[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
COMBATTING THE ECONOMIC
THREAT FROM CHINA
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 7, 2023
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-1
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
52-357 WASHINGTON : 2023
HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio JUAN VARGAS, California
JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York RITCHIE TORRES, New York
YOUNG KIM, California SYLVIA GARCIA, Texas
BYRON DONALDS, Florida NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska WILEY NICKEL, North Carolina
MIKE LAWLER, New York BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
February 7, 2023............................................. 1
Appendix:
February 7, 2023............................................. 87
WITNESSES
Tuesday, February 7, 2023
Ashooh, Richard, Corporate Vice President, Global Trade and
Government Affairs, Lam Research Corporation................... 5
Feddo, Thomas P., Founder/Principal, the Rubicon Advisors LLC.... 7
Harrell, Peter E., former Senior Director for International
Economics and Competitiveness, National Security Council and
National Economic Council...................................... 12
Lorber, Eric, former Senior Advisor to the Undersecretary for
Terrorism and Financial Intelligence, U.S. Department of the
Treasury....................................................... 8
Willems, Clete R., Partner, Akin Gump Strauss Hauer & Feld....... 10
APPENDIX
Prepared statements:
Ashooh, Richard.............................................. 88
Feddo, Thomas P.............................................. 92
Harrell, Peter E............................................. 96
Lorber, Eric................................................. 104
Willems, Clete R............................................. 113
Additional Material Submitted for the Record
Hill, Hon. French:
Opinion piece from The Hill entitled, ``Build back nuclear,''
dated March 1, 2021........................................ 129
Responses to questions for the record submitted to Eric
Lorber..................................................... 132
Garcia, Hon. Sylvia:
``China's Engagement in Latin America: Views from the
Region,'' United States Institute of Peace, dated August 8,
2022....................................................... 133
Waters, Hon. Maxine:
Letter to Chairman Patrick McHenry, dated February 7, 2023... 138
COMBATTING THE ECONOMIC
THREAT FROM CHINA
----------
Tuesday, February 7, 2023
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:06 a.m., in
room 2128, Rayburn House Office Building, Hon. Patrick McHenry
[chairman of the committee] presiding.
Members present: Representatives McHenry, Lucas, Sessions,
Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas,
Hill, Loudermilk, Mooney, Davidson, Rose, Steil, Timmons,
Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, Flood,
Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, Velazquez,
Sherman, Meeks, Scott, Lynch, Green, Cleaver, Foster, Beatty,
Vargas, Gottheimer, Casten, Pressley, Horsford, Tlaib, Torres,
Garcia, Nickel, and Pettersen.
Chairman McHenry. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Combatting the Economic
Threat from China.''
I want to thank our panel for being here.
I now recognize myself for 3 minutes to give an opening
statement.
The actions of the Chinese Communist Party (CCP) last week
serve as a clarifying moment that China is not an ally or a
strategic partner. They are our competitor and pose the single
greatest threat to America's global standing. This committee is
holding our first hearing of the Congress on combatting the
economic threat from China. This is a priority for the
Congress, and our committee's jurisdiction is central to this
discussion.
The economic strength and vibrancy produced by our system
of free market capitalism directly fuels America's military
strength and cultural power, whether it is through sanctions,
export financing, international financial institutions, or our
capital markets, all of which fall under this committee's
jurisdiction. This committee will lead this Congress' economic
agenda and response to China. This agenda must maintain trust
and confidence that our system will continue to grow capital
resources, industrial capabilities, and new technologies. In
other words, we must double down on our commitment to free
people in free markets.
The juxtaposition between the United States and China could
not be more clear. They are centralized. We are decentralized.
They are closed. We are open. They suppress free speech and
human dignity. We embrace it. These are the American values
that produce the economic strength that has led to the highest
living standard and greatest military power in human history.
Last Congress, Committee Republicans laid out principles
for how we should attack the economic parasite of China without
sacrificing the host, which is our free market system. First,
we must walk the walk. For the U.S. to compete with China, we
cannot become more like the Chinese Communist Party. We need to
carefully evaluate if a policy proposal could jeopardize
America's ability to innovate, grow, and allocate capital, or
if it would cause our allies to question our commitment to free
people and free markets.
Second, the United States and its allies must prevent China
from rewriting the international rules of the road. We should
reject policies that allow China to ignore debt transparency
and multilateral standards with impunity, or allow them to
exert a malign influence on the international financial
institutions.
Finally, the United States must lead by example. Our
national security requires the U.S. financial sector to remain
open, vibrant, and resilient, even as we prevent Chinese
companies from advancing Beijing's strategic ambitions. If we
stick to these principles, and reinforce American values rather
than undermine them, we can outcompete China on the global
stage. I yield back.
The Chair now recognizes the ranking member of the
committee, the gentlewoman from California, Ms. Waters, for 4
minutes for an opening statement.
Ms. Waters. Thank you, Mr. Chairman. As we discuss how to
bolster our economy and to counter threats from China, I would
like to start by saying that if House Republicans continue
their brinkmanship over the debt ceiling, it will result in
even more severe interest rates hikes, a plunging stock market,
major job losses, and a recession of epic proportions. Such a
global financial crisis would hand the Chinese Communist Party
a massive win by boosting the Chinese government's standing in
the world.
We have been down this road before, and there have been
real harms to our economy in the past just by coming close to a
default. This committee should be doing everything that it can
to avoid a calamitous outcome. I believe this is what our
committee should be focused on.
And so, I would like to submit for the record a letter that
I have sent to you, Mr. Chairman, requesting a hearing on the
economic harm that will be caused by nearing or triggering a
national debt default.
Chairman McHenry. Without objection, it is so ordered.
Ms. Waters. Thank you. I also want to point out the fact
that anti-Asian-American violence has skyrocketed in the wake
of the COVID-19 pandemic, fueled significantly by former
President Donald Trump's dangerous and xenophobic language.
While we must hold the Chinese government accountable for its
harmful actions, we have a responsibility to avoid language
that stokes hatred and fuels xenophobia and violence against
the Asian-American community. I am proud that last Congress,
House Democrats led the legislative effort to put an end to
this violence by passing the COVID-19 Hate Crimes Act.
Right now, the authoritarian regime of the Chinese
Communist Party is trying to reshape the international order to
supplant U.S. leadership. We must confront this challenge by
defending our values and securing our interests globally, and
that is exactly what Democrats, particularly Committee
Democrats have done.
We have taken critical steps to protect our nation's
security and to ensure that U.S. businesses and our economy can
successfully compete with China by passing critical legislation
including: the America COMPETES Act, which has provisions to
counter the Chinese Communist Party's growing economic
influence; the longest reauthorization of the Export-Import
Bank, to preserve and create millions of jobs right here in
America, and to support American businesses as they compete
with China; the Anti-Money Laundering Act of 2020, which
included a government-wide strategy to combat illicit finance;
the Corporate Transparency Act, to prevent the use of shell
companies to hide dirty money in the U.S.; the CHIPS and
Science Act of 2022, to ensure we win the technology race for
the 21st Century; the Infrastructure Investment and Jobs Act,
which, for the first time in decades, poured significant funds
into our aging infrastructure to not only support businesses
here, but to attract investment from around the world; and the
Inflation Reduction Act, to finally reassert American
leadership and displace China as the key supplier of critical
equipment for the technologies that are needed to fight climate
change.
Still, there is more work to do, including making sure U.S.
companies, like hedge funds, private equity funds, and Wall
Street, are not investing in ways that hurt our economy or
funding the adversarial actions of the Chinese government. I
look forward to hearing from our witnesses about what more this
committee can do to support our economy. Thank you, Mr.
Chairman, and I yield back.
Chairman McHenry. The gentlelady yields back. The Chair now
recognizes the gentleman from Missouri, Mr. Luetkemeyer, who is
also the Chair of our Subcommittee on National Security,
Illicit Finance, and International Financial Institutions, for
2 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman. For decades,
China has employed a military-civil fusion national strategy to
develop the People's Liberation Army into a world-class
military. This strategy involves the comingling of private
industry in China and the Chinese military-industrial complex.
Recognizing this threat, in 2020 President Trump issued an
Executive Order aimed at curbing U.S. investment into the
Chinese military-industrial complex, stating, ``The People's
Republic of China (PRC) is increasingly exploiting the United
States' capital to resource and to enable the development and
modernization of its military intelligence and other security
apparatuses.''
In addition to funding its military, China continues to use
their economy to oppress their own people. This oppression
includes speech suppression of all citizens and the persecution
of religious and ethnic minorities, including arbitrary
imprisonment, forced labor, and genocide. In 2021, President
Biden added to the Trump Executive Order stating, ``The use of
Chinese surveillance technology to facilitate repression or
serious human rights abuses constitute unusual and
extraordinary threats to the national security, foreign policy,
and the economy of United States.''
The United States Government seemingly acknowledges the
national security and economic threat China poses, but we lack
meaningful action, as we have just witnessed again this past
weekend with the balloon fiasco.
As of January 9, 2023, there were 252 Chinese companies
listed on U.S. exchanges, with a total market capitalization
over $1 trillion. In 2021, the U.S. trade deficit with China
was $355 billion. It is hard to put a dollar sign on China's
theft of intellectual property. Certain estimates put it as
much as $600 billion a year. It is our committee's job to
examine all of the interconnections between the Chinese and
U.S. economies, specifically connections supporting China's
military and human rights abuses, and to pursue options to
eliminate U.S. capital flowing into those areas.
I look forward to today's hearings and the witnesses'
discussions, and with that, Mr. Chairman, I yield back.
Chairman McHenry. The gentleman yields back. The Chair now
recognizes the gentlewoman from Ohio, Mrs. Beatty, who is also
the ranking member of our Subcommittee on National Security,
Illicit Finance, and International Financial Institutions, for
1 minute.
Mrs. Beatty. Thank you, Mr. Chairman. I concur with Ranking
Member Waters' points on the importance of avoiding a debt
default that would deliver a decisive victory to the People's
Republic of China.
As we see through the world, for example, in Africa and in
the Caribbean, China is making deep inroads into our allies'
economies and cultures, partly in an effort to pull our friends
away from the United States. We must counter this with the
tools at our disposal through our voices and our vote in the
international financial institutions, as well as through other
activities, such as improving access to the United States-led
financial system. Thankfully, under the leadership of former
Chairwoman Waters, Democrats had already made significant
strides to protect our nation's security and competitiveness by
passing landmark legislation. I am looking forward to
continuing this critical work as we look at the international
issues, and national security, and financial institutions. I
yield back.
Chairman McHenry. The gentlelady yields back.
We now welcome the testimony of our witnesses.
First, Mr. Rich Ashooh. Mr. Ashooh is a former Assistant
Secretary of Commerce for Export Administration. He led our
dual use export control efforts and managed Commerce's national
security, nonproliferation foreign policy, and strategic
industrial resources functions within the Bureau of Industry
and Security.
Second, Mr. Tom Feddo. Mr. Feddo served as the first
Assistant Secretary for Investment Security at the Department
of the Treasury, where he led the drafting of regulations
implementing the Foreign Investment Risk Review Modernization
Act (FIRRMA). Mr. Feddo also served as Assistant Director for
Enforcement at the Office of Foreign Assets Control (OFAC), and
was an officer in the U.S. Navy's Nuclear Submarine Service. We
thank you for your service.
Third, Mr. Eric Lorber. Mr. Lorber served as a Senior
Advisor to the Undersecretary for Treasury's Terrorism and
Financial Intelligence Division. Mr. Lorber also has testified
multiple times before both Chambers of Congress, and we value
his deep knowledge.
Fourth, Mr. Clete Willems. Mr. Willems is a trade lawyer
who understands the landscape of international economic policy
and the available tools. He previously served as the Deputy
National Security Advisor and Deputy National Economic Advisor
in the previous Administration and can provide unique insights
into the challenges posed by the Chinese Communist Party (CCP).
And finally, Mr. Peter Harrell. Mr. Harrell was, until
recently, the Senior Director for International Economic Policy
with the Biden Administration, and I am sure he will be able to
provide insights into how the current Administration views
these matters.
We thank you all for taking time to be here. Each of you
will be recognized for 5 minutes to give an oral presentation
of your testimony. As you all know, red means stop, yellow
means hurry up, in general parlances, and green obviously means
go.
So with that, now that we have discovered colors, the
colors have action that we should take around them. Mr. Ashooh,
we will now recognize you for 5 minutes.
STATEMENT OF RICHARD ASHOOH, CORPORATE VICE PRESIDENT, GLOBAL
TRADE AND GOVERNMENT AFFAIRS, LAM RESEARCH CORPORATION
Mr. Ashooh. Thank you for the ground rules, Mr. Chairman,
and thank you also for the opportunity to be here. And my
appreciation to Ranking Member Waters and the committee for
having this very important discussion. Having served as the
Assistant Secretary of Commerce for Export Administration at
the Bureau of Industry and Security, I had both the honor and
the challenge of weighing many of the same issues that we are
confronting today in this committee, and it is in that capacity
that I am testifying here.
It should be stated at the outset that the concerns at the
heart of this hearing are well-founded. While great strides
have been made in addressing these concerns, national security
and economic threats are never static and must be constantly
addressed. It is also important to stress early on that U.S.
global technology leadership remains strong, and that the
American culture of innovation is the envy of the world. I
stress this because it is essential for policymakers as you
consider the challenge of promoting U.S. technology advancement
while regulating it in the face of potential threats to cause
no harm to the very thing you are trying to promote and
protect.
Much of what has been accomplished in recent years in this
area has been the result of legislation. This committee had a
key role in enacting the Export Control Reform Act (ECRA), and
the Foreign Investment Risk Review Modernization Act (FIRRMA).
There are lessons from that debate which are still relevant as
Congress considers new measures, such as an outbound investment
regime or dramatic changes to FIRRMA or ECRA. While the issues
associated with regulating financial behaviors or technology
development are many, I will confine my comments to four
recommendations that are drawn from the lessons in the effort
to regulate in this area.
First, clearly define the national security threat to be
addressed. The temptation to address a broad panoply of
legitimate concerns which do not necessarily rise to the level
of a national security threat is alluring. National security,
as currently understood in the United States, is already very
broad, taking into consideration factors such as
infrastructure, supply chain, and data protection. The best
tools are well-aimed, and potentially harsh steps taken by
policymakers should ensure that the target of such action is
clearly defined.
Second, regulate horizontally. What do I mean by that?
National security threats are rarely stove-piped. Solutions to
address them should not be either. National security threats
are commonly carried out by individuals or groups funded by
government with the help of or pursuit of technology.
Therefore, multiple U.S. agencies and departments must
collaborate. One of the most critical updates to FIRRMA and
ECRA was to dovetail their definitions and authorities,
establishing a unique definition, for instance, of critical
technologies, and grounding that definition in well-defined
export control lists. This synchronization is a model for
enhancing the power and effectiveness of U.S. Government policy
implementation.
Third, gaps do exist. Leverage what works to address them.
For all of the enhancements in recent years to protect U.S.
technology, gaps do remain. For instance, it is currently
possible that export control technology could be the
beneficiary of U.S. financing, intentionally or not. This
disconnect is one which could be addressed through alterations
to current authorities. A recent enhancement in the Export
Administration Regulations defines the term, ``support by U.S.
persons,'' to include, among other things, financing. While
further study must be conducted, this feature of the law
creates a regulatory hook to limit financial activities already
tied to restrictions based on export controls.
And finally, just as synchronization among relevant
agencies and authorities is critical, a high priority must be
given to alignment with partner nations. Many like-minded
countries have in place national security views similar to
those of the U.S., such as the foreign direct investment
screening and export controls. It is clear from the behavior of
our allies that the U.S. has led in these areas, resulting in a
more comprehensive and, therefore, effective approach, and the
U.S. should continue this leadership. Specifically, the U.S.,
along with key allies, should consider a new method for
multilateral controls in targeted technology areas that can
work with, but is separate from the existing multilateral
regime construct that has served the U.S. and partner nations
well in the past, but which is ill-suited for complex
technology supply chains.
The ad hoc approach currently utilized in the area of
semiconductors, for example, should be replaced with an agreed-
upon system among a smaller group of stakeholder nations that
can act in concert, as the need arises, with a full
understanding of the nature of the technology involved. Without
such alignment, unilateral policy will ultimately fail in
combatting both national security and economic threats from
China. U.S. global technology leadership is indisputable, but
it is perishable. Hearings like this are essential to
maintaining it. I am happy to answer your questions.
[The prepared statement of Mr. Ashooh can be found on page
88 of the appendix.]
Chairman McHenry. The gentleman yields back. At this time,
we will now recognize Mr. Feddo for 5 minutes.
STATEMENT OF THOMAS P. FEDDO, FOUNDER/PRINCIPAL, THE RUBICON
ADVISORS LLC
Mr. Feddo. Chairman McHenry, Ranking Member Waters, and
distinguished members of the committee, I am honored to appear
today for your first Full Committee hearing of the 118th
Congress. This is your first hearing that makes clear the
priorities of the committee and the significance of the current
geopolitical climate and its impact on our economic security,
and by relation, our national security. As the chairman
mentioned, I oversaw the Committee on Foreign Investment in the
United States, and led the successful implementation of FIRRMA,
enacted in 2018.
By virtue of that experience, and roughly 27 years in
government service, much of it in national security-related
roles, I hope to contribute to your consideration of how we can
mitigate the risks to U.S. interests posed by the People's
Republic of China (PRC), while maintaining strong free-market
principles. I believe we are engaged in one of history's most
consequential great power competitions, and that technology
plays a vital role in that contest. As the chairman also
mentioned, I was on a Los Angeles class submarine, an
engineering and technological marvel, a byproduct of our
innovation ecosystem. That experience has made crystal clear
the imperative for maintaining America's tech advantage and,
thus, its lethality on the battlefield.
The PRC poses grave threats to the United States and its
allies in the global world order, including its strategy to
exploit technology, raw materials, market power, and energy
resources to achieve its ends. Key supply chains, such as
semiconductors and critical minerals, are vulnerable to these
same goals. Enactment of FIRRMA and ECRA 5 years ago was a
response to the potential risks arising from foreign actors'
activities involving high-tech U.S. businesses. Now, both
Congress and the Biden Administration are considering a new
agency with potentially sweeping powers to oversee American
firms' allocation of resources and capital outside the United
States.
A version of this new interagency panel was considered
while drafting the CHIPS and Science Act. This committee on
national critical capabilities would have had sweeping power.
Key terms were broad and undefined, leaving substantial
latitude to the Executive Branch. Later proposals were somewhat
narrowed, but I believe more homework is necessary. Similarly,
media reports indicate the Biden Administration intends to
establish outbound screening through Executive Order this
spring. I strongly believe that doing so would be a mistake.
Rather, Congress is best suited to assess and respond to an
issue of this complexity, and potential scope and impact.
There should be no dispute that to ensure America's future
security, the PRC's theft and misappropriation of tech must be
prevented. The question is whether a new and potentially far-
reaching bureaucracy is the answer. The debate has taken on a
presumption that outbound screening is necessary, but decision-
makers would benefit greatly by not rushing into a solution.
Additional hearings should be held to define objectives and
determine costs and benefits.
When a bipartisan Congress and the Trump Administration
collaborated to make the most extensive changes to the
Committee on Foreign Investment in the United States (CFIUS) in
its history, those efforts included roughly a half dozen
hearings with foreign policy and national security experts, the
intelligence community, the private sector, and former and
current Administration officials. Congress and the President
were, thus, well-informed regarding the gaps they intended to
fill, the law's reach, and the attendant increases in capacity
and cost. Afterwards, it took 2 intensive years within an
existing CFIUS bureaucracy to effectively implement the law.
Here, outbound screening would be created out of whole
cloth. FIRRMA decision-makers would be best served by building
a comprehensive record, exploring whether existing or other
types of authorities could be less bureaucratic, and costly,
and more impactful. Existing authorities may in fact offer a
better cost-benefit solution.
My written testimony includes a foundational laundry list
of issues for fulsome congressional examination of outbound
screening. From my CFIUS experience, a new interagency
committee would be extremely time- and resource-intensive and
require substantial effort to build a clear regulatory
framework. It is in the best interests of national security, a
strong open economy, and accountable government to get this
right. The alternative could be an unrestrained bureaucracy,
wasted time and resources, and an inadequate response to the
PRC's ominous goals.
Again, it is my privilege to appear before you today and
contribute to your consideration of these consequential issues.
I would be happy to answer any questions. Thank you.
[The prepared statement of Mr. Feddo can be found on page
92 of the appendix.]
Chairman McHenry. Thank you for your testimony. The Chair
now recognizes Mr. Lorber for 5 minutes.
STATEMENT OF ERIC LORBER, FORMER SENIOR ADVISOR TO THE
UNDERSECRETARY FOR TERRORISM AND FINANCIAL INTELLIGENCE, U.S.
DEPARTMENT OF THE TREASURY
Mr. Lorber. Chairman McHenry, Ranking Member Waters, and
distinguished members of the committee, I am honored to appear
before you today to discuss economic sanctions in the U.S.-
China competition. I come before this committee as an expert on
sanctions. I have served at the United States Department of the
Treasury as a Senior Advisor to the Undersecretary for
Terrorism and Financial Intelligence, and in the private sector
advising clients on sanctions compliance. These positions have
afforded me perspective on how sanctions policy is made and
implemented, as well as how companies around the world adjust
their business models, strategies, and compliance programs to
ensure they are meeting their obligations under the law.
The testimony I am giving today is my personal testimony,
and not on behalf of any organization or client.
Over the last 2 decades, sanctions have become a core tool
of American foreign policy and national security. When properly
calibrated and judiciously used, they can impact U.S.
adversaries' behavior and reduce their ability to harm U.S.
interests around the world. Nevertheless, they are not a silver
bullet and have real limits.
In recent years, policymakers in the United States have
begun employing targeted sanctions against China as part of the
broader U.S.-China competition. These sanctions have focused on
control over Hong Kong, human rights in Xinjiang, and limiting
certain Chinese military-industrial complex companies from
accessing U.S. capital, among other areas. While the United
States' use of sanctions against China has so far been limited,
policymakers have increasingly focused on them as a key foreign
policy tool in this competition. As Congress and the
Administration think through the use of sanctions to achieve
national security and foreign policy objectives in the
competition, a number of key lessons gleaned from U.S.
sanctions programs over the last few decades stand out.
First, defining the objective of sanctions is an important
first step in any campaign, and the use of sanctions should be
preceded by an understanding of what sanctions are meant to
achieve. Then, policymakers can choose the appropriate types
and scope of sanctions to achieve that objective.
Second, targeted list-based sanctions can be impactful at
disrupting particular threatening activity and making it
harder, costlier, and riskier for our adversaries to access
U.S. markets. While such targeted sanctions may not change an
adversary's desire to threaten U.S. national security, they can
impact the adversaries' ability to do so.
Third, impactful list-based sanctions require constant
vigilance by regulators, law enforcement, the intelligence
community, and the private sector to ensure that the targets
are unable to evade them. While such efforts to disrupt evasion
are not always successful, forcing sanctioned parties to engage
in such surreptitious activity often imposes significant costs
and increases the risks they face.
Fourth, expansive programs can have substantial
macroeconomic impact and make it harder for countries to engage
in activity that threatens the U.S. and its allies and
partners. For example, the recent sanctions on Russia have
reportedly limited Russia's ability to continue to produce
advanced military equipment in a way that has made it more
difficult for Russia on the battlefield.
Fifth, more expansive programs, including comprehensive
programs, can fail to achieve lofty objectives in certain
instances, such as the failure to convince North Korea to give
up its nuclear weapons program.
Sixth, sanctions are more likely to be impactful when
access to U.S. markets is more important than access to the
sanctioned target's markets. For example, in the case of Iran,
the incentive for potential partners to forsake connections
with U.S. markets in favor of Iranian markets was very low.
This dynamic may not hold in the context of China, however.
China's economy is roughly comparable in size to the U.S.
economy, and the United States has never waged an aggressive
sanctions campaign against a country with such an economy.
Seventh, and finally, sanctions are likely to be more
impactful when the target country's leadership cares more about
the negative economic effects than their policy objectives. For
example, the U.S. Government's efforts to deter Russia from
invading Ukraine with, in part, the threat of crippling
sanctions did not change that Russian decision. That is likely
because Russian leadership did not believe we would impose
crippling sanctions, thought they could weather them, or were
willing to pay the cost of sanctions in order to achieve their
objectives in Ukraine.
These are important lessons gleaned over the last 20 years
of the aggressive use of sanctions against U.S. adversaries,
and relevant when considering the use of sanctions in any
context, including for the purposes of our discussion today. I
look forward to answer your questions, and thank you again for
the opportunity to testify.
[The prepared statement of Mr. Lorber can be found on page
104 of the appendix.]
Chairman McHenry. Thank you, Mr. Lorber.
Mr. Willems, you are now recognized for 5 minutes.
STATEMENT OF CLETE R. WILLEMS, PARTNER, AKIN GUMP STRAUSS HAUER
& FELD
Mr. Willems. Chairman McHenry, Ranking Member Waters, and
members of the committee, thank you for the opportunity to
testify on the U.S.-China strategic competition.
The China national security threat has been on full display
in recent days with the PRC's brazen decision to fly a spy
balloon over the United States, but the threat from China is
not confined only to national security. China also seeks to
challenge U.S. economic and geopolitical leadership and to
remake the international order with priorities and values that
differ significantly from our own. Accordingly, the outcome of
this competition will affect the future of our country and the
world we live in, and Congress is right to make it a top
priority.
In my testimony today, I hope to facilitate the committee's
development of a strategic China agenda. To maximize our
chances of success, we should clearly define our objectives,
consider the broader economic consequences, and coordinate our
action with allies. Our approach should also be comprehensive
and not only defensive in nature. We should crack down on
problematic capital and technology flows, but we should also
prioritize competitive tax and regulatory policies and double
down on our comparative advantages, which include a free-market
economy, democratic values, and a deep network of partners and
allies in the most vibrant financial system in the world.
To that end, my testimony will cover the defensive measures
needed to protect U.S. national security, the need for
multilateral coordination to ensure these measures are
effective and do not harm U.S. economic competitiveness, the
importance of pairing defensive action with offensive measures
to maintain U.S. economic strength, and the appropriate role of
bilateral engagement.
One key defensive tool Congress is considering is whether
to restrict certain types of outbound investment. On this
issue, we should assess whether there are gaps in existing
tools like export controls. If we determine that technology is
so sensitive that it cannot be exported to China, we should
ensure U.S. companies are not financing China's indigenous
development of the exact same technology. But we should stay
focused on national security and avoid a bureaucratic supply
chain mechanism like the National Critical Capabilities Defense
Act.
We should also expand restrictions on investment and
Chinese military-industrial complex companies to block private
as well as public investment that can contribute to China's
military investment, and enact export control measures on
advanced technology with military applications. These defensive
measures are important, but we must realize that they impose a
cost on the U.S. economy by cutting off a critical market, and
are only effective if U.S. allies take similar actions, since
they can provide much of the same capital and same technology
that we can.
