[Joint House and Senate Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
CORPORATE COMPLICITY: SUBSIDIZING THE PRC'S
HUMAN RIGHTS VIOLATIONS
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HEARING
BEFORE THE
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
JULY 11, 2023
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Printed for the use of the Congressional-Executive Commission on China
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at www.cecc.gov or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-486 PDF WASHINGTON : 2023
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CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
LEGISLATIVE BRANCH COMMISSIONERS
House Senate
CHRIS SMITH, New Jersey, Chair JEFF MERKLEY, Oregon, Co-chair
JAMES P. McGOVERN, Massachusetts MARCO RUBIO, Florida
BRIAN MAST, Florida TOM COTTON, Arkansas
JENNIFER WEXTON, Virginia STEVE DAINES, Montana
MICHELLE STEEL, California ANGUS KING, Maine
SUSAN WILD, Pennsylvania TAMMY DUCKWORTH, Illinois
ANDREA SALINAS, Oregon DAN SULLIVAN, Alaska
ZACHARY NUNN, Iowa
RYAN ZINKE, Montana
EXECUTIVE BRANCH COMMISSIONERS
DANIEL K. KRITENBRINK, Department of State
MARISA LAGO, Department of Commerce
THEA MEI LEE, Department of Labor
UZRA ZEYA, Department of State
ERIN BARCLAY, Department of State
Piero Tozzi, Staff Director
Matt Squeri, Deputy Staff Director
(ii)
C O N T E N T S
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Statements
Opening Statement of Hon. Chris Smith, a U.S. Representative from
New Jersey; Chair, Congressional-Executive Commission on China. 1
Statement of Hon. Jeff Merkley, a U.S. Senator from Oregon; Co-
chair,
Congressional-Executive Commission on China.................... 3
Statement of Robert Silvers, Under Secretary for Strategy,
Policy, and Plans, U.S. Department of Homeland Security; Chair,
Forced Labor Enforcement Task Force............................ 5
Statement of Enes Kanter Freedom, human rights advocate and
former NBA basketball player................................... 17
Statement of Shi Minglei, wife of Chinese human rights activist
Cheng
Yuan........................................................... 19
Statement of Isaac Stone Fish, Visiting Fellow, Atlantic Council. 20
Statement of Aynne Kokas, C.K. Yen Professor, Miller Center,
University of Virginia......................................... 22
APPENDIX
Prepared Statements
Silvers, Robert.................................................. 47
Freedom, Enes Kanter............................................. 50
Shi, Minglei..................................................... 53
Stone Fish, Isaac................................................ 54
Kokas, Aynne..................................................... 57
Smith, Hon. Chris................................................ 66
Merkley, Hon. Jeff............................................... 67
McGovern, Hon. James P........................................... 68
Submissions for the Record
Letter to Co-chair Merkley regarding implementation of the UFLPA,
from Robert Silvers, Under Secretary, U.S. Department of
Homeland Security.............................................. 69
Letter to Steve Richman, Group President of Milwaukee Tool, from
Chair Smith and Co-chair Merkley............................... 73
``Forced Organ Harvesting and Corporate Complicity in China,'' by
Maya (Maisam) Mitalipova, Ph.D., Director of the Human Stem
Cell Laboratory, Whitehead Institute for Biomedical Research,
MIT, submitted by Chair Smith.................................. 75
``United Nations Experts' Action on Chinese Human Rights
Defenders: the `Changsha Three,' '' submitted by Chair Smith... 77
Wisconsin Watch article on Milwaukee Tool, by Zhen Wang,
submitted by Chair Smith....................................... 85
Statement of Roger W. Robinson, Jr., Chairman, Prague Security
Studies Institute, and former Chairman of the U.S.-China
Economic and Security Review Commission, submitted by Chair
Smith.......................................................... 102
``Emerging Pressures on U.S. Businesses and Risks of Complicity
with Beijing's Censorship and Propaganda,'' by Sarah Cook,
Senior Advisor for China, Hong Kong, and Taiwan, at Freedom
House, submitted by Chair Smith................................ 117
CECC Truth in Testimony Disclosure Form.......................... 121
Witness Biographies.............................................. 123
(iii)
CORPORATE COMPLICITY: SUBSIDIZING THE PRC'S HUMAN RIGHTS VIOLATIONS
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TUESDAY, JULY 11, 2023
Congressional-Executive
Commission on China,
Washington, DC.
