship and other activities that are contrary to
U.S. values and interests. The U.S. should consider developing
incentives that could be provided to companies that sign onto
the code of conduct.
Sixth, and finally, create a voluntary counter-coercion
coalition of like-minded countries willing to push back against
economic coercion. Collective steps could include encouraging
targeted countries to pursue WTO dispute settlement cases
against instances of economic coercion, where WTO remedies are
possible, taking retaliatory trade investment or other policy
measures against China, and creating a counter-coercion reserve
fund to compensate companies for economic losses.
Thank you again for the opportunity to testify today and
for holding this very important hearing, Senator.
Chair Merkley. Thank you very much.
Dr. Cooper.
STATEMENT OF ZACK COOPER, SENIOR FELLOW,
AMERICAN ENTERPRISE INSTITUTE
Mr. Cooper. Chairman Merkley and other distinguished
Commission members, thank you for the invitation to testify
before you today. The topic of this hearing could not be
timelier. Over the last few weeks, the world has watched as
Beijing has attempted to silence one of China's brightest
global stars. Peng Shuai's courage in speaking out stands in
stark contrast to the Beijing government's efforts to censor
her. This case highlights the lengths that Beijing will go to
to silence criticism, both at home and abroad.
Economic coercion is a particularly difficult challenge in
this regard. In my written remarks, I argue that China's
economic coercion against Norway, Mongolia, Australia, the
European Union, and the United States highlights three
concerning trends--specifically, China's economic coercion has
become more frequent, more targeted, and more explicit.
In terms of frequency, Beijing is growing more willing to
use economic tools for foreign policy ends. Whereas there were
only a handful of cases of clear economic coercion by China in
the early 2010s, experts have identified dozens of incidents
over the last few years. The Alliance for Securing Democracy,
which I co-direct, collects data on this through our
Authoritarian Interference Tracker. We list, at the moment, 67
cases of economic coercion by China against companies,
individuals, and countries in the last decade--most in the last
few years.
At the moment, our database only tracks transatlantic
targets, so it doesn't deal with any of the Asian or other
targets that are well known. These cases include not only
threats but also problematic positive inducements, which Audrye
Wong has labeled ``subversive carrots.'' The evidence suggests
that China's leaders are turning increasingly to economic
tools, despite the fact that many of these sanctions have
negative effects on China's standing abroad.
At the same time, China's leaders' use of economic measures
has become more targeted. China's earlier pressure on Norway
and Mongolia broadly impacted key economic sectors in each
country, but many recent measures have been designed to isolate
specific companies and individuals. Human rights activists,
political leaders, and businesses have all come under pressure
for actions that the Communist Party opposes. Even adhering to
foreign laws can now put companies at risk under China's new
anti-sanctions law.
Finally, China's economic statecraft is far more explicit
today than it was a decade ago. Beijing used to disguise most
of its economic pressure, attempting to use ambiguity to make
it more difficult to call them on their World Trade
Organization violations. Today, however, China's leaders are
more willing to be explicit when they use economic tools for
coercive purposes. For example, Beijing has threatened to
blacklist companies by putting them on an ``unreliable entity
list.'' And amidst political disputes with Australia and
Lithuania, China has explicitly applied economic tools for
coercive purposes.
In short, China's economic coercion is becoming more
frequent, more targeted, and more explicit. This will require
renewed efforts to protect our societies, deter future
bullying, and punish Beijing when it acts coercively. I go into
more detail into each of these in my written remarks, so let me
summarize the main points here. As a starting point, we should
aim to better protect ourselves through diversification.
Dependence on China allows Beijing to accumulate influence over
time and then to deploy that leverage coercively. There is no
way to avoid these pressures entirely, but countries and
companies can manage these risks through prudent
diversification.
At the same time, since our economies will no doubt remain
interdependent, at least to some degree, we should seek to
leverage our own economic power in certain strategic areas.
Selective de-coupling will no doubt continue, but it is also in
our interest that China remain dependent on the United States
and our allies and partners in certain areas. This should be
seen as a counterpart to selective de-coupling and should be
implemented strategically in concert with key allies.
Ultimately, the United States will have to work with like-
minded countries to penalize China when it engages in economic
coercion. The European Union's anti-coercion instrument should
be a starting point for these discussions. In fact, China's
coercion against Lithuania may provide an early test of this
approach. Collective action will be critical, since Beijing is
hoping that it can use its economic heft to coerce smaller
players.
Thank you once again for the opportunity to testify before
you today. I look forward to joining the other panelists in
addressing your questions.
Chair Merkley. Thank you very much, Dr. Cooper.
And now we'll turn to Ms. Wang.
STATEMENT OF JENNY WANG, SENIOR STRATEGY AND RESEARCH
ASSOCIATE, HUMAN RIGHTS FOUNDATION
Ms. Wang. Chairman Merkley and members of the Commission,
thank you for inviting me to testify today. I will be speaking
about the authoritarian Chinese government, but more
specifically, the stunning costs that multinational companies
pay in order to appease the Chinese government and secure
access to the Chinese market.
On the face of it, this topic may seem like an economic
issue, but it is a human rights and moral issue as well.
Companies wishing to profit in China must be willing to comply
with draconian Chinese national laws or face expulsion from the
market. When companies deliberately choose to censor or
apologize to appease the Chinese government, they are offering
legitimacy to the authoritarian regime and signaling their
willingness to disregard not only the human rights of others
but of their own, too, as the cost of doing business in China.
In March 2021, Swedish apparel brand H&M faced a boycott in
China for simply releasing a statement of concern about Uyghur
forced labor. The company lost approximately $74 million in
sales for the quarter ending May 31 this year. With the 2022
Beijing Olympics just weeks away, it is expected that the
Chinese government will continue its fierce campaign of
economic coercion as a strategic tool to intimidate firms to
remain silent about its human rights record.
Based on my observations, as described in my written
testimony, companies are now choosing from three methods to
approach China's economic coercion. One, they embrace it. Two,
they capitulate to it. Or, three, they condemn it. We must be
demanding better of these businesses that employ, supply,
entertain, and house our people. When companies are not held
accountable for embracing or capitulating to China's economic
coercion, they will not fully recognize the severity of their
actions.
In order to approach China's economic coercion with human
rights central to the discussion, immediate next steps should
be to raise awareness about such coercion and to increase
accountability. To raise public awareness and visibility, my
recommendation is to approve legislation to establish the China
Censorship Monitor and Action Group. The establishment of this
group would be a critical first step toward raising awareness
about how the Chinese government impacts the freedoms of
multinationals, specifically those founded on liberal values in
democratic countries. Additionally, Congress should mandate
greater transparency among American companies by introducing
legislation that would require them to publicly report their
respective exposures to China.
To increase accountability, my recommendations are to sign
H.R. 1187 into law, which would mandate that the Securities and
Exchange Commission define environmental, social, and
governance--ESG--practices. Recently, there has been more
awareness about climate change and environmental issues. It is
imperative for corporations to remember that ESGs also include
human rights and ethical considerations.
Furthermore, especially in light of the U.S.'s diplomatic
boycott, we should request a follow-up with the witnesses of
the Corporate Sponsorship of the 2022 Beijing Olympics hearing
to discern whether they have taken any concrete actions to
address what was discussed. Businesses with global operations
have great influence, both positive and negative. It is up to
Congress to help influence, inform, and prompt them to uphold
our values, to avoid complicity, and stand firmly with human
rights in response to China's economic coercion.
I look forward to discussing this in more detail and
answering your questions. Thank you for the humbling
opportunity to testify before the Commission today.
Chair Merkley. Thank you very much, Ms. Wang.
And now we turn to Dr. Hung.
STATEMENT OF HO-FUNG HUNG, HENRY M. AND ELIZABETH P. WIESENFELD
PROFESSOR IN POLITICAL ECONOMY, JOHNS HOPKINS UNIVERSITY
Mr. Hung. Chairman Merkley and distinguished members of the
Commission, thank you very much for holding this very important
hearing today. It is my honor to have this opportunity to
testify here today. My testimony will focus on the political
and economic risk that U.S. corporations and investors face
under the new political environment in Hong Kong after the
implementation of the National Security Law.
Hong Kong has always been an indispensable and unique
offshore financial center of China. It is the doorway through
which most money goes in and out of China. Hong Kong's global
financial center status hinges on its rule of law, freedom of
the press, and the transparency of corporate governance. These
foundations have been thorns on the back of the CCP leaders,
whose secret wealth kept in Hong Kong was often exposed by
journalists. Hong Kong-based Chinese front companies that
helped Iran, North Korea, and other unruly regimes to evade
international sanctions are often exposed by journalists
working in Hong Kong.
Under the new political environment, the Hong Kong and
Beijing governments have been passing new laws, besides the
National Security Law, that enhance political control and
jeopardize these foundations. This summer the Chinese
government was ready to apply the Anti-Foreign Sanctions Law to
Hong Kong. This law will force foreign corporations in Hong
Kong to choose between violating international sanctions, U.S.
sanctions, or violating Chinese law. Such an impossible choice
will force many foreign corporations to leave Hong Kong.
In this context, the Biden administration issued a business
warning to American corporations in Hong Kong on July 16th this
year. In August, the National People's Congress Standing
Committee, surprisingly, announced it would delay the
application of the law to Hong Kong. Beijing appeared to be
hesitant about destroying Hong Kong's financial centrality too
hastily, though it is expected the law's application to Hong
Kong will come back sooner or later.
For another example, the Hong Kong government has started
restricting public access to information on directors and
executives of registered companies. If such restriction had
been in place earlier, journalists and the U.S. Government
would have never discovered that Huawei has been using a Hong
Kong-registered front company to violate international
sanctions in Iran and trick a foreign bank to become an
inadvertent accomplice in the scheme.
Another troubling development is the implementing of the
anti-doxxing law amendment in September this year. The amended
law criminalized unconsented disclosure of private information,
vaguely defined, without the need for proof of the harm done.
It hands the government vast authority to prosecute dissidents
and journalists who disseminate information about the powerful
elite. It expands the authorities' power to request internet
platforms to remove content. It also gives authorities the
power to access electronic devices and search premises without
a warrant. This law will force social media companies to comply
with the Hong Kong authorities to delete posts or surrender
users' information.
The independence and integrity of financial regulators in
the Hong Kong financial markets have also been under threat.
Even before the implementation of the National Security Law in
2014, the Hong Kong Securities and Futures Commission fined and
banned an American short seller for publishing a negative
research report about Evergrande, the now-troubled private
property developer in China. It also fined and reprimanded
Moody's, the credit rating agency, for a report that warned
about corporate governance irregularities of 49 mainland
Chinese companies listed on the Hong Kong stock exchange.
The Hong Kong government's denial of visas to foreign
journalists covering financial news is equally troubling. As
independent and critical research of Chinese business and
government in Hong Kong becomes ever-more difficult and
corporate governance becomes murky, investment into the
financial products issued by the Chinese government and Chinese
companies will become increasingly risky. U.S. investors'
involvement in these financial products also ties their
financial fortunes to Chinese companies and to Chinese
government actions that violate international sanctions and
human rights.
In light of the above, there are several things that the
U.S. Government could do to protect the interests and integrity
of U.S. corporations and investors in Hong Kong. First, the
U.S. Government could regulate tech companies and ensure that
they will not become the accomplices in the crackdown on Hong
Kong. Second, the U.S. Government could devote resources to
develop technology and tools that residents in Hong Kong and
elsewhere in China could use to bypass internet censorship and
suppression. The relevant Hong Kong sections in the U.S.
Innovation and Competition Act of 2021 are a laudable first
step and need to become law soon.
Third, the U.S. Government could issue warnings about or
place restrictions on investment in risky financial products
issued by dubious Chinese entities and sold in Hong Kong
markets. The Treasury sanctions restricting investment in
Russian sovereign bonds earlier this year is a precedent.
Fourth and last, foreign journalists in Hong Kong are the last
line of defense for a fair, clean, and level playing field for
foreign companies in Hong Kong. The U.S. Government needs to
use whatever diplomatic tools are available to ensure the free
operation of foreign journalists in Hong Kong.
Again, I have to thank the chairman and the Commission
members for holding this hearing. And I look forward to your
questions. Thank you.
Chair Merkley. Thank you very much.
We're now going to proceed to seven-minute periods for
questions. I encourage our witnesses to keep your remarks
pointed and tight so we can get to as much information as
possible. Ms. Glaser, I wanted to start with you. You're
arguing for collective strategies. The United States just
announced a diplomatic boycott of the Olympic Games to draw
attention to both the stripping of political rights in Hong
Kong, but very much also the genocide against ethnic
minorities, including the Uyghurs. That's a genocide
determination that's come from both Democratic and Republican
administrations.
We haven't heard Europe or other nations announce that
they're going to join us in this diplomatic boycott to
highlight what China has been doing, and then to prevent the
Olympics from being used as a propaganda facade for China. Do
you anticipate other countries are going to join us, or how
should the U.S. go about expanding its partnership in this?
Ms. Glaser. Thank you for the question, Senator.
Over the last 24 hours, I have also paid close attention,
waiting for some of our allies and partners to similarly
announce that they too will not have their officials attend the
Olympics. I know that members of the Biden administration have
been consulting very closely for months with our allies and
partners on the issue of how we would respond to the Olympics.
I personally think that it would have been ideal if the
Olympics could have been moved out of Beijing. That way,
athletes would be able to participate, but the spotlight would
not be on Beijing. They would not be able to benefit from being
host.
Unfortunately, that path was not taken, and so now I think
the only option really that is available to us is to try to get
as many countries as we can to stand with us in this coalition.
I hope that we will see in the coming days countries state that
they too will not be sending their diplomats to the Olympics.
I'm sure that, as I said, the Biden administration is
continuing to have discussions with them, but I'm personally
disappointed that we did not announce simultaneously with our
allies and partners, and if they shy away from doing so and
send their officials, then I think that undermines our ability
to signal China that their practices in Xinjiang and the other
human rights violations that they are pursuing are
unacceptable.
Chair Merkley. You know, I was thinking about how China
internally has such effective censorship to prevent Chinese
citizens from knowing what is going on in the world in terms of
reaction to China's policies and pondering whether there is
enough publicity around these strategies of economic coercion
that the damage to China's reputation around the world might,
in their eyes, start to exceed the value of trying to
discourage criticism. Do you think that a vocal, extended,
multilateral commentary on China's human rights record and
publicity about their economic coercion strategy might lead
China to find, in time, that this is a strategy they should
abandon?
Ms. Glaser. Well, Senator, I agree with you that this is a
message we should be sending around the world, though I
personally think we will have more impact on other countries
who are being affected. We should encourage them to speak out,
even in the case of Muslim-majority countries that are often
standing behind China and supporting their activities in
Xinjiang. We should be communicating with their people to
encourage them to put pressure on their governments to speak
out. But in terms of resonating with this message inside China,
I'm personally less optimistic. I think we need to impose
costs, not just try to impose reputational costs but real
economic costs.
Chair Merkley. Thank you. Dr. Cooper, you have noted that
selective decoupling could be an effective strategy, but you've
also said that it's in our interests for China to remain
dependent on the U.S. in some sectors. These two thoughts seem
in tension with each other. How do you draw the line between
them?
Mr. Cooper. I think what's so important here, Senator, is
that we can't cut all the links between the United States and
China. If we look first for the links that China is most
dependent on, those are actually the links that give us the
most leverage. It is very tempting to go after the economic
sectors and the specific products that we know Beijing needs
the most, but in doing so, we actually decrease our leverage
over the long term. What I think we need is to work with allies
and partners on a very specific plan to look at the areas that
China is most vulnerable to and where it's most dependent on
the United States and our allies and partners, and then to work
with them, our allies, to figure out how to actually perhaps
even increase China's dependence on some of those areas.
Strategic decoupling in some areas at the same time as we
strategically recouple in others.
Chair Merkley. Okay. Thank you.
Ms. Wang, when we see a situation--how China treats
Australia in blocking a dozen-plus products, or we see how
Lithuania's being treated with particular, kind of, complete
exclusion of their products, how should the free world respond
to back up those countries and alleviate the economic costs,
and therefore undermine the effectiveness of China's
strategies?
Ms. Wang. Thank you, Senator, for this question. How should
the free world respond to how the Chinese government treats
Australia and Lithuania? First, I think it is important for us
to work closely with our allies and to work closely with our
partners, but we should also be looking internally domestically
here as well. We need to also be pushing our companies
domestically to be accountable, and to learn more about the
nature and the scope of China's economic coercion. Thank you,
Senator.
Chair Merkley. Thank you very much. With that, my time's
expired. We're going to turn to Senator Rubio.
Senator Rubio. Thank you, Mr. Chairman. Thank you all for
coming in and doing this. It couldn't be more timely. This is a
major issue all across the board. My questions are largely
geared on something you've all talked about, and what the
purpose of the hearing is, and that is the ability to leverage
economic power, whether that is direct spending and/or
investments that China's Communist Party makes abroad, or
access to their marketplace, to get all kinds of actors to bend
to their will--international organizations, countries and
governments, and corporations.
It is my belief, and I think well founded, that there are
major American corporations who are either witting or unwitting
lobbyists on behalf of the official narratives and policy
preferences of the Communist Party of China. The reason is
pretty simple, and that is they go to them and say: If you want
to continue to have access to our--whether they say it or they
imply it--if you want to continue to have access to our
marketplace, if you want to continue to be able to sell things
here, which represents X amount of your annual revenue, then we
expect you to go talk to your ``friends'' in America and get
them to back off. I think that perhaps the most stunning
example of it has been the cowardly, but real, effort behind
the scenes by several corporations who benefit from slave labor
to impede the passage of the Uyghur Forced Labor bill that the
chairman and I and so many others, including in the House, have
been working on.