Given the importance of multilateral coordination, we
should seek all available avenues to achieve it. Unfortunately,
the Administration's track record has been mixed, especially
with respect to recent export control actions on
semiconductors. Congress should push the Administration to
rectify the situation as soon as possible. One key upcoming
opportunity is Japan's G7 host year, which can be used to
advance coordination on export controls, outbound investment,
and a range of China-related policy.
We should also work with allies at the World Bank and the
IMF to ensure that China is a responsible international
stakeholder. Enacting defensive measures is a necessary part of
a successful China strategy, but it is not sufficient. As we
cut off capital and technology flows to China, we must also be
creating new opportunities for U.S. companies that are affected
by these measures. One way to do this is to pursue market
access trade agreements that cut down barriers to U.S. exports
in third-country markets to help make up for the lost revenue.
These agreements are also key for our supply chain objectives,
including reducing our reliance on China for critical goods.
In particular, if we want companies to move supply chains
out of China, we need to provide them with meaningful
incentives to do so. This is all the more pressing in light of
China's aggressive pursuit of trade deals, including the
Regional Comprehensive Economic Partnership (RCEP), which is
now the largest trade agreement in the world. As a result of
this deal, it is now easier for 14 other countries in the Indo-
Pacific to link their supply chains with China and with each
other than with the United States. This is unacceptable. If we
are serious about competing with China on supply chain issues,
we need a serious trade policy to match. Congress should
pressure the Administration to move forward with bilateral
trade agreements with the United Kingdom, Kenya, and Taiwan, as
well as to renegotiate the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP).
Finally, any winning China strategy requires bilateral
engagement. While we should crack down on national security-
sensitive trade, we must also realize that China's market
provides a massive opportunity for our farmers, energy
producers, and financial services firms, all of whom need to
sell to China to be globally competitive. Therefore, we should
engage with China through the Phase One Deal to ensure it is
playing by the rules and not discriminating against U.S.
companies.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Willems can be found on page
113 of the appendix.]
Chairman McHenry. Thank you. Mr. Harrell, you are now
recognized for 5 minutes.
STATEMENT OF PETER E. HARRELL, FORMER SENIOR DIRECTOR FOR
INTERNATIONAL ECONOMICS AND COMPETITIVENESS, NATIONAL SECURITY
COUNCIL AND NATIONAL ECONOMIC COUNCIL
Mr. Harrell. Chairman McHenry, Ranking Member Waters, and
members of the committee, it is an honor to be here alongside
so many distinguished colleagues.
Chairman McHenry and Ranking Member Waters, as you said in
your opening remarks, America's diplomatic, economic, and
military competition with the People's Republic of China
represents an overarching challenge for this decade. The
current government in Beijing is a competitor that seeks to
undercut the political, economic, and security interests of the
U.S. and our partners. We have to outcompete China in the
economic domain and maintain our technological edge. And yet,
even as we compete with the PRC, we must also find ways to keep
lines of communication open, cooperate on shared challenges,
like reducing greenhouse gas emissions, continue outreach to
the Chinese people, and keep the door open to ties that benefit
citizens in both countries.
In my written testimony, I recommend a three-pillar
strategy to manage our economic competition. First, the U.S.
and our allies should continue to promote our technological
leadership and economic strength. With the CHIPS and Science
Act, the Inflation Reduction Act, and the Bipartisan
Infrastructure Law, as well as other pieces of legislation,
Congress has enacted policies to make transformational
investments in U.S. technology, in the clean energy economy,
and in renewing U.S. infrastructure that are critical to
maintaining our leadership. We need to build on this
foundation, while encouraging our allies and partners to make
parallel investments in their technology and industrial bases.
We need to cooperate with our allies and partners on resilient
supply chains as well.
It is equally important that we avoid self-inflicted
wounds. If the U.S. fails to raise the debt limit this spring
and we default on our obligations, we risk harm to both our
domestic economy and our global position. A default would
undermine global confidence in the dollar and speed up the
development of alternatives. It would undercut the confidence
of our allies and partners, and it would give Beijing a
priceless talking point about the irresponsibility of the
United States. Congress must ensure that the U.S. does not
default on our national debts.
Second, we should protect our technological and economic
advantages while limiting Beijing's ability to weaponize the
leverage it has over the U.S. and our partners. We need to
ensure that U.S. and allied companies and experts do not
inadvertently provide Beijing an edge in key technologies, give
the PRC access to our critical data, or create dependencies for
essential goods and products that the Chinese Communist Party
could weaponize to its advantage.
Third, we should deepen our partnerships with existing
allies while working to strengthen new ones. The U.S. should
galvanize like-minded multilateral organizations, like the G7,
and work with distinct groupings of countries to tackle
specific risks, like semiconductor issues. We should pursue
multilateral economic deals, including the Indo-Pacific
Economic Framework, and we need to expand bilateral outreach to
key emerging markets and swing countries such as India and
Indonesia to deepen ties as we face a period of long-term
competition with Beijing.
In my written statement, I have offered detailed policy
recommendations across these three pillars. I am going to
highlight just two. First, we need a comprehensive approach to
managing the data risks we face from Beijing. The simple
reality is that the U.S. does not currently have an effective
legal regime to address and mitigate the data security risks we
see from the PRC. While we have taken steps to reduce specific
risks, such as targeting the presence of Huawei and 5G telecoms
networks, and as we see with the current debate over TikTok in
the CFIUS process, we need a strategy and new legislation to
more effectively address data security risks across-the-board,
as well as a new domestic data privacy law to reduce the volume
of data collected in the first place.
Second, I urge members of this committee to examine
investment flows between the U.S. and China, an issue which my
colleagues have also discussed. FIRRMA, which Congress passed
in 2018, established important updates to the CFIUS process,
and the Chinese military company sanctions list provides a
valuable tool to limit U.S. investments in the securities of
specific Chinese companies. But it is time for this committee
to look at continuing weaknesses in the CFIUS regime, such as
limits on CFIUS' ability to review certain high-risk greenfield
investments by Chinese companies here in the United States. I
also urge both Congress and the Biden Administration to work
together to establish a narrowly-targeted mechanism to review a
small number of U.S. investments in China that could facilitate
Chinese technological capabilities and undermine U.S. national
security.
In closing, I want to say that I am optimistic about our
future. The American people remain innovative and
entrepreneurial, and with smart policies and hard work, will
succeed in this era of geopolitical competition. Thank you, and
I look forward to your questions.
[The prepared statement of Mr. Harrell can be found on page
96 of the appendix.]
Chairman McHenry. I want to thank the panel for their
testimony, and we will now turn to Member questions. The Chair
now recognizes himself for 5 minutes for questioning.
Mr. Willems, the Chinese spy balloon that our Air Force
shot down this past weekend is just the latest incident
involving China, and it demonstrates that there is a threat to
the world that China poses, not just to the United States, but
to our allies. And to that end, Committee Republicans have
developed principles on how we approach China, given the fact
that we have a different world now than the Soviet Communists.
This is a different regime, with a different set of challenges,
but central to that premise is that to beat China, the U.S.
should not become China. So, I just want to ask you a few
questions along those lines. What would you describe as the
type of economic policies that could jeopardize our commitment
to free markets and free people?
Mr. Willems. Thank you, Mr. Chairman. Let me just say, I
completely agree with you. There is a reason that China is the
one chasing to catch up to the United States. We are the envy
of the world because of the policies we have historically held,
which value a free market, which value democracy, and all of
those kinds of principles. I have been concerned about some of
the policies that have been advocated for, and, in particular,
if you look at the National Critical Capabilities Defense Act,
that is the kind of bureaucratic mechanism that we often see
out of Beijing. I think we need to be surgical and crack down
on the kinds of capital flows that could contribute to their
military, but we shouldn't be telling every single private
sector company what they can and cannot do, and we should not
be overly broad in the way that we handle that issue.
Chairman McHenry. Yes. And relatedly, the second principle
that we put forward is that China must abide by the
international rules of the road. Can you speak to an area where
China is diverging from that path of the widely-accepted rules
of the international economic engagement that we have seen over
the last 50, 60 years?
Mr. Willems. There are almost too many to offer in the 2
minutes and 45 seconds that I have left, but let me just
highlight a couple in the international institutions. First,
you look at the World Trade Organization (WTO), where China's
command-and-control economy is totally inconsistent with those
principles. I look at the World Bank, where China, who is the
largest bilateral lender in the world, is also receiving a
significant amount of loans there. And I look at the
International Monetary Fund (IMF), where China has refused to
restructure debt for developing countries. Those are just three
examples in international institutions where China is an
outlier.
Chairman McHenry. What are the policies available to
Congress to ensure that China does not continue to undermine
international institutions? What can we do to counter them?
Mr. Willems. I think it is a combination of things, and in
my testimony, I tried to make the point that you need to be
comprehensive, and there are defensive measures you should use.
I think there are offensive measures where we need to be
creating new markets. And then, we need to really be working
with our allies and partners through the existing mechanisms,
the G7, and then at the IMF, the WTO, and the World Bank to try
to pressure China to change its behavior.
Chairman McHenry. Thanks. Pivoting to you, Mr. Feddo, we
just rewrote the rules of foreign investment in the United
States. FIRRMA, that was passed just over 4 years ago, was an
update to the CFIUS process, but that is an inbound flow of
capital into the United States, and we have a process for that.
There is now a discussion about expanding that authority to an
outbound regime of taking U.S. dollars and their investment
decisions internationally. What risks does an outbound regime
pose to protecting our national security?
Mr. Feddo. To our national security or more broadly?
Chairman McHenry. More broadly. Frankly, it's national
security, but more broadly than that, our economic capacity.
Mr. Feddo. Mr. Chairman, the problem is ill-defined at the
moment, so it is hard to really scope a solution that precisely
tackles an undefined problem. As Mr. Willems suggested, it
would be a major economic policy and foreign policy change to
impose these types of capital controls and may impact global
capital flows in an unpredictable way, including the extent to
which foreign investors want to invest in the United States and
how that potentially subjects them to U.S. jurisdiction.
The way this was first drafted was incredibly broad, and
its extraterritorial nature would have been almost unbounded,
and in that respect, it could have really impacted our
relationship with our allies and partners. Certainly, as Mr.
Ashooh has mentioned, doing these types of tools in a
multilateral way is very important. There are only two
countries in the world that I am aware of that have outbound
screening mechanisms_Taiwan and South Korea_and as you are well
aware, the size of the U.S. economy dwarfs those. So, we really
have to think through imposing this type of or creating this
type of mechanism, not to mention the bureaucracy that would
come with it, and I have deep concerns about how that would
affect us economically.
Chairman McHenry. My time has expired, but we can further
expand on this in written form.
I now recognize the ranking member of the committee, Ms.
Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. I am focused
on making sure that our economy is strong and that we are all
united in ways that would put us in a position to deal with
China or anyone else who interferes with our ability to carry
out our democratic commission methods. When Democrats last
engaged in brinkmanship around whether or not to default on
U.S. debt, interest rates on U.S. Treasury bonds skyrocketed,
there was havoc in the stock markets, and government,
companies, and consumers faced increased borrowing costs. The
nation's long-term credit rating failed, resulting in an
unprecedented restriction on the Federal Reserve's ability to
use its monetary policy tools to define the U.S. dollar and
stabilize the economy.
Even though an agreement was reached, and we didn't
default, Republicans are yet again actively working to risk
unleashing the same devastation or worse as they did just over
a decade ago. This time some projections on what would happen
if the U.S. defaulted on its debt indicate that the global
economy itself could freeze if the United States' Treasury
market collapse. Can you explain how allowing the U.S. to
default on its debt would benefit the Chinese government by
causing irreversible damage to the U.S. dollar status as a
global reserve currency? Also, please explain how a default
would affect American's standard of living and our nation's
economic standard and political influence across the globe. And
I am directing this question to Mr. Harrell.
Mr. Harrell. Thank you very much, Congresswoman. I think
that a default on the national debt would be catastrophic for
Americans, and it would be a gift for Beijing. Congresswoman,
you cited a number of the risks we run domestically with a
major hit to our economy and to our financial markets, which
would obviously undermine our economic position vis-a-vis
Beijing, as well as harming Americans here at home. I think it
would also undercut our view with our allies and partners who
count on us for all kinds of things and would take the view
that if we can't even honor our debts, how can they count on us
for their security and to uphold our alliances? And I think it
would give Beijing a kind of priceless talking point about how
irresponsible the United States is that it can't even pay its
basic obligations.
I guess a final point I would make is I do think and I know
there is legislation in front of this committee to deal with
kind of the role of the dollar. I am a huge believer that it is
important for the dollar to remain the world's reserve currency
and the global kind of medium of finance. That whole agenda
would be massively undermined as well if we defaulted on our
debt.
Ms. Waters. Thank you very much. Several years ago, I
worked with my Republican colleagues to reform the Committee on
Foreign Investment in the United States (CFIUS) to strengthen
our tools to prevent adversaries from purchasing key assets in
the United States. Last November, this committee held a hearing
that examined outbound capital flows of U.S. dollars flowing to
foreign adversaries, particularly China, and the impact of
those investments on our national interest. Several of the
witnesses argued for our Federal panel to review and, if
necessary, restrain certain types of outbound investments, like
the controls we impose through CFIUS. The witnesses testified,
as have others, that while national security considerations
should be paramount in such a review, it should not be strictly
limited to national security. Could you discuss the merits of
creating an outbound investment review panel? What are some of
the key elements of such a process?
Mr. Harrell. Thank you very much. As several of my
colleagues and I have testified, I do think it is important
that the U.S. have the authority to review a very narrowly-
targeted set of U.S. investments in China. The reality is, for
example, when we are investing in semiconductors here and we
are limiting exports of semiconductor companies to China, U.S.
companies can still invest in a Chinese semiconductor company
to help that company develop its own technology. There is
clearly a gap in the regime, and I think we need a narrowly-
targeted regime with the authority to close those kinds of gaps
that we have in our national security apparatus currently.
Ms. Waters. Thank you very much. I yield back.
Chairman McHenry. I now recognize for 5 minutes the dean of
the committee, Mr. Lucas, who is also the Chair of the House
Science, Space, and Technology Committee.
Mr. Lucas. Absolutely, Mr. Chairman, and I want to thank
our witnesses for offering their expertise, and I thank you for
holding this important hearing.
It has been nearly a year since the invasion of Ukraine,
and the ongoing war has brought the U.S. and our allies
together in a series of unprecedented economic sanctions
against Russia. This offers a glimpse at what the international
response might be in case of Chinese aggression against Taiwan.
Mr. Lorber, could you describe the lessons the Chinese have
learned from the Russian invasion of Ukraine and how China is
responding to protect itself from potential sanctions?
Mr. Lorber. Thank you, sir. I appreciate the question. I
can't describe the specific Chinese response to what the Russia
sanctions campaign looked like, but I can say that a few
lessons that came out of the Russian invasion and the
associated U.S. response are particularly noteworthy. One is
that to the Biden Administration's credit, they did put
together a very expansive multilateral campaign that has, over
time, done significant damage, I think, to the Russian economy,
maybe not as much as folks wanted it to for a variety of
reasons, but has done significant damage, and degraded its
military capability.
At the same time, however, I think it is fairly widely
understood and fairly obvious that the threat of Russia
sanctions in the lead-up to the Russian invasion were
insufficient to deter the Russian decision. So I think, at
least in terms of when thinking about an aggressive, massive
sanctions campaign in any scenario, that those two principles
need to be kept in mind. One, yes, they can be impactful in
terms of hurting an adversary's economy, but two, they may not
change that adversary's decision-making.
Mr. Lucas. Fair point. Chinese state-owned banks are used
to expand China's One Belt One Road Initiative and regularly
saddle unsustainable debts on developing countries. For
example, the Export-Import Bank of China and the China
Development Bank have lent billions of dollars to Sri Lanka,
which faces, of course, a debt crisis with no end in sight.
African nations, such as Ethiopia, Zambia, and Kenya, also face
uncertainty with massive debts from China.
Mr. Willems, could you speak to the global economic
challenge that Chinese debts place on developing nations?
Mr. Willems. Thank you for the question, and I agree with
your premise that this is a major concern and a major threat.
And while I was on the National Security Council, we saw
numerous instances where China would get a country knee-deep in
debt, and then in exchange for debt relief, would seize a
strategic asset, and that is a national security threat to the
United States.
One of the responses that we had in the Trump
Administration was the BUILD Act, which was intended to make
the Development Finance Corporation (DFC) much more robust in
its ability to provide a meaningful alternative to China's
investments. And I think so far, the track record on that
agency in carrying out that strategic mission has been a little
bit mixed.
One of the things I talked about in my testimony is
improvements that we can make at the DFC, ensuring that it has
equity authority that can be used to make investments to
countries instead of China, as well as looking at creating a
program there similar to what we have at EXIM, which is the
China & Transformational Exports Program (CTEP), which cuts
through some red tape and makes it easier for us to be
strategic. So, I think we need to look at DFC, we need to look
at Ex-Im, and use both of those tools to provide an
alternative. And then in the meantime, I talk a little bit
about at the IMF and other places where we need to pressure
China to restructure those debts for developing nations.
Mr. Lucas. Continuing along on the discussion about the
imperative of the U.S. being able to displace Chinese
financing, would you expand a little bit more on the importance
of the U.S. having a dependable Export-Import Bank as an
alternative to Chinese? We have had major discussion in recent
years in this body over that very topic.
Mr. Willems. Absolutely. I think EXIM needs to play an
increased role here. And if you look at the landscape
internationally, and if you look at what China provides for its
companies, and let's take telecom infrastructure as a good
example, if you look at Huawei and companies like that, they
are usually being sold at about a 30-percent discount to
Western competitors. And it is very difficult for countries to
basically say, I am going to pay 30 percent more. I hear you on
the national security threat, but I am still going to say we
need to have an alternative to that. The China &
Transformational Exports Program (CTEP) is a good step forward,
and I think the committee was right on with creating that, and
I think that we need to further bolster EXIM to be an effective
tool in that regard.
Mr. Lucas. Thank you, Mr. Willems. I yield back, Mr.
Chairman.
Chairman McHenry. Thank you. I will now recognize the
gentlewoman from New York, Ms. Velazquez, who is also the
ranking member of the House Small Business Committee, for 5
minutes.
Ms. Velazquez. Thank you, Mr. Chairman. Mr. Harrell,
building on what Ranking Member Waters was saying, Chinese
government bonds are, on issue, $3.3 trillion less than half
the value of U.S. Treasuries held by foreigners. But do you
believe playing around with the debt ceiling as the Republicans
are doing will cause foreign governments to move away from
Treasuries and possibly into Chinese bonds?
Mr. Harrell. Thank you, Congresswoman, for the question. I
do think that a debt default and even sort of serious
brinksmanship does undermine confidence by investors, whether
sovereign investors or private investors in Europe and
elsewhere in the U.S. Treasury market, and I do think that will
have long-term adverse consequences to our Treasury market. I
am not sure that investors would go into China as they exit
U.S. bonds. China obviously has a bunch of capital controls,
and there are reasons why, in the markets, they may not do
that. But I do think it will undermine the kind of preeminence
of the U.S. financial system if we have serious brinksmanship
here.
Ms. Velazquez. And, Mr. Harrell, the Chinese economy faces
several challenges that predate the pandemic, including
significant levels of corporate debt, which reached $29
trillion in the first quarter of 2022, the highest in the
world. There have also been concerns with the debt levels of
its real estate sector, wealth management products, and local
governments, as well as its off-balance lending activities. Do
you see China's high level of debt, particularly corporate
debt, as a significant problem for the world's economy? What
impact could China's debt levels have on American companies
invested in China?
Mr. Harrell. I think it is important that as we think about
China's policies, we all recognize that China, although a
serious competitor, and by far our most significant economic
competitor, is not 10 feet tall. It is not some sort of
mythical beast that we cannot outcompete. I think you have
highlighted a couple of the reasons, Congresswoman, why that is
the case. They do have high levels of debt. They also have
serious long-term demographic problems, to having a shrinking
working-age population. I do think that it will be interesting
to see as China comes out of COVID, if they are able, in fact,
to hit the growth targets they are trying to hit this year
without further increasing their debt problem. And I think we
should be keenly aware of the potential financial risks that
could come from an unwinding of Chinese debt.
Ms. Velazquez. Mr. Harrell, repeated lockdowns slashed
China's growth rate to 3.0 percent in 2022, a pace below the
global average for the first time in more than 40 years. While
the IMF is predicting that China's economy will expand by 5.2
percent in 2023, it will slow again in 2024. Some have argued
that China's uneven economic performance since the pandemic
enhances our leverage over China, and now is an opportune
moment to further address many of the trade imbalances and
systemic issues American business face in China. Can you
explain whether this is a view you share?
Mr. Harrell. I think the last couple of years have been a
real wake-up call for businesses, both in the U.S. and in
Western allies that have been doing business in China. I think
they have seen how China's mishandled response to COVID
disrupted supply chains. I think they have seen a long-term
trend of slowing growth in China. I do think this year, China
is going to probably have a reasonably high rate of growth as
it bounces back from COVID, but we are not going to see a
return to many years of 6, 7 percent growth in China. And, of
course, I think people have seen the geopolitical risks that we
see with China, and the recent balloon incident only highlights
those. So I think you are beginning to see a very significant
corporate rethinking of the role companies want to have in
China and the risks they face there.
Ms. Velazquez. Thank you, Mr. Chairman. I yield back.
Chairman McHenry. The gentlewoman yields back. The Chair
now recognizes Mr. Sessions for 5 minutes.
Mr. Sessions. Mr. Chairman, thank you very much. Mr.
Chairman, your opening statement, I think, outlined very
clearly not only the role of America, but how we see our
divisions with China. In my opinion, and I would like to ask
your opinion, I believe that evidence abounds that China has a
plan that we saw, or at least I saw, as early as 1996 with
Johnny Chung, and that was to come and disrupt not only
American commerce, but to influence policymakers, meaning the
White House. I think that China's views abound and that we
already see exactly that they not only have a plan, but they
intend to counter and compromise the United States of America.
Mr. Willems, or Mr. Lorber, what about us looking at this
on a comprehensive basis as opposed to seeing the 50 or 60
different points that China is countering not just the United
States, but freedom and capitalism? How do we go and develop
this, because we saw what President Trump did: he took on the
Chinese. Successful or not, I think it highlighted that we have
a problem. Could either one of you begin that discussion about
what kind of comprehensive viewpoint we really need to take
because it is militarily, intelligence, economic, and their own
plans?
Mr. Willems. Thank you, Congressman, and it is a great
question. And I agree with you 100 percent that China does pose
an existential threat that requires our attention and that our
response has to be comprehensive, and we have to look at all
facets of what we are doing in the United States. And that does
include some of the things that this committee is focused on in
terms of cracking down on problematic capital and technology
flows, but it also requires us to be offensive, and when we
close down markets for our companies, we need to open up other
markets for them. And then, we need to work with our allies and
partners to make sure that they are taking similar action, that
they view the threat in the same way, so that the things we do
are actually effective and don't just hurt us without hurting
China. That is really important. And I think this committee
needs to look holistically at all of the different things that
we need to do, both offensive, defensive, and internationally.
Mr. Sessions. Okay. Let's suppose this committee does have
a position at least in capitalism and the markets and the
opportunity to view those. I think I am talking about within
Article II, an Administration that has intel, military,
certainly Treasury, those economic viewpoints. Does this fit at
the National Security Agency (NSA)? Does that exist today? Do
we actually have a plan?
Mr. Willems. It is the role of the National Security
Council (NSC) to try to coordinate policy across the U.S.
Government on behalf of the President and to make sure that it
is effectively addressing these problems. I think that we have
tried very hard to come up with a strategic plan here, and I
think that the Trump Administration and then the Biden
Administration as well has been focused on China. I don't
believe that the current Administration's plan is comprehensive
enough, and one of the areas where I do think that they are
falling short is with respect to trade.
And I talk in my testimony about China's assertiveness in
going around the world and collecting trading partners to make
it easier to link supply chains with China, and we don't have a
response to that. I do think that the Administration is trying,
but I think they have fallen short in that respect, and that if
we want to reduce our supply chain resilience in China, if we
want to provide a meaningful economic alternative to China,
that requires trade agreements, and we haven't seen that.
Mr. Sessions. I think what you said is very interesting. I
watched over the last few years the Millennium Challenge
Corporation as it placed economic advantages to countries that
we wanted to help build their economy, the free market and the
rule of law, and the Chinese simply glommed on around them with
their own plan. So, I hope that we push this committee
appropriately to push the Administration to push this Congress
to do exactly what we talked about: a comprehensive plan. I
want to thank each of you. And Mr. Chairman, I yield back.
Chairman McHenry. The gentleman yields back. Mr. Sherman of
California is now recognized for 5 minutes.
Mr. Sherman. Thank you. I want to associate myself with the
comments of the ranking member, first, that we have to watch
for xenophobic attacks on Asian-Americans. We are here to talk
about the Chinese Communist Party. And second, that the most
important thing we can do is manage our own economy well, and
that starts by paying our debts. Our economy is already being
hurt by this talk of default and not raising the debt limit. I
want to thank Mr. Harrell for pointing out how important it is
that the U.S. dollar play this major reserve currency role and
point out that all of the proponents of cryptocurrency have
announced that their purpose, if they achieve it, is to
partially displace the U.S. dollar from that role.
The Chinese Communist Party obviously believes they can
invade America's airspace deliberately and notoriously without
serious consequences. They believe the two parties will simply
shout at each other, maybe shout a few things at Beijing, maybe
even adopt some sort of pinprick answer, and then go on. What
China cares about is Taiwan, trade, and tariffs, the three T's,
and I think they are confident that we will do little or
nothing, not only in response to the balloon_it is just a
balloon_but the much bigger things. Even China's defenders have
to admit that their obfuscation of the sources and initial
effects of COVID have cost hundreds of thousands of lives
around the world, and that their trade policies toward the
United States have created a new term, or at least it was new a
few decades ago, ``rust belt,'' to describe what they did to
the industrial Midwest.
The problem began in the year 2000 when the United States
Congress granted Most Favored Nation status to China and entry
into the WTO. Before that, China was an annoyance, was referred
to as a slumbering giant. Now, of course, things are much
different, so we have to look at Taiwan, trade, and tariffs.
Congress should act to allow Taiwan to buy defense items that
are still stalled in the Administration. And we should provide
that immediately and without an executive waiver, and deprive
China of Most Favored Nation status if it invades or blockades
Taiwan.
More to the focus of this committee, we have to require
every major corporation to set out as a risk factor, what would
happen to that company if there was a breakdown in the U.S.-
China economic relationship? I am not saying that will happen,
but it might. It is more likely than some of the other things
that they talk about and the risk factors. By doing that,
American companies will compete for capital by creating
resiliency toward what China might do, and in doing that, they
become less desperate to tell us not to do anything to China.
And if we do anything serious at all, we have an automatic,
say, 20 percent tariff on all Chinese goods if they retaliate
against us for anything we are doing. Of course, that would be
necessary only if we did anything significant. We probably
won't.