The hearing was held from 10:05 a.m. to 12:34 p.m., in room
2020, Rayburn House Office Building, Washington, DC,
Representative Chris Smith, Chair, Congressional-Executive
Commission on China, presiding.
Also present: Senator Jeff Merkley, Co-chair, and
Representatives Salinas, Wexton, Wild, and Nunn.
OPENING STATEMENT OF HON. CHRIS SMITH, A U.S. REPRESENTATIVE
FROM NEW JERSEY; CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON
CHINA
Chair Smith. Good morning, everybody. We will be joined in
a few moments by Senator Merkley, who is on the Senate side, of
course, and will be here for his opening--we're going to delay
a little bit, but we do have two panels. And as soon as he does
come, obviously, we'll recognize the distinguished senator and
co-chair.
Today's hearing, ``Corporate Complicity: Subsidizing the
PRC's Human Rights Violations,'' will come to order. Since the
Tiananmen Square massacre in 1989, and for some, even before
that date, far too many elite leaders of America's most
profitable corporations and like-minded government enablers
here and around the world have embraced and welcomed the
Chinese Communist Party with open arms. The predictably false
hope that robust trade would somehow help China matriculate
from a dictatorship to a functioning democracy had no
compelling precedent in history, especially a country that's
owned lock, stock, and barrel by force, by a brutal Communist
Party.
That false hope has been further exposed every single year
since the early 1990s by China's ever-worsening abuse and
violence against its own citizens--the pervasive use of
government-sanctioned genocide, torture, rape, forced abortion,
involuntary sterilization, forced organ harvesting, human
trafficking, sex trafficking, and labor trafficking, religious
persecution, kangaroo courts (particularly for political and
religious prisoners), free speech and assembly violations, and
the atrocities they have committed in Hong Kong after making
solemn promises to protect basic rights and abide by the Sino-
U.K. agreement. And of course, there's so many other crimes
against humanity. They attest to an absolutely shameful record
of wanton cruelty.
Tragically, the abuse and violence has only gotten worse
under Xi Jinping. You know, with his famous executive order of
May 26th, 1994, President Clinton abolished the requirement
that the Chinese Communist Party achieve ``significant
progress'' in protecting human rights as the condition for
extending most favored nation status; in other words, the
elimination of import tariffs by the United States. A few
months earlier in 1994, before President Clinton's
capitulation, I traveled to Beijing and met with foreign
ministry officials and argued that President Clinton wasn't
going to back down or back off his promise to end MFN unless
China reformed its barbaric practices.
I even conveyed to the CCP officials a bipartisan letter
signed by 100 members of Congress, left and right. Nancy Pelosi
was on that. Frank Wolf was a cosponsor--cosigner, and many
others. And we said, We stand with President Clinton. And we
stand for human rights. While there, I also met with the U.S.
Chamber of Commerce in Beijing, who thought that we were wrong
to link MFN with human rights. After a spirited exchange over
breakfast, I came away with the inescapable conclusion that no
human rights violation by the CCP would disrupt lucrative
business deals.
A few months later, to my shock and dismay, President
Clinton delinked human rights from trade. He did it on a Friday
afternoon, after almost everybody in this building had left to
go back to their districts. I was lingering--doing some work in
the office when the story hit. I ran over to the press gallery.
I did a press conference impromptu. If you go to C-SPAN, you
can see it. I wasn't the only one. Nancy Pelosi ended up doing
her own press conference. We were shocked that he delinked.