So with that reality in place, we've got some things that
we need to tackle. First, Ms. Glaser, I think in your testimony
you recommended developing a voluntary code of conduct for
businesses regarding China, I think including a commitment to
refrain from self-censorship. That's another pretty amazing
thing--how much of the information and news we consume today is
self-censored because they don't want to not be able to
distribute that program, that movie, whatever it might be, in a
pretty large market. But how would we hold these companies
accountable if they in fact signed this code of conduct?
Obviously, this can't be sort of a legal prescription because
it sounds almost like a shaming and naming effort. But how
would we first, you know, get companies to sign on? But more
importantly, who would hold them accountable for violations of
it? And how would we hold them accountable if we had such a
code?
Ms. Glaser. Well, thank you, Senator Rubio. It's very
difficult, I think, to influence companies' choices, as well as
to hold them accountable. If companies don't sign up to a code
of conduct, yes, we can name and shame and say they are not
interested in adhering to our values and joining with other
companies around the United States and the world to defend
those democratic values. So, yes, it is a mechanism essentially
to name and shame, and try to provide incentives for companies
to get on board.
In the case of something like slave labor, then I think you
have more options because if you do good research and you
identify that companies are using slave labor, you make that
data public, then that company is going to be spotlighted in a
way that it doesn't want to be. Perhaps people will buy fewer
of their goods. People will write articles about them. This is
going to be very negative in terms of, I think, their bottom
line, as well as their reputation.
In terms of things like movies, obviously far more
difficult because the Chinese have accumulated a great deal of
influence because there are a lot of people who watch movies in
China. I think that in that regard you have to start with
naming and shaming, and I think making something like this
voluntary, you're more likely to get companies to join onboard.
At least it's a beginning step. Thank you.
Senator Rubio. Thank you.
And Ms. Wang, you talked about passage of S. 413, that
establishes the China Censorship Monitor and Action Group. I'm
proud to be the lead Republican co-sponsor on this bill. I hope
we can pass it swiftly. You recommend increasing transparency
among American companies that are significantly exposed to
China. Do you think it would be a good idea to require U.S.-
listed companies to disclose the existence of Chinese Communist
Party committees and the role they play in the company's
corporate governance in their annual reports to the SEC?
Ms. Wang. Thank you, Senator. Yes, I do believe that
American businesses should be disclosing these. I was reading a
bit more about Hollywood, actually. I read a recent report by
PEN America, and it stated that a lot of the filmmakers have
private meetings with decisionmakers. So I think when we ask
for transparency we can ask about their market shares, their
closed-door meetings, and who they are talking with. How can we
better understand the situation when we don't have this data
and we don't have this information? So, yes, I do believe that
we should be----
Senator Rubio. Just to be clear, when you talk about these
private meetings, what you're basically saying is they're going
through a pre-censorship review? Like, this is what our movie's
about, this is what our script is about--does any of this give
you a problem or heartburn? They're trying to avoid producing
something they later on have to edit so they can have it
distributed in this market?
Ms. Wang. Correct. According to the report, there is a
quote that Xi Jinping says often. He would like films to ``tell
China's story well.''
Senator Rubio. Professor Hung, do you believe Hong Kong
should continue to enjoy its reputation as a center for
international finance, given the power the Communist Party of
China now exercises over foreign companies, and last year's
detainment and arrest of business executives? Should they
continue to be considered the sort of international hub that's
safe to do business in?
Mr. Hung. Thank you, Senator Rubio. I think, as I outlined
in my testimony, there's a lot of troubling signs that the
nature of the Hong Kong financial center and the institutions
that protect its integrity and fairness has been deteriorating.
There's some remaining institutions and practices that separate
Hong Kong financial markets from, for example, the Shanghai or
Shenzhen financial markets, but the direction of the
development is really troubling.
I think what we in the U.S. can do is to indicate the kind
of measures that the U.S. can do, for example, as I
recommended, that it can be put on the table that at some point
that the U.S. can ban the investing in Chinese government
bonds, and like what we have done with regard to the Russian
sovereign debt. Also, totally decertify Hong Kong and stop
recognizing Hong Kong as a kind of financial market separate
from mainland China. And with regard to access to U.S. dollars
and many other measures. This kind of option needs to be put on
the table to let them know that if they go further that this
will be enacted. Thank you.
Senator Rubio. My time has expired, but I thank you all for
being here. I apologize I didn't get to you, Mr. Cooper, but I
thank you all for being a part of this.
Chair Merkley. Thank you very much. Congresswoman Steel,
are you with us?
Representative Steel. Yes. I'm with you. Thank you very
much, Mr. Chairman. Thank you, all the witnesses, for coming
out. I'm just so grateful, because we really have to make China
transparent and stop the human rights abuses. The Chinese
Communist Party has a long history of using threatening and
violent tactics to silence those who want to speak out against
the government. As mentioned, the disappearance of Peng Shuai
once again highlights this serious issue.
The Olympics is coming up in February next year. This week
I had to send a letter calling on corporate businesses who are
sponsoring the Beijing Games to follow the lead of the Tennis
Association and use their platforms to call out China's human
rights abuses. My first question is for Ms. Wang. Do you feel
other global companies have an obligation to speak out like we
saw with the Women's Tennis Association? Why are these
companies feeling the pressure from the CCP?
Ms. Wang. Thank you for this question. Yes, I do believe
that corporate sponsors and businesses do have an obligation to
speak up and to follow the WTA's lead. I would like to draw our
attention to the United Nations Guiding Principles on Business
and Human Rights. This document provides guidelines for both
states and companies on how they can best address and prevent
human rights abuses. Furthermore, what I think is most crucial
and important about these guiding principles is that it states
that when there are conflicting requirements--so, for example,
in the U.S. and China--companies must honor internationally
recognized standards of human rights; for example, the
Universal Declaration of Human Rights, as well as the
International Convention on Civil and Political Rights.
Representative Steel. Thank you very much for your answer.
China has recently violated international standards related to
intellectual property rights. We really have a problem with
that, not just the U.S. but other countries too. And then
subsidization and over-capacity, and they do not abide by the
international norms and rules that have brought China to its
current economic position. So I want to ask Dr. Cooper or Ms.
Glaser, how can other global leaders hold China transparent and
accountable in an international system that is free, open, and
fair? And is that really possible?
Mr. Cooper. Well, thank you, Congresswoman. This is such an
important question. I think there are at least three steps that
we have to take. First, the United States has to realize that
it needs to work with allies and partners to address this
issue. Addressing it unilaterally has not been effective, so we
need to work with our key allies, especially the G-7 countries
and perhaps an expanded group of countries, to address Chinese
unfair economic practices, especially intellectual property
theft.
That means, in my view, that we have to be looking at trade
agreements that would hold China and others to high standards.
I know this is a difficult issue on Capitol Hill, but that
means thinking about what the Trans-Pacific Partnership or its
follow-on agreement is going to be, and how the U.S. can take a
leadership role there, not just in bilateral discussions with
China.
Then finally, I think we have to make this a key issue in
the relationship. China always talks about its core issues.
Well, there's something like $300 billion of U.S. intellectual
property being stolen each year by China. That has to be a core
issue from an American perspective on the relationship, and
China has to understand that if it doesn't adapt its behavior
that that's going to have some very severe negative effects
over the long term on the U.S.-China bilateral relationship.
Representative Steel. Okay. Thank you very much. Professor
Hung, the Chinese government has worked hard to manipulate
public opinion and censor pro-democracy leaders in Hong Kong.
What does it look like for American businesses that want to do
business inside of Hong Kong? What kind of censorship,
intimidation are we seeing in Hong Kong today by the CCP?
Mr. Hung. Thank you very much for that question,
Congresswoman. American businesses and foreign businesses have
been complaining about unfair treatment and an unlevel playing
field and biased regulatory enforcement in mainland China for a
long time. And for a long time, Hong Kong has been upholding
its separation from mainland China in this regard and
maintaining kind of a relatively fair and open, transparent
corporate environment. But unfortunately, in recent years, it
has been deteriorating in Hong Kong, and many American
businesses and foreign businesses in Hong Kong are starting to
face some of the same challenges that they have been facing in
mainland China.
Particularly after the implementation of the National
Security Law, it's not only the National Security Law that
creates additional political economic risk to American
corporations, but the political environment has changed, and
the government's mentality and assumption has changed. For
example, in recent months there's been a draconian quarantine
and, I would say, unscientific closure of the borders of Hong
Kong. American businesses and the Chamber of Commerce have been
lobbying the Hong Kong government to relax this rule because it
is very bad for global firms in Hong Kong. They cannot see
their families and they cannot travel.
But they didn't listen, and they didn't loosen. So the
government definitely is now taking kind of a priority on
political considerations over economic considerations, and the
situation in Hong Kong is deteriorating for American and global
business there.
Representative Steel. Thank you, Professor Hung.
So, you know, it seems like it's getting worse and worse
every day. How are you going to fix it? And how can the Hong
Kong government really participate and work and try to make
sure that these American businesses can just do free business
there--like most countries--they go in and they can do, as long
as they follow the rules. But the rules are getting tougher and
tougher that the Chinese government is imposing. How are we
going to fix this? And how are we going to grow? And what is
Hong Kong's future?
Mr. Hung. For one thing, some American businesses and other
foreign businesses in Hong Kong have been diversifying their
operations to other financial centers farther away from China.
For example, in Singapore. They can continue to do business
with their Chinese clients, no longer in Hong Kong, but in
Singapore. In fact, some private equity funds run by some well-
connected mainland Chinese businessmen have already reportedly
diversified their operation in Singapore. It is going to be a
trend. Definitely the CCP and whole of government want to
maintain Hong Kong as a financial sector.
But with the deteriorating regulatory environment and the
other situation that can turn Hong Kong into another kind of
financial sector, is what I worry about. That is, a kind of
financial sector which is more like a Caribbean tax haven, a
money laundering center. It is also a financial sector with a
lot of money coming in and going out, but it will be very
different from the financial center of Hong Kong right now
that's based on fair and transparent corporate governance and
open information, and so on and so forth. So it can become like
that, and if that's the case, then it will be very unfortunate.
Representative Steel. Thank you.
Chair Merkley. Thank you very much. We now turn to Senator
Lankford.
Senator Lankford. Mr. Chairman, thank you, and thanks to
all the witnesses for bringing the facts and information to our
conversation today. Professor Hung, I want to continue on with
our dialogue on this and the Belt and Road Initiative, and what
China is doing in countries around Africa, around multiple
regions of Asia, around the Western Hemisphere, Central and
South America to be able to influence markets, but to also be
able to control minerals, to control ports, control airports,
and to be able to take on some of the sovereign debt. You have
written about some of these issues specifically, about them
taking on debt around the world and how sustainable that is,
but also the effect for those individual countries as well. Can
you elaborate more on that?
Mr. Hung. Thank you, Senator, for the very important
question. Actually, that is the design and the intention of the
Chinese government, to use Hong Kong as a kind of offshore
financial sector to channel money and to finance a lot of these
Chinese companies going to Belt and Road. In this regard, and
China definitely is extending a lot of loans and debt to the
Belt and Road countries, but at the same time the U.S. still
has leverage to shape how this development unfolds because many
of the Belt and Road and bilateral loans or multilateral loans
for the AIIB (Asian Infrastructure Investment Bank) are
actually denominated in U.S. dollars.
The reality is that the world economy is still very much
reliant on the U.S. dollar as the reserve currency and kind of
a transaction currency. And so a lot of these developing
countries and Asian countries, when they borrow money from
China they refuse to take the renminbi loan. And that is a very
typical development--in the beginning the Chinese try to lend
in renminbi. But actually, the debtor is not interested. So in
the end China lends in U.S. dollars.
As far as China relying on the U.S. dollar, many Chinese
entities and Chinese corporations rely on the Hong Kong
financial market to raise debt and bonds in U.S. dollars, and
then through the Hong Kong financial market raise capital in
Hong Kong dollars, which are actually pegged with the U.S.
dollar and freely convertible. So in this regard, in the
international transaction clearance and through the SWIFT
(Society for Worldwide Interbank Financial Telecommunications)
system, and also Hong Kong access to the U.S. dollar, the U.S.
still has a lot of leverage in influencing China's behavior in
Belt and Road and the developing world.
Senator Lankford. Dr. Cooper, earlier Ms. Wang was asked
about Australia. I want to be able to drill down just a little
bit more on supply chain issues and what example we can take
from what China has done using economic leverage on Australia
to our own supply chain issues that we're facing now and the
potential for that in the future. Ms. Wang had the opportunity
to be able to answer that. Dr. Cooper, I wanted you to be able
to also talk about this as well. What should we see from the
issue of Australia? What should we learn from that? And what
awareness should we have around our own supply chain issues?
Mr. Cooper. Well, thank you, Senator Lankford. I think
Australia is a really important case for several reasons. The
first is that actually China has struggled to get its political
objectives obtained in Australia, and I think it's done
remarkable damage to Beijing's cause. Now, I will admit that I
think a lot of friends of China don't acknowledge how much
damage China has done, but if you look at the objectives that
China appeared to have, and here China was quite clear; in
fact, the Chinese embassy in Canberra gave a list of 14 demands
that they were seeking from the Australian government, and I
think they've obtained precisely zero of those demands through
this economic coercion campaign.
In fact, if you look at the Australian economy, there are
roughly 11 different products that were directly affected. Only
one or two of those were not relatively quickly shifted to
other global markets. So the damage done to the Australian
economy has been much less significant than I think many in
China, and even many in Australia, would have imagined. So I
think it's a good reminder that, in fact, the world still has
substantial leverage to push back against China, and even
countries that are targeted can withstand that pressure, as
Australia has. Now, it comes at a cost, but we're seeing
increasingly that countries are willing to bear those costs. I
think the Lithuania case right now is another important
example.
So I think what we should take away from the Australian
case is, first, you probably can't escape this kind of pressure
unless you're going to fully agree with China on every issue,
which very few countries and companies are willing to do.
Second, that when the pressure comes, that countries can stand
firm against it, especially if they have allies and partners
that are willing to stand with them.
Senator Lankford. Dr. Cooper, thank you.
Ms. Wang, you've written extensively on the issue of
Taiwan. It's very different than Australia or very different
than the United States in the threats that they face in Taiwan
in particular. They're exceptionally isolated. Could you talk
about some of the economic pressures that they are facing right
there in Taiwan, and what the United States in particular can
do to be able to lessen some of the economic pressures? And
what other countries--as China tries to cut off diplomatic
relationships with any country that has diplomatic
relationships with Taiwan--can do to actually support the
people of Taiwan rather than isolate them?
Ms. Wang. Thank you. The topic of Taiwan is quite sensitive
to the Chinese government, as we all know. Taiwan is one of the
sensitive three Ts, along with Tibet and Tiananmen. Taiwan is
increasingly under pressure from the Chinese authoritarian
government. They're diplomatically isolating them and they're
bullying them on a geopolitical level.
I think what we can do to support Taiwan is to continue
these delegations to visit the island and to meet legislators
there as well. I would also be happy to look into this in more
detail and respond in writing for the record.
Senator Lankford. Okay. I appreciate that very much. I
really see what China did with Hong Kong as the model of what
they're going to try to do with Taiwan as well, to be able to
buy off political figures, to be able to use social media, and
to be able to control the conversation in Hong Kong to then be
able to move in, get the laws changed, and to be able to take
over quietly as the model that they'll try to do in Taiwan as
well. There's a real risk of that in the days ahead, and there
are ways that we can continue to be able to stand with the
people of Taiwan to be able to get, actually, facts and
information to them about the brutality of the Communist
government, what they've done on human rights violations, and
to be able to continue to protect their free and fair elections
in the days ahead would be a tremendous asset to them and the
world. Then also, to increase diplomatic conversations with
others. So I appreciate very much the engagement of all the
witnesses that are here. Thank you, Mr. Chairman.
Ms. Glaser. Could I possibly offer just maybe 15 seconds in
answer to that question?
Chair Merkley. Please go ahead.
Ms. Glaser. I think the most important thing that the
United States needs, and other countries need to do with
Taiwan, is to be signing economic agreements with them. This
has been, I think, an unfortunate gap in our relationship with
Taiwan. Even as we strengthen diplomatic and security ties with
Taiwan, we are not negotiating a bilateral free trade
agreement, a bilateral investment agreement. Since we are not
in the CPTPP (Comprehensive and Progressive Agreement for
Trans-Pacific Partnership), there is very little we can do to
help Taiwan get into that. The European Parliament has endorsed
signing a bilateral investment treaty with Taiwan, but so far,
of course, the EU has not opened those negotiations.
So Taiwan is increasingly isolated economically. They
recently signed free trade agreements, when Ma Ying-jeou was
president, with New Zealand and with Singapore. Then China has
boxed them out of being able to sign other agreements, and I
think it's really important for countries around the world to
stand up to China. We can do so and strengthen Taiwan's
security and the economic prosperity of the island by
negotiating such agreements. Thank you.
Senator Lankford. It's a pleasure. Thank you. Thank you,
Mr. Chairman.
Chair Merkley. Thank you, Senator Lankford.
We'll turn back to the House, to Congresswoman Wexton, who
represents Northern Virginia and the Shenandoah Valley.
Representative Wexton. Thank you, Mr. Chairman. I want to
thank all the witnesses for coming and appearing before us
today and talking about this really important topic. You know,
one of the things that has become clear to me the more that I
learn about China is that they play the long game, you know?
