[Senate Hearing 117-305]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 117-305

                        COUNTERING THE PEOPLE'S
                      REPUBLIC OF CHINA'S ECONOMIC
                  AND TECHNOLOGICAL PLAN FOR DOMINANCE

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

                                HEARING

                               BEFORE THE

                    SELECT COMMITTEE ON INTELLIGENCE

                                 OF THE

                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 11, 2022

                               __________

      Printed for the use of the Select Committee on Intelligence

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Available via the World Wide Web: http://www.govinfo.gov
        
                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
47-983 PDF                 WASHINGTON : 2022                     
          
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                    SELECT COMMITTEE ON INTELLIGENCE

           [Established by S. Res. 400, 94th Cong., 2d Sess.]

                   MARK R. WARNER, Virginia, Chairman
                  MARCO RUBIO, Florida, Vice Chairman

DIANNE FEINSTEIN, California         RICHARD BURR, North Carolina
RON WYDEN, Oregon                    JAMES E. RISCH, Idaho
MARTIN HEINRICH, New Mexico          SUSAN COLLINS, Maine
ANGUS KING, Maine                    ROY BLUNT, Missouri
MICHAEL F. BENNET, Colorado          TOM COTTON, Arkansas
BOB CASEY, Pennsylvania              JOHN CORNYN, Texas
KIRSTEN E. GILLIBRAND, New York      BEN SASSE, Nebraska

                  CHUCK SCHUMER, New York, Ex Officio
                 MITCH McCONNELL, Kentucky, Ex Officio
                  JACK REED, Rhode Island, Ex Officio
                   JAMES INHOFE, Oklahoma, Ex Officio
                              ----------                              
                     Michael Casey, Staff Director
                  Brian Walsh, Minority Staff Director
                   Kelsey Stroud Bailey, Chief Clerk
                            
                            
                            C O N T E N T S

                              ----------                              

                              MAY 11, 2022

                           OPENING STATEMENTS

                                                                   Page

Warner, Hon. Mark R., a U.S. Senator from Virginia...............     1
Rubio, Hon. Marco, a U.S. Senator from Florida...................     3

                               WITNESSES

Mulvenon, James, Ph.D., Senior China Analyst.....................     5
    Prepared statement...........................................     7
Murdick, Dewey, Ph.D., Director, Georgetown University, Center 
  for Security and Emerging Technology (CSET)....................    13
    Prepared statement...........................................    15
Nikakhtar, Hon. Nazak, Partner, Wiley Rein LLP; Former Assistant 
  Secretary for Industry and Analysis, U.S. Department of 
  Commerce.......................................................    23
    Prepared statement...........................................    25
    Prepared statement dated July 30, 2020 before the Senate 
      Committee on Commerce, Science and Transportation..........    61

 
                        COUNTERING THE PEOPLE'S
                          REPUBLIC OF CHINA'S
                       ECONOMIC AND TECHNOLOGICAL
                           PLAN FOR DOMINANCE

                              ----------                              


                        WEDNESDAY, MAY 11, 2022

                                       U.S. Senate,
                          Select Committee on Intelligence,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:52 p.m., in 
Room SH-216, Hart Senate Office Building, Hon. Mark R. Warner 
(Chairman of the Committee) presiding.
    Present: Senators Warner, Rubio, Feinstein, Wyden, 
Heinrich, King, Bennet, Casey, Gillibrand, Collins, Blunt, 
Cotton, Cornyn, and Sasse.

 OPENING STATEMENT OF HON. MARK R. WARNER, A U.S. SENATOR FROM 
                            VIRGINIA

    Chairman Warner. Good afternoon. I call this hearing to 
order.
    Welcome to our witnesses.
    As I've explained, there are a couple of fairly significant 
votes this afternoon, so there will be some moving in and out.
    But again, to our witnesses, Dr. James Mulvenon, Senior 
China Analyst; Dr. Dewey Murdick, Director of Georgetown 
University's Center for Security and Emerging Technology; and 
Hon. Nazak Nikakhtar, a partner at Wiley Rein and Former 
Assistant Secretary for Industry and Analysis at the Department 
of Commerce.
    I would start by saying that the Intelligence Committee 
doesn't actually have that many open hearings, if today's 
attendance is any indication of why we don't. But the truth is, 
on this the Vice Chairman and I believe it's really important 
not just, obviously, for the people who are here but to do this 
in a public setting to make sure that we are fully aware of the 
challenges we face from the People's Republic of China, because 
the nature of this challenge extends far beyond the 
intelligence and military spheres.
    Let me be clear at the outset. When I talk about China, my 
beef is with the Communist Party of China. It is with Xi 
Jinping and their authoritarian order. It is not with the 
Chinese people or in any way the Chinese diaspora, particularly 
in terms of Chinese-Americans who've made great contributions 
to our country.
    But the PRC poses, I believe, a unique challenge to the 
United States. Not only United States, but the whole so-called 
Western liberal international order. No other state actor in 
recent history has been able to compete with both the West 
diplomatically, militarily, and now economically, particularly 
in our subject today, in technology, at the scale that China 
can. And that's why for several years now this Committee, on a 
bipartisan basis, has focused on the technological and economic 
challenges posed by the PRC. But as strong as we are in this 
country, we can't do this alone. We need our allies. We also 
need the American public, including the private sector and our 
academic institutions and our media outlets to better 
understand the Chinese Communist Party's efforts to overtake 
and lead on particularly critical technologies, and the global 
implications if the PRC is able to do that--of what that would 
mean for the United States and others if we ceded that 
territory.
    That's why in addition to these open hearings, we also have 
on a bipartisan basis, again, been hosting what we've called 
classified roadshows with intelligence, community leaders, 
industry sectors, academia and others on the threats posed by 
the CCP's authoritarian regime.
    Today's hearing, which will focus on the state of the US-
China technology competition, builds on other efforts we have 
undertaken. Ongoing efforts in terms of these classified 
roadshows, but other public hearings. One of the more recent 
ones we had was in August 2021 when we held an open hearing on 
the counterintelligence threat posed by the PRC. I think for 
many of us, and I say this as a former telecom guy, the wakeup 
call for me was with Huawei when several years ago we realized 
that the PRC had positioned its national champion as a dominant 
supplier of communications infrastructure across, candidly, 
much of the globe. And if you actually looked at where Huawei 
equipment was being sold in the United States and the overlay 
with some of our anti-ballistic missile installations, it was 
really chilling. And the truth was, if we had not raised that 
flag, Huawei and the PRC were poised to cement and dominate the 
market, not only for 5G, but for next generation wireless 
services like O-RAN as well.
    Truthfully, I think we were caught as a nation and the 
Intelligence Community, the military, into an industry we were, 
frankly, caught flat-footed when we realized that there was not 
only not any American alternate but very few Western technology 
telecom competitors.
    Despite the fact that had Huawei been truly successful, the 
clear privacy and national security risk presented by that 
company with its direct ties to its authoritarian regime in 
Beijing would be a tremendous threat to our whole 
communications infrastructure. But as we discovered, 5G is just 
the tip of the iceberg. In the last couple of years, 
policymakers have realized that the PRC has been diligently 
working over the past decade to identify a set of emerging and 
foundational technologies that will confer long-term influence 
into the entire innovation ecosystem and global supply chains. 
It is in this context that we realized we needed a national 
strategy to identify and counter the PRC's ambitions across a 
set of key technologies--not just 5G, but obviously artificial 
intelligence, quantum computing, biotechnology, precious 
metals--and that we need to safeguard our own and our allies' 
leadership in existing foundational and enabling technologies 
like semiconductors.
    Out of that realization, we've started to act. Legislation 
currently moving through Congress, like the CHIPS Act and the 
U.S. Innovation and Competition Act, as well as repeated 
engagements with the private sector through these roadshows I 
previously mentioned, are all steps in the right direction. But 
this belated realization by American policymakers reflects a 
complacency with our own innovation and, quite honestly, a 
little bit of inattention to PRC's objectives and their 
efforts.
    For a long time, we thought it didn't matter whether we 
actually made both the innovation and the products here in the 
United States. We thought as long as we captured the value in 
designing and providing services based on those products, we'd 
basically win out. The conventional view underestimated how 
effectively one country, in this case the PRC, could exert 
control over the entire ecosystem by leveraging control over 
certain key foundational technologies, not only through control 
of the technologies themselves, but also through the supply 
chains. And something that I think oftentimes we didn't focus 
on was those standards setting bodies that often set the rules, 
standards, protocols for so many technologies. We dominated 
that. We in America in particular dominated that for decades. 
In the case of Huawei and 5G, it was the first time we realized 
not only did China have a leading company, but they were 
literally setting the rules of the game.
    This is not a lesson that we need to learn the hard way 
once again. If we don't set the standards and protocols for 
these technologies, our democracies and other allies will not 
win out; the PRC will. Not only will they set the standards to 
achieve their illiberal vision of CCP control, but their 
advantages will translate into military capabilities, 
geopolitical influence, and economic advantages.
    I look forward to the witnesses' testimony on this issue.
    For Members' information, today we'll be doing something a 
little out of the ordinary. Rather than going by order at the 
time of the gavel, we will be asking questions by order of 
seniority in five-minute rounds.
    With that, I turn to my good friend, the Vice Chairman, 
Senator Rubio.

  OPENING STATEMENT OF HON. MARCO RUBIO, A U.S. SENATOR FROM 
                            FLORIDA

    Vice Chairman Rubio. Thank you, Mr. Chairman.
    Thank you to all the witnesses for being here today. I 
think it is an important hearing we are going to discuss. We 
often talk about China's plans and intentions behind closed 
doors. But the fact of the matter is that their ultimate goal 
and what they're trying to do is really not that big a secret. 
They seek to displace the United States and to become the 
world's most dominant economic, industrial, technical, and 
military and geopolitical power. That's their goal. We in this 
country for a long time had this hope for the better part of 20 
years, this consensus, really, that once the Chinese Communist 
Party in that country became rich, it would become more like 
us--move toward democracy, have respect for the rules of 
economic engagement and so forth.
    Well, obviously that's not materialized. In fact, they've 
used the last 20 years to wage an economic war against the 
United States, stealing jobs, exploiting the free and open 
market, oftentimes with help by American corporations driven by 
the short-term profits that can be gained by having access to 
the Chinese market. And as part of that goal was to leave us as 
Americans economically dependent, not just on their massive 
market, places you want to sell things, but supply chains as 
well. And we've seen that disruption play out during a 
pandemic. Imagine in a time of conflict.
    And so, they know that once we are dependent on them, our 
manufacturing base, our supply chains, critical minerals, and 
not to mention the dangling the promise of access to their 
massive market, well then our options will be limited and their 
leverage will be extraordinary.
    And they've been able to achieve this through their 
military-civil fusion strategy, through their national laws 
that compel the transfer of sensitive information to the 
government, and frankly, by weaponizing some of our companies 
against us here in the United States. In many cases, we find 
that it's American corporations, because they manufacture there 
or because they want to have access to their market, that are 
then turned around and become advocates in favor of the Chinese 
position on any sort of different issue that we face here 
domestically.
    The Intelligence Community--I think at this point leaders 
on both sides of the aisle have been pretty clear that this is 
the single greatest challenge this Nation has ever faced. We 
have never faced a near-peer adversary that poses such a 
comprehensive challenge the way that China does today. The 
Soviet Union was a military and a geopolitical rival. They were 
never an industrial or technical or commercial rival. China is 
all of that and more. And as I said earlier, if we think having 
supply chain disruptions as a result of a pandemic shutting 
down some factories has been bad for our economy, imagine it 
being shut down deliberately as leverage against us in a time 
of future conflict, because that's what we can expect to see. 
It leaves us vulnerable, and it's something we need to begin to 
address.
    I will make one final point and then the two things I hope 
we can take from this hearing. I think this matters because I 
think it matters if the most powerful--. Let me put it to you 
this way. If the most powerful and influential nation on earth 
is a dictatorship that is willing to enslave its own people in 
death camps and commit genocide against its population, if 
that's how they treat their own people and that's the most 
powerful country in the world, that's not going to be a good 
world. And that is, unfortunately, what we're headed toward if 
we don't deal with that. And if anyone has any illusions about 
the nature of the Communist Party of China, ask the people of 
China and people living in places like Tibet and Hong Kong and 
Xinjiang, and they'll tell you what this government is capable 
of doing.
    In closing, what I hope we'll hear today are your views on 
China's economic and technological plan to dominate key 
technologies and control critical supply chains. And also, 
perhaps as part of this hearing, we can begin to think more 
about how we can dramatically increase our efforts to reduce 
our economic vulnerability to the Chinese Communist Party.
    Thank you for being here with us today.
    Chairman Warner. Again, I thank all the witnesses for being 
here. I'm not sure who's going to go first, so I'm going to 
throw it to the panel and whoever is going first, proceed.