Clinton had accused, and rightfully, President George Herbert
Walker Bush of coddling dictatorship. And I agreed with that,
after Tiananmen Square. Then he coddled like no other.
The symbiotic U.S.-China trading relationship that emerged
in the 1990s and continues to this day allowed many to become
incredibly rich and powerful, while conveying to the CCP extra-
ordinary industrial capacity and know-how for both consumer
goods and, ominously, military products and capability. That
CCP military capability today poses an existential threat to
Taiwan, numerous nations in the region, and to the United
States of America ourselves. Today it is deeply discouraging to
see the ongoing complicity of American companies in aiding and
abetting the Chinese Communist Party's heinous crimes against
humanity, and genocide.
Many are complicit in concealing the PRC's abuses. Many are
complicit in the PRC's restrictions on freedom. Many are even
complicit in amplifying the Chinese Communist Party's
propaganda across our country, spreading political and
ideological stances that are completely contrary--
antithetical--to what the United States stands for. American
companies and consumers should not be subsidizing tyranny.
In January, I introduced--I should say re-introduced--the
China Trade Relations Act of 2023, to end MFN, now called
normal trade relations, to China. Actually, it's almost a
carbon copy of what we were talking about in 1993. I did press
conference after press conference thanking President Clinton
for linking human rights and trade, only to see that he
delinked it one year later.
Every single person here testifying has done an enormous
amount of work and provided leadership, and we're so grateful
that you're here. One of our distinguished witnesses today has
paid an enormous price, the loss of his amazing 11-year
basketball career in the NBA, for his courageous stand for
human rights, especially for the Uyghurs, the victims of Xi
Jinping's ongoing genocide.
He will testify today that after he got released, about
three weeks later--released means fired, of course--China put
the games back on television that had been barred from Chinese
TV because he wore basketball shoes that said ``free the
Uyghurs.'' ESPN did an investigation and found out that 49 NBA
owners have $10 billion tied up in China. Money talks and human
rights go right out the window. The Chinese Communist Party
ordered the NBA to sanction--to fire--Enes Kanter Freedom, and
like cowards, they obeyed.
I'd like to yield to my good friend and colleague, the co-
chair of our Commission, Senator Merkley.
STATEMENT OF HON. JEFF MERKLEY, A U.S. SENATOR FROM OREGON; CO-
CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
Co-chair Merkley. Thank you very much, Mr. Chairman, and
welcome. It's good to have you with us. I'm glad we're
continuing to dig into the issue of corporations' connection to
the Chinese Communist Party's human rights abuses in China and
elsewhere. This has been an intense interest--a bipartisan and
bicameral interest of this Commission. With so many of the
issues that we monitor, the CCP's abuses are sometimes
amplified or even abetted by the actions of actors closer to
home.
When products, from cotton to car parts, are made on the
backs of Uyghur slave labor, companies seeking to get those
products into the U.S. market subsidize the economic machinery
of genocide. When authorities crush Hong Kong's cherished
freedom, they count on multinational corporations to continue
business as usual. When mass surveillance and biometric data
collection target repressed populations, some American
companies provide the technology, the services, or the data
that bolster the surveillance state.
Our commissioners have taken an interest in these issues
because it's unacceptable to us if any American business props
up genocide, enables censorship, or legitimizes actions that
trample on basic universal freedoms. That's why last Congress I
chaired hearings focused on the message leading American
companies were sending by lending their prestige to the 2022
Beijing Olympics. And we focus on the way the PRC leverages
technology for deeply repressive purposes, and the coercive
economic dynamics that too often lead companies to self-censor,
or even parrot propaganda.