They think in terms of century or even millennia. Here in the
U.S., and in the West generally, we have a much shorter-term
time horizon. We think about the fiscal year, or we think about
our congressional term, or we think about when the next
shareholder dividend is supposed to be paid.
China takes advantage of that. And they have methodically
inserted themselves deeply into the economies, not just here in
the West and in the U.S., but in just about every country in
the world. They have been able to do that by manipulating our
systems and what we value here in the U.S. Here it's really
kind of been twofold. It's been the cheap goods that U.S.
companies are able to sell all around the world. Then it's also
been access to the Chinese market, which is huge and extremely
lucrative for U.S. companies.
So, Ms. Wang, I'm very glad that you mentioned the Women's
Tennis Association. I want to get to that in a moment. But, Ms.
Glaser, I want to talk with you a little bit about your
comments on China pressuring U.S. companies to do kind of their
dirty work for them, right, and to lobby us here in Congress
for what they want to see happen legislatively. I know that
most of us on this panel have been on the receiving end of this
same kind of pressure about the Uyghur Forced Labor Prevention
Act, and I'm glad to see that that will hopefully be moving
through the House shortly. But I know that I've been on the
receiving end of that for my Uyghur Forced Labor Disclosure
Act. And so, Ms. Glaser, if you could talk a little bit about
the pressures that come from U.S. corporations in order to do
China's work for them here in Congress.
Ms. Glaser. Well, thank you for the question,
Congresswoman. I think it's obvious, and many of us have talked
about today, how companies are essentially lobbying members of
Congress, as well as the U.S. Government, for the United States
to lift tariffs on China, to take a series of actions that will
certainly benefit those companies' bottom line, but will not
necessarily, I think, be in the broader interests of the United
States.
I was at the U.S.-China Business Council annual gala this
past week, where our Under Secretary of State Jose Fernandez
really gave a terrific speech laying out some of the problems
that China presents, the challenges in stealing intellectual
property and forced technology transfer, its subsidies to
companies. And I have to say that many members of the U.S.
Business Council, the companies, were almost embarrassed by the
fact that a Biden administration official was giving this
message, because ultimately what they want to do is just do
more trade and more business with China.
So I think that this is a problem. And I think that we
should be trying to bring companies together to understand the
consequences for our shared interests, and particularly when it
comes to forced labor in Xinjiang. This is something that we
should be naming and shaming companies for--sourcing some of
their products in Xinjiang.
Representative Wexton. Thank you so much, Ms. Glaser. It's
really not just the forced labor, it's also the genocide that's
going on. Which brings me to the upcoming Olympics in Beijing,
for the Winter 2022 Olympics. You know, that's just weeks away.
Ms. Wang, I'm very glad that you mentioned the Women's Tennis
Association and its CEO Steve Simon, because he truly deserves
to be held up as an example of how to handle the Chinese
government's intimidation.
I want to add my voice to the chorus of those calling out
the IOC for their role as propagandist-in-chief for the CCP on
this issue. You know, they don't have the best history, but
they've really hit a new low with this. And so I'm very
concerned with the upcoming Olympics that we're not going to be
able to ensure the safety of U.S. athletes and the world's
athletes there. But, you know, I'm just encouraged that the
U.S. has instituted this diplomatic boycott. I do hope that
other nations will join us. I do want to commend Lithuania for
really punching above their weight in this area, when it comes
to pushing back against China's abuses.
Now, the WTA is tiny compared to some of these
multinational corporations who are sponsors of the Olympics and
who are very, very entangled in their markets over there. You
know, it's fair to say that they will be hurt more by their
pulling out of China than the PRC will. But what would happen,
Ms. Wang, say, if Nike, or Coca-Cola, or Apple were to make
their stance on this known and start pulling their supply
chains and their products out of China?
Ms. Wang. Thank you. I think that would be wonderful news.
It would be great if we saw Apple, if we saw Coca-Cola all pull
out of China, because they would be following WTA's lead and
standing firmly with human rights and avoiding complicity.
According to international law, corporations should not be
aiding and abetting human rights abuses. So I would greatly
applaud Apple and Coca-Cola if they do not abide by the Chinese
government. Thanks.
Representative Wexton. Thank you very much.
Ms. Glaser, do you have any ways that the U.S. Congress and
the administration could support those businesses who do wish
to support the WTA and take action against China?
Ms. Glaser. Thank you, Congresswoman. I will think about
that and get back to you, but I do think we should come up with
incentives so that we can give companies a reason to not stand
by China. Perhaps, you know, reputational advantage isn't
enough. In the case of the WTA, of course, the opposite
outcome. If they had not taken the action that they did, I
think we would all be condemning them. So the risk of that
reputational cost I think is important. But I think we should
think about more incentives, and I will think about that. Thank
you.
Representative Wexton. Thank you so much. It seems my time
has expired, and I yield back.
Chair Merkley. Thank you very much, Congresswoman.
We are now going to turn to Senator Ossoff of Georgia.
Senator Ossoff. Thank you, Mr. Chairman.
A question I'd like to pose to the panel as a whole,
beginning with you, please, Ms. Glaser, is: When in your view
have the various policies that we're grouping under the rubric
of Chinese economic coercion--when have they been effective
from the standpoint of the CCP and achieved the aims of the
CCP? And when have they failed?
Ms. Glaser. Well, that's a terrific question. I do talk
about that a bit in my written testimony. The first case, in
2010, against Norway, I think was very effective and not
because of the economic consequences, because they were
actually short lived and Norwegian salmon producers were able
to circumvent restrictions and get their salmon through third
markets to China. But the political consequences for Norway
were deemed unacceptable. They were frozen out for many years,
and finally, in 2017, signed a joint statement with China
which, if you read it, you can tell it was written in Beijing,
that condemned any action that would violate the one China
principle. And basically, Norway pledged that they would never
damage Chinese interests in any way, shape, or form again.
In the case of Mongolia, the Mongolian government said that
it would not invite the Dalai Lama to visit Mongolia again. So
that was another successful case. Even the 2010 Japanese case,
where Japan agreed to release the captain of the fishing boat
that had collided with the Japanese Coast Guard ship. It was
successful in the short run. China did get the captain to be
released. But of course, over the longer term it was just the
beginning of the really significant turn in Japanese sentiment
against China. So I would say they ended up paying a price for
it because the effort to curtail rare earth exports to Japan--
at that time Japan was about 90 percent dependent on China for
its rare earth imports--within a decade Japan brought that down
to 58 percent. And that is an example for so many other
countries, again, about the need to diversify, find other
sources for goods, and not be overly trade dependent on China.
There are other cases, but I will leave you more time to
ask questions of other witnesses. Thank you.
Senator Ossoff. Thank you. Mr. Cooper, same question to
you, please.
Mr. Cooper. Well, thank you. It's a wonderful question. I
agree with everything that Ms. Glaser said and just add on that
I think what we've seen is that the smallest players are the
most vulnerable, especially when you're a small player and
you're highly dependent on China for certain parts of your
market. So if you look at the Philippines with tropical fruit,
and bananas in particular, huge vulnerability there. If you
look at other countries, like Vietnam, with tourism, at times
that's been highly effective.
I think the countries that actually have stood more
strongly against this kind of economic coercion and been less
vulnerable to it are, not surprisingly, the bigger countries.
So China has often avoided targeting the United States with
these kinds of economic measures, at least maybe it's gone
after individual companies and individuals, but it hasn't gone
after the United States as a whole, for the most part. It
hasn't gone after the European Union as a whole. Look who it's
going after now, one of the smallest member states in the EU,
Lithuania. And I think there is a reason for that.
What I think we need to do to demonstrate solidarity with
those smaller countries is stand behind them and show that
through either an anti-coercion mechanism or some other
collective action that actually China can't isolate these
smaller countries and that big countries are going to stand
beside them. That, I think, has to be the key message, because
otherwise Beijing will be able to continue picking off smaller
countries and companies and individuals one at a time.
Senator Ossoff. Thank you, Mr. Cooper.
Ms. Wang, the same question to you, please.
Ms. Wang. Thank you. I will be speaking from a human rights
dimension. I believe, of course, China's intimidation and
censorship has long been around, for decades. So for example,
one of the earliest examples that we can refer to is Disney.
Back in 1996, there was a Disney film called ``Kundun,''
featuring a story about Tibet and the Dalai Lama. And that
resulted in a Disney ban in 1999 and that ban was only lifted
because they had conversations with the Chinese government to
open a Shanghai Disneyland, and also the cartoon ``Mulan.''
This intimidation has been specifically more about the
three Ts--Taiwan, Tibet, and Tiananmen, but I believe we saw an
uptick in 2019, surrounding the anti-extradition protests in
Hong Kong. I believe there was this uptick then because the
protests really captured the global spotlight, and that's when
the Chinese government realized that they have these tools at
their disposal. They have these tools that they honed for
decades to silence criticism and dissent.
So from this perspective, I think China's coercion in
intimidating and censoring companies and businesses really
increased in 2019 up until now. And it will only increase as we
approach the Beijing Olympics.
Senator Ossoff. Thank you, Ms. Wang.
Mr. Hung, my time has expired but I'll send that question
to you for the record. I yield back, Mr. Chairman. Thanks again
to our panel.
Chair Merkley. Thank you very much, Senator. Now we'll turn
to the House side to Congressman Mast from Florida's 18th
Congressional District.
Representative Mast. I thank everybody for their testimony.
I've enjoyed it. I've enjoyed the analysis. Probably one of my
favorite presidents, Reagan, spoke about a number of things in
his 1964 ``A Time for Choosing'' speech. But he gave a poignant
phrase at one point, which has been used at different times
throughout history. He said: Those who had the most to lose
have done the least. Can somebody in this panel prove me wrong,
prove this sentiment wrong in this case, as it relates to this
chameleon, crooked communist China that we're dealing with, and
the three Ts that were just brought up, and COVID-19, and the
list could go on and on, all of the economic coercion that we
see across the globe, from large economies or strong economies
to smaller economies and weaker economies. Could somebody prove
me wrong, or rather prove that sentiment wrong? Not me wrong,
but prove that sentiment wrong, that those that have the most
to lose have done the least as it relates to this situation?
Ms. Glaser. I'd be happy to jump in, Congressman, and maybe
to try to give you an example. I think actually Taiwan has an
enormous amount to lose, but it certainly has not done the
least. Taiwan has been sending about--if you include Hong Kong
and Macau in their exports--in 2020 I think the export level
rose to over 40 percent. I think it hit almost 44 percent of
their exports that year. And it is coming down now, and I think
has dropped now to under 40 percent. But we have seen Taiwan, I
think in really significant ways, stand up to China.
They are doing so not just economically and trying to
encourage their businesses to come back and reinvest, re-shore
in Taiwan, and have seen a great deal of success in part
because of the economic circumstances, of course, in China, as
well as the tariffs. But they're also standing up to China
politically, but I would say in ways that are consistent and
prudent, and not provocative, doing so in ways that are very
much in the interests of the United States, which is one of the
reasons that the United States has seen ever-stronger relations
with Taiwan in the last few years. Thank you.
Representative Mast. Thank you for the thoughtful response.
I think it leads well into a follow-on question. What, number
one, could we all learn from Taiwan's response, if you would
call that the strongest response? And an additional follow-on
to that would be this: Why should the response not be
provocative?
Ms. Glaser. Well, I will address the second part of the
question and maybe give others an opportunity to talk about
what we should learn from Taiwan. There are so many things. But
if Taiwan were to take actions that were deemed by Beijing as
being exceedingly provocative, we could end up in a situation
where Xi Jinping decides to use force to, as they would say,
reunify Taiwan with China. I think that that would be
catastrophic.
Therefore I believe the best set of policies by Taiwan and
by the United States is to help keep Taiwan strong and enable
it to continue its practices of self-governance, being able to
develop its own policies, to participate more in the
international community and, as I mentioned earlier, sign free
trade agreements and other trade agreements, which they are
allowed to do under WTO. They are, after all, full members. So
when I use the term ``provocative,'' what I mean is I worry
about the potential for a Chinese attack on Taiwan. I want to
see Taiwan continue to be safe and to be able to make their own
decisions on behalf of their own citizens. Thank you.
Representative Mast. Yes, ma'am. And again, I appreciate
the conversation on this, your willingness to speak up on that
front. I think for many of us, we could probably say that
there's a spoiler alert in this, in that in my opinion it
wouldn't be whether Taiwan is provocative or not. I'm not
trying to dissect you in this way. I don't think you're trying
to make all of these points, but it brings it up. I don't think
it's the fact that Taiwan is or is not provocative that keeps
them from violent actions by China. It's only by China's
decision that they decided to not yet resort to a violent
takeover of Taiwan, that that has not occurred yet.
And I think probably many of us can sit here and believe
that this is exactly what they're mulling over, chewing over,
not as it relates to Taiwan's actions but as it relates solely
to China's desire. And in that, I would say that the greatest
strength we have is using any and all means to be provocative
against China, letting them know that we will not tolerate
these kinds of actions on any front, understanding that we're
not waiting for an action to occur because they're reacting to
somebody else. They're simply acting out of their own desire,
and we have to be at that place of understanding of China in
order to truly combat them.
Ms. Wang. May I add on? Thank you. I want to------
Representative Mast. I would hope you would.
Ms. Wang. Thank you. I wanted to piggyback, or answer your
question about what we can learn from Taiwan. I think we can
all refer to Taiwan's response to the COVID-19 pandemic. They
had their own #TaiwanModel ``all hands on deck'' approach. I
think what the U.S. can learn is that, as Congressman Suozzi
mentioned in his opening remarks, we need a whole-of-government
approach. How can we get everyone involved to stand with our
values, to protect human rights, and to protect our democracy?
Thank you.
Representative Mast. I thank everybody for the time.
Chair Merkley. Thank you very much, Congressman. Senator
Daines is enroute to join us, but he's a couple minutes out.
While we're waiting for him, I wanted to have you, Dr. Cooper--
you note that China has this category, ``unreliable partner.''
It's a lesser categorization that makes it hard for a foreign
entity to participate in China's economy. Can you just explain
how they're using that tool?
Mr. Cooper. Absolutely. Thank you, Mr. Chairman.
The United States has a very formal, legalized approach to
sanctions, and China has, for a very long time, had almost no
formal legalized approach to sanctions. I think what we've seen
in the last few years is Beijing realizing that actually it
would be helpful if Beijing had at least a quasi-legal
approach. And so what it has done is create in many ways
parallel processes to what we have in the United States. In
this case, it's called the Unreliable Entity List. And this, I
think, is intended very specifically to be a response to the
U.S. Entity List, which is run by the Commerce Department. And
so this Unreliable Entity List would, I think, very clearly
target those companies that are engaged in behavior that
Beijing thinks crosses some red lines. And it's a little
unclear exactly what those red lines would be, and it's unclear
which companies would be targeted first.
But I think what we do know is that China is looking to
create what will at least appear to be legal mechanisms. The
big difference here, of course, is that our mechanisms, our
sanctions, are rooted in U.S. law, and they tend to be very
specific actions, and they require legal justification. And the
Treasury Department in particular spends a huge amount of time
making sure that it can come to these conclusions. I think it's
quite clear that Beijing will do nothing of the sort. A company
will be on the list for highly political reasons, and it will
be very difficult to tell what got a company on the list and
how they might come off. And so that's the case not just with
the Unreliable Entity List but with some of the other sanctions
that China is creating at the moment.
Chair Merkley. So have they put a country or a company on
this list yet or threatened to put a company or country onto
this list in order to obtain a change in behavior?
Mr. Cooper. They have threatened to put several companies
on this list. There were reports months ago about a handful of
specific companies that might be listed. My understanding is
that they were not formally listed--none of them have, yes. I
think no one has at the moment, but other panelists may know
more on that.
Chair Merkley. Thank you very much.
Senator Daines of Montana.
Senator Daines. Senator Merkley, thank you. I want to thank
you all for coming before this Commission and providing
perspective and expertise on this important topic.
I spent nearly six years working in China as an American
expat launching brands, once upon a time, to compete against
Chinese brands when I worked in the private sector. I've led
congressional visits to China and neighboring countries several
times. Just last month I was in India, meeting with government
officials and some tech leaders, talking about trade as well as
the threats and the challenges that China poses to the United
States, to India, other allies, and even its own people.
It's clear that the U.S. needs to work closely with our
allies to counter China's growing economic coercion, influence,
and its efforts to export its surveillance state abroad.
Dr. Cooper, it's clear that China is not satisfied with
simply censoring its own population but also seeks to influence
speech and actions abroad, outside its borders, including the
self-censorship of scholars, foreign publishers, businesses,
even academic journals, related to doing work in or about
China.
What do you believe are the long-term effects of such
actions? And what could be done to help both governments and
the private sector withstand such pressures?
Mr. Cooper. Thank you, Senator.
I think there are a number of long-term impacts. Many of
them are quite detrimental to China directly. I think one of
the clear impacts we've seen is that many Americans, including
many experts on China, are unwilling to go to China today
because they fear for their safety. And this is not a
completely unfounded fear. On my last trip to China, one of the
small number of people I was on a trip with ended up in jail
later.
Senator Daines. And what was the date of that?
Mr. Cooper. I guess that was three years ago; Michael
Kovrig. He's a Canadian citizen, now finally back in Canada
after being detained in response to, effectively, an American
court case against Huawei. So I think China has done tremendous
damage to its own cause in many ways. And the difficulty with
people, even experts on China, being able to go to China is
going to be a real problem for understanding what's going on in
Beijing and for Beijing understanding what's going on outside
its own borders.