    STATEMENT OF JAMES MULVENON, Ph.D., SENIOR CHINA ANALYST

    Dr. Mulvenon. Good afternoon.
    Senator Warner, Mr. Chairman, Vice Chairman Rubio, other 
Members of the Committee, thank you for inviting me here today.
    I first need to say my name is James Mulvenon. I'm here in 
my personal capacity. I'm not representing either the company I 
work for nor any of my Intelligence Community sponsors. They 
asked me to say that.
    For the Committee's reference, the three of us have a rough 
show-run that we've worked out. I'm going to introduce at a 
strategic level the key elements of the Chinese strategy and 
the elements of that strategy, and then pass it to my other 
colleagues to discuss specific Chinese progress in certain 
technology areas. And then, clearly, the toolkit that the U.S. 
Government has for us to be able to deal with these threats--
what's working, what's not and how could Congress help us fresh 
out the toolkit.
    The overwhelming strategic point, which just echoes what 
Senator Warner said in his introduction, is that China does 
have a deliberate, published national economic and national 
security strategy to achieve the very levels of domination that 
Senator Rubio mentioned in his introduction. And as part of 
that, these strategies are designed to create an unfair, 
asymmetric environment for U.S. and other multinational 
companies operating in the Chinese market to force the transfer 
of technology to domestic national champions who will then turn 
around and push our companies out of the China market and then 
compete with them globally.
    The main features of this strategy are multifold, but 
deliberate. First is a focus on industrial planning. We're all 
familiar that Communist parties like five- and ten year plans, 
but the Made in China 2025 Plan, the Mid- to Long-Range Science 
and Technology Plan are dedicated roadmaps for how to achieve 
their objectives over the next 20 years. I find it notable that 
whenever we pay too much attention in English to any of these 
plans, they are suddenly deleted from the Chinese Internet and 
then it becomes difficult to find them. My question, of course, 
is what do you have to hide?
    That is also followed, as Senator Rubio said, by very 
dedicated national strategies for what is now more commonly 
known as military-civil fusion. We've done a lot of work in the 
last couple of years across the Community looking at this issue 
and really explicating it.
    Finally, there's a level of state subsidy through that 
industrial planning that disadvantages our companies. And those 
subsidies are directed primarily toward national champion 
companies chosen by the parent ministries in China to be the 
focus of their funding, the focus of their technology 
development. And then once our companies go to China, they find 
themselves having to joint venture with these national 
champions at the direction of the regulator, which then 
facilitates that technology transfer.
    In the last five to ten years, China has also published a 
blizzard of new laws and regulations, despite not being a rule-
of-law country, but a rule-by-law country. But these are 
codified to be able to use against multinational companies to 
defend the predatory and extractive practices of the 
government.
    As Senator Warner mentioned, the Chinese for the last 15 to 
20 years have used the international standards regime as a 
trade weapon in order to shape the future of the architecture 
in ways that benefits their companies like Huawei and ZTE by 
local directives, Greenfield investment strategies inside the 
United States once we started to cotton on to the idea that 
they were trying to force us to do transfers in China, instead 
decided to come where the technology was, which was in the U.S. 
And then finally, their global mercantilist policies, which 
undermine many elements of the international rules-based order 
that we had put in place since Bretton Woods.
    In my own research, I've focused significantly on the 
illegal technology acquisition side of their strategy. In 2013 
with two government employees, I wrote a book called ``Chinese 
Industrial Espionage'' that detailed in extraordinary detail 
all of the elements of both the nontraditional collection side 
that I'm sure the Committee has heard about a lot in terms of 
their ability to hoover up large volumes of information in the 
United States and then exploit it back in China. But also their 
planetary-scale cyber-espionage program as well as their 
efforts to steal technology here in the United States.
    And then finally on the nontraditional side, obviously 
significant focus on China's 500-plus national, provincial, and 
municipal talent programs as a way of luring back researchers 
in the United States and other Western countries with financial 
incentives in order to transfer that technology. I would only 
highlight that one little-discussed aspect of the talent 
programs is that it allows them to have contact with experts 
who can help them understand the intangible elements of 
innovation that they can't understand in the stolen blueprint 
or the stolen source code. It helps them fill in the mortar 
between the bricks.
    I would close by saying that while this Committee deals 
with a lot of areas of the intelligence challenge that are 
primarily achieved through national technical means, that this 
is one of those intelligence challenges that lends themselves 
very easily to open source intelligence. Not only are all the 
strategies and documents and regulations that I've mentioned 
publicly available, but all of the underlying data needed to 
assess those strategies, whether it's the technical journal 
articles, the patents, the corporate records, the government 
and military procurement bidding tenders, are all publicly 
facing. The bad news, as you can imagine, is that they're all 
in Chinese, which China regards as its first layer of crypto in 
terms of being able to disguise what they're doing. Open source 
intelligence allows us to really get deeply into these issues, 
as I think my colleagues will confirm.
    Let me close my remarks there and I look forward to your 
questions.
    [The prepared statement of Dr. Mulvenon follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    STATEMENT OF DEWEY MURDICK, Ph.D., DIRECTOR, GEORGETOWN 
 UNIVERSITY, CENTER FOR SECURITY AND EMERGING TECHNOLOGY (CSET)

    Dr. Murdick. Thank you, James.
    Chairman Warner, Vice Chairman Rubio, Members of Committee, 
thank you so much for the invitation.
    In 2018, a Chinese state-run newspaper identified nearly 
three-dozen critical technologies that they believe made 
themselves vulnerable to potential sanctions and export 
control. These articles covered a wide range of examples, from 
the difficulty with producing high-strength steel, which 
impacts rocket engines and aviation landing gear, all the way 
to the challenges with building high-resolution LiDAR, the eyes 
of many unmanned vehicles.
    These articles express the feeling that the U.S. and other 
powers could strangle China at any time. The Chinese are keenly 
aware of their deficits and are making strides toward achieving 
technical self-sufficiency. They regularly leverage a wide 
range of government powers in an attempt to dominate key 
technical areas and not just the cutting edge ones. 
Understanding who is leading and who is following in emerging 
technologies between the U.S. and China requires evaluating the 
right markers for the right question. I find it helpful to look 
at what the Chinese compare as their strengths and weaknesses 
to the U.S. in the emerging technology development. For 
example, the Institute for International and Strategic Studies 
at Peking University notes China's own technical strength has 
been improving progressively in recent years and it has become 
an influential S&T power. In AI and machine learning, the 
Chinese consider themselves to be leading in product-driven 
R&D: areas like facial and speech recognition, computer vision, 
and training talent at scale. In basic research, the U.S. and 
China are comparable in their eyes in terms of scientific 
research, paper publication, and citations. Yet the Chinese 
acknowledge they lag behind the U.S. in originality and 
groundbreaking research, and also in their ability to attract 
and retain top AI talent. The U.S. still has a large lead in AI 
chips, algorithms, machine learning and other core technologies 
in promoting military AI applications and application of 
military technologies and biosynthesis and drug discovery, 
where they see the U.S. making a lot of advances and 
breakthroughs.
    Furthermore, though the U.S. relies heavily on foreign chip 
manufacturing, it maintains an overall technical advantage 
through its possession of key intellectual property and the 
integration of that intellectual property in advanced 
semiconductor supply chains. Though China's circuit industry is 
rapidly developing, it faces foreign dependencies that keep it 
well behind the United States. This is their self-assessment of 
where they are.
    Beyond AI, the Chinese are also aware of places where they 
maintain leverage over the U.S. in key parts of the global 
supply chain. In 2019, a majority of malaria test kits, for 
example, as well as more than 90 percent of some key antibiotic 
imports, came from China. The pandemic has demonstrated the 
massive disruptive effects of foreign dominance of the bio-
economic supply chains with a direct impact on U.S. research 
and medical care. China gaining advantages in key technologies, 
be it artificial intelligence or semiconductors for computing, 
be it genome editing or quantum technologies, would have 
considerable implications in global security and potentially 
even U.S. Intelligence Community operations.
    The United States needs to prepare now for the long term. 
As China's tech ecosystem matures and becomes increasingly 
innovative, the United States risks being increasingly 
surprised or even falling behind, because we don't have a 
comprehensive view of what China and other actors are doing 
across the technical landscape.
    I see three basic classes of tools or responses that, when 
used together, can achieve the greatest effect. They are: one, 
run faster. Spur on the innovation system.
    Two, slow competitors down--and you'll hear more about this 
soon. Coordination with our allies is essential, in my opinion, 
to maximize effectiveness.
    And three, monitor the S&T landscape, which is a critical 
point of success when dealing with a long-term competition with 
a high-tech peer, which is where I believe we are moving with 
China. On this last point of S&T monitoring. China's rapid rise 
in science and technology has been facilitated by a massive and 
sustained state support that is staffed by more than 60,000 
open source collectors and analysts. This allows China to 
prioritize areas of exploration dynamically and helps ensure 
the country is not surprised by worldwide innovations. To my 
knowledge, no part of the U.S. Government, including the IC, 
has developed a scalable countermeasure to this Chinese 
approach. We need to embrace this transformative S&T landscape-
monitoring mission. When used in combination with run faster 
and slow them down policy options, it will help maintain 
leaderships and critical emerging technologies in supply chains 
now and into the future.
    Thank you, and I look forward to the discussion.
    [The prepared statement of Dr. Murdick follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
  STATEMENT OF HON. NAZAK NIKAKHTAR, PARTNER, WILEY REIN LLP; 
  FORMER ASSISTANT SECRETARY FOR INDUSTRY AND ANALYSIS, U.S. 
                     DEPARTMENT OF COMMERCE