One thing that concerns me is China's ability to control
the behavior of American corporations by handing out access to
their market the way I hand out dog treats to my pet. Morgan
Stanley was told, you better tell your investors to put 15
percent of their money in China or you won't be able to do
business in China. More specifically, Hollywood, which I
represent, is told that you can get only 40 movies into China
in any one year. What does that mean? That means that if you
make a movie about Tibet, it is not going to show in China.
That means if you make a movie about Tibet, none of your movies
are going to go to China, and the CEO's bonus goes to zero if
he doesn't lose his job or her job. So, China controls what
American corporations do. They also, therefore, control what
their lobbyists do, so they have a control over what Congress
does.
And, Mr. Harrell, one proposal, and this would be rather
extreme, would be to say that we impose a tariff on Chinese
goods, collect the fund, and award that fund to those companies
that can show that they have been unfairly treated by China so
that if you can't get your movie into China because you made
movies about Tibet, or you won't recommend to your investors
this or that that China wants, instead of making profits in
Beijing, you make your profits here in Washington by going to
this board and getting an award. Comment, please?
Mr. Harrell. Thank you very much, and I realize I have just
a couple of seconds. First, Congressman, I think you have
started in exactly the right place, that we need to be putting
pressure on companies to better understand their own China
risks. Some are doing that, but not all of them, and more of
them need to step up and do it.
And then second, I do think we need to give our allies and
partners a solution to these growing instances of Chinese
economic coercion. We are seeing it is the American companies,
Canadian companies, European companies, Asia, all over the
world. I think that has to include a threat of retaliation on
China if they keep doing that, as well as some ways to help
impacted companies dodge or sort of compensate for what they
are losing.
Chairman McHenry. The gentleman's time has expired. We will
now go to Mr. Posey of Florida for 5 minutes.
Mr. Posey. Thank you, Mr. Chairman, for holding this
hearing on the economic challenges with China. I assume we all
agree that clearly, through economic dominance, China hopes to
achieve military superiority.
Mr. Ashooh, how much of the U.S. debt is owned by China?
Mr. Ashooh. I don't know the recent number. I do know it is
a substantial amount, and it is one that we should be taking
steps on.
Mr. Posey. Does anybody on the panel know?
[No response.]
Mr. Posey. Okay. So I would assume we wouldn't know how
much is China debt. Let's try land ownership. Does anyone know
the amount of land ownership in the United States held by China
or Chinese companies?
[No response.]
Mr. Posey. Do we own any land or control companies that we
wholly own in China?
[No response.]
Mr. Posey. Okay. Mr. Willems, when running for President,
Mr. Biden famously said, ``They are not bad folks. Guess what?
They are not competition for us.'' What are the most important
ways that China is competition for us?
Mr. Willems. I think it is across-the-board. China wants to
remake the international order to its advantage and to our
detriment, and if you look at what they are doing from a
national security standpoint, that is a threat, and if you look
at what they are doing from an economic standpoint, that is a
threat as well. And so, I think they are all major threats to
U.S. leadership and that we need to address them all
comprehensively.
Mr. Posey. Thank you.
Mr. Feddo, in your experience with CFIUS_I had a crazy
experience with them not too long ago when a foreign country
was contracting with a local port to arrange a long-term lease
agreement, and this port is the second-busiest cruise capital
in the world. It is beside a nuclear submarine base, and it is
adjacent to the Cape Kennedy missile range. There were some
concerns by some citizens that the company who was pursuing the
lease was from a country not friendly to the United States, and
some principals in the company had ties to individuals who were
not looked upon favorably by the United States.
I told them not to worry, CFIUS will check them out, and
make sure everything was okay. I contacted CFIUS to make sure I
wasn't telling a story, and CFIUS said, ``What are you talking
about? You know we don't check them out.'' And I noticed, in
your written testimony, it is important for them to especially
check out companies near sensitive government facilities or
ports. And so, I asked CFIUS, ``Who checked him out?'' And the
response was, ``I don't know. Why don't you ask DOD or the Navy
or the Coast Guard who has the base?'' We ran the traps, and we
never could clearly ascertain that anyone did check them out.
What would be your suggestion going forward to appeal their
decision not to look at that issue?
Mr. Feddo. Congressman, thank you for the question. Without
thinking through the facts a little bit more, it is hard to
say. The way FIRRMA was drafted, a lease, or a concession, or a
land purchase near a military installation that is designated
expressly in a list published in the regulations is within the
scope of CFIUS jurisdiction, and specifically with respect to
ports. Then, there is a question of who would, within the nine
voting member agencies, have the lead, the subject matter
expertise to look at that more closely and consider_
Mr. Posey. I only have 2 seconds left, and I wanted to ask
you about_
Chairman McHenry. The gentleman's time has expired.
Mr. Posey. _Chinese purchases near military bases. Thank
you.
Chairman McHenry. We will submit that for the record.
The Chair now recognizes the gentleman from New York, Mr.
Meeks, who is also the former chairman and current ranking
member of the House Foreign Affairs Committee.
Mr. Meeks. Thank you, Mr. Chairman. Let me start with Mr.
Harrell. You have commented on the ongoing debate here in
Congress in regard to our national debt limit. What I want to
ask you is, if Congress does not move to raise the debt limit,
what impact would that have specifically on our global position
relative to China?
Mr. Harrell. Thank you, Congressman. I think it would have
at least three. First, it would clearly harm our own economic
potential and weaken our economic growth this year, in a year
when China will probably have reasonably strong economic growth
as they come out of COVID.
Second, it is going to undermine the confidence of our
allies and partners. Our allies are going to say to us, how can
we count on the United States to defend our security if you
can't even guarantee you are going to pay your bills?
And third, it is going to undermine our economy over the
long term as international investors and others look at whether
they really think they have the security here in the United
States that they want as they make investments internationally.
Mr. Meeks. Thank you. Now, I absolutely recognize the
threat that China poses to the United States from an economic
and a national security lens. For us to combat these threats, I
believe we need to focus on how we compete with China. I
believe in the United States. We are the greatest country this
planet has ever seen and we have the innovative capacity to
challenge China across various sectors, from financial services
and fintech to medical technologies, but we will lose that
advantage if we are not vigilant. For example, as we look at
our technological and economic position, I am particularly
concerned with the speed in which China is developing its
central bank digital currency (CBDC) and how that could impact
the future of the U.S. dollar and the security of our global
financial system.
So let me ask you again, Mr. Harrell, can you identify
those sectors in which the United States does have the
competitive advantage over China, and in what ways can we
continue to strengthen that?
Mr. Harrell. Congressman, I agree with you 100 percent that
the core foundation of our strategy to compete with China is to
continue to promote our own leadership. That is why it is so
important that Congress enacted things like the CHIPS Act in
order to restore our leadership in semiconductor manufacturing
as well as R&D. And I think that this Congress should look at
continued investments in critical technologies, whether it is
semiconductors, or quantum, or the clean energy economy, or
biosciences.
Also, looking at investments in maintaining our leadership
in areas like financial services. I think it is important that
the Treasury Department have an actual plan and agenda to
defend the role of the dollar in international finance and to
defend the role of U.S. financial institutions and the kind of
stable role they play in maintaining international finance at a
time when China is aggressively trying to push out the Chinese
RMB and the Chinese Central Bank digital currency as mechanisms
of payment and investments internationally.
Mr. Meeks. Let me also then follow that up, because in
competition, I believe you have to have a level playing field,
and I think that a central part of our strategy with China
should include the mechanisms to hold them accountable when
they are not playing by the rules. So what should the United
States do, along with our global partners, to make sure that
China is playing by the same rules?
I often worry that we sometimes let China off the hook by
isolating ourselves because there are too many places where we
are not present. China is present, we are not there, and,
thereby, we end up isolating ourselves. I know when we have
some controversial policies, whether in gun trade and other
things here, so that if we are not there, China then goes, and
they work with other countries to get things done. And they are
trading, and we are left by ourselves, and we are isolating
ourselves. So what strategy do you think that we should
utilize? And if there is time, I would also ask the same
question to Mr. Willems.
Mr. Harrell. I think we need to be out in front building
alliances with our economic partners. I think there are a
couple of things we should be pursuing, starting with the Indo-
Pacific Economic Framework in Asia, and with the Americas
Partnership for Economic Prosperity here in the Americas. I
also think we should be looking at a critical minerals
agreement to help ensure a clean minerals supply chain. Maybe I
will leave it there and give Mr. Willems a couple of seconds.
Mr. Willems. Thank you. I agree with very much of what you
said. We need to be in the game, and I know Mr. Harrell has
endorsed the Indo-Pacific Economic Framework, but I think we
need to go further. I think we need to look at whether we can
renegotiate the Trans-Pacific Partnership (TPP), whether we can
make it work for U.S. interests. I think we need to do a trade
agreement with Taiwan that will help Taiwan reduce its
dependency on China. That is the way that we will provide a
meaningful alternative, and I hope we can work on those issues
together.
Chairman McHenry. I thank the gentleman. We will now go to
the Chair of our Subcommittee on National Security, Illicit
Finance, and International Financial Institutions, the
gentleman from Missouri, Mr. Luetkemeyer, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman. The chairman
started out the discussion today talking about the threat to
our global standing, both militarily and economically, by
China, and I thoroughly agree with that statement. I think if
we look at what we are doing, and I think this is what this
committee hearing is about today, and how much funding we are
doing to the Chinese government to be able to compete with us
on those fronts, whether it is militarily, whether it is
economically, whether it is with regards to oppressing their
own people. Our argument here today is not with the Chinese
people. It is with the Chinese Communist Party, who has slashed
their government. And I think you can see, we have bipartisan
support today for this kind of argument about going after the
Chinese government and trying to get a level playing field for
our manufacturers and to protect us in the future.
So along that line, we need to be able to, I think, cut off
this financing. How do we do it? We are open to all your ideas.
One of the things that we have done is, in 2020, Congress
passed the Holding Foreign Companies Accountable Act, to
require foreign companies that wish to be included on the U.S.
Stock Exchange to open up their books and ensure that they are
properly audited.
And basically what has happened is in 2020, there were
1,000 Chinese companies on our stock exchange, and as of
January the 9th, it is down to 252. They are required to have
an audit every 2 years. Many of our United States companies
have to be audited every year. Would you go along with
increasing that, or, I guess, increasing it to an annual audit
on the Chinese companies like you do ours, or is there a reason
that we should keep it at 2 years? Who wants to take the
question?
Mr. Willems. Let me first say, thank you for Congress'
leadership on the Holding Foreign Companies Accountable Act, as
well as the Accelerating Holding Foreign Companies Accountable
Act. There is no question that China would not have opened up
its books and records had Congress not acted, and that was
really important to make sure that they are playing by the same
rules and that we protect the sanctity of our markets. Now, I
do think we need to be vigilant in making sure that we are
reviewing them on an annual basis, and my understanding is that
is how the law will be implemented. And it is really important
to make sure that the access they provided in December was not
just a one-time act to prevent mass de-listings, but that we
hold them to account.
Mr. Luetkemeyer. Over a 2-year period, you can play a lot
of games, so I think it is important that we go to an annual
audit, and I appreciate your comments. The Chinese government
has also gotten into the digital currency business, and I have
a bill to prevent money services businesses from conducting
transactions in digital yuan. I don't know if any of you looked
at the bill or you have any concerns at all about American
businesses, American individuals investing in it or being able
to do business in that. Do you have any comments on it? Nobody?
Yes?
Mr. Lorber. Sure, I have a take. I think the general
concern with the digital yuan, digital renminbi, in particular,
is related to transparency, and the question about what type of
data or information the Chinese could have access to given
widespread implementation and usage of the digital renminbi.
So, I think legislation_and I apologize, I have not reviewed
that bill.
Mr. Luetkemeyer. I am going to leave it to my good friend,
Mr. Hill, who is the Chair of our Digital Assets, Financial
Technology and Inclusion Subcommittee, but it would seem to me
that the Chinese use it to be able to control and monitor their
people. And why would we want to allow our people to be in that
same predicament? This is one of my concerns.
I know that a couple of my predecessors here on the dais
asked questions with regards to what we should do, what your
actions should be. How should we control China with regards to
an invasion of Taiwan? And I think we need to be looking at
this very quickly, and very thoroughly, because over the
weekend, I guess about a week ago now, the leading general for
the Air Force indicated that he thought that China was going to
invade Taiwan by 2025. If that is the case, how should we
react?
I think, Mr. Willems, you made a comment a while ago with
regards to that. I asked the question when the Fed and Treasury
were here, are you thinking now in terms of what is going to
happen, how we should be sanctioning China when that happens,
when they invade Taiwan, and it was like a deer-in-the-
headlights look. They had no idea what we are doing, which is
really concerning, knowing that this is inevitable.
Mr. Willems, would you like to go back over that a little
bit? What would be some things that you think we should do? And
I think we need to stress that if they are going to invade
Taiwan, and we are going to play footsies with everybody
because, well, we don't want to upset the applecart with our
allies, and we don't want to hurt the Chinese government, the
Chinese are going to take us over. They are weaponizing the
economy against us today. At some point, we have to cut bait
and say, you know what? You are bad people. We have to stop
playing games with you. What would you say?
Mr. Willems. I have three suggestions on Taiwan. The first
is, as you articulated, we need to be thinking now about what a
sanctions package should look like. We need to be working with
allies to make sure that they will have resolved that as well,
and I hope that that is already happening at the NSC. The
second thing is, as you mentioned, I do think we need to look
at helping Taiwan militarily, making sure that they have those
tools. And then third, I also think we need to be helping them
economically, and one of the things that I would advocate for
is a free trade agreement with Taiwan. Right now, 50 percent of
Taiwan's trade is with China, and that gives China a tool to
coerce them economically by cutting that down and shifting that
around. And we can't let them be vulnerable in that way.
Chairman McHenry. The gentleman's time has expired. We will
now go to the gentleman from Georgia, Mr. Scott, who is also
the former chairman and current ranking member of the House
Agriculture Committee, for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman. Mr. Harrell, I am
deeply concerned with the fast-growing possibility of a China-
led world order. That includes the Chinese military controlling
the South Pacific trade routes because the South Pacific trade
route is now the lifeline of the entire global economy. And
that is why I was concerned, deeply concerned about this
balloon business, and why the President allowed this balloon to
go all over our country and not blow it down. So all I am
saying is that with this technology, with this military
information going deep into the abilities of our national
defense system, our national security of the number-one nation,
economy, and military in the world, sends a powerful message,
not only to our enemies, but to our partners in this nation.
What gives with this?
And also, under what circumstances do you see the Indo-
Pacific nations accepting an economic and military order in
which China sets trade and investment rules for that region,
particularly if they are seen to be applying agenda-setting
dominance over any new technology, the availability of new data
and standards? This is why they sent that balloon, to get an
assessment of the technology, of the information, of the data,
and this is why I want you to answer this question for me, how
do you see this? And do you not see my point? I love the
President, I support him, but this move not to blow down their
balloon sends a powerful message to both our enemies and our
friends, because it is all about data. It is all about
intelligence. It is all about knowledge, and they got us on
this one. What do you say about that?
Mr. Harrell. Thank you very much, Congressman, for the
question. I should begin by saying, I am not a military expert;
I am an economic expert. So, I am going to have to defer to the
Department of Defense for their decision to wait to shoot down
the balloon and take at their word their reasons for waiting. I
agree with you very much, Congressman, that we need a very firm
and very resolute response to what China did. And I think that
we should view Secretary Blinken's decision to postpone his
trip to China and the decision to shoot down the balloon off
the coast of South Carolina as the start of a response, not the
end of a response. And I think we should be looking at other
tools, whether it is sanctions on the Chinese companies
involved in the balloon, whether it is looking at ways to
increase our military and sort of surveillance presence in the
Indo-Pacific to see future balloons coming in, and other tools,
but recognize that we need to continue to show a resolute
response.
On your question about countries in the Indo-Pacific and
are they going to come into China's orbit, they will if we are
not there. That is why I think it is so important that we be
out in the Indo-Pacific economically, that we be out there
diplomatically, that we be looking to build our technological
ties with key countries in the region, and that we continue to
shore up our defense relationships with key countries across
the region, because if we are not there, that is when they are
going to be turning to China.
Mr. Scott. And I agree with you 100 percent. Thank you.
Chairman McHenry. The gentleman's time has expired. We will
now go to Mr. Huizenga of Michigan, who is also the Chair of
our Oversight and Investigations Subcommittee, for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I actually jump off
on that point. I am not sure I agree that the strongest
response that the U.S. could have had to the balloon incident_
let's call it that_was to not go to Beijing. It might have been
an even stronger response to get there and confront the Chinese
on their own territory about what has been happening here. And
there are a lot of details that are emerging and coming out.
Here is what I do know, and I hope everyone is hearing this
on more or less a bipartisan basis, but whether it is CFIUS,
FIRRMA, the Export Control Reform Act, the Holding Foreign
Companies Accountable Act_there has been a fair amount of work
that has been done. I have been very critical, frankly, of the
Public Company Accounting Oversight Board (PCAOB). And it is
agreements with Beijing that allow U.S. investors to scrutinize
really a small subset of audit firms and even a smaller
sampling of the transactions and audits. What I am concerned
about is whether China can ever provide an actual safe, stable
business climate for U.S. investors. And I am curious, quickly,
if you can comment, and we will go right down the row here, how
can and should our regulators ensure investors have some
modicum of protection of what they are investing in? Mr.
Ashooh?
Mr. Ashooh. Yes, it starts with information. I think, as a
former regulator, we took_
Mr. Huizenga. Transparency.
Mr. Ashooh. Yes, transparency, but really I consider it
direct communication.
Mr. Huizenga. Okay.
Mr. Ashooh. I think the government has a responsibility to
share with affected industries what it can about the particular
environment, in this case, China.
Mr. Huizenga. Okay.
Mr. Ashooh. And gathering that information in the first
place is also quite critical.
Mr. Huizenga. Great. Mr. Feddo?
Mr. Feddo. I completely agree with Mr. Ashooh. The
transparency is paramount.
Mr. Huizenga. Okay. Mr. Lorber?
Mr. Lorber. Thank you, sir. I can't speak to the specific
issue, but transparency as a general matter, both for investor
protection and for financial crimes, is incredibly important.
Mr. Huizenga. Okay. Mr. Willems, do you have anything to
add?
Mr. Willems. It sounds good to me.
Mr. Huizenga. Mr. Harrell?
Mr. Harrell. I will join my colleagues on transparency.
Mr. Huizenga. Okay. The PCAOB has been tasked with
negotiating this out. I am not sure that we have really seen it
be as tough as it is because it seems like it is being
controlled more by Beijing, and many others have been critical
of Russian companies that were listed on the U.S. exchanges as
well. And how long are we going to let the PCAOB take this same
posture with the Chinese government before we take a more
strong, robust posture with China as we have tried to do with
Russia And some others?
Mr. Willems, the IMF Reform Act and Integrity Act, which I
have introduced in the last two consecutive Congresses, would
place greater restrictions on major shareholders of the fund,
notably China and Russia. Specifically, the legislation would
ensure that any quota increases by the IMF would be done with
consideration as to whether a country is following certain
principles of the fund, most notably currency manipulation. The
bill is complementary to my colleague, Mr. Hill's, Special
Drawing Rights Oversight Act, which again draws attention to
Russia's lack of adherence to international lending standards.
Mr. Willems, you noted in your testimony that, ``The United
States should seek to change the way China does business,'' and
the need for it to be, ``a responsible international
stakeholder.'' Can you help the committee understand how
important it is for the IMF to hold China and other major
shareholders responsible for their actions?
Mr. Willems. Let me just say that I think your legislation
makes a lot of sense, and, in particular, this concept that we
need to create standards within these institutions that hold
China to account. I think it is difficult for us, whether it is
the World Bank or the IMF, to come in and simply say we want
China to do this or we want China to do that. That can make it,
I think, sometimes difficult to gain broader support for it.
But if we create a standard that we know China can't meet and
use that as an objective standard, I think that can be more
effective within those institutions.
Mr. Huizenga. Okay. U.S. companies often face a
considerable disadvantage to their Chinese counterparts, which
often receive large state subsidies and those kinds of things,
So I am curious, what is the most effective tool, in your
opinion, that we in Congress can wield to level that playing
field without harming or impacting open and fair domestic
markets as well?
Mr. Willems. On the subsidies question, there are a couple
of things we can do, and I see I only have about 3 seconds, but
quickly, I would say defense and offense. On the defense side,
where there are Chinese subsidies, we have trade tools to
countervail that. On the offensive side, we need to provide
alternatives.
Mr. Huizenga. And maybe it would be helpful, Mr. Chairman,
if we could get a response back in writing.
Chairman McHenry. The gentleman's time has expired. We can
take a written response.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Lynch, who is also the ranking member of our Digital
Assets, Financial Technology and Inclusion Subcommittee, for 5
minutes.
Mr. Lynch. Thank you, Mr. Chairman, and I want to thank
Ranking Member Waters as well for her work in putting this
hearing together.
Members on both sides of the aisle have been keenly
interested in the development of a retail central bank digital
currency. And China's domestic retail Central Bank Digital
Currency Pilot, known as the e-CNY, or the digital yuan, has
received a lot of focus from Congress recently as a challenge
to the primacy of the United States' dollar and also as a full
spectrum surveillance tool for the Chinese government. However,
usage of the digital yuan has so far remained very low as
consumers seem to be sticking with private payments ecosystems,
including Alipay and WeChat Pay. There has been little focus,
however, on mBridge, which is the cross-border bank-to-bank
wholesale CBDC pilot that is being conducted by four countries,
including China,_which is the lead, I guess_Hong Kong,
Thailand, and one of the countries in the Middle East. I am
blanking on it right now, but there are seven more countries
that have received offers to join. And mBridge, as you know,
operates outside of SWIFT and the existent correspondent
banking system, and could be a tool for sanctions evasion and
other financial crimes.
Mr. Harrell, how concerned should we be in Congress about
China's Central Bank Digital Currency Pilot Project and why?
Mr. Harrell. Thank you, Congressman, for the question. I
agree with you that it has been interesting to see how little
interest there is in the domestic uptake in China of the e-CNY.
Now, Chinese consumers, probably because they don't actually
want the Chinese Central Bank seeing everything they buy, are
trying to stay outside of the e-CNY. We obviously have a
limited ability to affect the domestic deployment of a digital
RMB in China.
I think you are right to focus on the cross-border
payments. I don't think that China and RMB-denominated payment
rails displacing the dollar is going to be a challenge in the
next 6 to 12 months, but I do think it is a mid-term challenge.
We have seen Russia, with the Mir payment system, try to create
rails outside of Russia, as we have put sanctions on Russia.
And you see China trying to do exactly the same thing with its
cross-border payment strategy.
I think it is essential that we as the U.S. Government and
this committee, with jurisdiction on this issue, promote a
strategy to maintain the preeminence of the U.S. dollar as the
primary currency for reserve purposes and for international
payments. And I think that is going to require us to both be
competitive on our end, what can we do to make the dollar
attractive, and it is going to require us to throw some sand in
the gears of efforts by China and other countries like Russia
to try to build out these alternative payment rails.
Mr. Lynch. I appreciate your response, but when we think of
this as a global problem, the idea that we could ally with
other countries that have the integrity of the SWIFT system and
operate within that system, how could we partner with them?
What could we do here to strengthen the SWIFT system? If not, I
don't know if we could get buy-in from many of our allies to
increase the strength of the U.S. dollar. But I do think we
could get buy-in to increase the integrity and the affinity for
operating within the SWIFT system, which would push back on
this attempt by the Chinese and the Russians to adopt a
different set of rails. What could we do to encourage or
strengthen the SWIFT system?
Mr. Harrell. I will make two comments: one on the SWIFT
system; and one outside of or parallel to the SWIFT system.
First, the Federal Reserve has an active program underway to
try to speed up U.S. dollar payments that are currently going
through the existing Federal Reserve's organized payment rails.
And I think that is really important, because payments
internationally can be slow, and we need to make sure that they
are working faster so that people want to continue to use the
existing system, so I think what the Fed is doing is important.
And then, also putting friendly pressure on SWIFT, and on the
banks, and our correspondent sort of relationships to make sure
payments are sped up there, too, is another important area of
work.
Mr. Lynch. Thank you, Mr. Chairman. I yield back.
Chairman McHenry. The gentleman's time has expired. I now
recognize the Vice Chair of the committee, Mr. Hill of
Arkansas, for 5 minutes.
Mr. Hill. Thank you, Chairman McHenry, and what a pleasure
it is to say those words, ``Chairman McHenry.'' The Members
have been a part of your leadership team for many years, and we
are ready to work on the committee's agenda and deliver on our
commitment to America.
As we go into today's hearing, we should all remember the
basic things that we take for granted here. The Chinese
Communist Party maintains a surveillance state with a great
firewall and no freedom of speech, no freely-exchangeable
currency and no rule of law. But they can never compete with a
free and open society that allows for free enterprise and
prosperity like in the United States where we encourage
innovation, entrepreneurship, small businesses, and a thriving
marketplace of ideas. It is the same reason America was able to
develop the internet as well as the deepest and most-liquid
capital markets in the world. China tries to replicate that. It
is tough, but they are working to catch up, and it is through
that lens that I hope we can work in a bipartisan way in this
Congress to create a framework for digital assets that allows
for innovation, provides for clarity, and protects investors in
a way that they can understand.
Mr. Chairman, America cannot win this strategic competition
with China by trying to be more like China and being focused on
passing more industrial policy measures. We have to protect
American workers and businesses by fighting for a level playing
field, while standing up for our values of freedom and free
enterprise, both here and abroad. That includes doing the hard
work of oversight on the multilateral organizations in our
jurisdiction, like the International Monetary Fund and the
World Bank. I thank Chair McHenry for noticing several of my
legislative initiatives that advance U.S. strategic interest at
these international financial institutions, securing America's
medical supply chain, deterring war in the Taiwan Strait, and
protecting the dollar's position as the global reserve
currency.
Mr. Willems, I was glad to hear your testimony about the
multilateral coordination and how that is critical to ensure
that U.S. measures on China are effective, and that we should
be active at the World Bank and the IMF to pressure China to
act like the responsible international stakeholder that they
claim to be. I couldn't agree with you more, especially as
China continues to refuse consistently to provide debt relief
to developing countries it has saddled with loans that they
can't pay back. Beijing blatantly ignores international lending
rules, like the Paris Club, and yet, in my view, the Biden
Treasury has not been strong enough.
Your written testimony mentions that G20 has been less
effective and that we need to be realistic about how much we
can achieve in that forum. In my view, using the G20 is a
feeble place to try to achieve anything significant. So let me
ask you, very few countries have taken the G20 up on this debt
restructuring framework that Treasury Secretary Yellen co-
authored last year, and very few non-Paris Club creditors like
China are remotely in compliance. What can we do in the
international fora by the U.S. to pressure China to restructure
their predatory loans and fully participate in the Paris Club?