I think that's another thing that we're seeing as a result
of this censorship campaign is actually many people in China
don't understand how much damage China has done to its own
cause abroad. They don't understand how bad the polling data is
outside of China on views, not just of Xi Jinping and the
Communist Party, but on the country as a whole. We could get
into the effects on individual companies and on down the line.
I think China has done tremendous damage to itself through many
of these measures.
Senator Daines. Yes. Just look at the flow of capital,
decisions being made just as we speak. Capital that may have
been intended for direct investment in China is now headed to
other markets in the region and elsewhere.
Australia in particular has been targeted aggressively by
China. What can we learn from their experience? And what would
you say is China's assessment of the reaction by the United
States, as well as other democracies?
Mr. Cooper. I think we can learn a lot from Australia,
particularly that if you're willing to stand firmly behind your
beliefs that you can make it through one of these pressure
campaigns. We're certainly not at the end of it yet. I don't
know when Australia will get to the end of this campaign, but I
do think the Chinese view tends to be that there's no reason to
stop putting pressure on Australia, and perhaps eventually
Australia will cave. I don't think that's going to happen, and
I think it's in our interest to demonstrate that our alliance
is very close and that we and our friends will stand with
Australia.
I think the AUKUS agreement was an effort to do so, but let
me say that I think we need to do more for Australia
economically. Australia is under economic pressure, and we've
responded in part by tightening our alliance in the security
area.
But if you think about other countries that are going to
come under pressure from China, they're not going to get their
own AUKUS-type deal. What they're going to want is U.S.
support, U.S. economic support, and support from other like-
minded countries. And so I think we have to do more to stand
with Australia economically to show other countries that
actually, if they come under this kind of pressure, that their
friends will stand with them as well.
Senator Daines. Dr. Cooper, thank you.
Ms. Wang, China is in the process of testing a digital
yuan. While most countries that are looking at digital
currencies are concerned about privacy implications, China's
motivation stems in large part from a desire to gain insight
into the financial lives of its citizens. How could a push by
the Chinese government to spread the use of the digital yuan
outside of its own borders threaten human rights in neighboring
countries, in countries where China has made significant
capital investments?
Ms. Wang. Thank you.
I think pushing a digital yuan is a threat to human rights
and democracy, because essentially the Chinese government is
exporting its authoritarianism, and it is exporting its
censorship by weaponizing its power. I think the export of
surveillance we've seen play out in Tibet. We see it play out
in the Uyghur region. From there itself we can see crimes
against humanity, against millions of innocent people. So thank
you for the question.
Senator Daines. Dr. Cooper, with regard to Taiwan and
China's ongoing and increasing pressure campaign on that
democracy, what would be appropriate additional steps for the
United States to take to support Taiwan and deter heightened
Chinese aggression?
Mr. Cooper. I think there are a number of military steps
that we should take, and I think we should be focusing most on
action and less on talk. But I think one thing that other
panelists have already raised is the importance of economic
ties with Taiwan. One thing that we keep coming back to this
morning is the importance of diversification. We should be
helping Taiwan diversify. That means giving it other economic
options. So whether it's the United States or Europe looking to
make trade agreements with Taiwan, that's the kind of thing
that gives countries leverage to push back against economic
coercion, and I think that should be a top priority.
Senator Daines. Senator Merkley, I'm out of time. Thank
you.
Chair Merkley. Thank you very much, Senator.
I'm going to ask a few questions in closing here. First, I
wanted to note, Ms. Glaser, that you and several panelists have
suggested that we need to understand the landscape of economic
coercion better by having companies systematically report both
their potential exposure to the risk of Chinese economic
coercion but also instances in which there are threats or
actions taken--in the form of coercion.
Do you envision a particular congressional law then that
mandates companies to report in this fashion? And do we have
model legislation for this?
Ms. Glaser. That's an excellent question, Senator. I don't
know whether we have any specific model that we can look to,
but I do think that legislation is necessary in this regard
because I think we can compel companies. This would have to be
clearly defined. What is the information that we are asking
them to convey or report? Is it going to be the percentage of
their exports that go to China? How much perhaps they have
invested in China? I mean, those are examples of exposure. Are
we going to just narrow it down to areas where there are
national security implications rather than trying to identify
writ large what the exposure of a company is economically to
China?
So I think we'd have to think through exactly what the
purpose of it is. But I think that that's an exercise that is
very much worth considering, and I think Congress should take
up this issue.
Chair Merkley. Okay. Well, I invite you and others to
brainstorm what that might look like, and any information you
have on conversations that have been held with our
multinationals in regard to how they might support or have
concerns that we could address in that regard.
Another point raised for potential legislation was a
compensation fund. Would anyone on the panel like to address
how that might work?
Dr. Cooper.
Mr. Cooper. Yes. I think in the long term we need some sort
of compensation fund, not to fully compensate those that are
targeted--that's probably impossible--but to demonstrate
solidarity with those that are targeted. So if the political
message coming out of a Chinese coercion campaign is that the
rest of the world, or at least a big subset of states, are
standing with the country that has been targeted, that's a very
different message than, Oh, they've just been left on their
own. And that means both that we need to have a coercive
response to China--a strong deterrent--but also that we have to
provide at least some support.
Right now, for example, one of the messages you hear often
in Australia is that the United States has actually benefited
from China's sanctions on Australia because, for example,
American producers of various goods are now replacing
Australian producers in China. That's the wrong message. We
need the message to be that like-minded governments are
standing with one another.
So I don't think we're talking about a huge amount of
money. The question in my mind is how do you do this in a way
that doesn't clearly violate the World Trade Organization?
There's been talk, for example, of could you have a
countervailing action that would go against certain Chinese
companies that would gather some funds and that could be
redirected toward the companies that have been harmed by
Chinese action? I think that's probably WTO-violating. But I
think those are the kinds of discussions that I would expect to
be hearing the next few years as people think through ways to
do this.
Chair Merkley. Thank you, because I think it's important to
put forward models of what that might look like and test them.
What happens when the Women's Tennis Association says we're
forgoing games in China, or the NBA says we are going to
withdraw our extensive strategy for a basketball league in
China? It might be a little simpler when a single company, a
single product, is affected; what that looks like, and whether
this is an international effort or just nation by nation.
Then I want to turn to the blocking laws. Dr. Cooper and
Dr. Hung, you've both mentioned in your testimony the anti-
foreign sanctions law. This was back in June of 2021. It built
on previous laws China had adopted, expanding the private right
of action and creating a counter-control list that could affect
visas, and freezing assets of foreign entities. This is part of
kind of the new phase of Chinese strategy and economic
coercion. It places companies in a tight spot between following
their home's country laws and then being subject to sanctions
by China.
Would either of you, Dr. Hung and Dr. Cooper, like to
expand on the challenge this presents and whether China has
used this strategy yet, and, if so, what it looks like?
Mr. Hung. Thank you, Senator.
I would like to respond by saying that right now the
sanctions regime that China is trying to develop is much less
effective and sophisticated than the U.S. one. Dr. Cooper
already pointed out that the U.S. regime is very much legal-
based. And another reason is that the U.S. sanctions regime is
very much based on the international economy's economic
dependence on the U.S. dollar as a kind of reserve currency and
as a kind of transaction currency.
A lot of U.S. sanctions against entities and against
countries and financial institutions that are doing business
with them will be in trouble because the transaction needs to
go through the U.S. dollar system. And it is exactly why China
tried to extend their entire foreign sanction norms to Hong
Kong, but they backpedaled and then did some estimation about
whether they will delay it or actually cancel it, because
actually Chinese companies depend on Hong Kong and depend on
the Hong Kong financial markets for access to U.S. dollars--in
raising capital and borrowing in U.S. dollars.
So China tried to turn the tables by internationalizing the
use of renminbi. And some of the questions mentioned the
attempt to popularize the use of digital yuan and then creating
a whole Chinese alternative currency system. This is the thing
that China actually is trying to do but is still a long way
from achieving. But in that regard, it will be very important
for the U.S. to--vigilance about this China plan to develop an
alternative currency and currency system and then uproot the
international use of the U.S. dollar, which is a huge lever
that the U.S. has regarding these sanctions issues.
Chair Merkley. Thank you very much, Dr. Hung.
And I have to note that I may be approaching the last
person to vote, and so my team is telling me I need to conclude
the hearing. I think this new phase that China is involved in
of creating a legal regime to try to reinforce its strategy of
economic coercion is one that merits a lot of attention.
Thank you all very much for your expertise and testimony
today. To summarize, China is engaged in a massive acceleration
of its strategy of economic coercion. Its goal is to silence
criticism around the world, to be able to conduct egregious
actions, whether it's stripping Hong Kong of political rights
or engaging in genocide, and have the world not respond.
But here in the free world it's essential that we stand up
for our values, our human rights values. It's essential that we
respond. A huge thank you to the Biden administration for
announcing yesterday a diplomatic boycott of the Olympic Games,
and we must challenge every other nation in the free world to
join us.
A huge thank you to the Women's Tennis Association for
being very powerful in its response to Ms. Peng's treatment,
the tennis star's treatment, by the Chinese government. They're
really setting a great example.
We need to carry forward and work on the suggestions that
you all, as a panel of experts, have put forward today,
including exploring having companies report on their exposure
to economic coercion, proceeding to have companies report on
any attempted coercion. And then we need to work in partnership
with the rest of the world, because the United States by itself
cannot be effective in responding.
So thank you for standing up for the human spirit. China
has said that it's criticizing the United States for its
diplomatic boycott, saying it's not in keeping with the Olympic
spirit. I'll tell you what's not in keeping with the Olympic
spirit of uplifting humanity, and that's crushing humanity by
stripping people of their political rights and engaging in
genocide.
Thank you all very much. The record will remain open until
the close of business on Friday, December 10th, for any items
members would like to submit for the record or any additional
questions for our witnesses.
This hearing is adjourned.
[Whereupon, at 11:54 a.m., the hearing was concluded.]
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A P P E N D I X
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Prepared Statements
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Prepared Statement of Bonnie S. Glaser
Chairman Merkley, Chairman McGovern, and distinguished Members of
the Commission, thank you for holding this important hearing and asking
me to participate.
Economic coercion--defined here as a threatened or actual
imposition of economic costs by a state on a target with the objective
of extracting a policy concession--is an increasingly prominent
instrument of Chinese foreign policy. A vast array of economic coercion
measures combined with a set of positive inducements comprise China's
economic statecraft toolkit. As the world's top trading nation, the
second-largest market, and one of the largest providers of development
finance, Beijing has the potential to wield significant influence by
using these sticks and carrots. Although China's employment of economic
coercion has had only limited success in changing the behavior of
targets, it has been more successful in deterring countries and
companies from undertaking actions harmful to Chinese interests. In
addition, PRC positive economic inducements have unquestionably
persuaded some states and firms to refrain from criticizing PRC
policies, although this impact is more difficult to measure.
Unlike traditional economic sanctions, Beijing's economic coercion
usually relies on informal measures that provide plausible deniability
and enable China to ratchet pressure up or down as needed. Whereas
there are many instances of Chinese officials and state media
threatening to take punitive economic actions against countries and
foreign firms, there are very few cases where the Chinese government
has publicly acknowledged implementing coercive acts. For example,
after Australia called for an independent investigation into the
origins of the coronavirus, China's ambassador to Australia, Chen
Jingye warned that ordinary Chinese would say ``Why should we drink
Australian wine? Eat Australian beef?'' Beijing subsequently cited
violations of phytosanitary requirements as the reason for holding up
imports of Australian beef, timber, and lobster. China also falsely
alleged that Australia was dumping barley and wine and subsidizing the
producers of those products. After months of vague import restrictions
on Australian coal, the Chinese government formalized the ban by
granting approval to Chinese power companies to source coal from a list
of countries that did not include Australia.
The PRC has employed coercive economic measures in support of its
foreign policy objectives since at least 2010 when it used coercion on
two occasions: (1) halting rare earth exports to Japan to compel Tokyo
to release the captain of a Chinese fishing trawler who was detained
after colliding with a Japanese patrol boat operating near the disputed
Senkaku/Diaoyu islands; and (2) restricting salmon imports from Norway
after the Norwegian Nobel Peace Prize Committee granted the annual
award to Chinese dissident Liu Xiaobo. Since then, the PRC has used
economic coercion against over a dozen countries. In virtually every
case, the targets have been companies and industries in democratic
states. The Chinese apparently believe that by pressuring influential
business constituencies in democracies they can change the policies of
targeted governments.
Beijing often uses other non-economic coercive tactics in
combination with economic coercion. Downgrading bilateral relations,
cancellations of high-level dialogues, or preventing foreign officials
from meeting with their Chinese counterparts are commonly used
alongside economic coercion tactics. Arbitrary indictments,
detainments, and harsh sentences for imprisoned foreign nationals have
been used by the PRC to exert pressure on foreign governments. In its
attempt to compel Ottawa to release Huawei's CFO Meng Wangzhou,
Beijing's illegally detained Canadian citizens Michael Kovrig and
Michael Spavor as well as restricted imports of Canadian commodities
such as canola seeds, oil and meal. Swedish citizen Gui Minhai was
sentenced to 10 years in prison in 2020 on charges of illegally
providing intelligence to foreigners. Gui was awarded the annual
Tucholsky Prize for writers and publicists living under threat or in
exile by Swedish PEN, an NGO committed to defending freedom of
expression. China's ambassador to Sweden publicly announced that his
country planned to impose restrictions on economic ties and trade with
Sweden and deny visas to reporters from Sweden who criticize China.
Below are four categories of PRC coercive economic diplomacy.
Trade Restrictions
The majority of cases have included the imposition of export and
import restrictions. Beijing has employed many tactics, including
tariff increases, targeted customs inspections, license denials,
informal embargoes, and selective use of international regulations. In
one of the most recent cases, Beijing ended all trade with Lithuania by
delisting it as a country of origin, which meant that imported goods
from that country cannot clear customs. The measures were taken to
punish Vilnius for permitting Taiwan to establish a representative
office with the name ``Taiwanese Representative Office.'' China has
only taken measures to restrict imports of products for which it has an
easily available substitute. It did not target imports of iron ore from
Australia, for example, because China sources 60% of its iron ore from
Australia and has no reliable alternative suppliers.
Tourism Curbs
With a large number of outbound tourists and considerable control
over their movements, Beijing has frequently restricted tourist flows
to other countries. The Philippines was one of the first targets of a
freeze on Chinese tourist visits in 2012 after a Philippine warship
attempted to arrest Chinese fishermen who were fishing in the lagoon at
Scarborough Shoal, which is disputed between the PRC and the
Philippines. Protests against China in Manila provided a pretext for
the state-owned China Travel Service to suspend indefinitely all tours
to the Philippines due to ``strong anti-China sentiment'' that could
pose a risk to the safety of PRC citizens.
Actions Against Foreign Companies and Industries
A high degree of centralized government control enables the PRC to
take punitive measures against companies and industries that are
associated with a country that China is seeking to punish. When South
Korea deployed the Terminal High Altitude Area Defense (THAAD) anti-
missile system in 2017, Beijing rejected certification of Korean
batteries for hybrid-electric vehicles, which prevented any vehicle
equipped with cells made by LG Chem and Samsung SDI from being sold in
China.
In some instances, the PRC uses economic coercion to target
companies to change specific practices that the Chinese Communist Party
deems objectionable which are not connected to government policy. In
early 2018, the PRC threatened to take action against Western airlines
and companies that listed Taiwan as a ``country'' on their websites.
The following year, China canceled digital streaming of Houston Rockets
games after the NBA team's General Manager Daryl Morey posted a tweet
supporting Hong Kong protesters. Rather than risk being shut out of the
Chinese market, the NBA and other entities that have faced censorship
from China have issued public apologies and many companies have
complied with Chinese demands.
Just last month, Taiwanese company Far Eastern Group and its
subsidiaries were fined US$13.89 million for alleged breaches involving
environmental, land use, fire safety, tax issues and other regulations
at factories in five Chinese provinces. Beijing openly accused the
company of supporting Taiwanese independence by providing large
political donations to candidates from Taiwan's ruling party, the
Democratic Progressive Party.
China has long required Taiwanese businesses seeking to invest in
China to support the ``One China'' policy, but it has rarely enforced
this policy. Seeking to prevent further punitive actions from being
taken against his company, Far Eastern Group Chairman Douglas Tong Hsu
published an article stating that he has always opposed Taiwan
independence and supported the ``one-China principle.''
Popular Boycotts
The PRC uses state and social media to encourage its citizens to
launch nationalistic boycotts against companies and industries from a
target state. The South Korean conglomerate Lotte Group, which provided
the land in Seoul for the THAAD deployment, was targeted with massive
protests that eventually forced it to shut down its 112 stores in
China. In 2012, Chinese authorities fueled anti-Japanese protests after
Tokyo's prefectural governor Shintaro Ishihara announced his decision
to let the municipality purchase three of the disputed Senkaku/Diaoyu
Islands from their private owner.
In some cases, popular boycotts by the Chinese people and companies
may occur without Chinese government urging or direction, as PRC
officials claim. However, it is undeniable that the government has
employed a range of levers to both promote and tamp down popular
boycotts during foreign policy disputes. The fact that Chinese
officials threatened to instigate consumer boycotts of some Australian
products in retaliation for Canberra's offending policies indicates
that Beijing views popular boycotts as a useful coercive economic tool.
Although this hearing is focused primarily on economic coercion, it
is important to note the negative impact of China's positive economic
inducements as well. In addition to creating debt crises, corruption,
environmental damage, and other negative consequences, China's
financing to developing countries under the Belt and Road Initiative
has stifled global criticism of Chinese violations of human rights.