    Ms. Nikakhtar. Thank you, Dewey.
    Senators, Committee Members, and staff, thank you for the 
opportunity to speak today. And thanks for everything that you 
do for America.
    As a lawyer, economist, law school professor, and former 
government official. I've been on the front lines of the China 
economic challenge for decades. I set up the China/Non-Market 
Economy office at the Commerce Department nearly 20 years ago 
and audited Chinese companies for the U.S. Government. 
Recently, I served as both Assistant Secretary for Trade and 
CFIUS and Acting Undersecretary for Export Controls. Now back 
in private practice, I represent global industries that are 
fighting back against predatory practices that are weakening 
critical supply chains.
    It is from all of these vantage points that I offer my 
views today. These views and opinions expressed are mine only.
    In my written testimony, I described China's deliberate 
predatory tactics to weaken the economies of the United States 
and our allies. To be clear, this is not an issue of trade or 
protectionism. China has publicly stated that its goal is to 
weaken U.S. and other countries' supply chains to the point 
where we are helpless. Obviously, we need a strategy that 
protects ourselves from harm. We've seen China's stranglehold 
over its trading partners in Africa, Latin America and South 
America through the One Belt/One Road debt trap. How do we 
avoid a similar fate? Through the rigorous use of our laws and 
the creation of new laws where there are gaps.
    First and foremost, we absolutely need outbound investment 
reviews that are currently absent from law. Joint ventures, as 
you heard, are happening all the time in China where U.S. 
companies are collaborating with the Chinese military to 
develop dangerous technologies and manufacturing know-how, when 
technology is developed abroad that falls outside of export 
control jurisdiction. Plus, the movement of supply chains 
outside of the United States to adversary nations is generally 
unregulated, like critical lifesaving medical equipment. 
Without medicine and supply chains to build our defense 
systems, how will we survive under attack? This gives our 
adversaries the ultimate trump card.
    Second, we need an export control system configured to 
allow us to run faster, while at the same time blocking China's 
ability to benefit from our technology. China's military 
advancements in hypersonic weapons were facilitated by the 
transfer of U.S. technology. One company's short-term profits 
years ago now threatens global security. Our export system 
failed. We need to fix it.
    Third, we need to control the export of sensitive data that 
can be weaponized by our adversaries to conduct massive 
surveillance and develop dangerous AI-enabled weapons. Data 
transfer needs to be regulated through new laws on export 
controls; so does sensitive research at universities.
    Fourth, when we authorize the transfer of sensitive 
technology to China through export licenses, supercomputer 
enabling technology, for instance. Today we can't even be sure 
that our technology is not being used for military purposes 
when it goes to China and not being used for weapons of mass 
destruction. This is because China restricts our ability to 
conduct end-use checks--and has for a long time in China. 
That's a big problem if we're allowing exports of critical 
technology to China today.
    Fifth, we need national security reviews of Greenfield 
investments. If you heard, through the CFIUS process, China 
buys land here and conducts surveillance, connects to our 
energy grid, accesses our control technology from within our 
own borders, and wipes out our domestic industries by 
underpricing from within our own borders. This is a problem.
    Sixth, any revenue loss from sales to China through export 
restrictions, make no mistake, can be regained from investing 
domestically and in our allies' markets. We need investments 
and safe locations to strengthen our supply chains. Consider 
the U.S. to be an emerging market, not China.
    Seventh, we need laws to address China's additional trade-
distortive practices where we currently have no laws. 
Overcapacity in fiber optic cables--this is the infrastructure 
of 5G and China's running overcapacity. The economic harm 
caused to businesses from cyberattacks and the displacement of 
businesses from global markets due to China's predatory pricing 
behavior around the world.
    To address this, we need additional Section 301 
investigations into these practices to recoup the economic loss 
to U.S. businesses resulting from these harms. If the 
investigations result in tariffs, then we ought to shift the 
tariff responsibility onto the Chinese exporter and away from 
American importers. Americans should not be paying for China's 
predatory behavior.
    And finally, we should use the 301 tariffs collected to 
create an innovation fund dedicated to capitalizing high 
technology in critical industries. In other words, use the 
tariff revenue paid by China to build out our critical supply 
chains.
    In sum, remember, the more we invest in China's non-market 
economy, the more we move production to China to avail 
ourselves of its cheap prices, forced labor, and other non-
market distortions. The more we buy cheap Chinese products 
rather than goods from market economies, the more we allow 
distorted, non-market forces to capture a greater share of the 
global market. In this way we are accelerating the demise of 
capitalism and the market based system. We need to reverse 
this.
    Thank you and I look forward to your questions.
    [The prepared statement of Ms. Nikakhtar follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Warner. I want to thank all three witnesses. And I 
want to point out a couple other quick things and then get to 
my question.
    One, I think we also do need to acknowledge while China has 
picked national champions, they have combined the best of both 
systems to a level. They do have a ferocious startup industry 
in China, oftentimes supplemented by their $500 billion in 
intellectual property theft each year. And so, they have that 
ferocious competition until that national champion emerges. I 
think we need to be clear-eyed about our potential competitor 
here.
    This brings back two points that maybe I should have made 
in my opening comments. I remember, and it was driven a lot by 
this Committee, when we woke up about 5G and Huawei and tried 
to finally get all the right people who we thought in the room 
from USG, we had I think three intelligence agencies. We had 
DOD, we had Commerce, we had State, we had NTIA, we had OSTP. 
And for those who might be watching this, these are all 
relatively large organizations with all these acronyms. We had 
the FCC. And it was absolutely clear that these people had 
never been in the same room talking about taking on a question 
like how do we give up the spectrum that's going to license 5G, 
how we think about making competition with our allies, how we 
address what was happening with Huawei.
    That is a preface. And the other preface before my first 
question is if you then look at the technologies where we need 
to be competitive against China, we all have I think marveled 
sometimes at the game plans that they've laid out. And as I 
think Dr. Mulvenon said, James said, that they'll put this out 
until the West discovers it and suddenly they disappear from 
the websites. But I just know within recent years when I've 
asked the intel community, what are the key technologies we 
ought to be competing with? We got one list from the ODNI, a 
somewhat overlapping but not entirely the same list from CIA. 
Commerce has got a different list. The White House through OSTP 
may have another list. So if we can't figure out who to get in 
the room or what is even the major focus areas of our 
attention. Senator Cornyn really took the lead on helping move 
forward this idea around semiconductors. I'm not sure we'd have 
been making the progress even on semiconductors but for COVID 
because of the immediate shortages we were seeing.
    The first question I would ask is for the whole panel. Ms. 
Nikakhtar, you seem to have looked at this from a trade 
standpoint, but if you were going to structure, make a change 
in government on how we would put the right people in the room 
to make these honest assessments, because I remember from the 
fact that our intel community can't even look, frankly, at what 
was happening domestically. They can look abroad, but they 
can't look here domestically. How do you get the right folks in 
the room? And I'd ask the whole panel on that.
    Is there a new structure they've put together? Is it a 
working committee? What's the structure to make that happen?
    Ms. Nikakhtar. Honestly, the National Security Council is a 
wonderful body. And this is the convening body that brings 
everybody together, and they do a good job at bringing 
everybody together. The fundamental problem, because I've been 
at these meetings in various positions, is that not every 
agency, not every bureau within an agency is like minded. And 
so you have bureaus within an agency trying to torpedo one 
another. And I personally don't know how to solve that. I 
wasn't born in this country, but if I were a Cabinet member, I 
would make sure--I mean, if I were President, I would make sure 
that I had every single Cabinet member likeminded, every 
Cabinet member ask their staff, what is your forward-leaning 
China strategy? That way you can convene everything at----
    Chairman Warner. You think it has to come from them. What 
about your colleagues? What do you guys think?
    Dr. Mulvenon. It's early days, but I am hopeful about the 
Agency's new Transnational Technology Mission Center, at least 
as a locus for doing these types of strategic-level assessments 
on technology. I share your frustration. I'm old enough to 
remember the 1996 Militarily Critical Technologies List when it 
was published by the Pentagon, which for a brief moment in time 
was a definitive, governmentwide list that we could all use to 
then assess technological progress and make export control 
decisions. But then the promise was that it was going to be 
updated and then it never was.
    One suggestion, Senator, that I've heard that I think makes 
some sense is given that many people in the Intelligence 
Community in a sense are cutoff from the high tech industries 
and may not be as current as they should be. That partnering 
with organizations like the National Academy of Sciences for 
those studies makes more sense because of their networking 
connections.
    Chairman Warner. Dr. Murdick?
    Dr. Murdick. Lists are always problematic, especially in a 
dynamic space of emerging technologies where they're always 
changing. And I think to be able to build this kind of 
capability, you need a systematic analytic capability that 
covers both domestic and foreign capabilities. We don't really 
have a place in the U.S. Government for that kind of 
capability. And to be able to answer the kind of questions you 
need, you need to be able to have people who can go deep enough 
to actually answer the substantive questions, not just from a 
who do we partnership perspective, from a state perspective, or 
from commerce, or from DOD. I think you need to have, what I 
would call, an independent capability within the government 
that you can regularly turn to and they can coordinate with all 
the rest of the U.S. Government entities and even take money 
for it for analysis tasks, but actually get at this analytical 
capability. And I think the reason I encourage this is even 
just watching how China has made their advance. Obviously, we 
don't want to mirror China, but they have put a tremendous 
amount of resources in--. Sixty thousand people is not a small 
number of people to actually look at what's happening worldwide 
from the S&T space. And I think that that analytic capability 
is essential. And I think there's a variety of ways to do that 
to be able to move the things forward.
    Chairman Warner. On the next round, I'm going to come back 
and ask, as we think about this with our allies around the 
world, should that be in a more formal alliance or organization 
structure or should it be one off?
    I will remind Members before I go to Senator Rubio that 
today we are doing something slightly different than normal. We 
are going to go by order of seniority.
    With that, Senator Rubio.
    Vice Chairman Rubio. Thank you.
    Let me just start. I'm going to ask a question at the front 
end, but I want you to answer at the end, to just give you a 
couple of minutes to think about it. As an example, I know 
we're all aware of the chips. We're all involved in 
semiconductor vulnerabilities and the like. But there's a bunch 
of pretty startling vulnerabilities that we have on the supply 
chain that are really critical beyond textiles and things of 
this nature. One, as an example, I think the figure is right, 
about 90 percent of our key antibiotics are sourced from 
manufacturing. And what I'm going to ask you to think about in 
the next couple of minutes while I go through these other two 
questions, is if you can give me another example of something 
like that that maybe is not as broadly known, but that's a key 
vulnerability that we never want to have to depend on them for.
    Here's the first question. I don't know who wants to take 
it. Maybe all three of you do. It's been publicly reported now 
that as the iPhone 14 comes out that Apple is thinking about 
using a memory chip made by a product that is from a company 
that is not just a Chinese-government-owned entity, state-owned 
business, but it has close ties to the military. So an American 
goes to buy or we broadly sell in this country to see an iPhone 
14 that has that memory chip in it. Beyond being annoying, 
right, that we're getting it from them, what is the actual 
vulnerability that that creates for us on a mass scale? The 