We sent letters to some of the most respected brands in
America when their actions put them at risk of complicity in
human rights abuse, companies like Apple, Hilton, Amazon,
Airbnb, NBC, the NBA, and more. This Commission's signature
initiative to guard against corporate complicity has been the
Uyghur Forced Labor Prevention Act. Representative McGovern,
Senator Rubio, Representative Smith, and I spearheaded that
legislation to protect American consumers and hold corporations
trading in the products of forced labor accountable. At our
April hearing, we heard from experts about the initial
implementation of this law and the difficult road ahead to make
sure we enforce it effectively. I'm grateful that Under
Secretary Silvers, the chair of the Forced Labor Enforcement
Task Force, is with us today to help us grapple with those
challenges.
As we heard at the April hearing, businesses should now
consider themselves on notice that protecting their supply
chains from being tainted by forced labor must be a top-tier
issue of corporate compliance, because it is for the U.S.
Government. But that's only the start of the paradigm shift
that we need. We need businesses across the economy to
diversify their supply chains to be less susceptible to Chinese
coercion, to avoid complicity with human rights abuses. We need
greater transparency about businesses' data practices, exposure
to the pressures coming from China, and more. And defenders of
freedom need to speak out so businesses know that there will be
reputational costs for abetting human rights abuse.
Thank you to all of our witnesses for your role and
speaking out. And I appreciate you sharing your expertise and
personal stories with us. And I look forward to your testimony.
Chair Smith. Thank you so very much, Senator Merkley.
We're joined by Commissioner Salinas. Thank you. I yield to
you.
Representative Salinas. I have no comment, thank you.
Chair Smith. OK. Well, thank you.
With the one-year anniversary of the Uyghur Forced Labor
Prevention Act's implementation just last month, we're grateful
to welcome the Honorable Robert Silvers, Under Secretary for
Policy at the U.S. Department of Homeland Security. Under
Secretary Silvers is responsible for driving policy and
implementation plans across all of the Homeland Security
missions and enforcing all forced labor laws under its purview.
The Uyghur Forced Labor Prevention Act, drafted and spearheaded
by this Commission, is one of the most important pieces of
legislation passed by Congress in the last two decades.
As I expressed at our hearing just a few months ago, it is
my hope that the legislation will prick the consciences of
corporate actors and then it will be my further hope that
companies will determine that the bottom-line concerns will
motivate them to do the right thing. And indeed, I believe
there are shared hopes of all of us today; Under Secretary
Silvers, as chair of the Interagency Forced Labor Enforcement
Task Force, is making eliminating forced labor from tainting
U.S. and global supply chains a top priority. When our
Commission wrote to him about our concerns about the
implementation, he echoed our sentiments and detailed his plans
on how the Forced Labor Enforcement Task Force will continue
expanding the entity list and fine-tuning its important efforts
to best hold violators accountable. Thank you, Under Secretary
Silvers, for joining us today. And on behalf of our entire
Commission, I welcome you and look forward to your testimony.
And I yield you such time as you may consume.
STATEMENT OF ROBERT SILVERS, UNDER SECRETARY FOR STRATEGY,
POLICY, AND PLANS, U.S. DEPARTMENT OF HOMELAND SECURITY; CHAIR,
FORCED LABOR ENFORCEMENT TASK FORCE
Under Secretary Silvers. Thank you, Mr. Chairman, Co-
chairman Merkley, and distinguished commissioners. Thank you
for the opportunity to discuss the work of the Department of
Homeland Security and the Forced Labor Enforcement Task Force
to combat forced labor in global supply chains. The U.S. has
long condemned the People's Republic of China's ongoing
genocide and crimes against humanity against Uyghurs and other
minority groups, including the systemic use of forced labor.
U.S. laws that prohibit importation of these illicit goods
reflect our values. They honor human rights. They protect
American workers and legitimate businesses. At DHS, we are
proud to enforce our nation's forced labor laws. It is the
right thing to do.