Mr. Willems. Thank you for a very good question, and let me
just first say, I agree with almost everything you said. You
made a lot of great comments about how we shouldn't become
China to beat China. We need to double down on our strengths.
Now, with respect to the international institutions, you hit
the nail on the head. China made a commitment at the G20 that
it is not following through on, and we have had challenges in
enforcing that. I think some of the legislation that you have
discussed here can help at the IMF. I think we need to look at
a broader package of reforms that calls out specific behaviors,
and I am not sure how you can put an enforcement mechanism into
the IMF.
Mr. Hill. That is the challenge.
Mr. Willems. It really has to be collectively. We work with
allies maybe through the G7 to coordinate approach. We call
them out. We embarrass them politically, internationally.
Mr. Hill. Thank you. I agree with you, and I think you have
hit the nail on the head. We need to be working where we have
influence and shareholder votes at the Board of the World Bank,
at the IMF, and through the G7, and not off in the talk fest at
the G20.
Let me turn to Mr. Lorber. Mr. Lorber, this Congress, I
will be serving on the Intelligence Committee. I look forward
to working with my good friend from Connecticut, Jim Himes,
also a member of this committee, to serve as the ranking member
of Intel. You were at the Treasury. Can you help me understand
where the gaps, from your point of view, are on economic
intelligence and data gathering related to China and China's
economic success and failure, transparency on the data that we
get about China?
Mr. Lorber. Thanks. It is a great question, and I realize I
only have a few seconds.
Mr. Hill. You can submit your answer in writing.
Mr. Lorber. Okay. Thank you.
Mr. Hill. And, Mr. Chairman, before I yield back, may I ask
unanimous consent to enter in the record an opinion piece I
wrote in The Hill in 2021 entitled, ``Build back nuclear.''
Chairman McHenry. Without objection, it is so ordered.
And thank you for working with me on that nuclear bill, and
continuing to work with me on that nuclear bill.
With that, I now recognize the gentleman from Texas, Mr.
Green, who is also the ranking member of our Oversight and
Investigations Subcommittee, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the ranking
member as well, and I would like to pose a question related to
a bill emanating from the Texas Senate, SB 147. This bill has
language in it that indicates the following may not purchase or
otherwise acquire title to real property in this state, and it
goes on to set out individuals who cannot purchase or acquire
real property. A person who is a citizen of China is listed, as
well as Iran, North Korea, and Russia. This has caused a good
deal of consternation among many of my constituents. I think
that it is difficult for some people who are not of color or
from a minority, occupy minority status, to understand how
legislation as well as language can impact what they perceive
as their safety. People are legitimately concerned, in my
opinion, about their safety because of this legislation, which
singles out persons from China. The bill doesn't make an
exception for a green card holder, although the person who has
crafted this now says that such an exception will be available.
This legislation doesn't mention the sensitive sites or
critical infrastructure, just says if you are a citizen of
China, you can't buy property.
Let me start with Mr. Harrell. Sir, do you understand how
this can, first, impact people in the social setting, and then,
I would like your comments about the Pandora's box we may be
opening if we allow every State to decide that it will make
rules or promulgate laws that will impact the purchase of
property based upon citizenship of persons.
Mr. Harrell. Thank you very much, Congressman, for both of
those questions. I should begin by saying I think it is
essential that as we compete with China and with the Chinese
government, we as Americans never slide down the road of
discriminating against people based on their race or their
ethnic or national origin. I think we want to make clear that
we continue to welcome talented Chinese engineers and talented
Chinese people of all backgrounds to come to the U.S. to set up
businesses and take advantage of the opportunities here, and we
should not be discriminating against people based on their
national origin.
I think there are legitimate concerns around certain
purchases of real estate by companies and certain individuals
connected to China. That is why, in 2018, CFIUS got
jurisdiction to review purchases of land or leases of land near
sensitive military sites. If there are ways in which that
statute is inadequate, if there are other kinds of sites or
infrastructure where we are concerned about or the defense and
intelligence community are concerned about espionage risks,
this committee should look at CFIUS and see if CFIUS needs a
little bit more jurisdiction over other kinds of real estate
purchases.
I don't think we want to see a patchwork of State laws
prohibiting ownership of property based on national origin.
That is just not the right way to tackle this kind of a
problem. This is a Federal problem, and it also comes off as
hostile to the many legitimate, sort of perfectly fair kinds of
purchases that are out there.
Mr. Green. Thank you so much. Let me quickly move on,
because I have 39 seconds left. If you believe that we
absolutely must raise the debt ceiling, would you kindly extend
a hand into the air? Only one person believes that we must
raise the debt ceiling? Now, three. Okay.
Chairman McHenry. Are you asking the committee as well?
Mr. Green. I am going to make an exception for the Chair.
Chairman McHenry. Thank you.
Mr. Green. Would you give me 10 seconds now? Raise your
hands again, please. I am going to have a picture of this in my
office. So, everybody believes we should. Okay. We should raise
it. We must. It is easy. Okay. Do you believe that we must cut
the budget to raise it?
Chairman McHenry. The gentleman's time has expired.
Mr. Green. Mr. Chairman, can I get my 10 seconds that you
borrowed from me for that answer please?
Chairman McHenry. Without objection, I give the gentleman
an additional 7 seconds that I took from him.
Mr. Green. Okay. Thank you. Would you raise your hand if
you think we must cut the budget to raise it? Three. Thank you.
I will make sure that we properly photograph you. Thank you. I
yield back.
Chairman McHenry. We will reset the time. I don't want to
take anyone else's time. I thank the experts on China for your
opinions about domestic American politics and for complying
with the oddness of hand-raising in a congressional format.
From time to time, we all do it. It happens.
The Chair now recognizes the gentlewoman from Missouri,
Mrs. Wagner, who is also the Chair of our Capital Markets
Subcommittee.
Mrs. Wagner. Thank you, Chairman McHenry, for organizing
this, I think, critical and very timely hearing, and I want to
thank our witnesses today for their expertise, and we will have
no raising of hands in my questioning.
I spent the weekend tracking the progress of the Chinese
spy balloon as it flew unimpeded over the U.S. sky, surveilling
sensitive military sites, including my own Whiteman Air Force
Base, and civilian centers across the country, including all
across the second congressional district of Missouri. My
children and I, along with countless families across St. Louis,
watched in real time from our porches, our backyard, outside of
our businesses, as a foreign aircraft, equipped with spyware,
navigated over our neighborhoods, again, our infrastructure,
our nuclear plants in Callaway, our military bases, and such.
China's decision to send a spy balloon into U.S. airspace was a
profound and deliberate provocation. It should have been met
with strength from the get-go and shot down before it even
entered our skies or U.S. airspace. President Biden's decision
to let the CCP spy balloon transit the length and breadth of
the United States of America was an unpardonable show of
weakness on the world stage. As Vice Chair of the House
Committee on Foreign Affairs, I am calling on the
Administration to restore America's ability to deter these
reckless provocations.
The stakes of strategic competition with China are
exceedingly high, and if the CCP's influence continues to
spread and grow unchallenged, American communities will pay the
price. The world will be less open, less prosperous, less fair,
and much more insecure. We cannot allow the U.S.-led world to
remain vulnerable to the whims of communist dictators, and the
dictatorship in Beijing. That is why I have championed
legislation to hold China accountable at all levels of
engagement.
My bill, the Compensation for Americans Act, would insulate
America's vulnerable supply chains from overreliance on China,
allow U.S. companies that have been attacked by Chinese hackers
to strike back, and prevent China from manipulating developing
country designations to obtain preferential treatment in
international organizations. And importantly, it would also
tighten U.S. export controls to choke off the CCP's ability to
disseminate propaganda and further develop its surveillance
capabilities. I believe we have a duty to stand up to the
nations that refuse to play by the rules, and when we
demonstrate strength and resolve in the face of China's
bullying and brinkmanship, we make the world a safer and more
prosperous place.
Mr. Ashooh, the export control system is a powerful tool
that restricts the resources available to our enemies. However,
implementation is extremely challenging, especially considering
that China cannot be trusted to adhere to licensing agreements.
What are the major gaps in the U.S. export control system? And
how should the United States approach especially the dual use
exports?
Mr. Ashooh. Thank you, Congresswoman. I actually mentioned
in my opening comments that we need a different approach when
it comes to things like complex supply chains because there are
methods for multilateral control that exist right now, but I
don't believe they are adequate. I believe that for export
controls to work, anything done unilaterally out of the gate
probably is going to be limited in its effectiveness. And you
need to work with allied nations, especially those that have
similar capabilities to deliver similar technology.
Mrs. Wagner. I appreciate your perspective, and I agree.
Mr. Ashooh, the Bureau of Industry and Security (BIS) waited
until after Russia attacked before applying strict export
controls on its military end users. Yet, the buildup of Russian
forces on the Ukrainian border, which no doubt poses a
significant threat to the U.S. interests, certainly met BIS'
criteria for aggressive controls. Clearly, waiting until after
the invasion to apply export controls neither prevented nor
deterred Russian aggression in Ukraine. What were the failures
of BIS strategy in the run-up to the invasion of Ukraine, and
how should the U.S. incorporate lessons learned to deter
aggression against, for example, Taiwan?
Mr. Ashooh. I might say BIS is responsible for the dual-use
export controls, which, by their nature, contain a lot of
commercial technology. I am not exactly sure where BIS was
failing in restricting dual-use controls in the lead-up. The
military_there should have been zero to nothing in terms of
military shipments. So, I would like to know more about the
question you are asking because that would be a very sobering_
Chairman McHenry. The gentlewoman's time has expired.
Mrs. Wagner. My time has expired, and I yield back, Mr.
Chairman.
Mr. Hill. [presiding]. I thank the gentlewoman. Mr. Cleaver
is now recognized for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman. I think this hearing
is quite appropriate and extremely important.
I am not going to talk about the balloon. In fact, I am
going to wait until our intelligence community provides us with
some data. We don't even know what is going on so far, but I am
concerned about something when I was looking at what we are
doing here. The world's two biggest economies, the United
States and China_we are in a battle with a nation that is using
the government of the nation to propel its development around
the world, and, of course, we deal with the private sector.
The trade relationship between the U.S. and China, as my
little granddaughter says, is ginormous, and then we import
more goods from China than we import from any other nation on
the globe. There are some benefits: lower prices for consumers;
and also some behemoth profits for the corporate sector. And my
issue is, we have a schizophrenic relationship, don't we, with
China? Any of you? Is, ``schizophrenia,'' a bad word in terms
of describing the relationship?
Mr. Harrell. We are obviously at a pivot point in our
relationship to China where there is a growing, I think, strong
bipartisan consensus that we need a different set of policies.
Now, I think in certain ways, the trading relationship and some
of the structures in the trading relationship is lagging behind
the geopolitical realities we now face, and we could have a
long discussion about how to better balance the trade and
tariffs. Personally, I think what we need to move to at a
conceptual level with China is a much more managed trading and
investment relationship. They are heavily managed on their side
of the economy. They have all kinds of distortive subsidies.
They have all kinds of unfair IP theft and things like that,
and we are just going to have to manage the trading
relationship with them so that they don't undercut our economy
and our prosperity with all the things they are doing over
there in China.
Mr. Cleaver. Mr. Lorber?
Mr. Lorber. Yes, and if I could just add to that, I don't
know if I would use the word, ``schizophrenic,'' but I do think
we should have somewhat of a bifurcated approach, and that
there are areas where clearly certain types of trade could pose
a national security threat and we need to crack down on those.
Where there are areas where China is clearly cheating, we need
to deploy tools to counteract that. On the other hand, I think
it is critical to realize that the Chinese market is really
important for a lot of our companies, and that if we are going
to be globally competitive, we want to be selling into China.
And think about it this way: If we are selling a bunch of
stuff to China, essentially Chinese consumers are subsidizing
our continued innovation, and that is a good thing. So I think
what we want to do is try to be bifurcated, as I described it,
crack down where it is unfair or there is a national security
concern, but try to open up China where it can benefit the
United States.
Mr. Cleaver. Yes, I wanted to move to the 1970 Bank Secrecy
Act, and then you just raised another issue. I maybe want to go
into that a little bit more. Well, I won't. Let me get to the
Bank Secrecy Act. I think there are rules being formulated now,
but I would like to find out from you, Mr. Lorber, the real
estate industry, in my estimation, is vulnerable to money
laundering because at this moment, they are not required to
comply with this rather old but very important Bank Secrecy
Act. Do you agree that real estate transactions ought to also
be reported just as banks are required to report suspicious_oh,
my goodness. Thank you, Mr. Chairman.
Mr. Hill. The gentleman's time has expired. Mr. Barr from
Kentucky is recognized for 5 minutes.
Mr. Barr. Thank you. I thank Chairman McHenry for putting
together this outstanding panel and I thank our witnesses for
addressing what I believe to be the most consequential national
security and economic security challenge of our generation, our
strategic competition with the People's Republic of China and
countering the threat from the CCP. I want to specifically
compliment Mr. Feddo for his testimony that as we look at
investment screening, outbound investment in this important
dimension of our economic competition with the PRC, that this
is an issue that Congress needs to deal with, and that creating
an investment screening mechanism by Executive Order would be a
major mistake.
Now, I will compliment the Trump Administration for the
Executive Order that banned U.S. investments in certain Chinese
military-industrial companies, and I would also compliment the
Biden Administration for expanding on that Executive Order with
its own to expand it to surveillance companies, but this is an
issue that Congress needs to set the parameters for and direct
the Executive Branch to implement.
And I would like the witnesses to comment on my legislation
that seeks to do that, H.R. 760, the Chinese Military and
Surveillance Company Sanctions Act, which would expand on those
Executive Orders and extend the full weight of Treasury
sanctions against these Chinese military-industrial complex and
surveillance companies, while allowing U.S. investors to
continue to invest in benign companies in emerging growth
markets.
Mr. Willems, let me start with you. Is this approach, my
bill, is it a good way, is it the best way to ensure that
capital flows don't fund the Chinese military-industrial
complex? And when you answer that question, I want you to
address the two gaps that you talked about in your prepared
testimony. Does my bill get at those two gaps, specifically,
the private equity and venture capital piece, and also
international, the multilateral impact, the other international
non-U.S. investors?
Mr. Willems. Thank you, Congressman, and I think you are
absolutely right that we need to have a statutory basis for
these actions and that Congress should work on that in a very
studied and thorough way. I also agree with you that we want to
expand on the existing restrictions. And what I described in my
testimony, and I believe your bill addresses it, but we can
work on the technical aspects of it, is that first, the current
Executive Order only applies to investment in public
securities, and that should also be expanded to private
investment. And second, the bill, or the current EO, only
applies to a limited subset of sectors within China. There may
be national security threats in other sectors, and we need to
be able to look at those as well. So, I look forward to working
with you on your legislation.
Mr. Barr. Yes, I want to expand it also to technology-
related companies, dual-use technology, AI, and other things
that implicate national security. And I agree, the Executive
Orders don't address that. My bill though, Mr. Willems, would
address using OFAC sanctions. It would address that private
equity venture capital piece, right?
Mr. Willems. That is my understanding.
Mr. Barr. And then, Mr. Feddo, to your point about the
Casey-Cornyn approach and the Committee on National Critical
Capabilities similar to reverse CFIUS, I appreciated your point
that creating a bureaucracy that ensnares a lot of benign
outbound investment is maybe not the targeted approach we need.
Can you expand on that testimony? And why would the OFAC
approach, a simple clear message, signal to the private sector,
green light, red light, be better than a bureaucratic approach
such as this Committee on National Critical Capabilities?
Mr. Feddo. In the first instance, it would be far more
nimble, and with a committee, you have inefficiencies. I will
just say, one of the deficiencies I see with a committee setup
is you can't unring the bell once you do this. For example, I
am a big fan of CFIUS, and I think it is a great tool when
appropriately used and focused on national security, but it has
been around for 50 years, okay? So if we create a new
bureaucracy to screen outbound, it is going to be here. I do
agree that the OFAC approach seems to me to be an approach that
hasn't been adequately explored.
Mr. Barr. Thank you.
Mr. Feddo. And in a prohibition context, making these like
SDNs, prohibits all dealings. So, private equity and venture
capital would be in the mix.
Mr. Barr. Thank you. And, Mr. Willems, in my remaining
time, I appreciate your focus on pairing defensive actions with
offensive actions to maintain U.S. economic strength. In
response to Mr. Harrell's testimony about the debt limit, can
you speak to the overspending in Washington and how that
compromises the dominance of the dollar, and how we need to
pair avoiding default with reform?
Mr. Hill. The gentleman's time has expired.
Mr. Willems. I will respond to that in writing.
Mr. Barr. Thank you. I yield back.
Mr. Hill. Thank you for responding in writing. We now turn
to Mr. Foster for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman, and thank you to our
witnesses. I would like to say that I am speaking as a
manufacturer, as someone who started a company that has
provided over a thousand jobs and kept those manufacturing jobs
in the Midwest for decades. We have competed against cloned
Chinese products, and we have become increasingly dependent on
Chinese components of our supply chain, and that is the
commercial reality.
I would also like to echo Mr. Ashooh's comments that we
should be thinking in terms of reducing, if not the defensive
perimeter, at least the stronghold from the G20 to the G7. The
free democracies of the world are the group of countries
through which we should have absolutely free markets, as free
as our politics allow. And then, the G20 will be a more
contested area, but we have to make common cause with the G7.
And I would also like to say it is not just the G7; when you
say G7, please include Korea; Korea's economy is larger than
Russia's. It is the Koreans, not the Taiwanese, who lead the
world in leading-edge semiconductor production. Samsung, not
TSMC, is in production at the three nanometer design node.
So, what I would like to focus my questions on are really
one of the demographic trends, and I am sure many of you, if
not all of you, may remember the essay, ``The Japan That Can
Say No.'' And I guess the subtitle was, ``Why Japan Will Be
First Among Equals.'' It was published in 1989, and got a lot
of attention. It made the point that Japan had taken over the
semiconductor supply chain. They had taken over it. They led
the world in semiconductors. Japan was on the same sort of
exponential economic growth curve that China has been on for
the last decade or more, and there was a lot of handwringing
over Japanese threats of intellectual property. And what
happened?
First off, Japan, like China, suffered a massive real
estate bust. That limited their ability to continue to invest
in leading-edge technologies, and as a result, they lost the
lead in semiconductors. They also faced an aging society,
which, really, demographics is destiny, and we have to
understand that, and they also lost the wage competition. Japan
lost the wage competition with other low-cost providers,
exactly what China is going through now, and we will be going
through for the next decade, and we have to have that clearly
in mind.
I am most worried that China is going to misbehave because
it will have the behavior of an oppressed rat rather than the
behavior of a conquering hero. They are in deep trouble because
of the collapse of the real estate bubble, which dwarfs the
Japanese real estate collapse. Their regional governments are
basically insolvent because of the gravy train from developers.
It is a long story, the regional governments are basically
bankrupt, and the central government is unwilling to bail them
out, and the demographic projections are really daunting.
The estimates are that sometime at the end of 2060 and the
end of the century, China's population will be half of what it
is today. There is never going to be this giant, $1.4-billion
prosperous middle class in China. Their educational levels do
not support it. Their forays into chip production have
collapsed in a blaze of corruption, and they are just a
complete failure.
And the companies see this too, that there isn't going to
be this massive middle-class market in China, and they've
started to pull out. The Korean companies pulled out, tried
pulling out starting several years ago and are finding what
other companies find, that it is pretty much impossible to get
your money back out of China, that when they build a shipyard
or a port and they want to get their money back out from that
investment, pretty much they have to just turn over the keys
and walk away, and that is not a unique experience. And so, the
attractiveness of China as a place for foreign investment is
going way down as companies around the world understand this.
I was just wondering if any of you have comments on the
demographics of China and how that should affect our thinking?
We will just start from the left. Mr. Ashooh, do you want to
give it a shot?
Mr. Ashooh. It is indisputable that that is a meaningful
trend. It is outside my area of expertise, but what I would
like to commend you for is the fact that so much of what we do
with respect to adversary countries is in the near term. We
need to be paying attention to long-term threats and their
implications as well.
Mr. Foster. Okay. Any other comments on that?
Mr. Willems. Sure. I will go ahead and comment, and I think
your comments are right-on. I do believe China is an
existential threat to our leadership, but I don't think China
is 10-feet tall. I think it is about 6'5'', 6'6,'' and we need
to keep that perspective as we are addressing it. And in many
ways, Xi Jinping is the country's worst enemy because his
policies are inferior to ours.
Mr. Foster. Agreed.
Mr. Hill. The gentleman's time has expired.
Mr. Foster. I yield back.
Mr. Hill. It is now time to recognize the distinguished
Chair of the House Small Business Committee, and a longtime
member of this committee, Mr. Williams, for 5 minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman. And thank
you to the witnesses for being here today. We need to be very
clear. China is a hostile nation looking up to upend the United
States' standing in the world. And as we saw with the spy
balloon this weekend and that they brazenly flew over our
airspace last week to send in fentanyl across our porous
Southern border, China is attempting to weaken our country in
any way possible.
An important piece of this equation that we must take a
serious look at is foreign purchases of farmland that is
threatening our country's national scrutiny. In my home State
of Texas, foreign entities control more than 4.7 million acres
of land. We talked about that earlier, and I am also a rancher.
So should any hostile nation like China want to cause permanent
harm to our food security and domestic supply chain, this is
how they would do it.
Mr. Feddo, can you expand upon the threat that foreign
agriculture purchases pose to our country's national security,
and do you think Treasury is currently equipped to tackle this
threat?
Mr. Feddo. Sir, thank you for the question. I do think they
are equipped. I know there have been a number of occasions
where Congress has considered adding the Secretary of
Agriculture to the voting members of the committee. The way the
committee has been constructed by Congress, Treasury has the
ability to bring in any department head at any time to
participate in the analysis of an issue like food security,
agricultural infrastructure security. And so, I do think they
are equipped to do so.
As to the bigger issue, I think my understanding is that
the GAO currently is conducting a survey and a study of the
extent to which foreign investors acquire agricultural land in
the United States, and I would encourage Congress to hold its
feet to the fire, so to speak, until it sees the results of
that. My understanding is that at this moment, Chinese
ownership of agricultural land in the United States is
somewhere around 340,000 acres, and that is compared to almost
900 million acres of farmland. So I just would suggest that
before we move forward with our response from a national
security perspective, that we make sure that we are not taking
a baseball bat to something that needs a more precise scalpel
to tackle.
Mr. Williams of Texas. Okay. Thank you. The only thing they
may understand is the baseball bat, though, at the end of the
day, but our Southern border has been an absolute disaster over
the last 2 years. Like I say, I live in Texas, and there are
2.7 million people who illegally crossed the border in Fiscal
Year 2022, 98 of whom were on the terrorist list. We have all
seen these numbers, and the massive influx of people straining
border towns is not the only problem. Drug smuggling has been
on the rise. There have been 356 million lethal doses of
fentanyl confiscated in Texas alone. This drug has been
destroying communities across the country, and claimed the
lives of 100,000 Americans last year. We are seeing future
generations dying down there. So, we must get serious about
stopping the border crisis_this Administration is not_so we can
slow the spread of this deadly drug flooding our streets.
Mr. Lorber, can you discuss China's role in the fentanyl
crisis, and what sanctions could be effective, in your mind, in
mitigating this problem?
Mr. Lorber. It is a great question, and obviously a very
terrible problem. To date, Treasury has taken a number of
actions against Chinese entities involved in illicit fentanyl
production and trade, coming over the border in particular. In,
I think it was December of 2021, the Biden Administration put
out an Executive Order focused on a certain range of topics,
but focused specifically on Chinese entities involved in that
activity. And likewise, I think just about a week ago, maybe a
little bit more, there were a number of Chinese individuals and
entities that were designated from a sanctions perspective for
that activity. With that being said, I think there is a lot
more that needs to be done and that should be a major focus of
both law enforcement and intelligence as well as the Treasury
Department.
Mr. Williams of Texas. Okay. My last question is, over the
last few years, the United States has faced significant supply
chain disruptions. I am in the car business, so I can tell you
all about supply chain. This exposed our reliance on China for
trade and manufacturing. The United States needs to diversify.
I think all of us understand our domestic manufacturing base,
and that to be able to insulate ourselves from this global
supply chain instability is critical. As we come out of this
pandemic year, it is critical that we focus on creating more
domestic supply chains, to prevent this from happening.
Quickly, Mr. Willems, how can we increase our supply chain
resilience, and what can we do to incentivize companies to move
out of China?
Mr. Willems. So, two quick ideas. First, in terms of trying
to get them to move to the United States, we need competitive
tax and regulatory policies. Second, in terms of
diversification, I would look at a friend shoring strategy, and
I would look at trade agreements as a positive incentive for
companies to move out of China.
Mr. Hill. The gentleman's time has expired.
Mr. Williams of Texas. I yield back.
Mr. Hill. I thank the gentleman from Texas. The Chair now
recognizes the gentlewoman from Ohio, Mrs. Beatty, who is also
the distinguished ranking member of our National Security,
Illicit Finance, and International Financial Institutions
Subcommittee, for 5 minutes.
Mrs. Beatty. Thank you, Mr. Chairman. This question is for
Mr. Harrell. I have a few questions I will try to get through.
In 2019, led by this committee, Congress passed the longest-
term reauthorization of the United States Export-Import Bank,
and now we have a new Chair who has been very clear that she
wants to advance competitiveness. She also wants to take a look
at targeting and expanding and diversifying. And we have heard
from our financial services planning meeting that we are going
to look at diversity and inclusion. So, I just wanted to put
that in the record in my opening.
But my question for you is, when we look at that
reauthorization bill, which included the China &
Transformational Exports Program, are there any ideas or things
that you would want to share that EXIM uses, authority and
other trade authorities to improve American competitiveness,
especially in regard to what we are hearing about with China?
What can we do through that authorization or through EXIM to
help us? Any ideas?
Mr. Harrell. Thank you very much for the question. I think
both the EXIM Bank and the International Development Finance
Corporation are a very important set of tools in our toolkit to
compete with China. And I think the 2019 authorization you
spoke about and the ability to create the Transformational
Exports Program is a key piece of making EXIM competitive.
I know that over the last year or so that Chair Lewis has
been at EXIM, she has been working diligently to implement the
Transformational Exports Program. I think it is important. The
reality is if we are going to provide financing for a U.S.
telecom maker to compete with a Chinese telecom maker in
Argentina or somewhere like that, there has to be the kind of
flexibility that is allowed under the 2019 authorization to
recognize how the U.S. companies can actually put that deal
together, and I think it is now there. I think that what we
need are less additional changes to the statute of EXIM_I think
you did that in 2019_and just some more time for Chair Lewis
and all of the great staff at EXIM to go out and source the
deals, because that takes time. So, I think that work is
happening. It just takes some time to go find the deals.
Mrs. Beatty. Thank you for that. And let me also put on the
record that Chair Reta Jo Lewis has also created a new office,
to have a bigger global footprint with the Office of Global
Finance Development, so I think she has done an amazing job in
a short period.