memory chip?
    Ms. Nikakhtar. Let me start by answering that. You first, 
Senator, asked for different types of technologies. Seventy-
seven percent of the lithium ion battery cell capacity is 
located in China. Chemicals, nobody talks about chemicals. The 
ability to make chemicals for semiconductors, for a whole bunch 
of things also resides in China. A whole bunch of things. But I 
want to get to the second point of your question. In that 
example, Senator, that you mentioned, it was actually that the 
U.S. company in China who's hiring American tech engineers to 
then go to YMTC to make those chips for it. Obviously, there's 
threats of backdoor, but the threat that nobody's really 
talking about is the brain drain that this is creating in the 
United States--the lack of innovation.
    These are companies--I think you had alluded to it, 
Senator, earlier in your opening statements, which is every 
time we try to stop this, it's the U.S. companies that are 
lobbying for the CCP and doing the CCP's bidding.
    Vice Chairman Rubio. The second question is, and we've seen 
the vulnerability of Americans' genetic information, whether 
it's housed in our research and medical systems, whether it's 
what you voluntarily turned over because you want to know where 
your ancestors came from or whatever it might be. I think data, 
obviously, is probably the most valuable commodity in the 
world. And the Chinese can compel the biological data of the 
largest population in the world. And then they can combine that 
with whatever they buy and/or access through different ways 
beyond the privacy concern. Because the individual may not want 
their stuff out there in the hands of anybody, much less a 
foreign government.
    Why do they want that genetic information? Obviously, it 
has to do with biologics. It has to do with biomedical research 
and development. But what are the advantages of being in 
possession of a vast dataset of genetic information, not just 
on the people in their own country, but so many different 
countries around the world, particularly the United States?
    Dr. Mulvenon. Before the pandemic, I would have said that 
we were primarily concerned with organizations like the Beijing 
Genomic Institute and others because of their unethical 
practices, because of their connections to the military, 
because of their connection to the military's biological 
warfare programs in the PLA. After the pandemic, once we 
realized that the hyper-globalized model of pharmaceuticals was 
broken, and that things would not just seamlessly move across 
borders wherever there was market demand, but in fact national 
interests had come back to the fore. Clearly having that huge 
store of data in a lower-ethical-standard environment, to be 
clear, than the United States, in terms of research ethics on 
genetic data, means that they would be able to, on the positive 
side, use their supercomputing capacity to more quickly 
identify and develop vaccines and pharmaceuticals. But also 
then, unfortunately, on the offensive side, be able to then 
figure out how to mutate and be able to modify those genomics.
    And so as we move to a world in which we become more and 
more biological- and machine-integrated as humans, 
understanding how to make those modifications, particularly 
their focus on CRISPR and other technologies and the 
unregulated use of CRISPR in China to do gene modification--
that's a very heady and dangerous mix, Senator.
    Dr. Murdick. Senator Rubio, you asked a really interesting 
question and one that is actually very hard to answer because 
we're still doing a lot of basic research and it's unclear 
exactly where everything will be opening up. But let me give 
one scenario.
    Personalized medicine is increasingly learning how to treat 
the individual and how to work with the individual's whole 
system. And the more diverse that that data is, the more that 
they will be able to move beyond what is a much-less-diverse 
genetic pool in China and to be able to now see what's 
happening in the U.S. There are a number of examples that will 
drive innovation. And the more they have this data, the more 
they'll be able to make breakthroughs in innovation. And I 
think that's one of their goals: they want to be a competitor 
and actually make a lot of innovation. And by having access to 
genomic data at the scale from around the world, it will open 
up new vectors of innovation that I think will make competition 
that we can't even imagine in this room right now.
    Chairman Warner. Senator Feinstein.
    Senator Feinstein. Just for a moment. My experience with 
China goes back to when I was mayor of San Francisco. And one 
of the things I wanted to do was establish a relationship with 
the Chinese city. We picked Shanghai. Wang Daohan was mayor. We 
established a relationship. Then Jiang Zemin became mayor. He 
became president of the country.
    In the meantime, trade ideas went back and forth between 
our two cities. We took Chinese students; we had all kinds of 
exchanges going on, and I felt it really worked. Now what I see 
today is all of that kind of thing is gone and the people-to-
people relationship which is so intrinsic to friendship and 
progress and faithful trading has changed to a much more 
hardened situation.
    And I really very much regret that because I will never 
forget. Those of you that knew Jiang Zemin when he was 
president of the country know he also sang. And it was the kind 
of relationship where you could sit down with a group of 
people, have dinner. He would sing a few songs and it was 
amazing. And now all that is different.
    How do we bring personal relationships back into the 
equation?
    As I review my material, it's all hard edged, it's all 
companies, it's all economy. But relationships matter. And I 
deeply believe that. If any of you, you must know China, have 
ideas, I would certainly welcome them.
    Ms. Nikakhtar. Senator, maybe I can start. I agree with 
you, relationships matter. But then how do you foster 
relationships in a country that's closely monitoring the 
information that its population gets and is engaging in a 
propaganda of how the United States is bad? I think that maybe 
back in time there was opportunity to grow and foster this 
relationship. But we're now competing with the CCP and its 
massive propaganda machine and I think our efforts will be 
exploited and I just don't think the CCP wants that.
    Senator Feinstein. You don't think China can change from 
where it is today?
    Ms. Nikakhtar. I always think countries----
    Senator Feinstein. If it was changed in the past as it has.
    Ms. Nikakhtar. Yes, I was born in Iran and Iran was very 
different then than it is today.
    Senator Feinstein. Iran isn't China.
    Ms. Nikakhtar. Right, countries can change for better or 
for worse. I think under this current CCP leadership with 
President Xi, China will not change. It's only going to get 
more and more combative with the United States.
    Senator Feinstein. Well, I'll tell you, I would like to do 
my utmost as a United States Senator from California to try and 
restore the roots of friendship that once existed and enabled 
the beginning of the entire trade agenda. If anybody has any 
thoughts, I would welcome them. I listened carefully to what 
you said and I understand that a hardness has entered into this 
relationship, and I think all of us ought to try to change it 
because this is a huge country with smart people and a dynamism 
that can make the world better if we're able to make the 
contacts, the agreements, and the changes to bring it into the 
modern day without negative influence.
    I just wanted to say that. Thank you very much.
    Dr. Murdick. I just wanted to add one thing. You asked for 
ideas and I think that's really where we're going to have to 
continue to look, because there are challenges on the ground. 
However, I just wanted to add from a more encouraging 
perspective two points.
    One, if you view China as purely out to destroy us, that's 
all they want to do, I think that mind view actually limits 
options. I actually don't think their sole purpose is to 
destroy us. They want respect. They want a place at the table. 
They want to be able to remove the vulnerabilities they feel 
like they have. I'm not saying these are benevolent, by the 
way, but I think viewing them as a competitor and viewing that 
there are things that will be worth working on together and 
there are things that are not worth working on together.
    The challenge, however, in this is two parts and one of 
them is people-to-people interactions that building trusting 
relationships, but the other is a dearth of information. If you 
don't have solid information on what China is doing, it's easy 
to get sucked into a discussion that you're underprepared for 
and you're actually not realizing what's actually happening. 
And I think the U.S. Government can raise the bar, if you may, 
and understand more about China by investing more in our 
analysis capability, and then arm people who are engaging 
personally so that they aren't going to get swept in the wrong 
way, because they don't understand the context and can 
negotiate through a strength of knowing and power. And I do 
believe that those personal relationships ultimately will make 
a difference. But I would encourage that those relationships to 
be well-informed.
    Senator Feinstein. Thank you.
    Chairman Warner. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Ms. Nikakhtar, first let me thank you for your very 
powerful testimony and your very specific recommendations. I 
was also pleased to hear the discussion of the supply chain for 
pharmaceuticals. This is an issue I've been very concerned 
about ever since the FDA testified that 72 percent of the 
facilities making active pharmaceutical ingredients are located 
in either India or China. We simply are very vulnerable in that 
area.
    Let me move to my question. Of the $107 billion in total 
exports to China in 2019, I am told that all but $500 million 
were exempt from export controls or did not require an export 
license in the first place. I think that's absolutely stunning. 
That is less than one-half of one percent of all exports from 
our country to China that are subject to any form of effective 
export control oversight. That seems to me to be potentially 
extremely harmful to our national security, economic and 
technological advantages, that the United States has 
traditionally enjoyed.
    As a former implementer of policy at the Commerce 
Department, where do you think we have not effectively used 
existing tools to protect our national economic security 
interests against the PRC?
    Ms. Nikakhtar. Thank you for the brilliant question. I'm 
going to add a statistic on to what you said, which I found 
very disturbing. I think it was about 2018 or 2019. Ninety-nine 
point one percent of the export licenses were either granted or 
returned without action, meaning the agency took no position. 
Ninety-nine point one percent. Of what is controlled and you 
actually have to get a license for: Ninety-nine point one 
percent.
    The other point I want to make is, and I find this very 
troubling. I do this because I just want to help this country 
protect its national security interests. The back end of the 
early 2010s, there was export control reform in the government 
and export control rules on dual-use items were pretty much 
loosened to create gaps in the laws to allow these exports. You 
have definitional issues. You have areas where just licenses 
are exempt. That needs to be reformed again given current 
threats. And I would support anybody's effort who really wants 
to help me and maybe others to sweep through these regs and 
then recommend some solid changes.
    Senator Collins. Thank you so much.
    Dr. Murdick, China's Ministry of Foreign Affairs is 
undertaking a very aggressive diplomatic effort in 
international organizations to establish favorable worldwide 
technology standards that China wants that are favorable to the 
PRC and its values. On a scale of one to ten, how effective has 
our State Department and other diplomatic arms of NATO and the 
West been at pushing back at these efforts?
    Dr. Murdick. Just a brief comment on history. The standards 
efforts that China is engaged in trying to implement now, in 
the push that they've had, was motivated by what they perceived 
as a very effective U.S. effort. In aerospace and a variety of 
other places, the standards that we helped influence in GPS and 
other places were a gold standard. They said, wow, we really 
want to do the same thing. So first of all, we motivated them 
by our success to try to do something similar. They're working 
very hard. It's hard for me to provide a number and I'm not 
trying to avoid the question in that sense, but I'm not 
actually sure how I would characterize it with a number. I 
think it's too soon for me to be able to judge what is the 
success. I think it's an ongoing dynamic space and it depends 
on the particular industry and the particular standards bodies 
where we've been more successful and where we haven't been as 
successful. But I do want to lay the foundation that a lot of 
the foundation is based on previous U.S. successes in the 
standard space.
    Not exactly the answer you're probably looking for, but 
it's the best I can do right now.
    Chairman Warner. Senator Heinrich.
    Senator Heinrich. Dr. Murdick, you've said that the U.S. 
Government needs an analytic capability to survey and monitor 
the global science and technology landscape that we currently 
don't possess. If I could put you in charge of just such an 
effort, what would it look like? How would you structure it? 
Where would it fit into the current USG org chart?
    Dr. Murdick. Obviously, political reality will temper this, 
but I'm going to go ahead and speak from an idealist 
perspective.
    From my perspective, an organization that does this type of 
analysis needs to be independent. They need to be able to 