Congress charged the task force with leveraging the
authorities of our member agencies across the executive branch
to ensure that the U.S. Government is doing everything in its
power to eradicate forced labor. I am honored to chair the task
force, and under the leadership of Secretary Mayorkas we are
facilitating the flow of legitimate trade while working across
the public and private sectors to keep goods made with forced
labor out of U.S. commerce. We applaud the commitment of the
Commission and members of Congress who, on a bipartisan basis,
secured the passage of the Uyghur Forced Labor Prevention Act,
the UFLPA. This law has brought a sea change to the way we
approach the eradication of forced labor.
Our implementation of the UFLPA has been speedy, strong,
and surgical. Speedy, because we implemented ahead of the
aggressive schedule required by the law. Strong, because we
devote the full weight of our resources to enforcing the law.
And surgical, because our enforcement is based on risk
assessment, intelligence, and data-driven targeting. Since the
UFLPA took effect in June of 2022, Customs and Border
Protection has targeted more than 4,200 shipments valued at
over $1.4 billion, sending a clear message to importers that we
take our mandate seriously.
We continue to improve our operations with innovative
technology, such as artificial intelligence and machine
learning, and scientific testing that can help us determine the
true origin of goods. Our early enforcement has been strong,
but we do face challenges, including the risks posed by de
minimis shipments and the need for further resources to fulfill
our mandate. We welcome the opportunity to work with this
Commission and Congress to address these challenges together in
a bipartisan way.
In addition to the rebuttable presumption that the UFLPA
established for goods coming from Xinjiang province, the UFLPA
has other important components, including the public
identification of illicit actors through the UFLPA entity list.
The task force is committed to expanding the UFLPA entity list,
as demonstrated by the recent addition of two new entities,
extending the list to a current total of 22 entities. There is
an active pipeline of referrals we are examining, and we
anticipate more additions to the list in the coming months. Our
partnership with the NGO community is critical, as is their
research and monitoring efforts to identify forced labor
schemes.
Our engagements with the trade community focus on ensuring
that they have information and guidance to support their
compliance efforts, including best practices for supply chain
tracing and risk management, and statistics on our enforcement
from CBP's digital dashboard. We engage industry leaders,
including C-suite executives and board directors, to emphasize
that eradicating forced labor from their supply chains must be
a top-tier compliance issue. They must address this issue with
the same vigilance with which they address foreign corrupt
practices, export controls, sanctions, privacy, anti-money
laundering laws, and other pillars of modern corporate
compliance.
We are still in the early stages of quantifying the impact
of the UFLPA on private sector behavior, but early data show
promise. One respected supply chain mapping company, Altana AI,
reports that transactions from entities potentially subject to
enforcement under the law decreased by approximately 40 percent
between June 2022 and March 2023. The same period also saw the
overall value of transactions decrease by approximately 50
percent. Another supply chain mapping company, Sayari, has
informed us that it has similar data. We are seeing similar
trends from other providers, and these all support extensive
anecdotal reporting that industry is taking UFLPA compliance
seriously and taking steps to ensure that it comes into line
with the law's requirements.
The UFLPA is a testament to the impact that Congress and
the executive branch can have when they work together. This new
enforcement regime is a significant step towards justice,
accountability, and fair competition. There is much more work
to do, and we are all-in on this mission. I thank the
Commission and Congress for their support in the fight against
forced labor. Thank you for the opportunity to appear. I look
forward to taking your questions this morning.
Chair Smith. Thank you so very much, Mr. Secretary, for
your testimony and, again, for the work that you're doing each
and every day.
Let me ask you, at our hearing just a few weeks ago, we
heard some very disturbing testimony about the de minimis
loophole, which you mentioned in your testimony, that so much
could be coming into the U.S. from Xinjiang that goes
undetected, and an $800 threshold. How do you know--how do we
know when we're not checking packages coming in because there's
an assumption that it is part of the de minimis?
One estimate was that there's three million packages a day
coming. I thought that was very high. I don't know if that's
accurate. But that came out of that hearing. And I'm wondering
if you have any thoughts on what we should be doing to maybe
close that loophole--do a more robust checking of those
packages? Because it seems to me, if the Chinese Communist
Party and the businesses that are working there could find a
way to skirt any kind of sanctions, they will do it. And
they're masters at that.