Many recipients of China's BRI funding have openly supported Beijing's
position that its actions against Uighurs and other minorities in
Xinjiang are necessary to counter terrorism and extremism. During the
47th session of the United Nations Human Rights Council earlier this
year, more than 90 countries, including several with majority Muslim
populations, expressed their support for China's stance and 65 of them
opposed interference in China's handling of the situations in Xinjiang
and Tibet. Although it is difficult to prove, it is likely that many of
the states that sided with China did so because they want to continue
to receive Chinese loans and investment, and fear that refusal to
support Beijing would put those benefits at risk.
When has the PRC's economic coercion been successful and why?
Studies show that the level of economic pain that initiating countries
can inflict on targets rarely, by itself, determines whether coercion
is effective. In the cases in which China has employed economic
coercion, the failure to compel many of the targeted foreign
governments to alter their policies is due in part to the fact that
Chinese application of economic pressure has generally been aimed at a
small number of companies or industries in each target country and
therefore the impact on China's total trade with that country has been
relatively limited. In most cases, the economic hardship has been short
lived because companies have discovered ways to circumvent PRC
restrictions or found new markets for their goods. For example,
Canada's exports to China fell by $3.5 billion in 2019, but that loss
only constituted a small fraction of Canada's $447 billion in exports
that year.
Of the almost one dozen Australian products targeted by Chinese
coercion, all are being shipped elsewhere, except for a small
percentage of high-end Australian wine.
The PRC's move to halt all trade with Lithuania will not have a
major negative effect on the Lithuanian economy because only 1% of its
exports go to China. However, if Beijing were to take similar actions
to block all imports from a state that has a greater trade dependency
on China, the impact could be far more damaging. Since the PRC's
decision to delist Lithuania as a country of origin is in clear
violation of WTO rules, it is possible that this action may strengthen
the willingness of democracies to unite to push back against Chinese
economic coercion.
In the cases that PRC pressure has successfully led to policy
changes in the target state, political factors have played a bigger
role than the effectiveness of economic coercion. Norway's exports to
China declined as much as $1.3 billion between 2011 and 2013, but by
2014 its exports had rebounded to normal levels. The Norwegian
government remained subject to significant restrictions on political
interactions with Beijing, however. After seven years, Oslo agreed to
make political concessions to China to restore the bilateral
relationship to normal. In 2017, Norway signed a new political
agreement with Beijing in which it said that Norway ``fully respects
China's sovereignty and territorial integrity, attaches high importance
to China's core interests and major concerns, will not support actions
that undermine them, and will do its best to avoid any future damage to
the bilateral relations.''
Mongolia conceded to Chinese demands more quickly than Norway. The
PRC implemented measures to hamper trade with Mongolia after
Ulaanbaatar hosted the Dalai Lama, Tibetan's spiritual leader, for a
visit. The Mongolian government subsequently publicly stated that
``Tibet is an inseparable part of China and the Tibet issue is China's
internal affair.'' It agreed to never host the Dalai Lama again. Both
political and economic factors likely played a role in Ulaanbaatar's
decision. Mongolia was desperate for Chinese investment in mining and
infrastructure and Beijing had canceled talks to discuss a potential
loan. The country's geographical proximity to China also requires
preserving some modicum of friendliness and stability in relations with
its much larger neighbor.
In Japan's case, although China was not successful in blocking rare
exports to Japan, Tokyo capitulated and released the Chinese captain of
the fishing vessel. Japan's decision was likely based on political
considerations, and perhaps concerns that Beijing could take more
harmful measures, such as acting against Japanese investment in China.
In the majority of instances in which Beijing has used economic
coercion against states, it has failed to change the policies of its
targets. In some cases, China's trade weaponization has backfired. In
the wake of being subjected to Chinese pressure, some countries have
taken steps to reduce their dependence on China and create more
resiliency in their supply chains. Although China won a short-term
victory against Japan in 2010, Tokyo subsequently slashed its
vulnerability to China: over 90% of Japan's rare earths were imported
from China in 2010, it cut that reliance to 58% within a decade.
Moreover, Beijing's coercion has caused many countries to rethink
their economic relationships with China and encourage their companies
to diversify. In some cases, China's use of coercive tools has
inadvertently caused the formation of nascent anti- China coalitions.
The pursuit of trade restrictions against Australian industries was
probably a factor in Canberra's reassessment of its security
environment that led to its decision to sign the trilateral AUKUS pact
with the United States and Australia.
China's economic coercion has likely been more successful in
deterring some countries from taking actions that could damage Chinese
interests than in compelling policy reversals. In fact, the intended
target of Chinese actions often may not be the offending country;
instead, China often coerces one to deter another--``killing the
chicken to scare the monkey.''
Recommendations
Despite its limited success and occasional blowbacks, Beijing
continues to view economic coercion as a valuable tool in its economic
statecraft toolkit. This is likely because it judges that the cost to
China is negligible. Recent developments such as the AUKUS deal and the
pending EU anti-economic coercion tool suggest that countries are
willing to band together to impose greater costs on China. The United
States should consider undertaking unilateral steps as well as working
with like-minded partners to counter and deter potential Chinese
economic coercion, and to prepare measures to limit potential damage to
companies and industries.
To Do List:
Diversify trade relationships. The United States should
identify sectors which are overly dependent on the Chinese market and
therefore vulnerable to coercive trade practices. National and local
governments should actively promote trade diversification.
Assist companies and industries to identify and respond
to trade coercion. The United States should help potential targets of
economic coercion to develop tools to identify cases of trade coercion
and respond quickly. Trade associations and other stakeholders should
be encouraged to work closely with U.S. government agencies. Mechanisms
should be created for sharing information and best practices.
Prepare to assist targets of coercion. Encourage
companies to have a plan in place to respond to potential Chinese
coercion. They should be encouraged to report all instances of coercion
to appropriate U.S. government entities. The U.S. government should
become actively involved in coercion cases in various ways, ranging
from diplomatic condemnations of China's actions to providing
compensatory support for targeted industries and workers. Congress
should explore how to appropriate funds for a vehicle to compensate
companies affected by Chinese coercion. The provision of assistance to
targets of coercion will likely reduce incentives to comply with
Chinese demands.
Encourage private sector trade associations to develop a
voluntary code of conduct regarding China. Such a code would include
commitments by U.S. companies to refrain from self-censorship and other
activities in China that are contrary to U.S. values and interests. The
U.S. should consider developing incentives that could be provided to
companies that sign on to the code of conduct.
Create a voluntary counter-coercion coalition of like-
minded countries willing to push back against economic coercion. When
instances of economic coercion take place, coalition members can decide
whether and how to respond. Through collective action, the coalition
would seek to compel China to stop its economic coercion campaign and
to desist from taking future coercive measures in the future.
Collective steps could include: (1) issuing a joint declaratory
statement condemning Chinese behavior and other coordinated diplomatic
actions; (2) encouraging targeted countries to pursue WTO dispute
settlement cases against instances of economic coercion where WTO
remedies are possible, with other coalition members then signing on to
those cases as third parties; (3) explore ways of taking retaliatory
trade, investment or other policy measures against China that are
consistent with WTO rules; and (4) create a counter-coercion reserve
fund to compensate companies for economic losses. The fund should be
capitalized by coalition members and private sector firms who might be
targeted by coercion and receive compensatory support. Even a small
amount of compensation would send a signal of political support to the
targets of coercion, and more broadly to allies, partners, and the
private sector.
Work with allies and partners to reform the WTO so that
member states are protected from economic predation. Realistically,
this cannot be achieved quickly, but it is in the interests of
democracies to strengthen the WTO so it can effectively penalize bad
behavior when it occurs and arbitrate disputes objectively.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Zack Cooper
______
Between Beijing and a Hard Place: Responding to
China's Economic Coercion
Senator Merkley, Representative McGovern, and other distinguished
Commission members, thank you for inviting me to testify before you
today.
The topic of this hearing--how China uses economic coercion to
silence critics and achieve its political aims globally--could not be
more timely. Over the last few weeks, the world has watched as Beijing
has attempted to silence one of China's brightest global stars. Peng
Shuai's courage in coming forward with allegations of sexual assault
perpetrated against her by a former vice premier stands in stark
contrast to the Communist Party's efforts to muzzle her.\1\ After Peng
described her assault on social media, state censors quickly deleted
the post and restricted searches for Peng's name. Shortly thereafter,
Peng disappeared from public view, only to reappear several days later
in materials circulated by state media purporting to show Peng safe and
sound. Few were convinced, including the Women's Tennis Association,
which has continued to advocate on Peng's behalf, despite the likely
economic consequences.
Many around the world--including members of this Commission--have
persistently brought attention to this case.\2\ China's efforts to
silence Peng remind many of Beijing's censorship and repression
campaigns on a variety of other domestic issues, including Hong Kong,
Tibet, and Xinjiang. But China's leaders have been active in silencing
criticism abroad as well, often using a variety of economic tools. The
Alliance for Securing Democracy, which I co-direct, collects data on
economic coercion through our Authoritarian Interference Tracker.\3\ We
list 67 cases of economic coercion by China in the last decade alone.
And at the moment, our database only tracks actions targeting the
transatlantic community, so it does not capture the multitude of well-
known cases of economic coercion against targets outside the United
States and Europe.
Examples of China's Economic Coercion to Silence Critics
To better understand the approaches that Beijing tends to take--and
how these tactics have shifted over time--it is helpful to scrutinize
five cases of Chinese economic coercion. The cases below illustrate how
China has sought to silence critics in U.S. partner countries (Norway
and Mongolia), U.S. treaty allies (in Australia and Europe), and even
in the United States itself. There are a number of similarities across
cases, but they also suggest that Beijing is shifting its approach in
three ways: China's economic coercion is becoming more frequent,
targeted, and explicit.
Norway: In 2010, the Norwegian Nobel Committee awarded
the Nobel Peace Prize to Chinese dissident Liu Xiaobo. At the time, Liu
was jailed in China for ``inciting subversion of state power'' by
calling for political reforms. In response to the Nobel Prize award,
the Chinese government instituted economic punishments against
Norway.\4\ Subsequently, the Norwegian Seafood Council claimed that
Norway's share of the Chinese salmon market fell from 92% to 29%.\5\
Furthermore, Beijing stopped negotiations with Oslo on a free trade
agreement, and some Norwegian individuals were reportedly denied visas
to China.\6\ Relations between the two countries did not improve until
2016, when Chinese foreign minister Wang Yi stated, ``Norway deeply
reflected upon the reasons why bilateral mutual trust was harmed, and
had conscientious, solemn consultations with China about how to improve
bilateral relations.'' \7\ A Norwegian scholar concluded, ``the Chinese
government can effectively use economic sanctions to affect the foreign
policy positions of democratic governments . . . China has become too
big to fault.'' \8\
Mongolia: In 2016, the Dalai Lama traveled to Mongolia.
One week after the Dalai Lama's visit, China began to impose fees on
commodity imports from Mongolia. In addition, loan negotiations between
Mongolia and China were suspended. Chinese foreign minister Wang Yi
warned that ``The Dalai Lama's furtive visit to Mongolia brought a
negative economic impact to China-Mongolia relations.'' \9\ Under
growing economic pressure from its larger neighbor, the Mongolian
government relented and promised to prevent future visits of the Dalai
Lama.\10\ Mongolian Foreign Minister Tsend Munkh-Orgil publicly stated,
``Under this current government, the Dalai Lama will not be invited to
Mongolia, even for religious reasons.'' \11\ The Chinese government
noted this commitment and stated that it hoped ``Mongolia will truly
learn lessons from this incident.'' \12\ Similar patterns of economic
punishment have been observed elsewhere, with researchers finding that
visits by the Dalai Lama decreased exports to China by 12.5% over the
following two years.\13\
European Union: China has used economic leverage with
individual European Union (EU) member countries to restrict statements
on human rights and other contentious issues. In 2017, for example, the
EU drafted language criticizing China for its human rights record. The
statement was intended to be released at the United Nations Human
Rights Council, but for the first time the EU failed to come to
agreement on a public statement. Public reports suggested that Greece
and Hungary led efforts to block the statement, with the Greek foreign
minister opposing ``unconstructive criticism of China.'' \14\ Both
countries took similar actions in 2016 to prevent issuance of an EU
statement criticizing China's South China Sea policies. Chinese funding
for the port of Piraeus in Greece and for railways in Hungary appears
to have provided Beijing with leverage. After one Greek intervention,
China's Foreign Ministry went so far as to publicly congratulate ``the
relevant EU country for sticking to the right position.'' \15\ More
recently, Beijing has sanctioned European experts, officials, and
institutions that have spoken out on human rights issues. And in just
the last few days, China has delisted Lithuania as a country of origin,
effectively blocking all imports from or exports to Lithuania, amidst
their ongoing political dispute.\16\
Australia: In 2017, Chinese influence in Australia
attracted substantial attention due to a series of disclosures about
Chinese political donations.\17\ Donations from individuals with close
ties to Beijing appear to have been intended to alter Australian
decision-making regarding China. In some cases, Chinese officials
directly threatened Australian political leaders that they would suffer
in elections if they went against Chinese wishes.\18\ Tensions rose
again when Australia called for an investigation into the origins of
the pandemic, after which China placed restrictions on a variety of
Australian exports to China. Chinese officials even provided a list of
14 grievances that they insisted be addressed, which included
``unfriendly or antagonistic report[s] on China by media'' in
Australia.\19\ Deep China-Australia economic ties gave China an
``increased ability to threaten and use economic coercion in its
relations with Australia.'' \20\ Yet, despite this leverage and
pressure, Australia has stood strong. Jeffrey Wilson concludes that,
``Beijing's attempt to bully Canberra has been a spectacular failure.''
\21\ Rory Medcalf notes, ``perceptions of Australia's vulnerability to
Chinese economic pressure are exaggerated.'' \22\
United States: Although China has traditionally been
reticent to target the United States with economic sanctions, Beijing
has recently used economic tools to penalize American businesses and
individuals for speaking out on various human rights issues.\23\ In the
best known case, the National Basketball Association lost substantial
business in China after one of its general managers posted on social
media about Chinese repression in Hong Kong.\24\ American companies
that do business in Taiwan have also faced various kinds of pressure to
alter their labeling of Taipei.\25\ And prominent athletes and actors
have been warned to avoid criticizing China, lest they and their
employers lose business.\26\ Chinese officials have even gone so far as
to warn U.S. businesses that they ``cannot make a fortune in
silence''--suggesting that they lobby the Biden administration to
change it policies toward China.\27\ Beijing has also sanctioned U.S.
officials, experts, and institutions for speaking out, signaling a
fundamental change in China's traditional approach.\28\ Whereas the
United States once appeared to be largely off-limits for Chinese
economic coercion, U.S. companies and individuals are increasingly
coming under direct pressure.
Trends in China's Use of Economic Coercion
These five cases demonstrate that the scope, scale, and severity of
the challenge from China's economic coercion is expanding. In
particular, China's economic coercion has become more frequent, more
targeted, and more explicit in recent years. Going forward,
policymakers should expect these trends to continue.\29\
More Frequent: Beijing is far more willing today to use
economic tools for foreign policy ends than it was a few years ago.
Whereas there were only a handful of clear cases of economic coercion
by China in the early 2010s, experts have identified dozens of
incidents over the last few years.\30\ This is true not only for
negative penalties, but also positive inducements. Audrye Wong explains
that China has provided ``economic inducements in illicit and opaque
ways,'' which she calls ``subversive carrots.'' \31\ Elaine Dezenski
notes that despite promises to avoid ``conditionality'' in its overseas
assistance, China prefers ``closed bidding processes, non-transparent
contracts, and a commitment to non-interference,'' making political
influence easier.\32\ These trends suggest that Chinese leaders feel
more confident in using economic tools, despite the fact that many of
these actions have had significant negative effects on China's standing
abroad.\33\
More Targeted: At the same time, China's leaders have
become more targeted in their use of economic measures. This transition
toward more targeted measures mirrors the longer-term shift toward more
targeted sanctions by the United States and many of its allies and
partners. Earlier pressure on Norway and Mongolia broadly targeted key
economic sectors in each country, but recent measures have been
designed to isolate specific companies and individuals. Human rights
activists, political leaders, and businesses have all come under
pressure for making statements and taking actions that the Communist
Party opposes. Even adhering to foreign laws can put companies at risk
now that China's National People's Congress has passed an anti-
sanctions law that permits a broad set of responses against entities
that adhere to foreign sanctions which Beijing considers ``arbitrary''
or ``unilateral.'' \34\
More Explicit: Finally, China's economic statecraft is
far more explicit and legalistic today than it was a decade ago.
Beijing used to disguise most of its economic pressure, attempting to
use ambiguity to avoid committing egregious World Trade Organization
violations.\35\ Thus, previous measures, such as restrictions on rare
earth exports, were often described in public as simple trade disputes
unconnected to foreign policy choices.\36\ As William Norris has noted,
there are a multitude of economic actors in China with different
interests, which has often made it difficult to know the intent behind
any specific Chinese economic action.\37\ Today, however, China's
leaders are more willing to be explicit when they use economic tools
for coercive purposes, with few if any efforts made to disguise the
behavior. For example, Beijing has threatened to blacklist companies by
putting them on an ``unreliable entity list'' when they ``endanger
national sovereignty, security, or development interests in China, or
violate normal market transaction principles by suspending normal
transactions.'' \38\
Implications for Policymakers
These trends suggest that China is likely to increase the
frequency, targeting, and explicitness of its economic coercion in the
years ahead. To deter and defend against these actions, the United
States and other like-minded countries will have to work together more
closely.\39\ Not only that, but China's growing willingness to target
companies and individuals will mean that those actors will find
themselves isolated unless they can find ways to coordinate among
themselves and with their governments. With those objectives in mind,
here are three steps that the United States and others should consider
to better defend themselves, deter future bullying, and counter
Beijing's economic coercion through collective action.