Mr. Harrell, China has been taking advantage of America's
lack of investments or presence everywhere from the Caribbean
to Latin America to Africa to the Asia-Pacific region. Short of
significant dollar increases in grants to these partner
neighbors, and especially if my colleagues on the other side
keep their promises to decrease the budget despite the many
national security challenges, what can America do to offer
alternatives to Chinese investments and trade to otherwise
compete with China everywhere?
Mr. Harrell. In a world where we may not be spending more
Federal dollars going forward to build those relationships, we
are going to have to be more creative in building private-
sector ties, potentially around supply chain resilience and
potentially around technology. I look at the announcement 2
weeks ago now between the U.S. and India, it was a government
announcement, and what you are essentially seeing is a
partnership between companies to work on AI, to work on space,
to work on those kinds of things. I think that is an
interesting model. I think you could take a similar approach in
Central America or in the Caribbean where we can pull together
manufacturers, for example, that are looking to diversify away
from China, that are maybe currently making things in China,
and encourage them to relocate into the Caribbean or into Latin
America. So, we are just going to have to leverage the private
sector better for those kinds of things.
Mrs. Beatty. Thank you. And in my last few seconds, would
you agree that it would be a good idea for us to promote
American entrepreneurship? And the reason I say that is with
CHIPS, we are saying that we need to have more small
businesses, more entrepreneurs when we look at our national
security. And my time is up, so I yield back.
Mr. Hill. I thank the gentlewoman from Ohio. You can answer
that question in writing.
And now, we turn to the gentleman from Georgia, Mr.
Loudermilk, for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman. I appreciate
everyone being here. It is interesting that the Bank Secrecy
Act was brought up earlier, and while I don't necessarily
disagree with the sentiment, I just don't know that the Bank
Secrecy Act is the place to report real estate purchases.
However, I believe the Bank Secrecy Act needs to be revised
because we are dealing with reporting thresholds that were
developed in the 1970s at $10,000, to where it should be around
$65,000 to $70,000 today.
One of the reasons that I think it is important for us to
update those is because at these low thresholds, the government
is forcing financial institutions to report significant
information to the government of which the government is
holding information about individual citizens and businesses
that they are not utilizing. When I was in the intelligence
arena in the Air Force, we had one principle, which was, if you
don't need something, don't keep it, because you don't have to
protect what you don't have.
I know that the United States is a huge target for
cybercrimes and for data breaches, and even U.S. law
enforcement agencies have repeatedly called China the most
significant state actor of threat to our country in cyberspace,
which we know the government would be a target. Now, I bring up
the Bank Secrecy Act because while we are trying to reform that
so the government isn't keeping a lot of PII on citizens that
could be breached to a foreign actor, U.S. regulators are
implementing a consolidated audit trail which would also
capture a lot of information and does capture information about
investors.
Mr. Lorber, we have worked to kind of minimize some of the
information that is collected by the consolidated audit trail.
But under the current iteration, the consolidated audit trail,
the customer accounts and information systems would include
names, addresses, and dates of birth for most U.S. investors.
What risk would this information pose to U.S. investors if a
foreign adversary, specifically the Chinese, were to gain that
information?
Mr. Lorber. Thank you, Congressman. It is a good question.
I am not specifically familiar with the consolidated
information audit trail that you are mentioning. However, I
will say that any situation in which there is consolidated
personal information about individuals, there is a risk that if
that information is secured, or captured, or breached, that it
could be used to develop information that could be used to
compromise those persons or otherwise exploit information about
them.
Mr. Loudermilk. Yes. Mr. Willems, do you have any thoughts
on the consolidated audit trail or the information, if it was
divulged to China, that could be used against U.S. citizens or
our economic stability?
Mr. Willems. I think you are right to ask questions about
it, but it is not my specific area of expertise.
Mr. Loudermilk. Okay. Let me move on to another area of
this. And as I said, there has been some progress in limiting
the types of PII in the consolidated audit trail. For anybody,
what type of retention policy do you believe would be
appropriate to prevent any information, whether it is from
consolidated audit trail, tax return information? What type of
data retention policy do you believe would be appropriate to
prevent information from falling into the hands of China or any
foreign adversary? Anybody?
[No response.]
Mr. Loudermilk. I think this illustrates that we have some
areas that we are still not really thinking about because a lot
of times we are focused on China, as China versus the United
States Government, when in reality it is China versus the
individual citizen of the United States as well. And so, I
think this is something that we need to invest time and effort
looking into as far as protecting data and information from
cyber actors.
And part of that, and I will conclude with this, that I
have said all along, the government is our biggest security
risk because as it is mandating massive amounts of data to be
collected from financial institutions, from individuals that is
not used by the government. When you look at the currency
transaction reports, over 90 percent of them are never looked
at. I would imagine a near-same statistic on the other reports
that have come in, suspicious activity reports. If we are not
using the data, why are we collecting it? Why are we keeping
it? Why are we mandating other institutions to provide it? With
that, Mr. Chairman, I yield back.
Mr. Hill. I thank the gentleman. Mr. Vargas from California
is now recognized for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman. I would like
to thank Chairman McHenry and Ranking Member Waters for
convening this hearing on such a pertinent topic. It is very,
very important. Mr. Willems, did I hear you correctly or hear
about you correctly that you were on the NSC for the previous
Administration?
Mr. Willems. That is correct.
Mr. Vargas. Okay. During the time of the Trump
Administration, did we have any Chinese incursions of these spy
balloons?
Mr. Willems. Like Mr. Harrell, I was part of the Econ
office, not the defense or national security part of the NSA.
Mr. Vargas. So, do you know or do not know, then?
Mr. Willems. I am not aware. That is not my expertise to
speak.
Mr. Vargas. Right, not your expertise. It is not my
expertise either, but I have heard one is flying around, right?
Obviously. And we shut it down. So during the time that you
were there, were you told that there was a Chinese spy balloon
flying all around the United States?
Mr. Willems. That is not the kind of thing I would have
been briefed on.
Mr. Vargas. Okay. So you didn't hear about that?
Mr. Willems. That is not the kind of thing I would have
been briefed on.
Mr. Vargas. Okay. The reason I ask is it seems that there
were a number of Chinese spy balloons that were flying around,
and nobody shot them down. In fact, it seems like we didn't
even know about them, sadly, talking about strength. They
didn't even know they were there. This President gets
criticized because he shot it down. The other President didn't
even see the damn things. Anyway, I think it is a little bit
like the hypocrisy of this debt limit when President Trump
raised it 3 times, added $7 trillion to the deficit, and I
didn't hear a peep out of my colleagues on the other side other
than, raise it more, raise it more, and all of a sudden, now
they are fiscal hawks. We have to do something about that damn
deficit. Yes, after you guys raised it so much by giving all
that money to the wealthy guys, great.
But anyway, we are here about the CCP. I do want to ask
this, and I want to acknowledge the comment that was made by
some of my colleagues on the other side, and that was that we
are really here to talk about the Chinese Communist Party, not
the Chinese people, and make that distinction. The Chinese
people are good people, like good people everywhere, and we do
have a problem in this country with Asian hate and we don't
want to flame that. But at the same time, we do want to go
after our adversaries, our competitors, and that is the Chinese
Communist Party, so I think it is very appropriate that we look
at how we can fight back.
And I was also very pleased to hear from some of my
colleagues that they believe in the preeminence of the U.S.
dollar and the dollar as the world's reserve currency. I think
that is very, very important. I hope we keep that, but I would
say this. We have done a lot. The Administration has done a lot
to combat what the Chinese have been doing, the Chinese
Communist Party. When China deployed its Belt and Road
Initiative to increase its economic coercion across the globe,
the Biden Administration launched the Partnership for Global
Infrastructure and Investment with our G7 partners. When China
threatened trading norms and international agreements in the
Indo-Pacific, the Biden Administration launched the Indo-
Pacific Economic Framework (IPEF) with 13 partner countries
that together with the U.S. represent over 40 percent of global
GDP.
When the CCP decided to detain and oppress the Uyghur, we
passed the Uyghur Forced Labor Prevention Act, to ensure that
our companies do not source products using forced labor in
their production. When the CCP attempted to become the new
manufacturing capital of critical computing components, we
worked together on a bipartisan basis to pass the CHIPS and
Science Act. When we needed to modernize our domestic
infrastructure to ensure our companies can compete globally, we
passed the Bipartisan Infrastructure Investment and Jobs Act.
So yes, the CCP is a great threat, but when we work
together across the aisle especially, and put people over
politics, we can mount a focused response to increase our
economic competitiveness and produce good clean jobs right here
at home and protect our national security. And that is why I
always find it interesting when we have some of my colleagues
complaining about the Chinese. And I ask them, where is your
suit made, and they say, I don't know. Why don't you take a
look, and you find out it is made in China. So, where is your
tie made? Made in China. Where are your shoes made? They look
them up because they don't know they are made in China. So if
we really do believe that we are competing, we should start
buying American, and from some of our allies, instead of just
buying the cheapest thing that you can find that looks good.
With that, I yield back.
Mr. Hill. The gentleman yields back. The gentleman from
West Virginia, Mr. Mooney, is now recognized for 5 minutes.
Mr. Mooney. Thank you, Mr. Chairman, and I do appreciate
the comments from my colleague from California: distinguish
between the people and the government. That is true of a lot of
despotic governments around the world, in Iran and other
places. My mother fled Communist Cuba where that country still
oppresses their people every day. I also agree with his
comments about buying American. When I go shopping with my
three children for Christmas, it drives them crazy because I
won't buy anything made in China, and they have a hard time
finding stuff, presents for my wife and stuff that is not made
in China. But it is true that we need to be more patriotic when
it comes to that in this country.
The Chinese government is moving rapidly toward
implementing its digital currency, the digital yuan controlled
by its central bank. Mr. Lorber, China is an authoritarian
state and violator of human rights. Can you walk us through how
the Chinese Communist Party can use its digital yuan to further
crack down on dissent and the freedoms of its people?
Mr. Lorber. Thank you, Congressman. I appreciate the
question. I think the concern that has been identified here is
essentially that by using the digital renminbi domestically,
China would be able to secure more information about the
transactional history, the transactional preferences, and other
personal information about individuals and entities who are
using that, who are using the digital renminbi. So essentially,
it would give them additional visibility into what is happening
within the country.
Mr. Mooney. Thank you. That makes sense. The Chinese
government spies on everybody, and its own people are not free
of that. Many advocates of this central bank digital currency
(CBDC) here claim that the U.S., in not moving forward with a
CBDC, risks losing the U.S. dollar's status as a reserve
currency.
Mr. Lorber, if the U.S. does not move forward with this
central bank digital currency and instead allows private-sector
digital currencies to thrive, does that actually risk the U.S.
dollar's reserve currency status?
Mr. Lorber. I can't speak to the sort of broader
macroeconomic questions about the adoption of a Federal CBDC.
What I will say, and going back to an earlier conversation we
had on this, is that I don't necessarily think that the rise of
the Chinese digital renminbi for cross-border payments poses a
major national security challenge to the dollar in the short
term. I think it is something which is very warranted to look
at in the medium term. But at least in terms of the next, I
think Mr. Harrell used the timeframe of 12 months, I would say
for the next few years, it is not something which would
displace the dollar or create a risk of the displacement of the
dollar.
Mr. Mooney. Okay. Thank you for that answer, but we all
know that President Richard Nixon finally took us off the gold
standard when he was President, and now the U.S. dollar is
simply the full faith and credit of the United States of
America. It is not tied to anything. I have a bill to go back
to the gold standard. I have invited my colleagues on the other
side of the aisle, if they are really serious about the dollar,
to tie it back to the gold standard, make it a superior product
that way, but they won't do it. They refuse because they want
to play all the games they want to play with the Fed. And so,
you have the rise of digital currency, also not tied to
anything specific, not much different than the U.S. dollar. So,
let's go back to the gold standard if we are serious about
this.
I appreciate that we are having this important hearing.
There is no doubt that China is our top competitor and
adversary. The Chinese Communist Party, their government, likes
to cheat and impress their own people. We have a lot of work to
do to hold China accountable, and just because China is doing
something doesn't mean the U.S. has to follow. They are a
communist government, and we are a free-market economy here. We
don't have to follow them. In fact, we should be very skeptical
of following them. The United States has the best free market
system in the world, and that is precisely why we do not run
our country the way China does and why we are the greatest
superpower the world has ever seen. So, let's not make a
mistake here.
With that, Mr. Chairman, I will yield back the balance of
my time.
Mr. Hill. The gentleman yields back, and we now turn to Mr.
Casten for 5 minutes.
Mr. Casten. Thank you, Mr. Chairman, especially to our
witnesses, and I want to start by answering the question that
Mr. Posey asked because I think it is worth having this on the
record. He asked how much U.S. debt is held by the Chinese. The
answer is, just over a trillion dollars. Interestingly enough,
that is actually down from the peak in 2011, when it was $1.3
trillion. It is now down to $1 trillion, and that is in spite
of total foreign holdings of U.S. Treasuries being up about 80
percent during that period. And I mention that because, yes, we
should be very concerned about our competitors, but numbers
matter, right?
Mr. Harrell, I would love to get some sense, because that
broader narrative, if you go beyond just debt and look at total
foreign investments in U.S. securities, China is declining and
declining in terms of its importance in the U.S. economy. In
2010, they held $1.6 trillion total U.S. securities, about 15
percent of foreign investments in U.S. securities. They are now
down to less than 6 percent of the total holdings in U.S.
securities.
And so my question, Mr. Harrell, from as far as how it had
sort of fallen in Mr. Foster's question is, should we see China
as a country that is pivoting away from investments in the U.S.
to invest in other places, or should we see them as a country
that is having a harder time attracting investment revenue more
broadly? And I don't have the data on national trends, but I am
wondering if you have a sense of that?
Mr. Harrell. Thank you for coming back to this topic. It is
interesting. In addition to seeing this decline in kind of
Chinese sovereign holdings of U.S. debt, we have, over the last
couple of years, generally seen a decline in Chinese private
investment in the U.S., driven in part by the 2018 pharma law
toughening up standards for Chinese investment in the United
States.
I think we are seeing a couple of things from a Chinese
macroeconomic perspective. First, we have seen China's overall
balance of payment surplus come down a bit over the last couple
of years, obviously 2020, in particular, and the last couple of
years where they had a bunch of lockdowns, and that threw off
their trade flows. That has brought their balance payments
surplus down, so I think they have less money to park abroad
than they used to. I think they have been trying to park more
of it outside the U.S. for two reasons. First, they do see it,
as we see with BRI and things like that, as a way of trying to
build their own friendships and alliances away from the U.S.,
with developing countries. So, I think they are looking to put
it elsewhere.
And then, I think they do look at the risk of confrontation
with the U.S. and wonder if they are overexposed from their
perspective to U.S. securities. We saw Russia essentially exit
the U.S. dollar as a reserve currency back in 2018; they
essentially got out of it. China can't, for various reasons,
and I don't think wants to take that extreme of a step, but I
do think they are looking from their kind of sovereign holdings
to diversify their holdings and not be, from their perspective,
overexposed.
Mr. Casten. Okay. I have two more questions, and I
apologize if I cut you off on the first one because I want to
be quick. But we have seen China invest in things like
buildings that don't get occupied, ever grand that they have to
bail out, and there are political reasons to invest in that.
But obviously, long term it is not healthy in terms of their
domestic investments. Have you seen any good analysis of what
kind of return China earns on their domestic investments? To
what degree are they investing in growth versus staving off
short-term political problems?
Mr. Harrell. As I think Mr. Willems said a couple of
minutes ago, it is important that we not overestimate the
strength of China. It is a fierce competitor. It is not, as I
think you said, 10-feet tall. And I think we have to be clear-
eyed about their own domestic weaknesses and the fact they
don't have an indefinitely bright future. In fact, they have a
bunch of bleak things in their economic future. For the last
couple of years, they have been propping up their economy
domestically by subsidizing a real estate boom, by subsidizing
manufacturing. At some point, that gets harder and harder for
them to do, and I think that is why you are seeing this long-
term downward trend in growth. This year, it probably will come
up. They are coming out of COVID. There will be a rebound, but
they are not getting back to the 7, 8 percent growth rates they
had for many years past.
Mr. Casten. We are tight on time, so I may have to just end
with a statement here, but the one exception to all that is
that Chinese investments in U.S. equities have gone up, even as
their investments in debt have gone down, and that is a broad
sectoral trend from foreign investments in the United States.
In 2010, total foreign investments in U.S. equities was $2.8
trillion. That was 26 percent of total investments in equities,
securities.
In 2021, more than half of foreign investments in the
United States were in equities. And I mention that because if
your goal, as a Member of Congress, was to transfer wealth from
U.S. taxpayers to foreigners, 10 years ago the way to do that
was to raise interest rates.
Mr. Hill. The gentleman's time has expired.
Mr. Casten. Today, the way to do that is to cut corporate
tax rates. I yield back.
Mr. Hill. The gentleman's time has expired. I now recognize
the distinguished gentleman from Ohio, Mr. Davidson, who is
also the Chair of our Housing and Insurance Subcommittee, for 5
minutes.
Mr. Davidson. Thank you. And thank you to our witnesses. I
appreciate this hearing and the importance of it. China is an
important strategic rival. Frankly, I would like to keep them
as economic rivals. As a former military guy, I didn't think we
would ever visit China in friendly terms and conditions, and I
hope that we can keep it friendly competition. We are concerned
about recent events and kind of what does that signal for the
relationship.
But as we look at how has China risen, and part of it was
under Deng Xiaoping, China broke from what had failed, cultural
revolution, Mao's various forms of Marxist ideology that
produced a communist state that was not working. And under Deng
Xiaoping, he kind of said, well, we will have communism with
Chinese principles, which is really state-controlled
capitalism, and on balance, it has worked pretty well for the
Chinese people, but part of that has come at the expense of the
American people. I am happy for the average Chinese person, and
we certainly understand why they want a better future for
themselves and for their kids, but we should want the same for
our families.
In recent history, we have seen this generation say that
they are not confident that their kids are going to have a
better future than them. That is the first time in American
history that has been true, and why is that? Part of it is
policy decisions that have overwhelmingly benefited the Chinese
Communist Party, and the influence of China. So as we talk
about the role of financial services in that, in 2019, China
was designated as a currency manipulator. Would one of you care
to highlight briefly for the people watching at home, the
dozens or so, how does China control their exchange rate with
the United States? Mr. Lorber?
Mr. Lorber. I am not a macroeconomist, so I can't really
speak to that in an effective way. I apologize.
Mr. Davidson. That's okay. It trades in about a 2-percent
band. The U.S. dollar is one of the currencies that is in
there, and it is a peg, so they set it at an artificial rate.
So when they decide that they are not getting enough exports
out of China into America, or, in particular, they will change
the peg to the U.S. dollar. And that makes everything cheaper.
So in 2019, when they did that, they moved it by about 16.8
percent, and for that, the Secretary of the Treasury rightly
designated them a currency manipulator, that is able to
overcome all sorts of things, tariffs at the time. Fine, we
will just manipulate our currency and make everything
different.
The other thing that I am interested in talking about in
this space is kind of the link to the Belt and Road Initiative.
Of course, it creates big trade consequences, and that creates
consequences on the flow of cash, the balance of payments. When
you look at the role of the International Monetary Fund and
liquidity globally, Special Drawing Rights are one of those
things. It is not really money, but it represents an asset, and
the mix was recently changed. It went from about 10 percent RMB
to almost 13 percent RMB.
And the bill that I have, H.R. 510, the Chinese Currency
Accountability Act, requires the Secretary of the Treasury to
oppose an increase in the weight of China's RMB in the basket
of currencies that make up the IMF Special Drawing Rights
unless China meets certain international standards, and we know
China doesn't meet them. They promised to be part of the World
Trade Organization, that they would be a market economy. They
said that as part of being a market economy, they wouldn't do
things like manipulate their currency.
Mr. Willems, could you please talk about those dynamics,
particularly in relation to the IMF?
Mr. Willems. Sure. Let me first say, I think you have put
your finger on a really important issue, and from a broad
standpoint, we want to promote the supremacy of the U.S.
dollar, and we should be concerned about China trying to put
forward the RMB as an alternative to that and including it in
the IMF. So, I would want to work with you on the specifics of
the bill. I think the concept is correct, and we should do what
we can to prevent them from increasing the role of the RMB.
One of the problems with the IMF that we often run into is
our ability to unilaterally achieve things as opposed to having
to work and develop broader coalitions. So, I would want to
think about the right criteria to build that coalition of
allies to get the job done.
Mr. Davidson. Thank you, and my time has expired. I yield
back.
Chairman McHenry. The gentleman's time has expired.
We will now recognize the gentleman from New Jersey, Mr.
Gottheimer, for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Chairman, and
congratulations again on your new role.
The Chinese Communist Party, or CCP, embodies one of the
most significant international threats the United States has
faced in recent decades. Among other strategies, the
authoritarian CCP hopes to dominate the global economy, as you
know, through thefts of intellectual property, investments in
foreign economies through their Belt and Road Initiative, and
through the promotion of alternative financial networks that
undermine the U.S. dollar's role in the global economy.
Congress has written strong bipartisan legislation to take on
China, and I am confident that we can do it again here in the
118th Congress.
I guess I will start with Mr. Harrell. The Bipartisan
Infrastructure bill, and the CHIPS and Science Act directly
support our strategic competition with China by investing in
our supply chains, our workforce, and emerging technologies. In
your opinion, what should a CHIPS 2.0 bill look like? What are
the best next steps for us to be working on now? Mr. Harrell?
Mr. Harrell. Thank you very much, and I 100-percent agree
with you that the bills that Congress passed over the last
several years to foster investments in chips and scientific
innovation, in clean energy technology, and in infrastructure
generally, are absolutely essential to our success.
I would break future investments into two pieces: one is a
technology piece; and one is a supply chain resilience piece.
On the technology piece, and I think there really is a lot that
is going on there not just with CHIPS but with the and Science
part of that bill and the NSF sort of reform agenda there, I
think there is a lot going on there, but I do think we need to
be focused at a research perspective in quantum and in
biotechnology. These, I think, are foundational that we need to
do. On the supply chain resilience piece, we have done a lot on
chips. We have actually been doing a fair amount on critical
minerals, it is going to take years for that to bear fruit, but
there is a lot going on with critical minerals, and we are
doing a lot on clean technology.
I think pharmaceuticals and pharmaceutical ingredients, not
necessarily high-end things, but we have supply chain
vulnerabilities there. I also think there are a set of supply
chain vulnerabilities that we don't know we have. And I think
that the Administration should undertake a kind of
comprehensive review of what we are importing and supply chain
vulnerabilities to get ahead of the things we don't know that
we don't know.
Mr. Gottheimer. That is very helpful. I appreciate it. The
CCP has made it clear that it will leverage technology to
breach U.S. institutions and steal our intellectual property,
and collect data on our citizens and access the systems that
control our critical infrastructure. I worked in a large
technology company before I was in Congress, and it was no
secret that China was stealing our work all the time.
I guess, Mr. Lorber, if I can ask you if it is appropriate,
what can we do to better protect our intellectual property from
cybercrime and the coercive tactics the CCP is using to steal
from companies operating in China?
Mr. Lorber. Thanks. It is a great question. The objective
is, I think, rightly, to protect U.S. data. There are multiple
steps you can take, to borrow one of Mr. Willems' ideas, both
on the offensive and the defensive side. Certainly on the
offensive side, I do think that if that is your goal, targeted
economic sanctions to focus on specific entities that have been
identified as stealing U.S. intellectual property makes sense.
And to date, I think there is authority that was recently
passed on the books to be able to do that, although I don't
know if there is actually any designations that have taken
place. And then, on the defensive side, certainly the hardening
of U.S. Governmental systems, but also proper incentive
structure to make sure that the U.S. private sector is also
properly incentivized to harden their systems as well.
Mr. Gottheimer. That is right, and I appreciate that.
Shifting just a little bit to the subject that I am very
concerned about, of course, during the pandemic, we had a lot
of fake N95 masks with fake FDA approval labels. We read about
adulterated diabetes treatments and seizures of fentanyl-laced
pills that have been traced back to China. And I am concerned
we are not doing enough to crack down on sustained efforts from
foreign actors to flood our markets with counterfeit and
adulterated medical products.
Mr. Harrell, if I can ask you, do you think it makes sense
to increase collaboration between the Office of Foreign Assets
Control and the FDA to crack down and place sanctions on
foreign producers of counterfeit and adulterated medical
products?
Mr. Harrell. I think there are a number of tools we can use
to go after counterfeit product imports. I think that where
there is sort of a nexus to organized crime, there are existing
sanctions authorities that can be used to target sort of
organized criminal counterfeiting, and I think we should be
looking to do that. I also think, obviously, there are things
we can do with Customs and Border Protection (CBP) and with
other tools that we have to crack down on imports of
counterfeits. May I make one point on the data issue?
Mr. Gottheimer. Please.
Mr. Harrell. There are many things we need to do to protect
our data security. One of them has to be a comprehensive
national data privacy law because if all of the data is getting
collected and aggregated, the Chinese are going to get at it.
They have lots of ways to get at it, so we have to actually
start with a data security law.
Mr. Gottheimer. Thank you. I yield back.
Chairman McHenry. We are glad you are before the committee
that actually does have a data security law for financial
firms, which we intend to update. Thank you. Hopefully, we can
have you back for that, too.
With that, the gentleman from Tennessee, Mr. Rose, is
recognized for 5 minutes.
Mr. Rose. Thank you, Chairman McHenry and Ranking Member
Waters, for holding this hearing, and thank you to our
witnesses for taking the time to be here with us today.
I want to dive right in. About $1.7 trillion in securities
of China-based issuers are listed on exchanges in the United
States. Mr. Willems, as China continues to bolster its efforts
to compete with the U.S. for capital, do you think U.S.
investors have adequate information to understand their
exposure to Chinese capital markets and the risks associated
with them?
Mr. Willems. Let me first say that I don't think inherently
we don't want any Chinese companies listed on U.S. exchanges.
As long as they play by the rules, it is good for us because it
bolsters the importance of our markets. That said, I don't
think U.S. citizens generally understand what they are getting
into with some of those investments and more transparency could
be helpful.
Mr. Rose. Some managers offer single-country funds that
only invest in Chinese-related issuers. Among the risks listed
in these funds or these types of funds are more frequent
trading suspensions and government intervention, currency
exchange rate fluctuations or blockages, price volatility, and
considerable degrees of social, legal, regulatory, political
and economic uncertainty.
Mr. Willems, are you concerned about the risks associated
with offering an investment product with that much exposure to
China?
Mr. Willems. I do think that having disclosure about that
is important so investors can make the decision.
Mr. Rose. And I want to open this up to the rest of the
panel. Would it make sense to require all funds, including
broader international and regional funds, to disclose and
aggregate their exposure to Chinese-related risks and
investments? Anybody who wants to speak up. I'll start with
you, Mr. Willems, since I have already.
Mr. Willems. I think in concept, having transparency is
important. In terms of the specifics of what you are proposing,
I would want to think about that.