Under Secretary Silvers. Thank you, Mr. Chairman, for the
question. I share your concerns and your questions about the
effect of the de minimis exception and what it means for our
forced labor enforcement. To be clear, the UFLPA does apply to
de minimis shipments. We conduct our risk-based targeting and
our other approaches on de minimis shipments. However, there
are challenges. We get less data for de minimis shipments than
we do for shipments valued at over $800. And that makes the
targeting and the enforcement work more difficult. We do
receive into this country somewhere between two and three
million de minimis shipments per day.
Chair Smith. Per day?
Under Secretary Silvers. Per day. And so the numbers I've
heard are something around 700 million or so per year. And so
it is an extremely high volume. I should note, this doesn't
just challenge our enforcement as to our forced labor laws. It
challenges our enforcement as to a whole host of important
issues; for example, our ability to detect narcotics that may
be shipped in, fentanyl, other contraband counterfeit items,
and products made with forced labor. Recognizing the
challenges, I have worked very closely together with the
terrific team at Customs and Border Protection to develop
short-, medium-, and long-term strategies to work on this
issue.
In the short term, we are adopting software enhancements
that will improve our ability to target de minimis shipments
and enforce our laws. In the medium term, we are looking at
regulatory changes that can enhance our data collection. And in
the long term, we would like to work with Congress. You're
going to be hearing a lot over the coming months about what we
are calling our 21st Century Customs Framework. This is an
attempt to modernize the way we process cargo into this country
so that it is both efficient and has integrity and security.
And we would like to work with Congress on those issues,
because it will have a lot of positive impact for our ability
to enforce forced labor laws, including the de minimis
environment.
Chair Smith. Mr. Secretary, about a year ago I chaired a
hearing on the outrageous practice by the Chinese Communist
Party of exploiting children. In the Democratic Republic of
Congo, they have pretty much captured the entirety of the
cobalt mining. Something on the order of 35,000 to 40,000
children are being exploited every day, and maybe upwards of
200,000 adults. When those mines were owned by United States
companies, arguably, they were better in terms of their
treatment, their payment of salaries, and more humane
conditions. But that has all gone the wrong way with Chinese
leadership.
Now, we were told at that hearing--and I introduced a bill
just a few weeks ago that would look to enforce our trade
sanctions against forced labor and child labor, whether they
find themselves in an EV or for some other purpose--cobalt
obviously has multiple purposes. And I'm wondering your
thoughts on that. I think the bill is an idea whose time has
come. How dare we build cars--whether it be Tesla or any
others--with child labor, kids who are dying.
And what came through with that hearing, and we have
followed up very vigorously, the Democratic Republic of Congo
leadership, it would seem, is just simply looking the other way
or getting paid off by the Chinese Communist Party. We know
there's no Foreign Corrupt Practices Act, so that's a very easy
thing to do. So all this cobalt is going into China. It's being
refined and then put into use in EVs and in other applications.
And I'm just wondering what your sense is about that. You
know, we'll send you the bill. I hope you'll take a look at it
and give us any thoughts you might have on it. But, you know, I
see Teslas all over the road, I mean, especially in this area.
And every time I see one now I say, that was built on the backs
of some African child, or some African adult, who may be dead
now--certainly often sick, and many of them do die in those
mines or from the sicknesses garnered from breathing in those
vapors or that dust. Your thoughts on that.
Under Secretary Silvers. Thank you, Mr. Chairman. We are
going to enforce our forced labor laws wherever the facts lead,
whether they lead to China or whether they lead to other
countries where China may be exporting its forced labor
practices. And no place, or industry, or supply chain is off
the table when it comes to our zero-tolerance approach for
forced labor. I would look forward to reviewing the bill and
working with you on the issue.