Defending through Active Diversification: In a recent
report, Darren Lim, Ashley Feng, and I argued that foreign actors will
have to rely more on diversification to protect themselves against
Chinese economic statecraft.\40\ This is true not only of the United
States and its allies and partners, but also of companies and
individuals within those countries. Deep dependence on China allows
Beijing to accumulate influence over time and then to deploy that
leverage coercively when countries, companies, and individuals act
against the Communist Party's interests. There is no way to avoid such
pressures entirely, but these risks can be managed by diversifying
export markets and production hubs. The administration and the Congress
should therefore consider whether companies operating in the United
States should have to disclose the material risks to their businesses
from over-exposure to any single foreign market or production hub,
particularly ones that engage in widespread censorship and
disinformation. Doing so might spur corporate boards to insist on
auditing procedures that could identify over-exposure to certain risky
markets and thereby incentivize diversification.
Deterring through Strategic Recoupling: Over the last few
years, a number of countries have engaged in selective decoupling to
reduce their dependence on China in certain sensitive areas. These
steps will no doubt continue. In the long-term, however, it is also in
the U.S. interest that China continues to be dependent on America and
its allies and partners for a wide range of goods.\41\ This is true
both in high-technology areas, such as advanced semiconductors, but
also in more basic but essential commodities such as agricultural
products. One need look no further than Australia to see that imports
like iron ore are critical to China, which gives foreign governments
real leverage. Therefore, the offensive tool of strategic recoupling
should be seen as a natural counterpart to defensively oriented
selective decoupling. The United States should lead efforts with allies
and partners to determine in which areas China's dependence can be
maintained, or even increased, to provide leverage for deterring future
economic coercion campaigns.
Countering through Collective Action: Defense and
deterrence are two key elements, but ultimately the United States will
have to work with key allies and partners to penalize China when it
engages in economic coercion against such countries, companies, and
individuals.\42\ Doing so requires cooperation on what the European
Commission is calling an anti-coercion instrument.\43\ When certain
steps are triggered, the European Union will be able to institute
countermeasures against coercion from abroad. The current case of
Chinese coercion against Lithuania may provide an early test of this
approach. Collective action will be critical, since Beijing is hoping
that it can use its large market to coerce smaller foreign actors.
Effective responses to China's economic statecraft will require
concerted action by a number of like-minded countries. Working together
with the European Union and others on a mechanism to counter coercion
should therefore be a top priority for U.S. lawmakers and policymakers.
Although this effort is likely to take years, work toward this type of
arrangement should begin in earnest immediately.
[Endnotes begin on the following page.]
Endnotes:
\1\ Leta Hong Fincher, ``Why Peng Shuai Has China's Leaders
Spooked,'' New York Times, December 2, 2021, https://www.nytimes.com/
2021/12/02/opinion/peng-shuai-china-
leaders.html?searchResultPosition=1.
\2\ Congressional-Executive Commission on China, ``Chairs Ask
International Olympic Committee to Confirm Peng Shuai's Safety and
Intervene on China's Human Rights Violations,'' Press release, November
24, 2021, https://www.cecc.gov/media-center/press-releases/chairs-ask-
international-olympic-committee-to-confirm-peng-shuai%E2%80%99s.
\3\ Alliance for Securing Democracy, ``Authoritarian Interference
Tracker: Economic Coercion,'' https://securingdemocracy.gmfus.org/
asd_tools/strategic-economic-coercion/.
\4\ Richard Milne, ``Norway Sees Liu Xiaobo's Nobel Prize Hurt
Salmon Exports to China,'' Financial Times, August 15, 2013, https://
www.ft.com/content/ab456776-05b0-11e3-8ed5-00144feab7de.
\5\ ``China Still Miffed at Norway 3 Years after Nobel Awarded to
Dissident Liu Xiaobo,'' Sydney Morning Herald, October 29, 2013, http:/
/www.smh.com.au/world/china-still-miffed-at-norway-3-years-after-nobel-
awarded-to-dissident-liu-xiaobo-20131029-2wcv2.html; Xianwen Chen and
Roberto Javier Garcia, ``Economic Sanctions and Trade Diplomacy:
Sanction-Busting Strategies, Market Distortion and Efficacy of China's
Restrictions on Norwegian Salmon Imports,'' China Information 30, no. 1
(March 2016).
\6\ ``Cold Shoulder,'' The Economist, February 18, 2012, http://
www.economist.com/node/21547832.
\7\ ``Norway, China Normalize Ties after Nobel Peace Prize Row,''
Reuters, December 19, 2016, https://www.reuters.com/article/us-norway-
china/norway-and-china-restart-diplomatic-relations-after-row-over-
nobel-peace-prize-idUSKBN1480R4.; see also Marc Lanteigne and Bjornar
Sverdrup-Thygeson, The Diplomat, ``Towards the Thaw: Seeking Clarity in
China-Norway Relations,'' The Diplomat, January 16, 2016, https://
thediplomat.com/2016/01/towards-the-thaw-
seeking-clarity-in-sino-norwegian-relations/.
\8\ Ivar Kolstad, ``Too Big To Fault: Effects of the 2010 Nobel
Peace Prize on Norwegian Exports to China and Foreign Policy,'' CMI
Working Paper, No. 3 (2016), https://www.cmi.no/
publications/file/5805-too-big-to-fault.pdf.
\9\ ``China Says Hopes Mongolia Learned Lesson after Dalai Lama
Visit,'' Reuters, January 24, 2017, http://in.reuters.com/article/us-
china-mongolia-dalailama-idINKBN158197.
\10\ ``Mongolia Vows No More Dalai Lama Visits After China Turns
Screws,'' Bloomberg, December 21, 2016, https://www.bloomberg.com/news/
articles/2016-12-21/mongolia-vows-no-more-dalai-lama-visits-after-
china-turns-screws.
\11\ Joseph Dussault, ``Why the Dalai Lama Is No Longer Welcome in
Mongolia,'' Christian Science Monitor, December 22, 2016, https://
www.csmonitor.com/World/2016/1222/Why-the-Dalai-Lama-is-no-longer-
welcome-in-Mongolia.
\12\ Dussault, ``Mongolia Vows No More Dalai Lama Visits After
China Turns Screws.''
\13\ Andreas Fuchs and Nils-Hendrik Klann, ``Paying a Visit: The
Dalai Lama Effect on International Trade,'' Journal of International
Economics 91, no. 1 (2013).
\14\ Robin Emmott and Angeliki Koutantou, ``Greece Blocks EU
Statement on China Human Rights at U.N.,'' Reuters, June 19, 2017,
https://www.reuters.com/article/us-eu-un-rights/greece-blocks-eu-
statement-on-china-human-rights-at-u-n-idUSKBN1990FP.
\15\ Jason Horowitz and Liz Alderman, ``Chastised by E.U., a
Resentful Greece Embraces China's Cash and Interests,'' The New York
Times, August 26, 2017, https://www.nytimes.com/2017/08/26/world/
europe/greece-china-piraeus-alexis-tsipras.html.
\16\ ``Lithuania complains of trade `sanctions' by China after
Taiwan dispute,'' Financial Times, December 3, 2021, https://
www.ft.com/content/0ebaa7c7-761d-445e-b3e4-f5d2c9b4768f.
\17\ Four Corners ``Power and Influence,'' Australian Broadcasting
Corporation, 2017, http://www.abc.net.au/4corners/power-and-influence-
promo/8579844.
\18\ Author interview.
\19\ Jonathan Kearsley, Eryk Bagshaw, and Anthony Galloway, `` `If
you make China the enemy, China will be the enemy': Beijing's fresh
threat to Australia,'' Sydney Morning Herald, November 18, 2021 https:/
/www.smh.com.au/world/asia/if-you-make-china-the-enemy-china-will-be-
the-enemy-beijing-s-fresh-threat-to-australia-20201118-p56fqs.html.
\20\ Bates Gill and Linda Jakobson, China Matters: Getting It Right
for Australia (Carlton, Victoria: La Trobe University Press, 2017).
\21\ Jeffrey Wilson, ``Australia Shows the World What Decoupling
From China Looks Like,'' Foreign Policy, November 9, 2021, https://
foreignpolicy.com/2021/11/09/australia-china-decoupling-trade-
sanctions-coronavirus-geopolitics/.
\22\ Rory Medcalf, ``China's Economic Leverage: Perception and
Reality,'' Australian National University, Policy Options Paper, No. 2
(March 2017), https://nsc.crawford.anu.edu.au/sites/
default/files/publication/nsc_crawford_anu_edu_au/2017-05/
policy_papers.pdf.
\23\ Isaac Stone Fish, ``Beijing wants U.S. business leaders to
plead its case. Here's why they shouldn't.,'' Washington Post, January
18, 2021, https://www.washingtonpost.com/opinions/2021/01/18/beijing-
wants-us-business-leaders-plead-its-case-heres-why-they-shouldnt/.
\24\ Tom Kludt, `` `The losses are substantial': the NBA's trouble
with China, four months on,'' Guardian, February 24, 2020, https://
www.theguardian.com/sport/2020/feb/24/china-nba-hong-kong-protests-
financial-costs-update.
\25\ Sui-Lee Wee, ``Giving In to China, U.S. Airlines Drop Taiwan
(in Name at Least),'' The New York Times, July 25, 2018, https://
www.nytimes.com/2018/07/25/business/taiwan-american-
airlines-china.html.
\26\ Max Boot, ``Hollywood just can't stop groveling to China,''
Washington Post, May 31, 2021, https://www.washingtonpost.com/opinions/
2021/05/31/hollywood-just-cant-stop-groveling-china/.
\27\ Helen Davidson, ``Beijing warns China-linked US businesses:
you cannot `make a fortune in silence','' The Guardian, December 2,
2021, https://www.theguardian.com/world/2021/dec/02/beijing-warns-
china-linked-us-businesses-you-cannot-make-a-fortune-in-silence.
\28\ Rachel Treisman, ``China Slaps Sanctions On 28 Trump
Administration Officials, Including Mike Pompeo,'' NPR, January 20,
2021, https://www.npr.org/2021/01/20/958996415/china-slaps-sanctions-
on-28-trump-administration-officials-including-mike-pompeo.
\29\ Matt Schrader, ``Friends and Enemies: A Framework for
Understanding Chinese Political Interference in Democratic Countries,''
Alliance for Securing Democracy, April 22, 2020 https://
securingdemocracy.gmfus.org/friends-and-enemies-a-framework-for-
understanding-chinese-
political-interference-in-democratic-countries/.
\30\ Peter Harrell, Elizabeth Rosenberg, and Edoardo Saravalle,
``China's Use of Coercive Economic Measures,'' Center for a New
American Security, 2018, https://s3.us-east-1.amazonaws.com/
files.cnas.org/documents/China_Use_FINAL-1.pdf?mtime=20180604161240&
focal=none; Alliance for Securing Democracy, ``Authoritarian
Interference Tracker.''
\31\ Audrye Wong, ``How Not to Win Allies and Influence
Geopolitics,'' Foreign Affairs, May 7, 2021, https://
www.foreignaffairs.com/articles/china/2021-04-20/how-not-win-allies-
and-influence-geopolitics.
\32\ Elaine K. Dezenski, ``Below the Belt and Road,'' Foundation
for Defense of Democracies,'' May 2020, https://www.fdd.org/wp-content/
uploads/2020/05/fdd-monograph-below-the-belt-and-road.pdf.
\33\ Wong, ``How Not to Win Allies and Influence Geopolitics.''
\34\ Yew Lun Tian, ``An eye for an eye? China's new anti-foreign
sanctions law,'' Reuters, June 11, 2021, https://www.reuters.com/world/
china/an-eye-an-eye-chinas-new-anti-foreign-sanctions-law-2021-06-11/.
\35\ Evan A. Feigenbaum, ``Is Coercion the New Normal in China's
Economic Statecraft?'' Carnegie Endowment for International Peace, July
25, 2017, https://carnegieendowment.org/2017/07/25/is-coercion-new-
normal-in-china-s-economic-statecraft-pub-72632.
\36\ Darren Lim and Victor Ferguson, ``In beef over barley, Chinese
economic coercion cuts against the grain,'' The Interpreter, May 13,
2020, https://www.lowyinstitute.org/the-interpreter/barney-over-beef-
chinese-economic-coercion-cuts-against-grain.
\37\ William J. Norris, Chinese Economic Statecraft: Commercial
Actors, Grand Strategy, and State Control (Cornell, NY: Cornell
University Press, 2016), www.jstor.org/stable/10.7591/j.ctt18kr4kx.
\38\ ``MOFCOM Order No. 4 of 2020 on Provisions on the Unreliable
Entity List,'' Ministry of Commerce People's Republic of China,
September 19, 2020, http://english.mofcom.gov.cn/article/policyrelease/
questions/202009/20200903002580.shtml.
\39\ Bonnie Glaser, ``Time for Collective Pushback against China's
Economic Coercion,'' Center for Strategic and International Studies,
January 13, 2021, https://www.csis.org/analysis/time-
collective-pushback-against-chinas-economic-coercion.
\40\ Darren Lim, Zack Cooper, and Ashley Feng, ``Trust and
Diversify: A Geoeconomic Strategy for the Australia-US Alliance,''
United States Studies Centre, 2021, https://www.ussc.edu.au/analysis/
trust-and-diversify-a-geoeconomic-strategy-for-the-australia-us-
alliance.
\41\ Zack Cooper, ``How to tame China,'' Washington Examiner,
November 11, 2021, https://www.washingtonexaminer.com/restoring-
america/patriotism-unity/how-to-tame-china.
\42\ Wendy Cutler et al., ``Responding to trade coercion: A growing
threat to the global trading system,'' Asia Society Policy Institute
and Perth US Asia Centre, 2021, https://perthusasia.edu.au/
getattachment/e1419c93-89c9-4016-b8cc-769eeefd9f9f/PU-228-TradeCoerc_
8pp_WEB.pdf.aspx?lang=en-AU.
\43\ European Commission, ``Strengthening the EU's autonomy--
Commission seeks input on a new anti-coercion instrument,'' Press
release, March 23, 2021, https://ec.europa.eu/commission/presscorner/
detail/en/IP_21_1325.
______
Prepared Statement of Jenny Wang
Chairman Merkley, Co-chair McGovern, members of the Commission, and
distinguished guests, thank you for inviting me to testify today, just
days before the inaugural Summit for Democracy.
Today, I will be speaking about one of the most pressing threats to
democracies and global freedoms: the authoritarian Chinese government,
and more specifically--the stunning costs that multinational companies
pay in order to appease the Chinese government and secure access to the
Chinese market.
On the face of it, this topic may seem like an economic issue, but
it is a human rights and moral issue as well.
According to the Human Rights Foundation's political regime
analysis, China is a fully authoritarian regime, ruled by the Chinese
Communist Party (CCP). There is no separation of powers, no judicial
independence, and a severe lack of respect for the fundamental rights
of citizens. While freedoms are enshrined in Chapter II of the
Constitution of the People's Republic of China (PRC), in practice, the
Chinese government monitors all aspects of its citizens' lives,
suppressing any criticism about its rule and ideologies.\1\ This grip
has only tightened under Xi Jinping, impacting those far beyond its
borders.\2\ China's bellicose behavior is driven solely by the CCP's
sheer determination to maintain and consolidate power--and it is
willing to go to great lengths to do so.
Corporations worldwide have long been enticed by China's market,
due to the country's large population and the promise of growth.
As such, the CCP is weaponizing their economic power to pressure
firms to censor themselves or to even apologize if they don't help
advance the party's political agendas. Companies wishing to profit in
China must be willing to comply with draconian Chinese national laws
and to carry out pro-CCP narratives, or face expulsion from the
market.\3\
When companies decide to abide by the Chinese government's demands,
they are intentionally complicit in human rights abuses and acts of
genocide perpetrated by the CCP, and they are actively violating rights
widely recognized by international human rights law.
When companies deliberately choose to censor or apologize to
appease the CCP, they are offering legitimacy to the authoritarian
regime, and signaling their willingness to disregard not only the human
rights of others, but of their own too, as the cost of doing business
in China.
In 2020, my colleagues at the Human Rights Foundation and I
published a report titled Corporate Intimidation & Censorship in China
which illustrates these dire realities.
While this phenomena is not new, we saw a sharp rise of such
economic coercion and fear of expulsion among companies with interests
in China, in the summer and fall of 2019 during the anti-extradition
protests in Hong Kong. The Chinese government, whether directly through
state-controlled media or indirectly by manipulating public opinion,
rebuked multinationals for supporting Hong Kong's pro-democracy
movement--or for even simply posting content that could be interpreted
as support.\4\ The CCP's use of economic coercion is to not only
silence criticism and dissent, but to intentionally trigger a ripple
effect \5\ to mold public opinion both inside China, and overseas.
Corporations are constantly facing economic, moral, and
humanitarian challenges as they navigate this landscape. Such
navigation, in and of itself, is a challenge too.
For example, in March 2021, Swedish apparel brand H&M (formally
known as Hennes & Mauritz AB) faced a scathing boycott in China for
simply releasing a statement of concern about Uyghur forced labor.