Mr. Rose. Would anyone else care to comment on that?
Mr. Lorber. Yes, I will echo Mr. Willems' comment. I do
think transparency is very important, but I think there is
obviously a balance between wanting to provide for that
transparency and not creating a regime where there are overly-
onerous disclosure requirements.
Mr. Rose. And I think about my own posture as an investor,
so I will ask a question this way to kind of press this
further. Do current disclosure regimes adequately alert U.S.
retail investors and retirees to their Chinese exposure, yes or
no? We will start over here.
Mr. Ashooh. I think, based on the response you are getting,
it is a question that needs to be addressed.
Mr. Rose. As an investor, I think the answer is no. I have
been pressing my own investment advisor about that. And then,
what can or should be done to improve the level of visibility
that individual investors, U.S. investors have to the exposure
that they have to China, that they may or may not be aware of?
Does anyone have any thoughts?
Mr. Willems. I think I have already offered the idea of
greater transparency, how you do that is important, and I think
that is a subject that we should delve into further.
Mr. Rose. Okay. Thank you. I think it is insightful. I want
to shift gears in the remaining minute-and-a-half here.
Mr. Feddo, if a foreign investor takes control of a U.S.
business in the agricultural sector, does CFIUS have the
authority to review that deal?
Mr. Feddo. It certainly does.
Mr. Rose. And if a foreign investor were to take a non-
controlling stake in an agricultural business, but gain
influence over critical technologies or critical
infrastructure, as specified in rulemaking, would CFIUS have
the authority to review that deal?
Mr. Feddo. I imagine so. Based on what you have described,
yes.
Mr. Rose. And so, when CFIUS reviews agricultural-related
transactions, does CFIUS involve the U.S. Department of
Agriculture in those reviews?
Mr. Feddo. Yes, sir, it does. I mentioned earlier that that
they have the latitude under the law to bring in other Cabinet
Member officials and their departments to provide the subject
matter expertise to tackle the national security analysis, and
they do that frequently with the Department of Health and Human
Services (HHS), NASA, and the Department of Agriculture.
Mr. Rose. And do you think that CFIUS has adequate
motivation to aggressively review those kinds of transactions?
Mr. Feddo. They absolutely do, and that is part of the role
of congressional oversight, to make sure that they are
adequately focused on those issues. I would caution, I am not
entirely sold on the idea of making the Agriculture Department
a permanent voting member of the committee.
Mr. Rose. Thank you. I appreciate your responses. I yield
back.
Mr. Steil. [presiding]. The Chair now recognizes Ms. Garcia
for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you to all
of the witnesses today. And I, too, want to associate my
remarks with the ranking member and add my additional remarks
as follows. I am concerned by the rhetoric that I am hearing
today. While I take the economic threat that China may pose
very, very seriously, I worry that the Republican Majority is
not committed to taking some essential steps to combat this
issue. The Republicans are set on decreasing the Federal
budget, but it appears to me that significant investments might
be necessary, particularly in the global south, to ensure that
China's presence does not grow stronger.
I would like to begin by focusing on China's strong
financial presence in Latin America. As a Representative from
Texas, this issue is too close to home, literally. China has a
large financial presence in Venezuela, Ecuador, Brazil, and
many other Latin American nations, and I worry about the impact
it has on U.S. influence and trade relations, particularly as
it impacts us in the Texas region.
Mr. Harrell, can you please speak about China's presence in
Latin America, and can you explain what the United States can
do to offer alternatives to Chinese investments, in particular
in that region?
Mr. Harrell. We have definitely seen an increase in China's
economic presence in Latin America over the last decade. Recent
events disclose perhaps also an increase in surveillance
presence and other kinds of presence down there as well. Part
of the reason for that increased presence is, frankly, sort of
basic economics. China is buying a lot of commodities, Latin
America exports, and with a lot of commodities, you are going
to see the trade ties increase there. There is also obviously a
strategic overlay that China is taking to this where they are
deliberately investing in Latin America as a region that is
near to the U.S., but frankly, a swing region, where our
diplomatic relationships have not always been the warmest and
our economic ties have not always been the strongest. You see
them doing that with Ecuador. And you see them doing it with
Venezuela and places like that.
I think what we need to do to respond is to, first,
relentlessly highlight the downsides and costs of this kind of
low quality, high-debt, high-default kind of Chinese investment
we are seeing down there; and second, be forward in the region
ourselves. We have to get DFC down there. We have to get EXIM
down there. We have to make the Americas Partnership for
Economic Prosperity a real thing. We have to get USAID active
down there. So, it is highlighting both the costs and the
challenges of what China is doing down there, while also
offering concrete and tangible alternatives ourselves.
Ms. Garcia. Right, because we are seeing that they are
lending, they are investing, they are building, and they are
developing. They are doing, in my view, a lot of things that we
as a good neighbor in the Western Hemisphere should be doing
with the Americas, and we have failed to do, frankly, for a
really long time. And it worries me that that China will get a
better strategic position to not only threaten us economically,
but strategically in terms of our security. What else can we do
to make sure that the United States maintains good relations
with the Americas?
Mr. Harrell. I laid out a couple of ideas. I also think,
frankly, having continued strong cultural exchange programs
often gets overlooked in these discussions. But as a former
diplomat of the State Department who then spent a number of
years at the White House, the number of times we were able to
build a relationship with, whether it was a European official
or an Argentinian official or an Indonesian official, because
that person had come here for school, because that person had
family here, those are sort of the soft power kind of things
that can really pay off over time in terms of deepening
relationships.
Ms. Garcia. Right, because otherwise, China just continues
to use these countries for their own political purposes, but
also to build in what I consider the anti-USA sentiment. And it
doesn't help, again, to listen to some of the rhetoric of
beating up on everything south of the border. Rather than
criticizing, we should be helping and being true partners and
true neighbors. So, thank you for that. I yield back.
Mr. Steil. Thank you very much. The Chair now recognizes
Mr. Norman for 5 minutes.
Mr. Norman. I want to thank each of you for taking the time
to come here today and testify. Each of you have a critical
role in highlighting the problems we have with China. And, Mr.
Feddo, you made an analogy about the 355,000 acres as it
relates to the total United States. The problem that I see is,
it is not the volume; it is where they are buying it. In South
Carolina, we have Duke Energy. We have Shaw Air Force Base.
They are buying property in downtown areas strategically in
relationship to where our headquarters are, so that is the
problem we have with them.
I think it was interesting that my other colleagues were
asking you, Mr. Willems, about the balloon. First of all, they
went immediately to President Trump with balloons flying. And
the only way this Administration knew the balloon was flying
was when a citizen took a picture. And either he was sleeping
or whomever didn't notify him, if they were allowed to go
across this country for 8 days before they shot him down, which
is a tragedy for this country, and is a security risk for this
country. Not to mention what they are doing in plants. In my
State, they are going in plants, and they are going through
third parties in buying the property. But they are sending
Americans in to buy patents on different military things that
others don't make, and stealing the patents, so they are a huge
threat. So, thank you all for what you are doing to highlight
this. This isn't political. This is un-American, particularly
with what this Administration is letting happen.
And this goes back to what Mr. Rose was saying, that the
PCAOB has been tasked with scrutinizing the U.S. companies
traded in U.S. Exchanges, and the Chinese companies. And after
3 years, if they failed to provide the audits, then they are
taken off the Exchange. Do you believe the PCAOB has
successfully implemented this and are putting the safeguards in
place so that those individuals who are putting their trust in
companies that they know little about_is this getting the job
done, or is there something else we need to be doing to put
some teeth into this, because this, again, like the security
breach, is a tragedy. And I will let anybody answer who wants
to.
Mr. Willems. I can start and just say I think at this point
we should take the PCAOB's word for it that they were able to
access Chinese papers, Chinese audit papers in December, and my
understanding on that was that the checks that they did were
random. The Chinese didn't know in advance that they were given
access. Now, I think you are right to wonder, was this a one-
time thing where China wanted to avoid mass de-listings, or is
this actually China finally saying, we are going to open up and
play by the rules that everyone else has to follow? I think
Congress' role is to conduct rigorous oversight over this, to
make sure that the PCAOB is continuing to check and that China
is continuing to provide access.
Mr. Norman. Would anybody else care to comment on that?
What about the Foreign Investment Risk Review Modernization Act
(FIRRMA), which has expanded the jurisdiction of Committee on
Foreign Investment in the United States (CFIUS)? Are they using
the tools at their disposal to put teeth in there, and what
they can do at the proper time?
Mr. Feddo. Sir, I am probably the right person to answer
that.
Mr. Norman. Yes, sir.
Mr. Feddo. But can you clarify the question?
Mr. Norman. The role FIRRMA_are they doing everything they
can they have been tasked with, in your opinion, in your
expertise, to monitor real estate transactions and_
Mr. Feddo. I believe so. I don't have any visibility
internally. I implemented the law, and we were very diligent
about how we scoped real estate jurisdiction per the direction
of the statute per FIRRMA. And remember that the jurisdiction
that the committee was given with respect to real estate was a
voluntary disclosure. So, there is not a required filing, but
the committee still has the power to bring something in if it
needs to or it is alerted to a national security risk that
warrants review. Frequently, a purchase relates to a U.S.
business and it falls into another part of jurisdiction, so
real estate may not always be leveraged, but it may not need to
be.
Mr. Norman. Thank you so much.
Mr. Steil. The Chair now recognizes the gentleman from
North Carolina, Mr. Nickel, for 5 minutes.
Mr. Nickel. Thank you very much. And thank you to our
witnesses for being here with us today. This is certainly going
to be a memorable committee hearing for me, not necessarily
because of the subject, as much as it is my first committee
hearing as a Member of Congress, and you will be the first
witnesses that I get to question, so thank you again for being
here today.
Mr. Harrell, you said in your testimony that to address the
economic risks we face from China we must expand our
cooperation with friends. Mr. Willems, you said in your
testimony that to reduce supply chain reliance on China, we
should implement proactive trade policies with third countries.
I agree with both of you. The U.S. should establish and
reinforce meaningful trade relationships with other partners in
the Indo-Pacific region. The U.S. should also form and
strengthen partnerships in law enforcement and regulatory
spaces on issues central to this committee, like countering
trafficking, improving transparency, and securing markets. So,
Mr. Harrell and Mr. Willems, how can the U.S. leverage the
tools that are at our disposal, like the World Bank, the IMF,
and the Export-Import Bank to help America's friends better-
compete against China and their CCP-backed economy?
Mr. Willems. Sure. I am happy to start, and I think this is
actually a really good segue from the questions Ms. Garcia was
asking, which were about Latin America, and I thought Mr.
Harrell answered them very well. But one area I would have
elaborated further on that you have touched on is trade
agreements. If we want to build those relationships, if we want
to build those partnerships, we need to have trade agreements.
And the reason that is important for supply chains is that
China is going around the world and they are cutting trade
agreements, where they are cutting tariffs with other
countries, that makes it easier for them to facilitate trade
between them.
We aren't doing the same thing, and so we are at a cost
disadvantage when companies are making decisions about supply
chains, and that is why we need market access trade agreements.
Building on that, the other tools that Mr. Harrell touched on
that I would elaborate on again include the Development Finance
Corporation (DFC), and one of the things I recommend is
employing a program at the DFC similar to the China &
Transformational Exports Program (CTEP) at EXIM, which will
allow DFC to cut through red tape, and be more strategic in
working with our partners and allies.
On EXIM, one thing that we haven't gotten into yet, but I
think is worth considering, is do we want EXIM to be able to
take more risk in certain circumstances? EXIM has something
called the default cap, in which about 2 percent is the maximum
amount of defaults that they are allowed to have or they
totally lose their authority to make investments. And I think
we need to look at that and say, look, if we are going to
provide an alternative to China, we need to take a little more
risk, and it may be a controversial policy, but I think it is
worth looking at if we are serious about providing a real
alternative.
Mr. Harrell. I think another area that we could look at is
better integrating our development tools with our trade tools,
because if you are a company, that is, say, looking to get out
of China to do light manufacturing, and you are looking at
Latin America, what do you need to put a facility down in the
Caribbean or somewhere in Central America or in Mexico? You
need local skilled labor, right? You need a bunch of things on
the ground. You need transport and physical infrastructure for
the goods you are manufacturing, and then you need access to
the United States so you can actually sell it here in your
market.
I don't think we currently do a good job of kind of
integrating those three tools. And I think we could do a better
job of saying, if we want to see supply chain friend shoring,
how are we going to use our foreign assistance, our development
finances, and other kinds of tools to create the enabling
environment for that to happen, as we pursue these kind of more
trade initiatives whether it is the Americas Partnership for
Economic Prosperity (APEP), or the Indo-Pacific Economic
Framework (IPEF), or other things like that?
Mr. Nickel. Thank you very much. I yield back.
Mr. Steil. Thank you very much. The Chair now recognizes
himself for 5 minutes.
Mr. Willems, today we have had a lot of conversation
focused on China, about their malicious actions. We have heard
references to invasions of our airspace most recently. We have
seen them engage in unfair trade practices. You were just
engaged in a conversation with Mr. Nickel, I think
appropriately so, about how we can go on offense. I think we
have seen a real shift in Administrations, from a shift in
Administration, or the Trump Administration, with engagement in
countries looking for areas where the U.S. can export. In
particular I am thinking from Wisconsin's perspective,
agricultural goods, thinking about opportunities we may have in
countries like Kenya, countries like the United Kingdom, maybe
the country of Laos, et cetera. Can you tell me where we could
go on offense?
Mr. Willems. It is a fantastic question, and you mentioned
two already. The Trump Administration had started FTA
negotiations with both the U.K. and Kenya, which have been
discontinued by this Administration, and I think it is in
Congress' interest to push them to get back in the game with
those two countries. Another place I would look is Taiwan,
where there is significant interest in linking our high-tech
supply chains with Taiwan and creating more market access for
farmers, including those from Wisconsin, which I know we both
hold near and dear to our heart.
And then, I would look at the Trans-Pacific Partnership
(TPP), and I was part of an Administration that pulled out of
the TPP, but that was, I think, a reflection of the fact that
there were problems with the agreement. But the answer is not
to stay out of it; the answer is to renegotiate it. And I would
look at this question, can we do to TPP what we did to the
North American Free Trade Agreement (NAFTA)? Can we take an
agreement that wasn't working for us, renegotiate it, and make
it work for the United States? And I will remind everyone here,
I am sure there are a lot of Members here who voted for the
United States-Mexico-Canada Agreement (USMCA). That got the
strongest bipartisan support of any trade agreement in years,
and I think we can do the same thing with the TPP, and I think
that will benefit Wisconsin farmers.
Mr. Steil. Thank you very much, and thank you for your
comments. Let me shift gears to another area where I have
significant concerns, and that is our multilateral development
banks, like the World Bank, still providing billions of dollars
in new loans to China. And at the same time, China is providing
extensive funding to developing countries around the world
through its Belt and Road Initiative. Should China continue to
receive funds from these development banks, and how should we
approach this strategically?
Mr. Willems. The answer is no, and I will agree with you,
it is absurd, right? China is the world's largest bilateral
lender, yet, at the same time, they are one of the top five
recipients of World Bank loans. That is an inconsistency that
should not be allowed to stand.
The challenge we have with the World Bank, and the IMF, and
all of these institutions is that we are just one member. We
have a lot of votes, but we don't have all of the votes. We
can't wave a magic wand. So, I really think what you want to do
is think about how to put together a comprehensive reform
package with other allies that can change that behavior, while
also thinking about other things that will get other countries
to come on board. If this just becomes U.S. versus China, I
think that is difficult, but if we can paint China's
international outlier and build a broader coalition, I think we
have a chance for success.
Mr. Steil. I think that is right. I think it is working
with our allies to actually counter the actions that China is
engaged in, in particular as it relates to unfair trade
practices. But we also see it through their loan programs such
as the Belt and Road Initiative, which is a real risk to many
developing countries around the world.
I want to go back to what Mr. Barr was talking about
earlier, in particular, Chinese military-industrial companies
and the firms associated with China's military. I think we can
all agree that Americans should not be financing these
businesses, which have a clear role in China's human rights
abuses. Can you give a little more explanation as to how we
close these gaps?
Mr. Willems. Sure. Right now, there have been two Executive
Orders that were issued, one by the Trump Administration, and
then a subsequent one by the Biden Administration. And what
they do is they say that the U.S. Government should identify
companies that are affiliated with China's military, and then
put prohibitions on investment. The problem with them and the
gaps that are there is that those prohibitions only apply to
publicly-traded securities. It does not apply to venture
capital, private equity, debt, and other kinds of financing,
and so I think Congress can step in to fill that gap.
The other gap is that it only names two sectors within
China, the technology surveillance sector and the defense
material sector, and I think that there are probably other
Chinese companies that pose a national security threat outside
of those sectors that we need to look at, so that is the second
gap I would look at filling.
Mr. Steil. Thank you very much. I think we covered a lot
here today. I think we looked at the opportunity to go on
offense, which I think is absolutely essential. I think we need
to return to the previous Administration's policies on that
rather than some of the policies we are seeing coming out of
this Administration. I think it is important we look at
development banks like the World Bank, and, in particular, that
we are not finding the United States of America in a position
supporting the military of China. I yield back.
I will pause. Ms. Garcia is recognized.
Ms. Garcia. Yes, Mr. Chairman. I wanted to ask for
unanimous consent to enter a document for the record, ``China's
Engagement in Latin America: Views from the Region,'' by the
United States Institute of Peace.
Mr. Steil. Without objection, it is so ordered.
Ms. Garcia. Thank you, Mr. Chairman.
Mr. Steil. The Chair now recognizes the gentlewoman from
Michigan, Ms. Tlaib, for 5 minutes.
Ms. Tlaib. Thank you, Mr. Chairman. I would like to focus
on the ways that foreign oligarchs can invest in U.S.-based
assets to hide or launder illicit funds. I think the majority
of foreign nationals investing in the U.S. are legitimate, and
there is no national concern whatsoever in that regard.
However, we know that there has been an incredibly, I think,
easy way to establish anonymous trusts, shell companies in the
United States which has made it easier for sanctioned citizens,
and we saw it recently actually, and entities to hide their
assets in the United States. I know the Administration, both
the current one and the previous one, has supported, and I am
sure you familiar with the Corporate Transparency Act of 2020,
which is intended to prevent that kind of abuse of the shell
companies, like the one used to hide ownership and control of
U.S.-based real estate purchases that are sanctioned by folks
who are Iranian, Chinese nationals, Russian nationals, a number
of folks. So, this is something for the whole witness panel
here.
How important is it for the U.S. and allied nations to
adopt transparency measures, like beneficial ownership
registries, to prevent bad actors from abusing our open
financial systems, because it is really about those resources
and the money, as you all know. I can start with whomever would
like to begin. I think, Eric, you had your hand up?
Mr. Lorber. I am happy to take this one. I appreciate the
question. The short answer is it is incredibly important. You
have seen recently in publicly-announced actions, instances
where sanctioned Russian oligarchs, for example, were able to
park billions of dollars in trusts that were registered in
Delaware for a period of, I think, 5 or 6 years. So, the
Corporate Transparency Act and the related legislation were
great work done by this Congress, and are important steps_
Ms. Tlaib. Eric, for my residents, explain why, because
this is the danger that I think they are not understanding. It
is like, oh, they are just moving money for their own benefit,
but it is actually a huge concern because this is how they can
fund.
Mr. Lorber. Sure. Yes, exactly. For example, pre-Corporate
Transparency Act, an individual could go to a State, form a
corporation, and then not be required to submit the natural
persons who were the owners or the controllers of that
corporation. So in theory, a Russian oligarch could go to a
U.S. State, and form a corporation in somebody else's name.
There would be no verification component, and they could
subsequently funnel money through that shell company into U.S.
assets, and it may be very, very difficult to detect. That was
the issue that the Corporate Transparency Act, at a high level,
was trying to solve. It is being implemented as we speak.
Treasury is rolling out a series of rules to implement it, but
that is sort of the core challenge.
Ms. Tlaib. Anybody else? Mr. Harrell?
Mr. Harrell. I agree very much with Eric that the Corporate
Transparency Act was a huge first step. And the Treasury
Department is in the process of getting IT and rolling out
rules to uncover the beneficial owners of millions of
companies. That is a big endeavor, and they need to make sure
they have the resources to do it. I do think if Congress wants
to continue looking at this issue, and I would encourage
Congress to do so, looking at greater transparency around some
of the enablers of corporate secrecy, the lawyers and the
accountants, I think that is another good area to push on. And
then the other thing, I would say_
Ms. Tlaib. I was just thinking of that. I completely agree,
because there are firms that are actually helping them do it,
correct?
Mr. Harrell. Yes.
Ms. Tlaib. Yes.
Mr. Harrell. The other thing I would say is, I think we
have to get much more serious about transparency in some of the
small tax havens. A few years ago, when this Congress was
worried about the fact that overseas banks were helping wealthy
Americans hide their taxes, there was a very meaningful effort
to force banks in Switzerland and the Caymans and places like
that to provide tax reporting information to the United States.
There is not really a parallel requirement or serious effort to
get places like the British Virgin Islands and the Cayman
Islands to clean up their corporate ownership structures, and I
think it is time to look at what can be done there.
Ms. Tlaib. Thank you. And for many of my colleagues here,
especially my Democratic colleagues who know that I have spoken
about recently, just the impact of seeing somebody like Vincent
Chin in our community in Detroit beaten to death after anti-
Asian hate rhetoric was increasing during that time, and we are
seeing that again. So I just hope this committee can do this
important work without fueling that rhetoric, being very, I
think, thoughtful, so that we can do meaningful work, again,
without jeopardizing our Asian neighbors across the country.
But with that, I yield back.
Mr. Steil. Thank you very much. Votes have been called on
the House Floor. The Chair anticipates recognizing one more
Member before we stand in recess for the votes.
The Chair now recognizes the gentleman from South Carolina,
Mr. Timmons, for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman. This hearing is long
overdue. I think we can all agree that China is a problem and
that we need to figure out a solution utilizing all of our
allies. This is not something that we can take on, on our own,
but I will say that I have been pleased with a lot of the
bipartisan agreement on a number of things today. One of them
is that defaulting on our Federal debt is bad, and I think we
all agree that we are not going to default. The question is,
what steps do we take to regain some fiscal solvency?
As the speaker says, if your kid runs up the credit card,
you do pay it off, but you don't let him do it again. We have
spent $7 trillion with the excuse of COVID, and that has
increased our debt, but not only has it increased our debt, it
has driven inflation, which is going to have long-term damage
to our debt as well. So, we have to take steps to address that
and to regain our fiscal solvency. It is a national security
issue. It is perhaps the most preeminent national security
issue, so I am hopeful that we will address our debt ceiling
responsibly, reasonably, and sensibly, and I am confident that
we are going to find our path forward. So, again, there is some
bipartisan agreement we are not going to default.
Another issue where I was actually surprised by some
bipartisan agreement was that the Biden Administration handled
the balloon poorly. I think the entire world was shocked, as we
have talked about, a balloon for the last 4 days, and the
disagreement has been largely partisan. But one of my
colleagues across the aisle said that is why I was concerned,
deeply concerned by this balloon business, and why the
President allowed this balloon to go all over our country and
not shoot it down. He did caveat it: ``I love the President. I
support him, but this move not to blow down the balloon sends a
powerful message to both enemies and friends because it is all
about data intelligence and China got us on this one.'' So, we
agree. China got us on this one. And the question is, what are
we going to do to get China to reform their behavior, and
compete in the global economy, and be good actors in the global
economy? That is the question. And I am going to go to an issue
that I think is a good case study on how to do that, and that
is with 5G.
Just a few years ago, Huawei, using the Belt and Road
Initiative, was giving away next generation wireless
infrastructure. They were going to our allies all over the
world, and the FBI said, well, hold on now, that is not a good
idea, and we didn't really want to explain why, but,
ultimately, we did, and all of our allies now have either
banned Huawei, stopped purchasing from Huawei, or required 5G
to be secure. We have utilized the IMF and the World Bank
through a bill that I sponsored 2 years ago to make it not
possible for anyone to use the World Bank, the IMF, and it
doesn't even address China. It just says if you are investing
in unsecure 5G, you are not eligible for IMF or World Bank. So,
I think that is a great example of a way that we can use our
allies abroad to facilitate behavior change from China. Huawei
has since taken steps to show that they are secure. They have
not done a very good job. People do not believe them yet, but
they are trying. They are trying to change their behavior.
And I guess, Mr. Willems, I would just like to say that the
type of situation where we can reform China's behavior because,
again, China_I do not want them to be our enemy. I want them to
be an equitable partner in the global economy, and they have to
play by the rules. So, is this a good example of how we can
accomplish that?
Mr. Willems. I think it is a good example to talk about the
importance of a comprehensive approach, because if you think
about the way that we handled Huawei, it was the legislation
that you talked about. But we also had export controls, we had
investment restrictions, and now through the EXIM Bank, we are
trying to provide 5G alternatives, and I think that shows what
you need to do to successfully deal with China threats. You
need to crack down, but then you also need to get on the
offense and provide another alternative, and that is an
approach I think we should apply to other areas as well.
Mr. Timmons. Absolutely. Thank you. I am very concerned
about our government's inability to adapt to the challenges
that we are facing. And China has the ability to do whatever
they want, whenever they want, and that is an advantage, but
the control they have over their people is a disadvantage.
Freedom and the American Dream is what makes this country so
great, and I just hope that we can tackle this in a bipartisan
manner going forward. And with that, Mr. Chairman, I yield
back. Thank you.
Mr. Steil. Thank you very much. As noted previously, votes
have been called, two votes in total. Members are encouraged to
return expeditiously following the second vote. Until then,
this committee stands in recess.
[recess]
Chairman McHenry. The committee will come to order. I thank
the panel for sticking with us. I will now recognize the
gentleman from New York, Mr. Torres, for 5 minutes.
Mr. Torres. Thank you, Mr. Chairman. I never thought this
moment would come. According to an opinion piece by Ruchir
Sharma in the Financial Times, if the United States economy
would have grown at an average of 1.5 percent annually, and
China's economy at an average of 2.5 percent annually, China
would not overtake the United States until 2060, but even the
assumption of a 2.5-percent growth rate seems increasingly
questionable. As you know, China is confronting a perfect
storm: a debt crisis; a demographic crisis; and a declining
productivity crisis. So, I have an historical question for each
of the panelists. Has there ever been a country in history that
has grown at 2.5 percent annually in the face of productivity
decline, population decline, and a prohibitive debt burden? I
will start with Mr. Ashooh, and we will go down the row.
Mr. Ashooh. I am not aware of one.
Mr. Torres. Okay.
Mr. Feddo. Nor am I, sir.
Mr. Lorber. Not to my knowledge.
Mr. Willems. It seems unlikely.
Mr. Torres. Yes.
Mr. Harrell. I'm not aware of one.
Mr. Torres. So, America's greatest enemy is not the CCP.