Chair Smith. Can I just ask finally, then I'll yield to my
distinguished colleagues, what is being done by DHS to address
the use of prison labor at Chishan Prison, where a supplier for
Milwaukee Tool employs political prisoners for labor, making
them work seven days a week, 13 hours a day, to meet their
quotas?
Under Secretary Silvers. Thank you, Mr. Chairman. We are
quite concerned about the significant amount of reporting that
we receive about abusive labor practices in PRC prisons. Our
Homeland Security Investigations Agency, including through
their presence at our embassy in Beijing, investigate and look
into those kinds of issues. And if there is a link found
between forced labor in Chinese prisons and product that is to
be shipped to the United States, we will fully enforce.
I will say, it is difficult work because it is so difficult
to get facts about what is happening in China, not least of all
within a Chinese prison. The lack of transparency into the
Chinese system is a challenge that we have to penetrate. It's a
challenge that companies that want to do the right thing have
to penetrate, because it makes due diligence difficult. I think
that's part of the reason why you've seen a number of companies
working to pull their supply chains out where they cannot
obtain the transparency that they need and that the law that
you passed requires.
Chair Smith. I appreciate that. Without objection, I ask
unanimous consent that a letter from Senator Merkley and me be
included in the record. It's a letter to Steve Richman, who's
the president of Milwaukee Tool. We lay out the problem as we
see it, particularly since Wisconsin Watch did an investigative
report on this, and the findings are very, very damaging. And
Milwaukee Tool gloves continue to be sold at Home Depot, as
well as on Amazon. And we need to get to the bottom of this. So
without objection, this will become part of the record.
Senator Merkley.
Co-chair Merkley. Thank you, Mr. Chairman.
And, Mr. Secretary, I'll try to be brief in my questions
because I have a lot of them. And if you can be succinct in
your responses, it would be helpful. First, we see that a lot
of shipments that are being questioned are really being shipped
through Malaysia and Vietnam. Are you getting cooperation from
the governments of Malaysia and Vietnam?
Under Secretary Silvers. We are. We engage with both those
countries. And that is correct. The two countries that have the
most enforced shipments under the UFLPA are actually Vietnam
and Malaysia. And it shows the distributed nature of supply
chains and that things that are made in Xinjiang may end up
elsewhere before being shipped to the United States. And we
understand that and we enforce on it.
Co-chair Merkley. And I think it also reflects an effort to
launder the products out of China, to try to make it more
difficult for the U.S. to intercept them under this bill. So
I'm glad you're paying a lot of attention to that.
Under the UFLPA dashboard, about 16 percent of the 4,200-
plus shipments that were targeted were denied entry into the
U.S. When they are denied entry into the U.S., is the
manufacturer or the shipper able to then transport those goods
to another country?
Under Secretary Silvers. Under the law, they are--if we
deny entry they are permitted to re-export or destroy the
goods.
Co-chair Merkley. I just want to note that that's an area
we should pay attention to, because if it simply means they're
stopped in the U.S., but they're shipped across the border to
Canada, we really haven't achieved much. Which brings me to my
next question, how much cooperation are we getting with Canada
and Mexico in terms of creating a more united regime in regard
to forced labor?
Under Secretary Silvers. Senator, I agree 100 percent with
you that we won't have achieved our common goal of eradicating
forced labor if the goods just go elsewhere. That is why we are
putting such a priority on international cooperation. The USMCA
trade agreement requires the U.S., Mexico, and Canada all to
have forced labor enforcement regimes. We are working with both
those governments towards that end.
Co-chair Merkley. Great. And Europe?
Under Secretary Silvers. We engage with European partners
as well. I think there are huge benefits to harmonized laws.
The UFLPA--I think the Commission can take great pride--is the
most forward-looking, aggressive law in the world right now on
this subject. And I've seen interest in a number of other
governments in adopting similar legislation, which I think is
all to the good.
Co-chair Merkley. So in the last year, the task force has
only added two new companies to the entity list. And you
mentioned the entity list. Are there roadblocks to expanding
the entity list? Why only two?