receive money from all over the government. They need to have a 
seat at the table in terms of decisionmaking. But their primary 
goal is to do analysis. I think there are Federal elements 
here, but there are also regional elements. Just having 
everyone sitting in the U.S. capital region is probably not a 
great idea because there's innovation happening all around 
America. And both the information that this group would need as 
well as the results of some of the findings would be relevant 
to the sector.
    It's probably the majority--or half, let's say--of the 
staff would be in the D.C. area. The rest would be throughout 
the U.S. And I think it would probably have, I don't know, 
maybe a number of hundreds of analysts and data collectors. 
They would bring the data together. They would be able to 
provide analysis on S&T challenges. They would be able to have 
a monitoring situation so that you could answer questions and 
be alerted when things are changing. And that this information 
would be available to U.S. policymakers and as appropriate to 
the public and industry as well as relevant. I think the U.S. 
can learn, actually, something from the Chinese implementation 
of this in terms of the scale of investment. And we're not 
talking about more than, I don't know, could be a couple 
hundred million dollars. We're not talking about a        
colossal--. We're not launching multiple satellite 
constellations here. We're talking about a reasonable and 
consistent and sustained development that has an analytic 
capability that looks at both foreign and domestic. It provides 
strategic input. It provides input on where unwanted tech 
transfer is happening. And it provides the kind of information 
that's actionable and useful to policymakers.
    In a thumbnail, that is a few thoughts I have.
    Ms. Nikakhtar. I'd like to quickly add to that. I would 
take a little bit from what Senator Warner had also asked. 
There are two lists in the government. There's the emerging 
technologies list that just came out from the White House. And 
then it's BIS's, I think 2019 or 2020, foundational 
technologies list. You combine those two, you've got a pretty 
darn good list of where we need to focus on. And then the 
National Labs. Our National Labs know stuff about what we're 
doing, our competitive advantage. And our adversaries, what 
they're doing, how far they are in terms of even 
commercializing their R&D. I think the National Labs are a 
completely underutilized crown jewel in American policymaking, 
and I think we really need to leverage them.
    Senator Heinrich. I agree with you, although in the fact 
that I interface with those labs all the time, sometimes 
pulling that information out of the labs in a usable way for 
the government and particularly for policymakers can be quite 
challenging.
    Let me ask you about export administration regulations and 
the current definition of fundamental research.
    Ms. Nikakhtar, you've talked a lot about that and you write 
that the exception of fundamental research is a gaping hole 
right now. Can you give us some context for why that gaping 
hole exists in the first place and what we need to do to change 
it?
    Ms. Nikakhtar. Yes. Basically, the rule is pretty squishy 
and it basically says that if the building blocks essentially 
are built from fundamental research, then pretty much what 
generates from it is also this fundamental research. And if you 
might have the intent of publishing it at some point then it's 
exempt from export controls. I mean, we're lawmakers. When you 
leave squishy things like that, can anybody exploit it? 
Absolutely. And the reason why I'm completely nervous about 
this is because I've got a friend who's doing some critical 
semiconductor research in Silicon Valley. And he calls me and 
he goes, there's a prominent university in California who has 
these Chinese nationals coming in and doing research on the 
next generation of semiconductor technology. And my response 
is, oh my gosh, of course this is because of the fundamental 
research exception because this is how it always gets used. And 
then he's like, what's the fix? And I said, issue an ``is 
informed'' letter to the universities to say cut it out for 
these technologies and then go back and change the definition 
of fundamental research. And I don't need to tell you guys, but 
an agency's regulations belongs to the agency, they can change 
it any time they want. Why wouldn't they do it? Over.
    Senator Heinrich. Okay. Thank you.
    Chairman Warner. And one of the things, I think, Senator 
Heinrich, when you asked that question, as we've seen on the 
intel side, you've got some pretty good folks who do some 
pretty good research in issue areas. But at least the folks on 
the Intel Committee, they can't even look at what we're doing 
domestically. How we figure out where that's located and 
letting them have a full 360 would be really important.
    Senator Blunt.
    Senator Blunt. Thank you, Chairman.
    Dr. Murdick, we're in conference right now on a bill 
regarding largely competition with China. Most of us, if not 
all of us, are free-market thinkers in terms of how things 
should sort out. But clearly, what is the best way to compete 
with a country that largely subsidizes and moves quickly in 
technologies without either regulation or without having to 
have total outside financing to be your competitor? Do you 
think it's reasonable that in these areas like chips that the 
United States makes a government-taxpayer-funded commitment to 
bring that industry back here?
    Dr. Murdick. With respect to competition with China, I just 
wanted to have one meta comment or high-level comment, which is 
the U.S. strength is because we have a highly distributed 
system. We do not run a command economy. We have a lot of 
innovators working, a lot of people moving. There are times 
when we get the need for the government to step in to correct 
subsidies that are happening within China or other places. So I 
do think it makes sense to step in when it's been very clearly 
identified. We've lost a core capability of chip manufacturing. 
It needs to be done in a way that enables the diverse and 
distributed innovation system to flourish. We can't put it 
under a thumb or put it in a constraint in a cage that tries to 
control too much of how it happens. But I do think that we 
clearly have identified there's a gap here. We can bring back a 
manufacturing capability if correctly executed, that will 
enable us to bring that competition back.
    Now, there are a number of other areas that will also need 
this kind of attention. And that's why I mentioned that we need 
to be monitoring and dynamically watching the situation because 
it's a very fast and rapidly moving space. And it moves at a 
speed outside of lawmaking in its traditional form.
    Senator Blunt. You're saying we don't want to find out that 
suddenly we're behind like we might have a few years ago in 5G, 
for instance?
    Dr. Murdick. Yes, exactly. And I think there are very 
discrete and clear things that we can do to make sure that that 
information is flowing. To Senator Warner's last point, we 
don't have a good foreign-domestic, red-blue analytic view that 
we have wonderful intelligence assets that can find very 
pristine and immaculate information that will help. But that 
needs to be contextualized effectively with an unclassified 
base that these pristine and exquisite sources can augment 
insight. I do think we have the opportunity to do this, if 
that's helpful.
    Senator Blunt. Alright.
    Dr. Mulvenon, do you want to add anything to that? This 
idea of how we compete with countries that are highly 
subsidized?
    Dr. Mulvenon. Well, I think the first thing I would say, 
Senator, is that we shouldn't compete alone. That in particular 
one of the things that I support about the current 
Administration's policies is the emphasis on a coalition of the 
willing in particular tech areas, looking at how we can bring 
together countries with similar value systems, democratic 
countries, similar legal systems, and break down some of the 
barriers that we have between us. A very good example of that 
is in 5G. We are all aware of the fact that for a long time 
Huawei was the only company that really had an end-to-end 
offering from handsets to servers and base stations. But the 
obvious industrial coalition between companies like Cisco and 
Juniper and Nokia and Ericsson would have fallen afoul of 
antitrust regulation unless the U.S. Government effectively 
moved to break down those barriers, so that there could be an 
alternate 5G end-to-end offering to compete head-to-head with 
Huawei. That is a solvable policy problem, particularly given 
the likeminded countries that we're dealing with.
    So, I would just say not competing alone, but using our 
OECD allies, and I'm including the South Koreans, the Japanese, 
the Singaporeans, the Taiwanese, all of our European friends. 
We obviously have a lot of work to break down a lot of our 
barriers, common data privacy protections first--.
    Senator Blunt. Let me see if I can get one more question in 
here for Ms. Nikakhtar.
    I was interested in the discussion Senator Collins had 
about pharmaceuticals. One question that's come up that I 
wonder about is the United States, with vaccines, obviously, a 
big thing now. Do we have the capacity within our own system to 
produce and deliver end-to-end vaccines without dependence on 
China, particularly, or outside the United States supply 
chains?
    Ms. Nikakhtar. Thanks for that question.
    There are a lot of pharmaceuticals and active 
pharmaceutical ingredients that we can actually make in the 
United States if we use our current facilities and we're able 
to retool and re-shift so we can produce them. I think the 
first step is to look at what our manufacturing companies, our 
pharmaceutical companies, not just what they make today, but 
give them a survey of all these active pharmaceutical 
ingredients and say what can you do with the facilities you 
have? What's the lead time? What's the cost? And okay, now that 
I can solve that in a case of emergency, what can I actually 
now not make in the United States and maybe Canada? And then, 
how do I solve for that?
    Senator Blunt. That sounded like a no, but we could get 
there.
    Ms. Nikakhtar. No. Exactly. That's right. No, but we can 
get there.
    Senator Blunt. Alright. Thank you, Chairman.
    Chairman Warner. I think we've seen in the midst of COVID 
where something like 80-plus percent of the APIs were coming 
from either China or India.
    Senator King.
    Senator King. Thank you.
    First, Dr. Mulvenon, I absolutely agree. I think it's a 
huge mistake to not take advantage of our allies. And if you 
add the EU and us and Japan and South Korea and Australia and 
other countries, we're bigger than China. We have a bigger 
market and a lot of intellectual horsepower, so I think that 
ought to be part of the strategy. And having uttered that word 
strategy, it strikes me that what we're doing here today is 
we're throwing darts at a policy dartboard. And this whole 
thing started with your discussion of the detailed strategy and 
doctrine that the Chinese had developed. I believe we need to 
do that same kind of thinking. Our policy toward China is all 
over the place. It involves trade, it involves intellectual 
property theft. We haven't even mentioned the word military 
here today--enormous military competition. And I feel that 
there's no comprehensive or cohesive or comprehensible overall 
strategy.
    Dr. Mulvenon, I just served on a commission on cyber, a 
national commission. It involved Members of Congress, private 
sector, and members of the executive. And I found it a very 
useful exercise to be assigned to think about a large issue in 
a comprehensive way.
    Do you think that we ought to be thinking about having a 
national strategy to deal with China?
    Dr. Mulvenon. Well, we do have elements of a national 
strategy. I wish it was more explicit. Obviously, we were all 
disappointed that Secretary Blinken got COVID last week, 
because he was going to articulate for the first time, I think, 
the comprehensive nature of the strategy. And I think that is 
coming eventually. The Indo-Pacific framework that was 
published gives us a lot of clues.
    But I would say the following. Industrial policy is a 16-
letter word, not a four-letter word. We've had a lot of really 
successful industrial policy----
    Senator King. I agree with that, by the way. And in facing 
a rival like China, we've got to get over our aversion to the 
idea of industrial policy, which indeed we are on the CHIPS 
Act. That's industrial policy.
    Dr. Mulvenon. Well, I mean if you go back to the Eisenhower 
Interstate System, there are ways in which we can have market-
based policy solutions that are industrial policy that are not 
socialism, to be fair. And semiconductors in particular, which 
is a major focus of mine, I agree with General Selva when he 
was the vice chair of the Joint Chiefs he said, we can't 
protect everything. He said, I want to protect semiconductors 
because that's the hill I want to die on. Because it's the 
foundational technology under all of the other advanced 
technologies.
    Senator King. And that is something that we are taking an 
active role in. But I think that your example of the scientists 
working on advanced semiconductors, who are Chinese nationals--
I mean we've got to just be more sensible about this.
    Let me ask a broader question. China had this explosion of 
economic growth and now they seem to be re-imposing the old 
central planning. Everything is controlled from the government. 
Is there a danger that they will not kill, but stifle the 
golden goose by re-imposing a state central planning dead hand 
of government on what was really a capitalist explosion?
    Dr. Mulvenon. I agree with you, Senator. I have been, 
frankly, stunned by the retrogression in Chinese economic 