America's greatest enemy is itself. It is the dysfunction of
our politics. There may be severe structural limits on China's
ability to grow the Chinese economy, but there are no limits to
America's ability to sabotage the American economy. Who needs
the CCP when you have the self-sabotage of debt limit
brinksmanship here in Washington, D.C.? The full faith and
credit of the United States and the status of the dollar as the
world's reserve currency formed the foundation for American
leadership in the world, the very American leadership that the
Chinese Communist Party is intent on overturning. And I have a
simple yes-or-no question. If the Federal Government were to
breach the debt limit beyond the ``X'' date, would damaging the
full faith and credit of the United States undermine the
competitive position of the United States relative to the CCP?
And we will start with Mr. Ashooh.
Mr. Ashooh. Yes.
Mr. Feddo. Yes.
Mr. Lorber. I think that is likely.
Mr. Willems. I agree.
Mr. Harrell. Yes.
Mr. Torres. As you know, more than 6 years ago we saw
Russia weaponize social media platforms like Facebook and
Twitter to interfere with the 2016 election and otherwise
conduct influence operations against the United States. The CCP
has infinitely more influence over TikTok than Russia has over
Facebook and Instagram. TikTok is or could easily metastasize
into a Trojan horse for a CCP influence operation against the
United States. A question to each of you is, do you think
TikTok should be banned from the United States?
Mr. Ashooh. I really can't answer that. We did look at this
when I was in government, and there are clearly issues there
about what to do about it. An outright ban may not be the
answer, but clearly_
Mr. Torres. Are you aware that the parent company of TikTok
is a CCP committee?
Mr. Ashooh. Most Chinese companies have some sort of
Chinese government influence.
Mr. Torres. And is that cause for alarm?
Mr. Ashooh. Of course, it is. Absolutely.
Mr. Torres. Right, and as you know_
Mr. Ashooh. Let me clear. I can't give you a yes or a no
because I want the solution to fit the problem, and I don't
have enough information.
Mr. Torres. Let me rephrase the question differently.
TikTok is not only a social media platform, it has become a
leading new source for the next generation of Americans, our
most impressionable minds. Is it in the strategic interest of
the United States to have the CCP shape the information
environment of the United States?
Mr. Ashooh. Again, sir, this is an important issue. We did
look at it when I was in government, finding the right answer
in a way that didn't run afoul of concerns such as the First
Amendment and other things that came up. Just because it didn't
work, the First Amendment, doesn't mean we don't need an
answer. Here, we do. I just don't know what it is. And I am out
of government, so I unfortunately_
Mr. Torres. Mr. Feddo, should we ban TikTok? And I have
nothing against dancing, for the record.
Mr. Feddo. I worry about the idea of banning because it can
become a slippery slope. Also, attempting to ban TikTok failed
during the Trump Administration, which is the President's
Executive Order in August of 2020. I think you are right. The
concerns about its parent company_the Commerce Department at
the time had supporting information related to its attempt to
enforce the ban that there were 130 CCP committee members
within the parent company that had been_
Mr. Torres. What was the number?
Mr. Feddo. 130.
Mr. Torres. So, 130 former CCP members in the parent
company.
Mr. Feddo. And National Security Advisor O'Brien, President
Trump's National Security Advisor, has called it the worst own
goal in national security and a scandal_
Mr. Torres. I just want to quickly get yes-or-no answers.
Mr. Lorber? Mr. Willems? Mr. Harrell?
Mr. Lorber. I don't think it lends itself to just a simple
yes or no.
Mr. Torres. Okay.
Mr. Lorber. There are all sorts of factors.
Mr. Willems. I think we should put in place a broader
infrastructure to examine all Chinese apps operated in the
United States and make sure that we are protecting against
national security threats because I don't think it is just
TikTok.
Mr. Torres. Fair enough.
Mr. Harrell. Yes, I agree with Clete.
Mr. Torres. Okay. Thank you. My time has expired.
Chairman McHenry. I will now recognize Mr. Meuser of
Pennsylvania for 5 minutes.
Mr. Meuser. Thank you very much, Mr. Chairman. And
certainly, I thank all of our witnesses for your time here
today.
China is characterized in many different ways_a competitor,
rival, authoritarian, adversary_and I guess we will see over
the years what it will be characterized as by us moving
forward. But right now, the CCP, among many things, is accused
of, and there is much evidence to support, the regular theft of
intellectual property. Recently, the FBI Director stated that
the Chinese government poses the biggest long-term threat to
our economy and the national security of the U.S., of course.
He described a lawless, stop-at-nothing Chinese government
agenda to steal IP. Mr. Ashooh, in your judgment, is the Biden
Administration treating this as seriously as we should be?
Mr. Ashooh. The issue of IP theft?
Mr. Meuser. Yes.
Mr. Ashooh. I believe so. I believe it certainly had
attention in the prior Administration, and I haven't seen that
wane. The challenge is, it is a very hard problem to solve
because the institutions to deal with it are in the law
enforcement realm, and once that IP has been prolonged, it is
not like you can just discourage it, so it is a very
challenging problem.
Mr. Meuser. I was in business for a long time on an
international basis, and I can appreciate that, but is it
something that our State Department or others are regularly
commenting on and pushing back on and trying to investigate, to
your knowledge?
Mr. Ashooh. I can't speak specifically to a particular
agency. I certainly know it was a priority when I was
regulating.
Mr. Meuser. Okay. Mr. Feddo, is the Biden Administration's
assault on our domestic energy industry, excessive spending
that took place over the last several years, which is the
primary cause of inflation, higher interest rates, and the loss
of much wealth in the capital markets, along with the raising
of business taxes, which has been done, and a lot of talk of
raising taxes higher in the near term on U.S. companies_does
this improve our position vis-a-vis China, and does it improve
the economic competitiveness of the United States, in your
view?
Mr. Feddo. I don't think it does. I am probably not the
best to answer that with more precision. If I can just
interject on your question to Mr. Ashooh, I do think that FBI
Director Wray is constantly talking about intellectual property
theft, and the FBI, as he said, is opening up an investigation
related to espionage and IP theft every 12 hours, and there are
over 2,000 investigations. So, I do think the Justice
Department is very focused on that issue.
Mr. Meuser. Mr. Lorber, do you think the idea of raising
our corporate income tax from 21 percent, which has made us
competitive sort of in the middle of the pack of industrialized
nations_do you think the idea of raising that will help or hurt
our economy vis-a-vis China's output?
Mr. Lorber. I can't speak specifically to the raising of
the corporate minimum tax, but I will say that anything we do
that hurts the competitiveness of U.S. companies would hurt the
U.S. national security vis-a-vis_
Mr. Meuser. Yes, Made in the U.S. makes it more difficult.
Mr. Willems, your thoughts on that?
Mr. Willems. We should not raise the corporate tax.
Mr. Meuser. Right. Something else I want to bring up is I
have a bill, H.R. 839, known as the China Exchange Rate
Transparency Act. And what this bill does is it requires the
Treasury to instruct the U.S. executive director at the IMF to
use the voice and vote of the United States to advocate for
increased transparency from the PRC's exchange rate practices
compliance by the PRC in line with what other members of IMF
are beholden to, and publication of significant divergences,
and stronger consideration by the IMF management, and members
of PRC's lack of transparency when evaluating quota and voting
shares at the IMF. Would you just comment if you think such a
bill makes sense, Mr. Willems?
Mr. Willems. I think that this is the right approach. This
is an issue the committee should be focused on. I think one
thing that committee should explore in greater depth is
enforcement mechanisms around these IMF proposals. What are the
sources of leverage we can use to actually effectuate these
policy changes? And I do think it is helpful to instruct the
U.S. representative at the IMF to take these positions, but how
are we actually going to get results? I think I would like to
start with your bill, and then let's build off of it and figure
out how to make it actually happen.
Mr. Meuser. Sure. Great. Anybody else? I only have 8
seconds.
[No response.]
Mr. Meuser. Good. Mr. Chairman, I yield back. Thank you.
Mr. Lawler. [presiding]. The gentleman's time has expired.
The gentlelady from Colorado, Ms. Pettersen, is recognized for
5 minutes.
Ms. Pettersen. Thank you, Mr. Chairman, and thank you all
for being with us today. I know it has been a long day, so
thanks for sticking it out.
I know that we are focused on the economic threats of
China, and something that isn't necessarily part of this, but I
think that I want to talk about are some economic tools you
might recommend on how to address the threat that we face from
China with the illicit drug market and the increase in fentanyl
coming into our country. This has hit Colorado hard. This is
happening globally. And while I know that you are not all here
today as experts in the illicit movement of drugs and drug
proceeds, I just want to know if you have recommendations for
economic tools, carrots and sticks, that Congress might be able
to employ to actually change behavior here. This is something
that has killed more people in the United States than all of
the world wars combined, the opioid epidemic. It is the third
wave, and fentanyl has completely taken over the drug supply
chain, and it is incredibly dangerous. So, I would love to hear
your thoughts.
Mr. Lorber. Sure. I am happy to take the first crack at a
response. As I mentioned earlier, we have seen the Treasury
Department target a number of Chinese individuals and entities
for their role in illicit fentanyl production and smuggling.
One other approach that I have seen as a complement to
sanctions authorities that has worked, I think, fairly well
over the last few years, has been guidance and advisories that
have been promulgated either by the Financial Crimes
Enforcement Network (FinCEN), OFAC, or other entities in the
U.S. Government that highlight what the typologies of illicit
funds movements associate with a particular threatening
activity could be, in this case, fentanyl trafficking,
something along those lines. If you wanted to think about how
you could expand the toolkit beyond simply sanctions and law
enforcement as of right now, that might be something to
consider.
Ms. Pettersen. I appreciate that. Thank you so much. I
yield back.
Mr. Lawler. The gentlewoman yields back. The gentleman from
Wisconsin, Mr. Fitzgerald, is recognized for 5 minutes.
Mr. Fitzgerald. Mr. Willems, one of our major priorities as
a committee is to prevent malign influence by China that would
distort our markets. Last Congress, I was fortunate enough to
author a bill, the Foreign Merger Subsidy Disclosure Act, and
it was signed into law by the President. It put an emphasis on
disclosure, sunshine, that type of thing. The FTC and the
Department of Justice, the Antitrust Division, are now required
to monitor and take foreign government subsidies into account
in the pre-merger notification process, another area where
China is attempting to infiltrate our exchange trade funds
traded here in the United States as well.
Many of these investment vehicles contain Chinese companies
involved with China's military as well. That has been
disclosed. I think there was even some discussion about it
today. For example, CSSC Holdings Limited, China's largest
builder of military ships, is listed in several major indices,
including MSCI emerging and FTSE as well. So, there are a
number of different corporations that are complicated acronyms
as part of this discussion. The indices contain trillions of
dollars of assets under global management, and current law that
prohibits U.S. investors from buying or selling securities for
companies deemed to support China's military. However, parent
companies or subsidiaries of listed companies can still be
found in these indices. Why is it that the parent and
subsidiaries of listed companies can circumvent this ban? We
still don't have a full answer to that.
One of the other principles I hope we keep in mind as we
look at ways to counter China is to ensure that these policies
do not wink at the dominance of the U.S. dollar here and
abroad. We have seen that many of these adversaries like China,
Iran, and Russia have made efforts to reduce the reliance on
the dollar, but even some of our allies who have sought to work
around our sanctions are well aware of it. And I think it goes
beyond bad actors at this point, and they are trying to
establish alternatives to our SWIFT system. So my question to
you would be, are there things we should be doing, in addition
to what we tackled in the last Congress, that could probably
tighten this and make it more presentable to not just
congressional committees, but also to DOD and anybody else
involved in the defense industry?
Mr. Willems. First, let me say congratulations on your
bill.
Mr. Fitzgerald. Yes, thank you.
Mr. Willems. I think that it's a good piece of legislation
and I'm glad that it was signed into law. Second, let me
comment on the military company restrictions, which you
referred to. I think that Congressman Barr has legislation that
is looking to make this statutory and then tighten some of the
gap, and I think that as we are doing it, considering what you
raised is also a worthwhile endeavor for this committee to
explore.
Now, I think that there may be some complexities we need to
think about when you are talking about entire index funds, but
the point is, if we make a determination that a company is
linked to the Chinese military, we shouldn't have U.S.
investors in that company. So, we need to figure out how we are
closing all applicable gaps, and I think exploring what you
raised is a worthwhile endeavor.
On the SWIFT question, that is less my area of expertise,
but I would be happy to try to get back to you on that or maybe
one of my colleagues also has something to say. And I was
looking at Eric.
Mr. Lorber. I am happy to touch on the SWIFT.
Mr. Fitzgerald. Mr. Lorber, yes, do you have a comment on
the SWIFT part of it?
Mr. Lorber. Yes, definitely. I do think that to a certain
extent, and as we talked about previously, there are
workarounds that are under development or have been developed
by our adversaries. China, we talked about with the potential
CBDC, as well as Russia and their Mir payment system. On the
SWIFT side, I actually think that the threat of a sort of a
European defection from the U.S.-led financial rail system may
not be as immediate as some were worried about even a few years
ago. Remember, the Europeans set up Instex following the U.S.
withdrawal from the Joint Comprehensive Plan of Action (JCPOA)
as a way to facilitate trade with Iran that was outside the
U.S. sanctions jurisdiction. I think there was one transaction
that ended up going through Instex. Very, very few did. And so,
I think to a certain extent, there was a lot to talk about at
the time, but in actuality, it didn't come to fruition, and I
certainly haven't heard of anything along those lines since the
Russian invasion of Ukraine.
Mr. Lawler. The gentleman's time has expired. The Chair now
recognizes the gentlewoman from Massachusetts, Ms. Pressley,
for 5 minutes.
Ms. Pressley. Thank you. First, I just want to take a
moment to condemn the anti-Asian rhetoric by many of our
colleagues in Congress across the aisle, which has emboldened
anti-Asian hate, not only in the Massachusetts 7th, which I
represent, leaving many of my constituents in fear with their
safety threatened, but really threatened our democracy. And I
want to just take a moment to forcefully disassociate myself
from remarks made by my colleagues that peddle xenophobia and
fuel violence against the Asian community. I do think we can
certainly be critical of the Chinese government and their
economic policies without being hateful, racist, or xenophobic
in our language.
So, Mr. Harrell, you are the former Senior Director for
International Economics and Competitiveness with experience on
the National Security Council and the National Economic
Council. Do you agree that it is possible to talk about China's
policies without being racist or xenophobic?
Mr. Harrell. I think it is very important that we be
thoughtful in how we talk about and how we discuss the
challenges we face from China. It has been heartening here
today with this committee to hear several members of the
committee note that when we talk about our competition with
China and the threat from China, we are talking about the
Chinese Communist Party and the Chinese government, and we are
not talking about the hundreds of millions of ordinary Chinese
people with whom we have a lot in common at a personal level. I
do think it is important that we continue to be careful about
how we talk about this in a politically-charged atmosphere, to
make sure that we are clear that we are talking about
government policies in China, the acts of the state, and that
we are not inadvertently kind of sliding into statements
against the Chinese people.
Ms. Pressley. Thank you. I hope that my colleagues hear you
loud and clear and can learn from that. I also hope they learn
to discuss global competitiveness without warmongering. It is
no surprise that proponents of the military-industrial complex
have already seized on recent events to call for even more
defense spending. War should not be the centerpiece of U.S.
foreign policy. In today's hearing, let me say that war will
not solve our global economic challenges. Rather, the United
States can demonstrate global leadership by building
partnerships grounded in economic policies that center on human
rights, invest in workers, and form lasting relationships. This
is how we achieve our goals on the global stage and distinguish
our approach from Chinese policies.
I am particularly interested in the U.S. economic approach
to the African continent. Africa is a rapidly-evolving
continent. In 2019, 7 of the 10 fastest-growing economies in
the world were in African countries and the Continent's
population is expected to double to 2.5 billion people by 2050.
Mr. Harrell, can you describe some of the key lessons we
should learn from Chinese policies and economic investments in
African countries?
Mr. Harrell. I think it is incredibly important that we as
the United States up our game with respect to engagement in
Africa. I think there have been a couple of very positive steps
over the last couple of months. I think President Biden's
African Leaders Summit provides a useful foundation to renew
diplomacy and economic engagement across the continent. I think
trips like Secretary Yellen's and Secretary Blinken's recent
trips to the continent help build on that foundation to deepen
ties. I do think that the Biden Administration is potentially
further along in its thinking with IPEF and with APEF
initiatives for the Indonesia-Pacific and for the Americas
Partnership than it has been on some of the specific economic
deliverables and initiatives for the African continent. But I
am also confident coming out of the African Leaders Summit that
we are going to see more robust engagement.
I do think we are well-positioned for renewed engagement in
Africa because the shine has really come off of the kind of
Chinese debt diplomacy of the last decade in China. We are
seeing countries in Africa and elsewhere, but particularly in
Africa, see some of the downsides of letting Chinese companies
come in with low standards for mining, for manufacturing, for
the environment, for labor, and for human rights. And so, you
are beginning to see African governments put a pause on Chinese
projects.
Ms. Pressley. I am almost out of time. Thank you so much. I
do strongly believe the U.S. has an opportunity to be a fair
economic partner with African nations and to foster a global
economy that truly works for all. Thank you.
Mr. Lawler. The gentlelady's time has expired. The
gentleman from New York, Mr. Garbarino, is recognized for 5
minutes.
Mr. Garbarino. Thank you, Mr. Chairman. And thank you all
for being here all day today. I appreciate it.
Mr. Willems, I have a question for you. The Asian
Development Bank (ADB) is probably the most important
development institution in the Asia-Pacific region addressing
regional development problems using financing in the form of
grants, loans, and advisory services. However, beginning in
2014 with the New Development Bank, and in 2016 with the Asian
Infrastructure Investment Bank (AAIB), China has created its
own rival banks, while still itself getting loans from the
Asian Development Bank. I believe China received the second-
largest amount, counting for 14 percent of the bank's
outstanding loans. There have been discussions with the Asian
Development Bank about possibly stopping loans to China,
because even though China likes to say it is a developing
country, we don't think it is anymore, but they haven't made a
final decision. Do you think China should still receive or
should stop receiving loans from the Asian Development Bank,
and what advantages does China get by continuing to receive
these loans?
Mr. Willems. Thank you for the question, and I agree. I
think China should not receive loans from either the World Bank
or the Asian Development Bank. And I don't have it in front of
me, but if you look at the World Bank's Articles of Agreement,
it talks about how the countries that should receive loans are
those that don't have liquidity themselves. So, what you have
here is China getting the loans instead of those who actually
need it. And I think in both of those institutions, we need to
try to work with allies to create a situation where China is no
longer getting loans, because if they can do Belt and Road, if
they can do the AIIB, they clearly don't need the ADB or the
World Bank.
Mr. Garbarino. Exactly, and I love your saying that they
are taking 14 percent of the pot of money here that could be
going to other people. You just mentioned Belt and Road, and I
guess that has been around for what, 2 decades or so. And I
think the estimates last pegged China's lending to the world at
a trillion dollars. I think it was the last estimates in the
last couple of years, which would make them bigger than the
World Bank and the IMF. And these loans that they are giving
out to these developing countries are usually shorter-term,
higher-interest-rate loans. And we are seeing now Pakistan said
it wants to renegotiate Belt and Road Initiative payments,
accusing Chinese companies of inflating the cost of
construction by $3 billion.
Laos, Sri Lanka, and I think some other African nations
have asked to restructure and delay repayments or forgive
billions of dollars because of the high interest rates and
everybody coming out of the pandemic because of what these
loans that China has done through the Belt and Road Initiative,
and now these developing countries are being harmed even worse
than they thought they were going to be. What role should we
and other international financial institutions have in
addressing the needs of these developing countries that receive
funds from the Belt and Road Initiative and now are in need of
debt relief?
Mr. Willems. Yes, so two comments on this. The first is,
the hypocrisy from China is thick, right? China goes around and
says it is the defender of the multilateral system and it is a
responsible international stakeholder, yet it is the outlier in
refusing to restructure these debts. And so, I do think we need
to work with allies to pressure China to change its position.
The second point I would make is we need to help prevent
these countries from getting in that position in the first
place. And one of the issues that I think we need to focus even
more on is our development tools, the DFC and others, in
figuring out how to provide a robust alternative to China so
that these countries aren't taking Belt and Road money to begin
with.
Mr. Garbarino. Okay. But we have to make sure that the
taxpayers are bailing out these bad loans.
Mr. Willems. I agree.
Mr. Garbarino. Okay. I just want to make sure, because I
don't know if the IMF, or the World Bank are coming in and
renegotiating these loans, which is going to work, but what
kind of pressure can we put on Beijing to make them do it?
Mr. Willems. I think one of the things we want to do is
work with G7 partners. The United States alone doesn't have the
voting shares in either of these institutions to be able to
leverage change itself. It needs partners, so we need to get
those partners who have enough voting shares to actually make a
difference. We need all of them to band together, get on the
same page, and pressure China, and that is the best way to do
it, in my opinion.
Mr. Garbarino. I appreciate those answers, and I am out of
time, so I yield back. Thank you very much.
Mr. Lawler. The gentleman yields back.
The gentleman from Nevada, Mr. Horsford, is recognized for
5 minutes.
Mr. Horsford. Thank you. I want to thank the chairman and
the ranking member for holding this necessary hearing today,
and I want to thank our expert witnesses for appearing before
the committee. I am glad that you are here to elaborate on the
various ways that the Chinese Communist Party is challenging
the United States interest on a global scale, whether it be
through unfair trade practices and ignoring of international
sanctions, undermining of the SWIFT banking system, expansion
of influence through the Belt and Road Initiative, or simply
military aggression.
We are seeing a multifaceted campaign from Beijing to
catapult China to the forefront of global markets and the world
stage. We have a responsibility to our children and to the next
generation to own the 21st Century as the United States. No
longer do we have the luxury of waiting for tomorrow, as we are
locked in a competition for America's global standing today.
So, the work that we do here and have done over the last 2
years will be key to position our country for the economic
fight to come. I am proud to say that House Democrats have
delivered and laid the groundwork for American success through
strategic investment in our people, our production, and our
infrastructure.
The CHIPS and Science Act ensures that the technology of
the future will be made right here in America, by union members
with good, quality jobs. And as the high-tech manufacturing
sector evolves, our production capabilities will grow right
along with it. However, other investments were necessary to
rebuild our crumbling roads and bridges through the Bipartisan
Infrastructure law, which will allow American businesses to
bring their goods to the market faster and at a lower rate.
Meanwhile, the Inflation Reduction Act delivered support to the
nearly 60,000 manufacturing employees back in my home State of
Nevada, while ensuring that the United States will lead the way
forward on clean energy.
Now, these are just some of the examples, and I know my
colleagues on the other side will propose additional ones, and
I hope to work with many of you on those efforts, but I believe
that we should be focused on also supporting and investing in
American companies and the American workforce. For decades,
investments in manufacturing and our supply chains had to be
offshore to China by multinational corporations that saw
opportunities for ever greater returns. I am particularly
worried by the large investments from the Thrift Savings Plan
and other retirement accounts in the companies controlled by
the Chinese Communist Party.
Nevadans don't need to have their retirement accounts,
investing their hard-earned money into companies and funds that
are actively competing against us. While I applaud President
Biden for his recent Executive Order barring investments in
certain military or surveillance companies, it remains that
U.S. investors hold over $1.2 trillion in equity and debt
issued by Chinese entities. These investments should be made
here at home to the benefit of American companies, communities,
and workers. To make matters worse, while the companies that
American firms have invested in may appear to be privately
held, oftentimes, they are still working at the behest of the
Chinese Communist Party.
Mr. Harrell, given all that we know about the difficulty in
disentangling Chinese state-owned enterprise from private
firms, do you think it is appropriate for the Administration
and Congress to consider further trade restrictions on American
investment in Chinese firms? Are we essentially shifting money
away from our domestic sectors to the benefit of our
competitors?
Mr. Harrell. I do think it is appropriate for Congress and
for the Biden Administration to look at ways to expand limits
on certain U.S. investments in China. I would recommend, in
particular, that the Administration and Congress work to build
out the list of Chinese military and surveillance companies
where investment is currently prohibited to potentially include
other kinds of companies where we see specific national
security risks from the investment in those companies. And I
also joined several of my colleagues here in endorsing a
narrowly-targeted review mechanism for certain outbound private
investments in China. I do think it is important to look at
both of these issues.
Mr. Horsford. Thank you very much. Mr. Chairman, and Madam
Ranking Member, I will yield back.
Mr. Lawler. The gentleman yields back. The gentlewoman from
California, Mrs. Kim, is recognized for 5 minutes.
Mrs. Kim. Thank you, Mr. Chairman. And I want to really
thank the witnesses. You are the experts in this field, and I
think it is such a timely hearing on the topic of how we
discuss the economic challenges posed by the CCP.
As you know, it is no secret that the CCP, under the
authoritarian regime of Xi Jinping, are trying to displace the
United States as the number-one economy in the world and have
countered the American Dream with the CCP's version of the
China dream on the global stage. I am an immigrant who came
here to live that American Dream, and I can't tolerate seeing
that eroding every year by the CCP, which is why, when we see
the CCP strategically undermining U.S. interests and
threatening U.S. economic and commercial interests abroad at
every turn, we have to do everything we can to come up with
policies that will counter it. We just saw in the last week
that the CCP is not satisfied with threatening U.S. economic
and commercial interests abroad. It has also sought to violate
our domestic airspace and the longstanding international norms
with surveillance balloons. So clearly, we need to get CCP and
Xi Jinping and their reckless actions tamed.
Let me ask you, Mr. Lorber, the CCP has opted to increase
its bilateral swap line agreements to further internationalize
its currency, and rival the U.S. dollar as the world's reserve
currency. As in the case of Russia, these bilateral swap lines
are being used to circumvent the U.S. dollar and sanctions. Can
you talk about the policies that the U.S. can implement to
flatten or reduce bilateral swap line agreements between the
CCP and other countries?
Mr. Lorber. Thanks. It is a great question, and I think
there are two responses to it. The first response is, in any
situation, including like this, where there is a national
security threat or potential illicit activity occurring, that
is a prime candidate for the use of a targeted sanction. So,
that definitely does exist in this scenario.
I think the second point, though, is that part of the
reason that it has been challenging, as I understand it, for
China to internationalize many of its financial relationships
and have adoption, widespread adoption of currency as the
renminbi itself has certain core limitations to it, so a degree
of exchange rate volatility, capital controls that exist. And I
think the second point I would make is that there is always a
distinct possibility and maybe even a probability that the
expansion of the swap lines may not occur because of the
limitations of the renminbi.
Mrs. Kim. Thank you. Mr. Willems, I have a question for
you. The COVID-19 pandemic and the CCP's COVID Zero policy
showed that critical supply chains and international commerce
cannot be subject to the whims of an authoritarian regime that
disregards the basic economic norms. So, can you describe any
policy recommendations that will help us move the critical
supply chains away from China, and as a follow-up, your
thoughts on re-engaging Indo-Pacific partners and allies with
our trade agreements?