Chinese state media and citizens flooded the internet to vilify the
brand; several H&M stores closed, online presence disappeared, and
locations were removed from maps.\6\ The company reportedly lost
approximately $74 million in sales in China for the quarter ending May
31, 2021.\7\
Even if the Chinese government does not mobilize nor retaliate
immediately after an offending comment or action, corporations and
their leaders are quick to pre-emptively apologize to best protect
their access to China's market. Just last month, Jamie Dimon, the CEO
of JPMorgan, expressed regret for a joke he made about the CCP's
centennial.\8\
With the 2022 Beijing Winter Olympics weeks away, it is expected
that the Chinese government will continue its fierce campaign of
economic coercion as a strategic tool to intimidate firms to remain
silent about its human rights record.
Based on my observations, companies are now choosing from three
methods to approach China's economic coercion: (1) Embrace, (2)
Capitulate, or (3) Condemn.
1. Embrace: Maintaining the current trajectory
Maintaining the current trajectory includes the continuation of
censoring, apologizing to the regime, or being complicit in the Chinese
government's abuses.
At the CECC's Corporate Sponsorship of the 2022 Beijing Olympics
hearing in July 2021, representatives from U.S.-based companies Airbnb,
Coca-Cola, Procter & Gamble, and Visa deliberately avoided explicitly
condemning the Chinese government's atrocities.\9\
Furthermore, just last week, it was revealed that Airbnb has been
renting homes in Xinjiang, on land owned by the paramilitary
organization Xinjiang Production and Construction Corps (XPCC)--despite
the human rights abuses unfolding in the region, and the fact that XPCC
is sanctioned under the Global Magnitsky Act.\10\
Multinationals that choose this method are aware of the
reputational risks and corporate hypocrisy of embracing China's
economic coercion--but choose not to care. They should recognize their
actions may put them at higher regulatory risk from the U.S. government
due to their reflexive obedience and willingness to appease the Chinese
government at any and all costs.\11\
2. Capitulate: ``One company, two systems''
In June of 2019, I received an official email from LinkedIn Support
Team, notifying me that ``due to prohibited content'' located on my
LinkedIn profile, my profile and my public activity on the page ``will
not be viewable in China.'' \12\ Several journalists, academics, and
activists who have posted content deemed sensitive by the Chinese
government have also received the same message.\13\
In October 2021, LinkedIn, which is owned by Microsoft, decided to
shut down its localized version in China, citing ``a significantly more
challenging operating environment and greater compliance
requirements.'' However, instead of exiting the Chinese market
altogether, it opted to create a new application called ``InJobs,''
\14\ which will be even more localized and compliant with stringent
local regulations, with no social posting and networking features,
specifically for usage in China.\15\ It is knowingly aiding and
abetting the Chinese government's clampdown on human rights.
``One company, two systems'' is a play on Hong Kong's failed ``One
country, two systems'' model. Such a framework to address China's
economic coercion may seem promising on the surface because it
illustrates how corporations are starting to acknowledge the issue, yet
still does not fully address it. It is deceitful and disingenuous since
it continues to turn a blind eye to the Chinese government's abuses to
ensure access to the market, and does not firmly ensure human rights
are protected.
3. Confront: Standing firm
Multinationals have long approached China's economic coercion by
abiding by the Chinese government's requests--which is why the Women's
Tennis Association (WTA)'s recent stance against China is so rare and
warmly welcomed.
In early December 2021, CEO and Chairman of the WTA Steve Simon
officially announced the WTA's decision to immediately suspend all
tournaments in China, including Hong Kong, in response to the
uncertainties surrounding Chinese tennis player Peng Shuai's freedom,
safety, and well-being. Within the statement, Simon expressed his hope
of how ``leaders around the world will speak out . . . no matter the
financial ramifications.'' \16\ In 2019, the WTA entered a ten-year
deal to host WTA Finals in China. According to Simon, the ballpark
monetary amount of the WTA's involvement in China is more than $1
billion, including real estate, stadium build-out, prize money, etc.
The WTA's responses to the Chinese government's intimidation and
lack of transparency about Peng Shuai have been a master class of how
multinationals with interests in China can prioritize moral
responsibility and human rights over profits.\17\
The WTA's stance is an example of how companies can use their
corporate leverage to demand accountability from the Chinese
government. The WTA's corporate leverage includes the Association's
international presence, Simon's public statements in support of Peng
Shuai, as well as the trust and influence of top tennis players such as
Naomi Osaka and Serena Williams.
We must be demanding better of the businesses that employ, supply,
entertain, and house our people.
When companies are not held accountable for embracing or
capitulating to the CCP's economic coercion, they will not fully
recognize the severity of their actions.
In order to address these three methods and to approach China's
economic coercion with human rights central to the discussion,
immediate next steps would be to (1) raise awareness and visibility
about China's economic coercion and (2) increase accountability.
To raise public awareness and visibility about economic coercion,
my recommendations are to:
1. Approve legislation to establish the China Censorship Monitor
and Action Group per S. 413.\18\ The establishment of this task force
would be a critical first step towards increasing awareness about how
the Chinese government impacts the freedoms of transnational companies,
specifically those founded on liberal values in democratic countries.
Furthermore, in addition to consulting with federal and independent
agencies, relevant stakeholders in the private sector and the media,
and United States allies and partners, the task force should also
consult the United Nations Guiding Principles on Business and Human
Rights.
2. Mandate greater transparency among American companies by
introducing legislation that would require them to publicly report
their respective exposures to China. This data would provide both
policymakers and consumers better insight about the potential impact of
China's economic coercion and guide pragmatic and achievable policy
decisions in the future. These exposures to China could include market
shares, closed-door meetings, and who American business leaders are
engaging with.
To increase accountability, my recommendations are to:
1. Sign H.R. 1187 into law, which would mandate the Securities and
Exchange Commission to define environmental, social, and governance
(``ESG'') practices, and establish a Sustainable Finance Advisory
Committee.\19\ Recently, there has been more awareness around climate
change and environmental issues. It is imperative for corporations to
remember the ``S'' in ESGs also include human rights and ethical
considerations.
2. Request a follow-up hearing with the witnesses of CECC's
Corporate Sponsorship of the 2022 Beijing Olympics hearing in July
2021. A follow-up hearing would provide an opportunity for the
Commission to discern whether the witnesses have taken any concrete
actions to address what was discussed, and to once again emphasize the
importance of leveraging their influence to uphold fundamental human
rights.
Businesses with global operations have great influence--both
positive and negative. It is up to Congress to help influence, inform,
and prompt them to uphold our values, and stand firmly with human
rights in response to China's economic coercion.
I look forward to discussing this in more detail and answering your
questions. Thank you for the humbling opportunity to testify before the
Commission today.
[Appendix and Endnotes appear on the following pages.]
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Endnotes:
\1\ Corporate Intimidation & Censorship in China: Recommendations
for Foreign Companies, Human Rights Foundation (9 June 2020), https://
hrf.org/report-corporate-intimidation-
censorship-in-china/.
\2\ 100 Years of Suppression: The CCP's Strategies in Tibet, the
Uyghur Region, and Hong Kong, Human Rights Foundation (6 August 2021),
https://hrf.org/new-hrf-report-the-ccps-100-years-of-suppression/.
\3\ Supra note 1 at page 7.
\4\ Supra note 1 at page 15.
\5\ A ripple effect from employers to employees, from merchants to
consumers, from educators to students, from movie films to movie
audiences, etc.
\6\ H&M's China Sales Hit as Boycott Bites, Reuters (2 July 2021),
https://www.reuters.com/business/retail-consumer/hms-china-sales-hit-
boycott-bites-2021-07-02/.
\7\ Stu Woo, H&M Pays Price of Upsetting Beijing as China Sales
Drop, The Wall Street Journal, (Updated 1 July 2021), https://
www.wsj.com/articles/h-m-pays-price-of-upsetting-beijing-as-china-
sales-drop-11625136844.
\8\ The Editorial Board, Did Jamie Dimon Hit a Nerve? The Wall
Street Journal (25 November 2021), https://www.wsj.com/articles/did-
jamie-dimon-hit-a-nerve-china-communist-party-11637862914.
\9\ Corporate Sponsorship of the 2022 Beijing Olympics: Hearing
before the Congressional-Executive Commission on China, 117th Congress
(2021), https://www.cecc.gov/events/hearings/
corporate-sponsorship-of-the-2022-beijing-olympics.
\10\ Bethany Allen-Ebrahimian and Jacque Schrag, Exclusive: Airbnb
Hosts Xinjiang Rentals on Land Owned by Sanctioned Group, Axios (30
November 2021),https://www.axios.com/airbnb-xinjiang-listings-
sanctions-china-766dae2f-91e0-4a3e-9656-544ef8f35db0.html.
\11\ Supra note 1 at page 20.
\12\ Image 1 in Appendix.
\13\ Bethany Allen-Ebrahimian, LinkedIn blocks U.S. journalists'
profiles in China, Axios (30 September 2021), https://www.axios.com/
linkedin-blocks-us-journalists-profiles-in-china-22fcefd4-5bc1-490b-
a448-b4f9b05e9566.html.
\14\ Mohak Shroff, China: Sunset of Localized Version of LinkedIn
and Launch of InJobs App Later This Year, LinkedIn Official Blog (14
October 2021), https://blog.linkedin.com/2021/
october/14/china-sunset-of-localized-version-of-linkedin-and-launch-of-
new-injobs-app.
\15\ Forrester (Contributor), LinkedIn Has Not Given Up on The
China Market, Forbes (21 October 2021), https://www.forbes.com/sites/
forrester/2021/10/21/linkedin-has-not-given-up-on-the-china-market/
?sh=50fac2133d42.
\16\ Steve Simon Announces WTA's Decision to Suspend Tournaments in
China, Women's Tennis Association (1 December 2021),https://
www.wtatennis.com/news/2384758/steve-simon-announces-wta-s-decision-to-
suspend-tournaments-in-china.
\17\ Ben Morse and Nectar Gan, Women's Tennis Suspends All
Tournament in China Over Concern for Peng Shuai, CNN, (02 December
2021), https://www.cnn.com/2021/12/01/tennis/wta-
suspend-tournaments-china-peng-shuai-spt-intl/index.html.
\18\ S. 413, 117th Congress (2021-2022): A bill to establish the
China Censorship Monitor and Action Group, and for other purposes. (24
February 2021), https://www.congress.gov/bill/117th-congress/senate-
bill/413/text.
\19\ H.R. 1187, 117th Congress (2021-2022): Corporate Governance
Improvement and Investor Protection Act. (Referred in Senate, 17 June
2021), https://www.congress.gov/bill/117th-congress/house-bill/1187/
text.
______
Prepared Statement of Ho-fung Hung
Chairman Merkley, Chairman McGovern, and respected members of the
Commission, it is my honor to have this opportunity to contribute my
expertise and testify before the Commission on China's economic
coercion. My testimony will draw from the findings of my ongoing
research and publications about Hong Kong business and politics. It
will focus on the challenges that U.S. corporations and investors face
under the new political environment in Hong Kong after the
implementation of the National Security Law in July 2020.
Since the 1980s, Hong Kong has been an indispensable offshore
financial center of China while China's financial system was closed to
the world. One purpose of Beijing's One Country, Two Systems design is
to maintain such a role of Hong Kong after the sovereignty handover.
After China acceded to the WTO, China has continued to keep strict
foreign exchange control and refused to liberalize its capital account.
Hong Kong has been the only financial market under Chinese sovereignty
that maintained a free financial system open to the world and a freely
convertible currency of its own. It is a unique gateway where Chinese
corporations raised capital from international investors, borrowed in
USD, and channeled their investment to other parts of the world. As my
forthcoming book City on the Edge: Hong Kong under Chinese Rule shows,
as of 2019, among the 1,738 Chinese companies listed in overseas
markets, 1,331 were listed in Hong Kong.\1\ In 2018, 67 percent of FDI
going into China originated from Hong Kong, and 57 percent of China's
outgoing FDI was destined for Hong Kong. Hong Kong is still an
indispensable doorway through which money goes in and out of China.
Such special status of Hong Kong under China's sovereignty turns
Hong Kong into an ideal destination for the Chinese political elite to
hide their wealth and conduct shady international financial and
commercial deals, violating international sanctions. With the
tightening of political control in Hong Kong across the board, foreign
companies which used to operate in a liberal and open environment have
started to face unique and mounting political and economic risks.
Hong Kong status as a free offshore financial center with
enthusiastic participation by investors and corporations worldwide
hinges on its rule of law, freedom of the press, the transparency of
its corporate governance, and neutrality of its business regulators.
These foundations for Hong Kong's financial centrality are now being
threatened in the new political landscape. Despite their economic
significance, these foundations have been thorns in the side of the
CCP. For example, the presence of a free press presents a constant
threat that the Chinese political elite's private wealth in Hong Kong
would be exposed and create embarrassment for them.\2\ Hong Kong-based
Chinese front companies that helped North Korea and other unruly
regimes to evade international sanctions are often exposed by
journalists working in Hong Kong.\3\
While the National Security Law itself poses a threat to civil
liberty, the free flow of information, and private property in Hong
Kong, it also profoundly transforms Hong Kong's political climate. It
opens the door for the HKSAR and Beijing governments to pass new laws
in the name of national security that worsen Hong Kong's business
environment for foreign corporations and investors.
The Anti-Foreign Sanctions Law
For example, this summer (2021), Chinese official media and
establishment political figures in Hong Kong have been citing
authoritative sources to indicate that the Anti-Foreign Sanctions Law,
passed in China in June of this year, would be made applicable to Hong
Kong in the NPCSC meeting in August. If it becomes a reality, any
corporation, foreign or Chinese, operating in Hong Kong will face an
impossible dilemma. If they abide by U.S. sanctions on Chinese or Hong
Kong entities and officials, they will be violating China's Anti-
Foreign Sanctions Law and penalized. If they comply with China's Anti-
Foreign Sanctions Law, they will be violating the many U.S. and
international sanctions. Facing this impossible choice, many
corporations would have to consider leaving Hong Kong.\4\ Against this
backdrop of a looming anti-foreign sanctions law beside tightening
repression in many other realms of Hong Kong, the U.S. Government
issued an official warning to U.S. businesses operating in Hong Kong on
July 16.\5\
As it turns out, Beijing's political elite are seemingly still
divided on how much economic price to pay for continuing to tighten the
screws on Hong Kong. Presumably, certain factions of the powerful elite
still worry about the loss of Hong Kong as an offshore market.
When the market was worrying about the inevitable application of
the Anti-Foreign Sanctions Law to Hong Kong in late August, the NPCSC
surprisingly announced it would delay the decision to obtain more time
to assess its economic impact.\6\ Despite this temporary backpedaling,
establishment figures do express confidence that the application of the
law to Hong Kong will be back on the agenda sooner or later.\7\ But
this episode also manifests the soft spot and limits of Beijing's
crackdown on Hong Kong and U.S. continuous leverage over Beijing's Hong
Kong policy.
Declining Corporate Governance Transparency
When the Hong Kong authorities are expanding their control of the
media in the name of safeguarding national security, it also expands
its power in a way that jeopardizes the very transparency and integrity
of the Hong Kong business environment. For example, in March 2021, the
HKSAR government announced it would start restricting public access to
information of directors and executives of registered companies.\8\ For
decades, journalists in Hong Kong took advantage of public access to
such information, including name, HKID number, and addresses of
directors of registered companies, to identify who is truly behind some
important business transactions and property holdings. It is the
channel through which journalists expose many corruption cases and
unfair business transactions (e.g., government officials with insider
information sell or buy a property through a company they hold). It is
also the channel through which the Chinese elite's property ownership
in Hong Kong, usually owned in the name of companies set up to hide the
identities of the true owners, was discovered.\9\ Labeling journalists'
access to the board of directors' information as undue ``privilege,''
the HKSAR government is transforming the Hong Kong business environment
into one rife with mysterious companies with secretive, powerful owners
behind the scene, somewhat like money laundering centers and tax havens
in the Caribbean. Journalists would also find it more difficult to
discover problems with publicly listed companies if the identities of
their bosses were shrouded in the dark.
Also, it has been an established practice that powerful Chinese
companies set up front companies in Hong Kong to conduct international
transactions that violate international sanctions. If one of such front
companies were exposed and blacklisted internationally, the powerful
company behind would move on to establish a new front company in its
place. If the new ban on public access to companies directors'
information had been in place earlier, the world would have never known
that Skycom, a Hong Kong-registered company that violated U.S.
sanctions and sold restricted computer equipment to Iran illegally, was
controlled by Huawei.\10\ Powerful Chinese companies would have tricked
more foreign banks operating in Hong Kong to violate international
sanctions inadvertently, like the example of HSBC in the Huawei
case.\11\ This new restriction on disclosure of company information
muddles the environment for foreign corporations operating in Hong
Kong.
The Anti-doxxing Law
Another troubling development is implementing the anti-doxxing law
amendment in October this year. The amended law criminalized
unconsented disclosure of private information, vaguely defined, without
the need for proof of the harm done. It hands the authorities vast new
authorities to prosecute dissidents and journalists who disseminate
information about the powerful elite and expands the authorities' power
to request local and foreign media and internet platforms to remove
content deemed to violate the law. It also gives authorities the power
to access electronic devices and search premises without a warrant.\12\
This law will significantly impact U.S. social media companies
operating in Hong Kong, as the law's most draconian measures can be
applied to them if one of their users is deemed to violate the vaguely
defined offense. To try to maintain Hong Kong's financial center
status, the Hong Kong government has not yet banned U.S. social media
and internet browsing platforms. The continuous presence of U.S. social
media companies in authoritarian Hong Kong poses a unique challenge.