development over the last decade because private sector 
enterprises, private enterprises accounted for a huge majority 
of the amazing growth of the Chinese economy between 1978 and 
the late aughts. But the current regime is clearly focused on 
re-centralization of planning, re-emphasis on state-owned 
enterprises, and frankly, a squelching of entrepreneurship. The 
recent crackdown on the tech companies that were outside of 
government control. And to Senator Warner's point, it's no 
accident. The last time I was in China, you went in a bookstore 
and there was a whole section of the bookstore with books of 
some variation of a title of Where is China's Steve Jobs? And 
the idea was that they were looking for innovators, but----
    Senator King. He's probably in jail somewhere.
    Dr. Mulvenon. Or forced under common prosperity to give 
away millions of dollars of his hard-earned money. But the idea 
was that the political and legal and intellectual property 
milieu in which you have to innovate in China does not 
encourage mavericks to rise up through the system, as I think 
that Jack Ma and others have discovered in the last two years.
    Senator King. I don't think we can rely on that to save us, 
but I do think it's a factor in what's going on now.
    I have this feeling--I serve on the Armed Services 
Committee--and of these two heavily armed blind giants 
stumbling toward one another in a conflict that neither one 
wants and it would be catastrophic for both. But there needs to 
be some discussion about where we want to go. The old saying is 
if you don't have a destination, you'll never get there. And I 
think we need to have a better definition of where we want to 
get and have a more comprehensive thought about how we want to 
deal with China on a whole series of levels.
    Thank you, Mr. Chairman.
    Chairman Warner. Senator Cornyn.
    Senator Cornyn. Thank you, Mr. Chairman, for this hearing. 
This is exactly the sort of hearing we need to be having, an 
open session so that not just the Committee can hear, but the 
American people can hear and be better informed about the 
competition that we're having with the PRC and the Chinese 
Communist Party.
    Ms. Nikakhtar, I was happy to see that you cover in your 
written testimony the importance of an outbound screening 
mechanism. And I'd like to get you to talk about that first, 
and then maybe have the other witnesses talk about it as well. 
As you noted, Senator Casey and I have a piece of legislation 
called the National Critical Capabilities Defense Act. But some 
of the figures that you mentioned here, Mr. Mulvenon, I think 
from these figures that we see here in this testimony, it looks 
like U.S. venture capitalists have funded the rise of the 
Chinese economy. And we know they don't play by the same rules 
that we do and they don't follow the law. They shamelessly 
steal secrets and they coerce American investors into joint 
ventures, steal their IP and their know-how. And of course, 
that was part of what we tried to address in the CFIUS reforms. 
But we also tried to include an outbound screening mechanism to 
see what American companies were doing investing in China and 
its impact on the United States, not only from an economic 
standpoint but from a national security standpoint.
    And I want to thank Senator Casey for working with me on 
this, and I with him. Thankfully, the House COMPETES bill has a 
piece of that in it. And I think it provides us an opportunity 
in the conference committee that a number of us are on to try 
to include this in that final conference report.
    But Ms. Nikakhtar, you mentioned in your testimony that 
this could be one of the most important pieces of legislation 
before Congress today. And the numbers that you mentioned here 
totaling $3.5 trillion in market value of holdings by U.S. 
financial investments in China in 2020. Of course, we know this 
is a part of the CHIPS Act. The semiconductor bill is going to 
be focusing on providing incentives for re-shoring of 
semiconductor manufacturing. But these companies are global 
companies. And I for one, and I bet I'm not alone, don't want 
to see those companies using some of these taxpayer dollars 
that we're trying to provide to incentivize re-shoring of 
semiconductor manufacturing to enhance their investments in the 
PRC, which is exactly where we are and who we are competing 
against.
    Maybe you can start and talk about why you think this is 
important and then hear from the other witnesses.
    Chairman Warner. Before the witness starts, I just want to 
indicate that because of the voting, I'm going to run and vote 
and come right back and we'll move down the line. But I think 
Senator Cornyn's got a very good question.
    Vice Chairman Rubio [presiding].
    Ms. Nikakhtar. Senator, your question is about the outbound 
legislation, right? And the importance of that?
    Senator Cornyn. It was about the outbound screening 
mechanism and the National Critical Capabilities Defense Act.
    Ms. Nikakhtar. Okay. Perfect. I just wanted to make sure.
    No, like I said and you pointed out, it's one of the most 
important pieces of legislation because this is a gap in the 
laws. We have the limits of export control jurisdiction. What 
is that? U.S.-origin items and then certain items produced from 
technology. But this doesn't involve the movement of plants 
abroad. This doesn't involve the companies that are forming 
joint ventures or just like building facilities in China and 
then developing technology in China. Even if they avail 
themselves of the CHIPS Act money--and I know the CHIPS Act is 
so, so important--there's got to be guardrails so they don't 
double down and make more investments in China because of the 
revenue saved because we gave them taxpayer dollars for 
subsidies.
    Back to the outbound legislation. Right now, legally, we 
actually do not have the ability to stop this flow of dangerous 
capabilities to our adversaries. We're not talking about the 
rest of the world. We're talking about the adversaries.
    And I just wanted to give you some really, really critical 
examples of where export controls--. We don't control these 
things. We don't control lifesaving medical cancer detection 
equipment. Semiconductor capabilities, even those that are 
below controls, what good is it to move things abroad when we 
can't even make any of those in the United States? High-
capacity batteries. We are struggling to make lithium ion 
battery cells in the United States because we've moved 
everything over to China. Materials, chemicals, critical 
material chemicals. People don't adequately understand how much 
of the chemicals that we're enabling China to produce. Active 
pharmaceutical ingredients, we already talked about that. I can 
go on for hours listing technologies. We certainly don't have 
that time, so I'll stop there.
    But I really want to say, look, by moving the supply chains 
there, we've become hostage to our adversaries. Businesses will 
not protect national security. That is not their job. That's 
the government's responsibility. And thank you, thank you, 
thank you for identifying this gap in the law and developing a 
legal mechanism to fix it.
    Senator Cornyn. Can I let the other two witnesses comment 
briefly?
    Vice Chairman Rubio. Yes, you can.
    Dr. Mulvenon. Senator Cornyn, you may remember actually a 
member of your staff invited me to testify before Senate 
Banking. And I think I was the only person on the panel in 
favor of FIRRMA against the venture capitalists and the other 
corporate types. And I was very happy that it passed. Of course 
there were some pieces missing from the original legislation, 
in particular monitoring of JVs in China, and the outbound 
investment.
    I fully support the legislation and the concept paper, 
which I read first, about the legislation. And the two things I 
like best about it are, first, the way you parameterized the 
first tranche of outbound investment that would be subject to 
the regulation, clearly delineating what was subject to it and 
what wasn't. And also, your point that we shouldn't wait for 
allies. That we needed to be able to make a lot of those moves 
unilaterally first and let our allies catch up with us. And I 
think those are the two strongest parts of the bill.
    Vice Chairman Rubio. And I'm sorry to interrupt. I promise, 
we will get back to that second answer, Senator. But we're 
running out of time on this vote and I want to make sure 
Senator Bennet gets to vote.
    Senator Bennet. I really appreciate that, Mr. Chairman. 
Thank you very much. We're running out of time on the vote.
    I wanted to come back to Dr. Murdick's red-blue analogy in 
terms of our analytic capabilities. And it hopefully suggests a 
way forward. Senator Sasse and I have been working on several 
bills to better position ourselves for the competition and 
better direct our investments. In the last year's Intelligence 
Authorization Act, we advanced a national technology strategy 
which we continue to push forward. We're currently working on a 
bill to establish the capability to conduct technology net 
assessments in order to determine U.S. leadership on critical 
technologies relative to other countries, particularly China. 
What we found through our work on this Committee is that while 
the Intelligence Community looks at what China and other 
countries are doing on emerging technologies, no one in the 
government, as we were talking about earlier, is really looking 
at how such trends compare to the U.S. private sector activity.
    Our new Office of Technology Net Assessment would review 
U.S. competitiveness and technologies critical to economic and 
national security based on a fusion of intelligence, including 
open-source intelligence and commercial data.
    Would a capability like this help us determine where we 
need to direct investment and answer some of the questions 
we're asking today and protect leadership and technologies that 
matter most to U.S. economic and national security, do you 
think?
    Dr. Murdick. Clearly, the net assessment type model is 
quite exciting and has a lot of potential. And I think that 
pursuing that kind of approach makes a lot of sense. I think 
it's important, wherever this capability is, that they have the 
authorities and incentives to be able to answer the questions 
in a full way. Authorities, meaning that they can get at both 
the red and blue like you were highlighting.
    I think that's a central point. And also the incentives. 
The U.S. tends to use open source as a complement for SIGINT 
and HUMINT and other sources. And I think other models are 
using the open source as a first resort and then laying on top 
of that the classified sources. I think to get another 
assessment, it's important that you look at the big picture 
first and then fill in the pristine information on top of it. 
And so it's a methodological--in making sure those incentives 
are honored.
    Senator Bennet. We'd like to work with you on that. And 
with the last couple of minutes remaining though, thank you for 
your testimony. I think it really is important and I'm very, 
very pleased that Senator Cornyn said what he said about the 
importance of doing this in public.
    I think it is very clear too, having been on this Committee 
now for however many years it is, that our failed experiment of 
prioritization and making stuff as cheaply as possible in China 
has been just that, a catastrophic failure for the United 
States of America. And it's going to require something totally 
different for us to compete.
    I wonder with a couple of minutes left, what does that 
industrial policy look like? How do we do it in a way that 
harnesses the imagination of the capitalist system that we 
have, as opposed to the way that the Chinese are doing it? And 
finally, how are we going to know that we're actually 
succeeding so when people are sitting at that table at some 
point in the not-too-distant future, they're actually telling a 
story about how we're outcompeting rather than have our lunch 
eaten by Beijing?
    I don't know who would like to start, but I'd be happy to 
hear all of you or any of you. Thank you.
    Ms. Nikakhtar. I can. Go ahead.
    Dr. Murdick. Just very briefly. I'll be short, though. This 
is a good time to re-engineer our innovation system and to be 
able to think about--. There is a good friend of mine who wrote 
a paper dealing with the system, re-engineering of the American 
R&D system. There are options and ways to be able to take the 
strengths of the U.S. system and be able to effectively engage 
in a way that recognizes the government authorities that we 
actually have--where we actually have authorities, where we can 
engage and where we should be letting the innovation system 
work in that beautiful American way of it's hard to predict.
    Just a very small comment. I'll let you go deeper.
    Ms. Nikakhtar. Thank you.
    Look, representing industries, folks are really excited 
about this potential for industrial policy and many of us have 
been champions of it for a long time. What you see is you were 
getting a lot of excitement. You've got companies with really 
exquisite IP, clean rare earths processing, for example, that 
actually have the IP, but they've never really had the 
financial means to get this launched.
    There's a lot of IP that's in the works that this is also 
catalyzing. Catalyzing is the key word. But I think to make 
this successful, these companies are still reluctant to make 
the investments in the United States because they're like, I'm 
going to be displaced by cheap Chinese stuff because China is 
configured to outcompete all the time. They're really freaked 
out about that.
    We've got to think of a mechanism that once our industries 
through our industrial policy are growing, we're able to really 
cut out unfair predatory competition.
    And then finally to your last point, how do we know that 