Mr. Willems. I completely agree with your premise, and I do
think that is a lesson from the pandemic. I think that we do
need to figure out, can we reduce supply chain reliance on
China? Now, I think one unfortunate circumstance has been that
this Administration has not been pushing for the right policies
to do that. And one of the things that I would like to see much
more of that I think can be more effective are trade
agreements.
To put it simply, if we want our companies to leave China,
we need to provide them with positive incentives and other
markets to go to, so we need to make it easier to link our
supply chains with these other countries. And I would like to
see more trade agreements in particular, in the Indonesia-
Pacific, Taiwan would be a top candidate for me, and then I
would also look at renegotiating the TPP, trying to fix it and
make it work for U.S. interests.
Mrs. Kim. Great. Thank you. We agree on that. I have one
more question for you, Mr. Willems. I have been an advocate for
the United States to provide Taiwan membership in the
international organizations, and I have done that in the first
term that I served. And just recently, I introduced H.R. 540,
the Taiwan Non-Discrimination Act, to allow Taiwan to be
included in the international monetary policy. So, I want to
get your take on that, and can you describe how getting Taiwan
into the IMF, for example, could strengthen the IMF and other
international organizations?
Mr. Willems. I have 5 seconds, but I will strongly endorse
your bill, and I do think Taiwan is already a member of many
organizations_
Mr. Lawler. The gentlelady's time has expired. Please
submit your responses for the record.
Mrs. Kim. I heard what I needed to hear. Thank you so much
for your endorsement of my bill. I yield back.
Mr. Lawler. The gentleman from Nebraska, Mr. Flood, is
recognized for 5 minutes.
Mr. Flood. Thank you, Mr. Chairman. And thank you to all of
the witnesses who are here.
In 2017, the People's Republic of China announced with glee
that they were going to be giving us $100 million to build a
garden in our national park here in Washington, D.C. It turns
out that they wanted to collect intelligence. They wanted to
find out what was happening in our Nation's Capital, and they
have been doing this all over the country.
As a Representative from Nebraska, I represent Offutt Air
Force Base, which is home to the U.S. Strategic Command
(STRATCOM). We also, as many of you know, have a very close
connection to our nuclear triad, and we have sensitive military
assets all over the State of Nebraska. And I found out that
cell phone companies, some of them owned by American companies,
are providing cellular services using Huawei equipment. On top
of this, folks in North Dakota and several rural States are
raising the red flag about the Chinese government purchasing
real estate in the United States.
My question is for Mr. Feddo. During your time working at
the Treasury, can you speak to how frequently Chinese real
estate purchases came under CFIUS review? Was it frequent or
infrequent?
Mr. Feddo. Thank you very much for the question, Mr. Flood.
We implemented the rule. We had a statutory deadline on
February 13, 2020 and we implemented regulations, which made
real estate jurisdiction effective at that time. Real estate
filings are voluntary. They are not a mandatory filing, but the
committee has the power to pull in filings that it deems
deserve scrutiny under its jurisdiction.
Oftentimes, real estate transaction jurisdiction overlaps
with the normal jurisdiction of the committee, and so it is
hard to say which ones might be real estate-related
transactions. But the concern about proximity, which you are
describing, is something that the committee and its members,
especially the member agencies, the Justice Department and the
FBI, in particular, are very concerned about and very alert to,
so that piece is addressed.
There is a list of almost 200 military installations and
other facilities that are published by the committee that
relate to real estate jurisdiction. And those are provided by
the agencies within the committee that have the subject matter
expertise to say this facility is sensitive and should be
within the real estate jurisdiction of the committee. And so,
to the extent there is a facility or installation, that is not
in there, that is on the committee and its member agencies to
dialogue and tweak it so that there is appropriate coverage for
something that is sensitive.
Mr. Flood. It seems to me like Congress needs to take this
very seriously, maybe make it mandatory that the reporting
happen. And as I read the regulations now, in the case of the
Chinese garden that was roughly 2.7 miles away from the U.S.
Capitol, and 4 miles away from the White House, yet CFIUS'
jurisdiction is defined as 1 mile from the base. It seems to me
that we could be making some changes in the way our statute
reads so that we are requiring a better look at some of these
concerns.
Mr. Feddo. Maybe I would say that the full committee and
all the member agencies, including DOD and those that have a
stake in this issue of proximity, and spying, and collection
ofintelligence_we were all very involved for 2 years in scoping
this out. And one concern I would have, and as you consider
what to do going forward, is to the extent real estate
jurisdiction is scoped so broadly, it may consume everything
that CFIUS does, and sort of make it limitless.
Mr. Flood. And I do appreciate your concern there, because
I think we can draw this in such a way that it draws everybody
into a circle and we could waste some government resources. Do
you feel confident that CFIUS' current review process gives us
the ability to police what I think a lot of folks in North
Dakota, and Nebraska, and other communities are saying about
the CCP's efforts in real estate?
Mr. Feddo. I do, to the extent that it is a clear national
security issue related to a U.S. business or to an installation
or to something that gives it a hook. If it is more of a raw
real estate transaction, that may be another question for
another authority within the government.
Mr. Lawler. The gentleman's time has expired.
Mr. Flood. I yield back.
Mr. Lawler. The gentleman from Iowa, Mr. Nunn, is
recognized for 5 minutes.
Mr. Nunn. Thank you, Mr. Chairman. And thank you very much
to the panel for being here. You are all experts on China, the
threat emerging from China.
As we look at things, as a counterintelligence officer
myself, who protects our national security, as somebody who has
flown recon operations in international airspace, not violating
another country's sovereign airspace territory has been seen in
recent days. We have a real concern here, and I think one of
the greatest threats to U.S. national security in relationship
to China right now is not on the battlefield, but it is in that
area where a great transfer of U.S. wealth is going to build
the Chinese economy, whether that is state-owned businesses,
whether that is their foreign investment infrastructure done
with American credit, or whether that is the actual buildup of
the People's Liberation Army.
With this, Mr. Willems, you have highlighted firsthand how
export controls, restrictions, and subsidies received by China
on the global stage are becoming a threat. One of the things I
would like to learn, first of all, before we get to a situation
of a kinetic conflict between the United States and China is,
how can we provide an offramp for China to do right by the
United States and themselves, as well as U.S. companies really
leading in this space, to have good behavior that is going to
reward America and not allow China to continue to take
advantage of us?
Mr. Willems. I think what I would start with is the need to
bifurcate the kinds of activity that we have with China. On one
hand, there are things that can clearly contribute to their
military development, that can raise national security threats,
and we need to crack down on that kind of behavior. On the
other hand, we want to maintain linkages with China where we
can. And I think there has been a lot of conversation today
about distinguishing between the PRC and the Chinese people,
and it is important to maintain that distinction, and it is
important for us to have our companies engaging directly with
the Chinese people themselves.
And I think, as someone from Iowa, having more exports into
China is good. It helps Iowa farmers. I also think, looking at
our financial services industry, that they need to be on the
ground in China, to do business in China and to be globally
competitive. So, let's maintain those links while cracking down
on the ones that are problematic.
Mr. Nunn. As far as I know, you have hit the point, head
on. One of the bills that I am looking at introducing here is
the Neutralizing Unfair Chinese Subsidies Act of 2023. What
this really looks to do is to identify the way in which the
Treasury Secretary could develop a strategic plan today and a
timeline to work with our allies in order to seek China's
compliance with international export subsidy standards. This
goes to both a multilateral_which you have spoken to_approach
with our allies, as well as very targeted bilateral pressure
towards China. So, the follow-up question here is, what levers
would you recommend the Administration utilize, maybe those
levers that are not being utilized, and how can we move forward
with this in a pragmatic way?
Mr. Willems. I like where your legislation is going, and, I
will say, I think it is part of a broader approach. On one
hand, we do want to engage with the OECD and enforce these
rules against China, and I think we should talk about how to do
that, how to work with allies and partners to put that pressure
on China. At the same time, we don't want to race to the bottom
with China, but we do have an export credit agency, EXIM Bank,
that can provide an alternative to what China is doing.
I had a couple of recommendations earlier today on how to
loosen some of the strings around EXIM so we can provide a
meaningful alternative, things like having their China &
Transformational Exports Program that cuts through red tape,
things like allowing them to take a little bit greater risk to
make sure that we are actually in the same level playing field
as China.
Mr. Nunn. Excellent. Mr. Willems, I would echo the Chair.
This can be truly a bipartisan effort that we need to have a
strategy towards China today, not a strategy that develops
after an incident occurs and that we are in a reactive posture.
We have the opportunity to lay out a clear roadmap here on how
the U.S., China, and our allies can usually be successful,
rather than locked in this long-term strategy of adversarial
relationship that regretfully could end up in a kinetic
situation. So with that, I would reach across the aisle to my
colleagues to support what could be a bipartisan lever here on
holding China accountable for their subsidies act.
And again, I want to thank the committee for hearing from
this incredible group of witnesses and your expertise in the
area. With that Mr. Chairman, I yield back.
Mr. Lawler. The gentleman yields back. The gentlewoman from
Indiana, Mrs. Houchin, is recognized for 5 minutes.
Mrs. Houchin. Thank you, Mr. Chairman. And thank you all
for taking time to come and speak to us today. Given the events
occurring over the weekend, the Chinese spy balloon crossing
the breadth of the United States with what appears to be a
clear attempt to spy on our military assets, I am really glad
that for this first substantive committee hearing, we are
discussing this important topic, about the People's Republic of
China, the Chinese Communist Party's threat to our financial
institutions and economy, but also our national security and
our way of life.
I have a question for Mr. Feddo. As a free market
conservative, I read your testimony and I am particularly
interested in your comments on how we can mitigate our risk
while also maintaining a strong, open, free market investment
environment.
Mr. Feddo. Thank you for the question. What I am focused on
primarily in the written testimony is this notion of creating a
new outbound screening investment regime, a new committee to
and a new bureaucracy to go with it. I tend to be a little shy
of expanding government, and if we need to do it, to make that
decision based on facts and on a rational basis and make sure
that it is tailored to the problem we have defined. Here, I am
not sure we completely understand what we want to try and stop.
I don't dispute that there is a national security risk, the gap
may need to be closed, and Mr. Ashooh can help me here, I
think, in a second. But what my thought is, is to use something
like what Mr. Barr is proposing, which is an expansion of the
CMIC list, sort of a combination of the use of sanctions and
export controls. It will be nimble. It will be precise. And it
will be clear to private actors what is in and out of scope.
But first, whether we go the committee route, and I have
outlined a series of questions we really do need to answer
before creating a new bureaucracy, or whether we go a sanctions
route, we need to be very clear what it is, where the national
security risk is, and I think the intelligence community can
help with that.
Mrs. Houchin. You note that the previous Congress and the
Biden Administration had considered creating a new government
agency with very broad powers, that would even oversee American
firms and their allocation of resources and property and
capital outside of the United States, not just limited to
China. And I believe your analysis of creating another
bureaucracy with undefined and far-reaching powers certainly
spoke to me and my constituents as an extreme version of
overregulation, and perhaps growth-stifling policies that could
have a chilling effect on U.S. companies.
So I am wondering, you mentioned in your comments that
CFIUS has some existing jurisdiction that could potentially be
utilized here with the goal of regarding the threat of China
through sanctions of Chinese military companies modifying
export restrictions and building a comprehensive record of the
risk gap, and I appreciated your line of questions there. I do
hope that we will also take a look at things in the whole of
Congress, espionage attempts, hacking attempts, attempts to
steal U.S. technology, companies owned, debt held, land
purchased, and other national security threats by the PRC, and
the CCP.
I am wondering if you have any comments finally, and this
could be directed at really any of the witnesses_Mr. Willems,
Mr. Ashooh_should we be concerned that outbound investment
streaming can go too far, and what are your comments on that?
Mr. Ashooh. Sure. The answer is yes, especially when you
are discussing financial investments. One example from Akron
Pharma was this concern over risks presented by joint ventures
between American companies and Chinese companies, and even that
was a very expansive concept blocking a particular kind of
business transaction through the legislative process that these
committees went through. It came to the conclusion that it
wasn't really about the joint venture, but rather what
technology could be transferred, and I think that is what we
need to do here. Is it just that an investment is outbound or
what is at the root of the concern, and then do we have the
authority, and my bet is we probably do have the authority; we
just need to tweak a little bit.
Mrs. Houchin. Yes, okay. Thank you.
Mr. Willems, do you have any comments? I did see you were
nodding your head.
Mr. Willems. I agree, and I am happy to elaborate in
writing.
Mrs. Houchin. Thank you. My time has expired, Mr. Chairman.
Thank you.
Mr. Lawler. The gentlewoman's time has expired. The
gentleman from Tennessee, Mr. Ogles, is recognized for 5
minutes.
Mr. Ogles. Thank you, Mr. Chairman. In our first hearing,
the House Financial Services Committee is highlighting the
existential threat of China. In that vein, I would like to
thank the chairman for his leadership and my colleagues for
their invaluable contributions, offering no less than 17 bills
aimed at deterring CCP aggression. I would also like to offer
some observations and recommendations of my own.
Currently, we are allowing the genocidal Chinese Communist
Party access to trillions of dollars through our capital
markets, echoing Chair Luetkemeyer. We are directly subsidizing
the CCP's military modernization and enabling its horrific
human rights abuses. While we spend nearly a trillion dollars
on our own defense, we diminish that very investment as China
uses revenues from our capital markets to flout the rule of law
in the South China Sea. Case in point, the CCP was able to
develop a brand-new warship, the Fujian, because Beijing raised
more than $8.6 billion back to 2015.
So Mr. Willems, looking at your written testimony and
perhaps sanctions towards the Chinese Military-Industrial
Complex (CMIC), what might you envision that we do as a
Congress to prevent the United States from essentially building
carriers and battleships that are being used against our
allies?
Mr. Willems. I think there are two things I would look at
here, and the first is what you alluded to, which is the CMIC,
making sure we are plugging all applicable gaps and we are
covering all types of financing that can go to those military
companies. So, that is number one.
The second one is export controls, and export controls can
be a tool to prevent our technology from going to China that
can be used to support that exact same military development. I
think, as I alluded to in my testimony, that the way in which
you do export controls is critical. It can't just be the U.S.
alone, it needs to be coordinated, otherwise, other countries
can step in and supply the same technology. So, I would use
both CMIC and export controls, but both of those tools need to
be carefully coordinated with others.
Mr. Ogles. Yes, sir. As a follow-up to the committee, as an
economist, I look at the current state of China, and I see some
economic vulnerabilities, and I think there is evidence to
document that much of their economic data is actually
fabricated. So as we look as a Congress, how do we go on
offense, and, quite frankly, take advantage of their economic
weakness and assert America's dominance in the global
marketplace?
Mr. Ashooh. I think one thing that we could do more of and
be better at is identifying vacuums before they manifest
themselves. In the case of Russia, I doubt Russia is going to
be the same state sponsor of whatever around the globe that it
has been. That is creating a vacuum. Venezuela is a good
example. As we have seen, China has moved in. The economic
weakness, as you point out, are limitations on China's ability
to do that, and it is even more acute if the U.S. is there to
meet them at that challenge. So, I think anticipating where
those gaps are going to be is wise policy for us.
Mr. Ogles. Mr. Feddo, or anyone else?
Mr. Lorber. It is a great question. The comment I would
make on that is, if that is the objective, then taking away the
easy wins for them makes a lot of sense, right? To your
conversation earlier with Mr. Willems, if you are in a
situation where they are able to secure financing for a wide
range of civil military activities, taking away that avenue
means that if they want to continue to maintain that pace of
development and that pace of deployment, it means that they
will have to find that money and those assets somewhere else,
which makes it costly and riskier for them to do so. So, I
think it is a two-fold approach. It is identifying the
vulnerabilities and then also plugging what we think are the
easy ways that they are able to access U.S. financial markets.
Mr. Willems. Okay. I would just add that I completely agree
with where you started with this, which is to say that their
economy is probably not growing as fast as they want us to
think it is. They are more vulnerable, and there is a lot of
division, even within the Chinese Communist Party. Xi Jinping
is not as secure in his position as many of us often think and
has his own vulnerabilities at home. And I just think, through
our intel community, through the way we do business, we need to
recognize where those vulnerabilities are and exploit them
because, again, China is not a monolithic state. They are more
unstable than we actually realize, and I think trying to figure
out where that instability is and putting the finger on it is
good for the United States.
Mr. Ogles. Mr. Chairman, I just want to thank the panel for
being here. This has been a long day. You all are amazing and
very much appreciated. I yield back.
Mr. Lawler. The gentleman's time has expired. The gentleman
from Florida, Mr. Donalds, is recognized for 5 minutes.
Mr. Donalds. Thank you, Mr. Chairman, and panel. Yes, it
has been a long day. I will give you that. Obviously, the
economic issues, threat, however you want to categorize it,
with China are extensive, and as a nation, we have a lot of
work to do, a lot of work. One of those areas of focus of mine
and, frankly, for our country should be in the energy space. As
we have learned over the last year, it is critical that the
U.S. really strengthens its domestic energy supply, and
strengthening our energy supply is probably the biggest
investment we can make in our economy.
The second biggest, I would argue, largely comes out of
this committee with financial regulation and the regulatory
environment. On Thursday, I am introducing legislation that is
called the Protect American Energy from China Act. This
legislation will prohibit Federal funds from being used to
implement a memorandum of understanding (MOU) signed in 2011 by
the Department of Energy and the Chinese Academy of Sciences.
The MOU addresses the sharing of information, equipment,
personnel, et cetera.
Mr. Ashooh, can you speak to the importance of protecting
the integrity of the U.S. energy sector? Why is that critical
to our economy?
Mr. Ashooh. I can, Congressman. Thank you for the question.
I don't think we have come to hear about energy today, so this
is an important one to touch upon. Speaking from an export
control perspective, it is worth reminding the committee that
the Department of Energy is one of the regular members of the
interagency that approves all licenses, and that is important
for two reasons. One is, there are a lot of fairly standard
ideas around energy, but there is a lot happening in the
emerging space. And it is really critical that we get our
licensing right, that we protect what we need to protect, and
that we allow collaboration where it makes sense for American
innovation. So in that respect, as a technology-driven industry
sector, it is important that we get that balance right.
Mr. Donalds. Okay, and I appreciate that. Mr. Feddo? And
you all can all comment, however you feel about it. It is kind
of the free-for-all time at this committee. You can kind of do
what you want, so if anybody else wanted to comment, you can go
right ahead. That is fine.
Mr. Feddo. I would just say our investment screening tool,
CFIUS, frequently looks at energy-related investments to ensure
the technology that Mr. Ashooh referred to as protected doesn't
fall into the wrong hands.
Mr. Willems. I am going to tackle this from a slightly
different angle. I agree with my colleagues. And I think that
there are again, these restrictions and things that we need to
put in place. But on the other hand, the other thing we need to
be doing is unleashing American energy exports around the
world. That is good for our economy. And I do think that, in
addition to restricting where we need to restrict, we need to
think about where China is as a market that can benefit our
economy and take advantage of that because, again, Chinese
purchases of U.S. products is subsidization for U.S.
innovation.
Mr. Donalds. Great. Mr. Lorber, I have a question for you
in particular. Obviously, we have a lot of businesses that do a
lot of various things in China. What are some of the best ways
you think that we can protect American businesses from covert
espionage and the CCP, IP theft, and really weaponization
against our businesses with shell companies here in the United
States?
Mr. Lorber. It is a great question, and there are multiple
sorts of ways to think through it. First and foremost,
obviously, companies have an obligation to protect themselves
or at least most of them do, but I think beyond that, there is
a two-fold answer to it. One is in situations where you think
there is or is likely to be intellectual property theft or
other some type of corporate espionage, so on and so forth, the
U.S. Government having the appropriate tools to say to the
Chinese, that is not acceptable, and we will sanction, we will
designate an entity, or whatever it may be, as a result.
On the question, I think, which is a little bit different
of the shell companies that you mentioned at the end, as I was
talking with one of your colleagues earlier, the United States
is in sort of the mid-level stages of putting into place an
effective and robust system to understand who is behind front-
end shell companies that have registered in the United States.
And once that is fully implemented, which should happen
hopefully within the next year or two, I think that will be
equally impactful way to prevent exploitation of U.S. markets.
Mr. Donalds. Expand on that thought a little bit. We are in
the middle of the game and actually figuring out how to ferret
this stuff out?
Mr. Lorber. Right. As was discussed, the Corporate
Transparency Act and the Anti-Money Laundering Act were passed
within the last 2 years. So, U.S. regulatory authorities are in
the process of rolling out the relevant rulemaking that is
required under those pieces of legislation.
Mr. Lawler. The gentleman's time has expired. The
gentlewoman from Texas, Ms. De La Cruz, is recognized for 5
minutes.
Ms. De La Cruz. Thank you, Mr. Chairman. Thank you so much
for holding this important hearing to combat the economic
threat from China, and I would sincerely like to thank all of
the witnesses for being here. I know this is an all-day event,
but your insight is very valuable to us.
Today, we are seeing heightened Chinese aggression on
multiple fronts, and we just saw this week alone the Chinese
balloon, which we have spoken about several times. It is
critical here in the Committee on Financial Services that we
are mobilized in our financial and oversight tools to address
the China challenges. Later this month, I am planning to
introduce a bill to direct the Comptroller General of the
United States to study the illicit financing associated with
synthetic drug trafficking. As you know, I am on the border in
Deep South Texas, so drug trafficking and China's involvement
is very important to me and to my district. This study will
outlay for Congress the business model that organizations are
carrying out with the trafficking and how they move and hide
illicit gains, and what the U.S. Government can do better when
it comes to fentanyl money laundering. So, again, this is
something near and dear, and impactful for our district.
I would like to ask you all if you have any kind of clarity
on the ties between the Mexican cartels and the Chinese
Communist Party, if you have seen any ties, distinct ties, or
know of any ties?
Mr. Lorber. I am happy to take the first cut of that
question, and it is obviously a very, very important one. I
know that starting really in 2017, during the Trump
Administration, the Treasury Department began looking very
earnestly at illicit fentanyl trafficking generally, but
specifically those networks and their touchpoints with
jurisdictions including China. In terms of specific ties, we
have seen publicly-reported information from the Treasury
Department, as I was discussing with a colleague of yours,
about Chinese companies that are making precursors to fentanyl
and shipping those fentanyl products to Mexico, which are then
finding their way across the border into the United States. So,
there is some limited information that has been made public.
With that being said, I do think a study to further explore
that information is the goal of getting what I think is a
worthwhile endeavor.
The other point I will make on it as well, and this is a
conversation I was having with one of your colleagues, is that
it is very important to have the relevant regulatory
authorities in the United States publish as much information
that is digestible by the private sector as they can in order
to arm the private sector with that information to detect,
disrupt, and deter such activity. The Financial Crimes
Enforcement Network (FinCEN) at the Treasury Department has
done a really good job over the last few years of publishing
in-depth guidance documents that are meant to tell financial
institutions this is the type of activity we are concerned
about, this is the type of activity that you should focus on as
financial institutions, and I think that has made a real
impact. If it is a priority, it seems like it absolutely is a
good candidate for that type of activity as well.
Ms. De La Cruz. So what I am hearing is that the GAO should
make a first step in actually trying to find the flow of the
money and stop the flow of the drugs and people across our
borders. And you feel a study will be beneficial.
Mr. Lorber. I think that is right. I also do think that it
would be very important to have Treasury work, not
collaboratively, but sort of in parallel track, because I think
that the Treasury Department will have access to additional
information that the GAO may not have access to, which could be
useful in providing information to the private sector to help
disrupt and to deter.
Ms. De La Cruz. Thank you. I yield back.
Mr. Lawler. The gentlewoman yields back. The Chair now
recognizes himself for 5 minutes.
Thanks to the witnesses for being here today. I know it has
been a long day, and I want to thank Chairman McHenry and
Ranking Member Waters for holding this hearing. Mr. Feddo, you
served as the first ever Assistant Secretary for Investment
Security and oversaw the implementation of the Foreign
Investment Risk Review Modernization Act (FIRRMA), which passed
on a strongly bipartisan basis. Can you please elaborate on the
effectiveness of FIRRMA in ensuring a welcoming investment
climate while protecting our national security interests?
Mr. Feddo. Sure. Thank you for the question. I think what
makes that balance, the way the law has been drafted in the
regulations have been implemented, is it has limited
jurisdiction focused on specific things. For example, the
purchase and the control of a U.S. business by a foreign person
gives jurisdiction, but the paradigm, the lens through which
that is scrutinized is a national security lens exclusively.
And there is an enumerated list of national security factors
that the government considers on whether or not to clear a
transaction.
Similarly, with non-controlling jurisdiction, minority
investments that give some level of influence or access over
the U.S. businesses has been limited by the Congress to very
specific areas, something related to collection and maintenance
of sensitive personal data related. The business relates to
critical technology that is export controlled, or it relates to
a company that utilizes or is involved with part of our
country's critical infrastructure. And because of the precision
with which those areas of jurisdiction are defined in very
clear rules, the private sector has very clear swim lanes on
what is of concern and what isn't. Further, it is a voluntary
process, so it gives some latitude to the private sector to
understand there really is an open investment environment.
Mr. Lawler. Thank you. There has been some concern
obviously raised over TikTok. However, similar concerning
situations are present in our financial systems as well. Two
prime examples of that are broker-dealers that are subsidiaries
of Chinese parent companies Webull and Moomoo. According to
Webull CEO, Anthony Denier, ``Webull is both a U.S. and a
Chinese company. Our technology team is based in Hunan, China,
while all of our customer-facing and brokerage operations are
in New York City.''
The company also is partially owned by Xiaomi, a Chinese
company whose consistent security concerns led to their
temporary inclusion on a U.S. Department of Defense blacklist
in 2021. Moomoo is owned by Futu Holdings, which has close ties
to Tencent, a company with known ties to the CCP. Concerns
about these companies have been echoed by others on the Hill
with these companies being the focus of letters from Senator
Cotton to the Director of National Intelligence, and from
Senators Tuberville, Braun, Scott, and Marshall to the SEC
Chair. With millions of Americans using these apps, how
concerned should we be about the potential for personally-
identifiable information or other user data to be shared with
parent companies with strong ties to the CCP?
Mr. Feddo. Very concerned. This is a data economy, and it
is very clear what the PRC views about the importance of
collecting as much information as available and possible, and
leveraging that for its own use and advantage.
Mr. Lawler. In the interest of time, just to that point, so
if it is very concerning, what do you think should be done to
address that in a meaningful way to protect the privacy of U.S.
citizens and companies?
Mr. Feddo. If it is a CFIUS transaction, if it is one that
is within jurisdiction, that would be something that I think
the committee would want to look at. And when I was at
Treasury, I frequently got letters from Members bringing to my
attention transactions of concern. Some of them were not within
our jurisdiction, but we very seriously considered every letter
we received.
Mr. Lawler. Thank you. The chairman's time has expired.
I would like to thank the witnesses, on behalf of Chairman
McHenry, Ranking Member Waters, and the members of this
committee, for their testimony today. I know it has been a long
day.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.