Under the anti-doxxing law, the social media companies could be forced
to comply with the HK authorities to delete posts or surrender users'
information out of the HKSAR government's request with a threat of
heavy penalty. The law could effectively turn those companies into the
enforcers of the government's efforts to stifle the free speech of
their users, including U.S. citizens inside or outside Hong Kong. The
law would also force those companies to surrender users' data.
Before the law was enacted, Singapore-based Asia Internet Coalition
(AIC), which represents Apple, Facebook, Google and Twitter among other
members, warned that ``introducing sanctions aimed at individuals is
not aligned with global norms and trends,'' and that local staff in
Hong Kong handling the day-to-day operations for these tech giants does
not have the access rights or ability to remove content if so demanded
by the local government. The anti-doxxing law could place members in an
untenable position that could force them to ``refrain from investing
and offering their services in Hong Kong.'' \13\
Deteriorating Regulatory Environment
Independent and respected institutions that have been instrumental
in safeguarding the reputation and integrity of the Hong Kong business
environment have been under threat even before the National Security
Law. Some of them appear to face increasing political pressure and
start to behave like a political tool of the authorities. For example,
it is unclear whether Hong Kong's independent financial regulator, the
Securities and Futures Commission, could uphold its independence. In
2014, the SFC took action against an American short-seller for
publishing a negative research report about a powerful property
developer (Evergrande!) from mainland China. It also fined and
reprimanded credit rating agency Moody's for a report that warned about
corporate governance irregularities of 49 mainland Chinese companies
listed in the Hong Kong market.\14\
These may be isolated cases, but they already raised the fear that
the regulatory body would increasingly favor mainland companies,
creating a chilling effect on financial analysts who do research that
was critical of them. This summer, The Economist warned that ``[g]lobal
banks say that practices from mainland China are seeping into the city.
These include a shift in the way IPOs and bonds are underwritten. Where
banks' roles were once clearly defined early in the process, now a
handful of institutions, many of them mainland Chinese, fight for top
spots in transactions. Many are accused of inflating their orders for
the securities in order to impress clients. This has reduced the
transparency of the process and disrupted price discovery. . . .
bankers fear that Hong Kong's standing as a global financial centre
will suffer. Moreover, the situation mirrors the city's greater
dilemma. A cosmopolitan society with globally recognised norms is
rapidly losing ground to a Chinese way of life.''
Risks to U.S. Investors
With China's economic slowdown and brewing economic crisis over the
last decade, Chinese entities have been increasingly eager to raise
debt in the international financial market via the Hong Kong platform.
Hong Kong is already a unique global platform for Chinese corporate
bond offshore sales. It also started to emerge as a platform for
Chinese government bond sales. Just this October, the debut of the
Shenzhen government bond in Hong Kong--the first-ever offshore sale of
Chinese government bonds--attracted USD 775 million worth of global
subscriptions.\15\ U.S. institutional and individual investors'
involvement in these financial products could effectively tie their
financial fortunes to Chinese companies and Chinese government action
that violate international sanctions and human rights.
As independent and critical research, including financial analysis,
academic research, and journalistic reporting, of Chinese business and
government in Hong Kong became increasingly difficult, and as Hong Kong
regulators become ever more biased toward the mainland Chinese firms
and government, investment into these corporate and government bonds in
the Hong Kong market will become increasingly risky. While U.S.
institutional investors may feel the urge to follow the herd of global
high finance to pile into such an exotic bond market, individual
contributors to investment funds will always have to bear the heaviest
loss when anything bad happens. The explosion of the debt crisis of
Evergrande and other major Chinese property developers recently is the
best indication of such risk to U.S. investors.
My new book about the corporate origins of deteriorating U.S.-China
relations shows U.S. businesses in mainland China have been complaining
about the lack of rule of law, lack of free flow of information, bias
of regulators against them, unpredictability (or politicization) of law
and regulations enforcement there for a long time. These problems have
created an unlevel playing field in which U.S. corporations compete
with domestic Chinese ones at a disadvantageous position.\16\ But at
least for financial deals, U.S. corporations could rely on the Hong
Kong financial market, which did not share many of the shortcomings in
the mainland Chinese environment. However, under the new political
climate of Hong Kong, the institutional foundations of the fairness and
transparency of Hong Kong's financial market erode rapidly, making the
Hong Kong business environment converge with the mainland.
The temporary stalling of applying the Anti-Foreign Sanctions Law
to Hong Kong shows significant vested interests in the CCP still prefer
not to destroy Hong Kong's financial center status too rapidly. But the
development in the recent two years shows that Beijing's instinct for
absolute control is so great that any internal check against the
destruction of Hong Kong's financial centrality can at best be
temporary. The HKSAR government's refusal to take any advice and
complaint from AmCham Hong Kong and U.S. financial firms to lessen the
draconian and unscientific quarantine regime and border closure that
hinders operations of global firms indicates that the authorities are
ready to sacrifice Hong Kong's financial centrality for the sake of
political control.\17\ The recent denial of work visas to foreign
journalists covering financial news in Hong Kong (like the rejection of
visa renewal for the Hong Kong correspondent of The Economist) without
giving any reasons is another indicator.\18\
For a long time, Beijing had adopted a ``frog-cooking'' approach to
taking away Hong Kong's political freedom, adding the temperature
gradually so we might not be alerted that the freedom is taken away.
After a certain point, Beijing turns up the fire all the way to destroy
whatever remains (via the imposition of the NSL new order). Now,
Beijing has started to use this frog-cooking approach to slowly take
away the institutional foundations of Hong Kong's status as a
transparent, fair, and clean offshore financial center, turning it into
a murky swamp where politically well-connected Chinese firms and their
collaborators enjoy outsized feasts whereas unsuspecting foreign
investors are eaten. It also slowly pressures foreign corporations
eager to make money in Hong Kong to become accomplices of its efforts
to repress and surveil Hong Kong's civil society and subvert
international order and rule.
Recommendations
In light of the above considerations, there are several things that
the executive and legislative branches of the U.S. Government could do
to protect U.S. corporations and investors concerning the deteriorating
business environment in Hong Kong.
(1) While most U.S. social media and web browsing platforms cannot
operate in China and nearly all other authoritarian states, their
continuous operation in Hong Kong poses a unique challenge. The Hong
Kong government has not yet banned them, but it has been trying to
force them to comply and aid its efforts to stifle dissenting voices
and collect users' information. The U.S. Government should find ways in
existing laws or make new laws to regulate these companies and ensure
that they will not become the accomplices of the crackdown in Hong
Kong. Such measures would help U.S. companies to resist the temptation
of staying in Hong Kong and muddling through while slowly becoming
enforcers of local repressive policies. Such cooperation with local
authorities might yield short-term profit, but it will also create a
huge risk to those companies and their investors in the long run.
(2) The U.S. could allocate more resources to develop technology
and tools that residents in Hong Kong (and elsewhere in China) could
use to bypass internet censorship and suppression. The fund allocated
to develop technologies and programs for an ``open, interoperable,
reliable and secure internet'' for Hong Kong residents in the U.S.
Innovation and Competition Act of 2021 is a laudable first step.\19\
While the Great Firewall of China is closing in on Hong Kong fast, time
is running out for the U.S. Government to counteract the enclosure and
help maintain internet freedom in Hong Kong. The USICA was passed in
the Senate earlier this year. It needs to be passed in the House and
become law soon.
(3) Continue to monitor the political and economic risks that
investment in Chinese stocks, corporate bonds, and government bonds
could bring to U.S. investors. Suppose the transparency and
accountability of the Chinese issuers of financial products in Hong
Kong continue to erode. In that case, the U.S. Government will be
responsible for issuing warnings or even restrictions on U.S.
institutional investors' involvement in such products. It will be a
necessary thing to do to protect the savings, investments, and pensions
of millions of working Americans. There is a precedent in the Treasury
sanction against investment in Russian sovereign bonds earlier this
year.\20\ Keeping this option open could also serve as a deterrent that
shapes the Chinese and Hong Kong authorities' calculation about how
fast and wide they would dismantle preexisting institutions that
warrant the integrity of the Hong Kong financial market.
(4) For a long time, Hong Kong has been a base for journalists,
analysts, and academic researchers who might not be able to enter
mainland China to investigate Chinese companies, Chinese political
development, and the Chinese business environment. The knowledge
generated in these endeavors is of utmost importance to U.S. investors
when making investment decisions. With the troubling new trend of
expelling foreign journalists and the stifling of local media under the
NSL, the U.S. Government needs to use whatever diplomatic tools are
available to ensure media organizations and personnel from the U.S. and
other like-minded countries can continue to operate freely in Hong
Kong. They constitute an irreplaceable line of defense for a fair,
transparent, and level playing field in the interest of many U.S.
companies operating in the Hong Kong market.
[Endnotes appear on the following page.]
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Senator Merkley
Good morning. Today's hearing of the Congressional-Executive
Commission on China entitled ``How China Uses Economic Coercion to
Silence Critics and Achieve Its Political Aims Globally'' will come to
order.
As the second-largest economy in the world and the largest trading
partner to many countries around the world, China leverages the
attraction of its market and the global economy's deep ties to supply
chains in China to punish critics and reward self-censorship. This
hearing will examine the ways the Chinese government and Communist
Party attempt to use economic coercion for political aims, such as
quashing critical commentary on China's policies and conduct regarding
Taiwan, Hong Kong, Xinjiang, or anything else China deems sensitive, or
intimidating U.S. and other businesses into toeing the Party line if
they want access to China's market.
Increasingly often, those that run afoul of these aims see their
products targeted, from Australian wine to Norwegian salmon to
Philippine bananas to Taiwanese pineapples. The Chinese government has
also ramped up the intensity of its coercive behavior, as seen in its
wide-reaching campaign against Australia in response to calls for an
independent inquiry into the origins of COVID-19 and other political
grievances. This Commission has also been on the receiving end of
formal sanctions, just like other parliamentarians, government
officials, nongovernmental organizations, researchers, and others who
speak out against human rights abuses in China.
For this Commission, like many around the world, the intimidation,
harassment, and economic coercion directed at critics of the Chinese
government and Communist Party only reinforces our resolve to shine a
light on this behavior. But for many others the threat of retaliation
by the Chinese government or market casts a long shadow. Earlier this
year, the Commission held a hearing with the top U.S-based sponsors of
the Olympic Games. Even after being confronted with many of the most
egregious human rights violations of this century, the companies'
testimony largely served to demonstrate how the pull of the Chinese
market continues to incentivize self-censorship.
That's because it's not easy to stand up to a government so willing
to use its country's economic clout as a cudgel to bully individuals,
corporations, and other sovereign states. We saw this dynamic in action
in recent weeks when a Marriott Hotel in Prague turned away the World
Uyghur Congress because of concerns about ``political neutrality.''
Yet not everybody is cowed into silence by the bullying. The recent
actions by the Women's Tennis Association to suspend tournaments in
China in response to the treatment of Chinese tennis star Peng Shuai
inspire me and many members of this Commission.
Clearly this is an evolving landscape. For the United States to be
able to defend American businesses and citizens from censorship and
intimidation, or to work with other countries to help insulate one
another from coercive economic tools that undermine basic political
rights, we need to better understand the nature, scale, and scope of
this challenge. We also need to identify the tools that will be
effective in response--and those that won't--as well as where China's
economic coercion is headed.
Those are the questions we're hoping to grapple with in this
hearing. The panel of experts we'll hear from will help us do that.
Today's witnesses will shed light on the range of measures China
employs, pertinent trends, particular impacts on U.S. businesses, the
risky environment Hong Kong is becoming for multinational corporations
because of the reach of new laws, and recommendations for policymakers
in the United States and globally.
Just as last month's hearing on techno-authoritarianism highlighted
the ways in which China exports authoritarian values through
technology, this hearing will examine the ways in which it exports--and
imposes--authoritarian values through trade and business ties. I look
forward to learning from our witnesses about how we can resist the
erosion of civil, political, and human rights threatened by these
developments.
Prepared Statement of Representative McGovern
Thank you, Mr. Chairman, for convening this hearing on the Chinese
government and party's coercive use of its economic might to pursue its
political objectives and to silence critics.
Last July this Commission held a hearing entitled ``Corporate
Sponsorship of the 2022 Beijing Olympics'' with the five U.S.-based
companies that are top sponsors of the International Olympic Committee.
We wanted to know if they would use their ample leverage as sponsors to
insist on human rights improvements in China in the lead-up to the 2022
Beijing Winter Olympics.
Each of the five witnesses testified to how their company had
incorporated human rights principles into their business operations.
When asked by Commissioners, however, whether they would press those
principles with the Chinese government ahead of the Olympics, they
declined to answer. In fact, when asked directly by Senator Cotton
whether they accepted the finding by two Administrations that the
Chinese government was committing genocide against the Uyghurs, only
one of the five said yes. These American companies refused to publicly
acknowledge a fact because they feared Chinese government retaliation.
This is a clear example of China's economic coercion at work.
It is also a case where evidence of coercion is inferred rather
than visible. I suspect this is the norm. While there are many reported
cases of the Chinese government flexing its economic muscle for
political reasons--the boycott of Norwegian salmon in response to the
award of the Nobel Peace Prize to Liu Xiaobo comes to mind--they are
likely dwarfed by unreported cases, much like the amount of an iceberg
under the surface.
Further, it may be that companies, whether tech giants,
international financial firms, or sports leagues, are self-limiting or
self-censoring because intimidation by the Chinese government and party
is the expected price of doing business there.
This is a big picture question I hope our witnesses will address:
To what extent is economic coercion the norm? Are additional analytical
tools needed to help us understand and assess the scope of this
coercion?
I also look forward to the witnesses' policy recommendations for
how we should respond. The options appear to be neither simple nor
easy, and will require careful and considerate diplomacy with
international partners and collaboration between governments and
industry.
In the legislative and regulatory realm, calls for enhanced
transparency to help in the effort to resist economic coercion also
dovetail with reforms sought in the growing movement to tackle
corruption as a foreign policy and human rights priority. These topics
and more will be discussed in this week's Summit for Democracy convened
by the Administration and could create a good synergy for policy
solutions.
Thank you and I look forward to your testimony.
Submissions for the Record
------
Questions and Answers for the Record
Question from Senator Ossoff for Dr. Ho-fung Hung
Question. When, in your view, have the various policies that we are
grouping under the rubric of Chinese economic coercion been effective
from the standpoint of the Chinese Communist Party and achieved the
aims of the Chinese Communist Party, and when have they failed?
Answer. Beijing's purpose in employing economic coercion against
countries, companies, or civil institutions is to make them do things
aligned with Beijing's poitical positions or not do things contrary to
those positions, mostly the latter. It can be about stopping their
expression of concern about Xinjiang, canceling invitations to the
Dalai Lama and Hong Kong dissidents, terminating cooperation with the
U.S. over the South China Sea, etc. The CCP will regard their efforts
as successful if the concerned entities do play along and cease doing
things Beijing does not like. The efforts fail if the entities ignore
Beijing's preferences and continue doing those things.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Witness Biographies
Bonnie Glaser, Asia Program Director, German Marshall Fund of the
United States
Bonnie S. Glaser is the Director of the Asia Program at the German
Marshall Fund of the United States. She was previously a Senior Adviser
for Asia and the Director of the China Power Project at the Center for
Strategic and International Studies. Ms. Glaser is concomitantly a
Nonresident Fellow with the Lowy Institute in Sydney, Australia, and a
Senior Associate with the Pacific Forum. For more than three decades,
Ms. Glaser has worked at the intersection of Asia-Pacific geopolitics
and U.S. policy.
Zack Cooper, Senior Fellow, American Enterprise Institute
Zack Cooper is a Senior Fellow at the American Enterprise Institute
and Co-director of the Alliance for Securing Democracy. He also teaches
at Princeton University, is a partner with Armitage International, and
co-hosts the ``Net Assessment'' podcast for War on the Rocks. He
previously served on staff at the Pentagon and White House and has
conducted research at the Center for Strategic and International
Studies and the Center for Strategic and Budgetary Assessments. He
received a Ph.D., M.A., and M.P.A. from Princeton University and a B.A.
from Stanford University.
Jenny Wang, Senior Strategy and Research Associate, Human Rights
Foundation
Jenny Wang is a Senior Strategy and Research Associate at the Human
Rights Foundation (HRF), where she works on Asia-related research,
projects, and campaigns, and spearheads the organizations' Oslo Freedom
Forum in Taiwan. She is a co-author of the Human Rights Foundation's
report ``Corporate Intimidation & Censorship in China: Recommendations
for Foreign Companies.''
Ho-fung Hung, Henry M. and Elizabeth P. Wiesenfeld Professor in
Political Economy, Johns Hopkins University
Ho-Fung Hung is the Henry M. and Elizabeth P. Wiesenfeld Professor
in Political Economy in the Sociology Department and the Paul H. Nitze
School of Advanced International Studies of the Johns Hopkins
University. He is the author of ``City on the Edge: Hong Kong under
Chinese Rule'' (Cambridge UP, 2022), ``Clash of Empires: From
`Chimerica' to the `New Cold War' '' (Cambridge UP, 2022), ``China
Boom: Why China Will Not Rule the World'' (Columbia UP, 2015), and
``Protest with Chinese Characteristics'' (Columbia UP, 2011). His
analysis on Chinese and Hong Kong politics and economy has been cited
or featured in major news outlets around the world. His commentary
about the environment for businesses in Hong Kong, particularly since
passage of Hong Kong's National Security Law, has appeared in such
media as the Wall Street Journal, the Washington Post, NPR, and
Politico.
[all]