we're succeeding? When the world starts buying our goods and 
not the Chinese goods.
    Vice Chairman Rubio. Senator Casey, you voted already?
    Senator Casey. I did.
    Vice Chairman Rubio. Okay.
    Senator Casey. Mr. Chairman, thank you very much. I want to 
thank our witnesses. I'll focus my question and some comments 
before it on Ms. Nikakhtar. In particular, I'll be quoting you 
in reference to some of the areas of questioning that Senator 
Cornyn raised on outbound investment.
    I wanted to start by way of a predicate quoting the 2022 
Annual Threat Assessment. It says in pertinent part, quote, 
``Beijing's willingness to use espionage, subsidies, and trade 
policy to give its firms a competitive advantage represents not 
just an ongoing challenge for the U.S. economy and its workers, 
but also advances Beijing's ability to assume leadership of the 
world's technological advancement and standards.'' End quote.
    In your written testimony, you note, quote, ``U.S. 
financial investments in Chinese-domiciled companies total over 
$2.3 trillion in market value of holdings at the end of 2020.'' 
This is on page 24 of your testimony when you make that 
statement. And then you have just above it, a list of the 
capital and investment types. It's just breathtaking. It's 
everything from telecommunications to robotics, biotechnology, 
AI, surveillance, semiconductors, pharmaceuticals. It goes on 
and on. That gives people a good sense of the challenge we 
have.
    Later in your testimony, you say, and I'm quoting here, 
``We have for centuries regulated the transfer of defense 
articles to foreign adversaries. Today in much the same way, we 
need to regulate the transfer of technology, economic flows, 
and supply chain capabilities to them.'' Unquote.
    And as Senator Cornyn mentioned, we have the National 
Critical Capabilities Bill and you talk about that in your 
testimony as well, in some of your earlier testimony.
    I guess a two-part question. One is, what are the limits of 
existing regulatory tools, including export controls? That's 
question one.
    Question two is why is an interagency outbound investment 
review mechanism necessary to win the competition with regard 
to the Chinese government?
    Ms. Nikakhtar. Thanks for a really thoughtful question.
    First, what are the limitations of existing regulatory 
tools? I think we have a lot of gaping holes in our export 
control system and I think we really need to tighten those up. 
Greenfield investments. I mean, gosh, what an incredible way 
that we're allowing domestic investments to be exploited.
    Really, the transfer of sensitive data--data centers--not 
to the rest of the world, but to adversaries who we know are 
going to take the data from our data centers and use it for 
their AI machine. That's another area. And then certainly the 
outbound investment mechanism because--. We talked about the 
limits of export controls. So when you have these facilities in 
foreign countries and you develop the technologies there, 
release technologies there, aren't critical manufacturing 
capacities there, we empower them and not ourselves in the 
United States.
    But another point that your thoughtful question had me 
realize is that China has all these national security laws that 
actually have companies that are in China, transfer data to 
them whenever the CCP wants. And then, they have the corporate 
credit system, like the social credit system but for 
corporations. It even applies to foreign corporations in China, 
that if you don't act anytime that the CCP wants to enable them 
and to act in their best interests, they can take all these 
adverse actions that the EC Chamber of Commerce, European 
Chamber of Commerce, basically said that it amounts to life or 
death for a company.
    And we're allowing our companies with critical capabilities 
to go over there. It makes no sense. And again, I really want 
to stress that it is not businesses' responsibilities to take 
care of national security. It is all of yours. And then, thank 
you for what you doing. Remind me of the second question.
    Senator Casey. Why would this outbound investment mechanism 
be necessary?
    I know you've said it. I would just like you to restate it.
    Ms. Nikakhtar. Like we said. China has made abundantly 
clear. This isn't McCarthyism. China's made it abundantly clear 
that it is holding our supply chains hostage to gain leverage, 
not only for the United States but the rest of the world. 
That's why we need this legislation. Thank you.
    Senator Casey. Thanks very much. Thank you, Mr. Chairman.
    Vice Chairman Rubio. Senator Sasse.
    Senator Sasse. Thank you, Chairman. Thanks to all three of 
you. This has been an informative hearing. Obviously, in the 
SCIF we cover topics like this regularly, but it's clear that 
the American people broadly don't understand these issues. And 
corporate America certainly doesn't.
    I've become increasingly concerned as I learn more and more 
about how premier U.S. law firms ostensibly represent private, 
in scare quotes, Chinese companies, where American lawyers work 
on cases in what feels a lot like a revolving door of senior 
government officials leaving Administrations going out and 
being hired at law firms. And then a lot of their clients 
become these Chinese fake private companies. As Chairman Warner 
says again and again, our beef is not with 1.4 billion Chinese 
people created in the image of God. It's with the Chinese 
Communist Party and their malevolence and their export of 
surveillance-state autocracies and their genocide in Xinjiang 
and more and more.
    Could you walk the American people through how China uses 
former U.S. Government employees and particularly those who've 
had access to our government secrets?
    Ms. Nikakhtar. Yes, it's really terrifying. What is the 
Stalin quote? We'll use the rope that the capitalists sell us 
to hang them. There's debate on whether that's a quote or not. 
But the true thing is that it's money. It's money, money, 
money. When the Chinese companies dangle money in front of 
folks who've been in the government and have access to 
exquisite data and know how the ins and outs of the government 
work, know how to exploit regulations, it's really hard for 
people to say no to money.
    And so you see this revolving door and then there's various 
reasons why people go into the government. But one of the key 
reasons is to get a better job on the way out. When the CCP 
exploits that with being able to pay a lot of your bills--all 
your legal bills. And when there's this rat race within law 
firms, who can generate more revenue and with status within the 
firm, who can generate revenue.
    How do you resist that temptation? The way my firm does it 
is we bring trade cases against China, so there's an inherent 
conflict of interest. So, I don't have that. But most, as you 
pointed out, law firms don't. And so then how do you resist all 
of these temptations and these expectations of you that you're 
supposed to generate revenue, when the Chinese make it so easy?
    Senator Sasse. And what is the Chinese government via these 
companies seeking advice about from these law firms? Is their 
goal better governance compliance?
    Ms. Nikakhtar. Yes, it's twofold. It's just lobbyists. 
Lobbyists. Just pepper the government with lobbyists, so they 
can just hear, hear, hear from an echo chamber. And the other 
one is they hire people who know people in the government and 
then know how to manipulate the laws. The more you know the 
intricacies of the laws, the more they're interested in you 
because you can build in nuances to basically create backdoors 
for them to circumvent the laws.
    And that's what they're looking for.
    Senator Sasse. Anything the two of you want to add to this?
    Dr. Mulvenon. Senator, it certainly is a function of our 
open system, which is in stark contrast to the opacity, of 
course, that our companies face on the Chinese side. And 
perhaps that's worthy of some mention. All of the proliferation 
of documents that I mentioned, many of which are unpublished. 
Our companies will go into meetings with ministry regulators in 
China and the regulator will push and draft unpublished 
regulation across the table for them to read and to be 
enforced. And they ask, can I keep a copy of it? And they said, 
no, that's just an unpublished draft and pull it back. They 
don't even have the ability then to seek remedy with the U.S. 
Government or with other people who could help them in those 
situations. Not to mention the fact that, of course, while 
there have been some improvements in the intellectual property 
courts in China, the court system itself is not an independent 
branch of government. It is fundamentally dominated by the 
Chinese Communist Party. And the judges in those courts are 
first and foremost responsible to the Communist Party 
discipline before the legal discipline.
    That is just one of these unbelievable asymmetries between 
the two sides and further creates that asymmetric environment 
for our companies.
    Dr. Murdick. I'll take on one small part of this. One of 
the challenges in working in the government is you have limited 
time to think and you don't have a lot of space to do that 
thinking. You tend to rely on what's being said outside, 
because you need someone who has had time to be able to draft 
out, particularly in emerging technology spaces because these 
are very complex. They're technical--technically hard to 
understand. There's a lot of players involved. It's important 
to get that information.
    And I think that information dearth that we've put on 
Senators and Congress, individuals, as well as Executive 
Branch, actually puts you at an increasing disadvantage because 
you're actually dependent on people outside, who might actually 
have a conflict of interest, to inform you on what to do. And 
therefore, coming back, I do think there is an opportunity to 
increase this analytic insight so that you can be informed by 
sources that conflict of interest is more clearly controlled.
    Senator Sasse. I know I'm nearly out of time. It's been 
reported that there are currently 20 former Senators and 
Congress people that lobby extensively on behalf of the Chinese 
government and Chinese fake private corporations. Is there any 
reason why that is in the interest of the United States 
citizenry or governance?
    Ms. Nikakhtar. I've thought a lot about this, and I really 
want to answer this question because I don't understand what 
their end game is. If you're taking money from the CCP and 
you're lobbying on their behalf, at some point somebody's going 
to have to win this conflict. And if we lose, where are you 
going to run? Where are you going to hide? You've actually 
enabled this to happen. And when China is the dominant power 
and we become a vassal state, it's affected you too. I just 
fundamentally do not understand why these people are trading in 
their future, their children's future, for a few dollars today.
    Senator Sasse. Thank you.
    Vice Chairman Rubio. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    First question for you, Ms. Nikakhtar. I'm very troubled 
about the use of the $10 trillion private equity industry to 
mask investments by Chinese-government-linked actors in 
critical infrastructure and technology. And you may be aware 
that as Chairman of the Senate Finance Committee, I've been 
working on legislation that would close disclosure loopholes 
for private investment vehicles like hedge funds, private 
equity, and venture capital firms.
    In your view, would there be a national security interest 
in fully understanding who is behind these funds that are 
acquiring companies with critical technology?
    Ms. Nikakhtar. A hundred percent.
    We've got to explore all of the disclosure loopholes and 
close those. And then when we trace the financing back, it has 
to go back to the ultimate beneficial owner. And I think 
companies do not do adequate due diligence to figure this out. 
And I think sometimes our intelligence communities fail to do 
that.
    Senator Wyden. Would it be fair to say you believe 
legislation requiring disclosure of beneficial ownership of 
these very large investment vehicles would make the CFIUS 
review process more thorough and efficient?
    Ms. Nikakhtar. Yes, Senator, I do. And I would actually 
take it a step further. I actually think that companies that do 
business of a certain dollar amount with the CCP need to 
disclose that to the government, too, so we really understand 
what these transactions are that companies are making. So, yes. 
And then again, I would take it a step further.
    Senator Wyden. It'd be fair to say between the two 
questions I asked and the additions you just made, where you 
said you'd go further, you think to a great extent, we're just 
pretty much in the dark with respect to anything resembling 
useful, fulsome information about these funds?
    Ms. Nikakhtar. As the former head of CFIUS at the Commerce 
Department, yes, we were completely in the dark. Our 
Intelligence community didn't have adequate information. And I 
was frequently in the office until three in the morning using 
any open source information I could to get to the ultimate 
beneficial owner. So, yes.
    Senator Wyden. That really is what you are left with is 
just flailing about trying to find open source, when, if we had 
government doing its job and insisting on disclosure and 
insisting on accountability, you would have that information. 
Is that fair to say?
    Ms. Nikakhtar. Flailing about, yes. Sometimes I found 
really good data, yes. And a lot of sleepless nights, yes.
    Senator Wyden. Very good. You clearly have the expertise to 
use open source information. I don't think it should come to 
that. I think we ought to be adopting the suggestions.
    Ms. Nikakhtar. You're absolutely right. It was just tongue-
in-cheek. It was never through open source, the exact type of 
information I need to take it across the finish line. You're 
absolutely right.
    Senator Wyden. Very good.
    Dr. Mulvenon, I am told you're an expert in China's 
Internet censorship. This has been an issue of great importance 
to me, and on the Finance Committee in particular. And we have 
looked at the way the Chinese government uses Internet 
censorship to silence its critics. Internet censorship, whether 
at the hands of the Chinese government or nominally private 
companies not only undermines free speech and human rights, but 
has an economic impact on companies who can't or won't be able 
to participate in markets under those terms. For example, a 
recent U.S. International Trade Commission report described how 
censorship is creating barriers to the entry of U.S. tech firms 
in China and protects Chinese companies from competition.
    The question would be, given China's expanding economic 
influence, how do we stop the PRC cyber and censorship policies 
and its views--very odd and ominous views--on Internet 
sovereignty from spreading outside of China?
    Dr. Mulvenon. I agree with you, Senator. I've been looking 
at this issue for a long time. We're entering a new era where 
the Chinese model, if you will, of the so-called panopticon 
surveillance state is now being globalized. We used to talk 
about the Chinese Internet censorship issue largely in a China 
context in terms of inbound and outbound information from China 
itself. But the export of the Chinese surveillance industry, 
whether it's via SmartCities in Africa and other belt and road 
countries, up to and including China's proposals to the 
international standards bodies, which propose, frankly, a re-
architecting of the Internet and Internet 2.0 that is extremely 
surveillance friendly and very national sovereignty friendly, 
vice our traditional model of focusing on a global notion of 
Internet freedom.
    Senator Wyden. One more question if I might ask. There have 
been a number of reports of the PRC using its economic power, 
in particular its status as a market for American 
entertainment, to influence the movies and the television that 
Americans consume. Doctor, what do you see is the future of 
this kind of censorship and how widespread it might be?
    Dr. Mulvenon. Frankly, I've been deeply troubled by the 
trends over the last 10 or 15 years where major studios, 
because of China's rapidly growing theater market, are 
reluctant to depict any negative depictions of China in movies 
up to and including, as I'm sure you're aware, the CGI re-
rendering of the remake of ``Red Dawn'' where all of the 
Chinese in the movie were remade through CGI into North Koreans 
so that studio did not anger the Beijing regime. And I don't 
see how we reverse that given the economic pull of the 
theaters, except to acknowledge that it is in fact happening 
and it is fundamentally not compatible with our values.
    Senator Wyden. Mr. Chairman, can I get one last question 
in? Thank you, Mr. Chairman.
    This influence, obviously, of the PRC could be indirect. 
For example, Twitter's owner has heavily invested in China. 
Tesla cars are manufactured in China, rely on the Chinese 
market, depend on Chinese lithium for batteries. Do any of the 
three of you have concerns that the PRC might try to leverage 
Tesla's dependence on China to limit anti-PRC content on 
Twitter?
    Ms. Nikakhtar. Can you repeat the last part? I had a hard 
time hearing.
    Senator Wyden. Do you have concerns that the PRC might try 
to leverage Tesla's dependence on China to limit anti-PRC 
content on Twitter?
    Ms. Nikakhtar. Absolutely, absolutely.
    By having more of any company's operations and supply 
chains in China, we're giving them full ability to basically be 
the puppet master and dictate how these companies operate 
companywide, owner-wide. Once you hold them hostage, you can 
essentially compel them to do anything. And people forget that 
in China you don't have the ability to make decisions yourself.
    Senator Wyden. I'm way over my time. If either one of you 
want to make a quick comment, please do. But I get the sense 
that maybe the previous answer to my question is in line with 
the other witnesses today. Is that true? Okay. Thank you.
    Chairman Warner. I'm going to momentarily bigfoot for one 
second, since I've got a TV headline upstairs. And this will be 
a lightning round. We touched a little bit on this earlier 
around, and I agree that the alliance of democracies. Should 
that be--brief, brief answers because I've got one more 
question quickly after this and then I want to get Senator 
Sasse to close out.
    But should it be a formal alliance or not? I had pushed the 
Administration to maybe think about this in a more formalized 
way. There are good arguments both ways. There might be 
different alliances on different issues. Although I'd point out 
the fact that by not having some formal alliance approach on 
semiconductors, for example, Germany is moving even quicker 
than us, even though we had the idea to start with. Maybe done 
it in alliance?
    But I think you got the gist of the question. Right down 
the line: formal alliance, not formal alliance in recognizing 
it? Maybe different countries. If you had a core group, you 
could expand or contract based upon the technology.
    Dr. Murdick. Yes, I think if you're dealing with the right 
parties who actually have the play in the question, I think a 
formal alliance makes a lot of sense. I think most of these 
questions, for them to be effective, require multi-party 
engagement because a single actor trying to stop a multi-party 
system just gives an opportunity for people to run around that 
single actor saying no.
    Ms. Nikakhtar. Some formal, some informal. Sometimes our 
allies don't want to be out there because the fear of 
repercussions from China. On a case-by-case basis, sometimes 
formal, sometimes informal, to give our allies top cover.
    Dr. Mulvenon. In my 2021 word bingo was plurilateral. In 
other words, by specific industries or specific technology, so 
that you only have the right countries in the room. 
Semiconductors, for instance. We know the Netherlands has to be 
in the room because of ASML and their EEV technology. But if 
you keep it small like that, then you can set standards and you 
can have industrial planning within those small groups and have 
coherence, whereas you can't have that at a multilateral level 
like the Wassenaar Arrangement, which is just too big, too 
diffuse.
    Chairman Warner. My concern with that--I'll go to the last 
question--and I'd like to get the response. Then I'm going to 
turn over to Senator Sasse. And I apologize for jumping back in 
like this--is that when you're thinking about technology 
development, it's hard to decide who the right countries are at 
the right end. Maybe we're doing some of this in a NATO level. 
We're doing some of this at a QUAD level. I don't know. It's a 
fair question that most of you are not completely unformal, but 
I'd like to continue that.
    The second half of this, which we've talked a lot about, 
the need for us to make investments. I do think, particularly 
Dr. Murdick, some of your ideas about how we might structure 
this in the government makes sense. One of the things I'm 
concerned with is our first time out of the chute here has been 
semiconductors. I would posit if you didn't have a huge high-
employment industry that was losing share, and we didn't have 
the moment of COVID where suddenly that supply chain loss drove 
beyond even the industry, I'm not sure we would making this 
kind of $52 billion investment.
    How would we ever--? Maybe I'll just leave this for the 
record and you can come back to me on it. If it's a new 
technology, where China's about to sweep the field, and there's 
not a mature industry to invest in that's got the lobbying 
power here or we're not seeing the immediate repercussions of 
that until potentially years down the line, how do we make a 
decisionmaking process that at least elevates this to say you, 
Congress, ought to be thinking about making a major investment?
    And I would love to get your answers on that but 
recognizing that I've abused my jumping in front of my friend. 
Senator Sasse, you get to close out this. And thank you, thank 
you, thank you. We've had a large number of my colleagues on 
both sides of the aisle who have come up and said, very good 
hearing.
    Senator Sasse.
    Senator Sasse [presiding].
    Senator Sasse. Chairman, thank you for scheduling this in 
public. It's a very important topic. I wish I could hold you 
all hostage for half an hour, but the reason I'm the only one 
left here is that the vote closes soon, so I'll also ask you to 
speak quickly.
    But pursuing more of what the Chairman just said, I want to 
get back to something like a D10 or a D12 technology standard-
setting and free trade agreement.
    But first, explain to us what is Chairman Xi doing in his 
own tech crackdown right now? What's motivating him?
    Dr. Mulvenon. Well, I think that there is an inherent 
suspicion in the Chinese central government about private 
entrepreneurship. You see this. There's a number of indications 
and warning of this. One is the re-imposition of the 
requirement for party committees within private enterprises as 
the only reliable mechanism of political control that they're 
familiar with.
    Secondly, it is fair to say that Alibaba and Tencent were 
reeled back in because they had been so fabulously successful 
at creating a new mobile digital payment market that it was 
having a negative revenue effect on the Chinese state-owned 
banking system. And so in some sense what you see is the 
revenge of the regulators because of course the state banks and 
the state bank regulators are the same people just rotating 
jobs every couple of years. There was a sense that as they were 
developing eCNY and their own digital currency that they could 
imagine--this is my prediction, that there will be a future in 
which the Chinese state digital currency will subsume what had 
previously been the private enterprise mobile payment system, 
and that would allow them to have that kind of central 
understanding of what's going on, on their central blockchain, 
which helps them with their capital flight concerns, helps them 
with their anti-corruption investigations.
    There's a lot of things merging together, I think, that 
explain why they didn't want so-called rogue elements. It's 
also true, by the way, that these entrepreneurs that they're 
reining in are not members of the tribe, in a sense. They're 
not red princelings. They're not red family members. They have 
not asked under common prosperity for any high-ranking party 
kid to give millions of dollars to charity. There really is 
this sense from Xi Jinping that there is a red tradition and 
that there are groups of people that he trusts. And these by-
the-bootstrap entrepreneur guys were not in that circle of 
trust. That's just my personal view.
    Senator Sasse. Very helpful. And what's the state of the 
internal debate with Xi and his closest cronies about a digital 
decoupling that they rather than we initiate?
    Dr. Mulvenon. Well, I actually agree with the idea that 
it's a false dichotomy to say that the U.S., viewing this 
hyper-globalized economy, seeing these early problems with the 
pandemic, has now been the one that is decoupling. It is 
important to remember from a regulatory perspective that the 
Chinese state has never allowed us to invest in areas like 
telecommunications services and other areas. So to get upset 
about removal of Huawei equipment from the U.S. telecoms 
market, the natural question is, what is the current Ministry 
of Industry and Informatization allowing companies to do in 
their market?
    I would argue that their protectionist system was a form of 
decoupling even before we began thinking about re-shoring. I 
think the causation era was backward in terms of blaming the 
U.S. now for severing connections with China.
    Ms. Nikakhtar. And may I just quickly add to that? To the 
extent that U.S. businesses don't care, I try to remind them 
all the time that as China's digital currency flourishes, this 
is a mechanism to displace U.S. and Western competitors to 
manufacturers out of the market because they're just not going 
to accept dollars.
    Senator Sasse. Helpful.
    Sir?
    Dr. Murdick. Just to add in one more point on the last 
question. Obviously, I'm not privy to the internal discussions 
that are happening within China. However, there's a very 
interesting, I referenced it earlier, this Peking University 
piece from The Institute of International Strategic Studies. At 
the very end of this document they lay out, basically, the 
dynamics of technical decoupling has evolved from a one-way to 
a two-way process. China and the U.S. have different starting 
points, but they are moving toward a common goal, which 
objectively facilitates a two-way decoupling trend. Whether the 
technology level or industry level. Both China and the U.S. are 
facing losses brought about this decoupling and China's losses 
might be greater at this point.
    There is a clear thinking about this as a two-way process. 
And I think it's really important to understand that they 
recognize there are losses involved in this space. But this 
seems to be an ongoing discussion, and they're monitoring 
whether they can convert from a loss position, which is what it 
seems that they're assessing, to a position where they can have 
a little less loss.
    Senator Sasse. Very helpful. The vote is technically 
closed, so I need to sprint to it. But on behalf of the whole 
Committee, thank you for all three of your work and your time 
with us today. I'm going to followup with you with some more 
questions related to an ideal version of a D10 or a D12 or a 
TPP with technology standards and teeth.
    But thank you for your work. This hearing is adjourned.
    [Whereupon at 4:45 p.m., the hearing was adjourned.]
  

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