Under Secretary Silvers. Senator, we did add two very
recently; there's now a total of 22 that were listed in the
first year of enforcement, though the first 20 came much
earlier in the enforcement period. We are placing a very high
priority on populating the entity list. When the new law was
passed, it did not come with resources for the Forced Labor
Enforcement Task Force. We aggressively pulled resources and
people from other mission spaces. Over the course of the months
we had to build an entirely new process for an entity list that
did not exist at all. That is now up and running. And I am
placing a very high priority on naming additional entities. We
have a very active pipeline of cases, and more will come soon.
Co-chair Merkley. Do we see companies really starting to
respond, saying, Hey, this is real. We either have to establish
our safe harbor, like, very clear documentation, or we need to
move our production that has been tied to forced labor into a
different country or a different part of China, so on, so
forth. Are companies starting to take this seriously?
Under Secretary Silvers. Yes. We have significant data and
significant anecdotal evidence that companies are hearing this,
that the message is well received in terms of congressional
intent, as well as through our strong enforcement in year one.
And so, for example, the AI-driven supply chain management
software company Altana noted that suspicious shipments from
Xinjiang--or, related to Xinjiang, to the U.S., declined by 50
percent over the first year of enforcement based on its trade
data.
Co-chair Merkley. Are we seeing a fair amount of that being
bifurcated supply chains? That is, Well, we have a factory in
Vietnam. We'll send those products to the U.S., while sending
the Xinjiang factory's products somewhere else that doesn't
have this enforcement?
Under Secretary Silvers. I think--and that goes to our
prior discussion--I think there is always the risk, Senator,
that goods that we won't let in, manufacturers will try to send
elsewhere. That's why we place such a premium on having like-
minded countries introduce similar enforcement regimes. We are
also very mindful of the risk of transshipment, that is of
companies trying to obscure the provenance of goods by shipping
them through third countries or shell companies. We are very
attuned to that in our enforcement.
Co-chair Merkley. So Congress appropriated funding for
innovative technology to help with enforcement, such as supply
chain mapping, supply chain traceability, DNA testing. Do you
have any pilot projects that have started utilizing that money?
Is the rubber hitting the road?
Under Secretary Silvers. The rubber has already hit the
road, Senator. We are using several AI-based software supply
chain mapping tools. We see tremendous pickup in the importing
community, the private sector, of those same kinds of tools. We
are also looking very closely at scientific testing, such as
DNA testing, that can help determine the provenance of goods.
In particular, DNA testing that can tell you whether cotton
comes from Xinjiang province. And we're likewise seeing uptake
in the trade community. CBP hosted a technology expo a couple
months back. I think that I saw a number of staff members from
the Commission attended. And to showcase the range of
technologies that can help with due diligence and supply chain
visibility.
Co-chair Merkley. Another challenge is growing direct-to-
consumer apps, like Shein and Temu. How do you intend to handle
those direct-to-consumer strategies?
Under Secretary Silvers. I think this raises issues about
what is happening with de minimis shipments, that is shipments
that are valued at less than $800 and which, pursuant to
statute, receive an expedited process for coming into the
country. Look, first, when we receive reports that any shipping
channel may be infected with forced labor products, we are
going to look into that, and investigate, and take enforcement
action as appropriate. And as I was discussing with Chairman
Smith earlier, we have developed strategies for addressing the
challenges of UFLPA enforcement in the de minimis contexts,
including enhanced software that we are procuring, and
potential regulatory and statutory changes.
Co-chair Merkley. Thank you.
Under Secretary Silvers. Thank you.
Chair Smith. I will now yield to Commissioner Salinas.
Representative Salinas. Thank you, Mr. Chair. And thank you
to both co-chairs for this hearing today.
Secretary Silvers, a goal of the Inflation Reduction Act as
well as the CHIPS and Science Act, is to build up our domestic
manufacturing capacity and reduce our reliance on China. This
could make it far easier to avoid some of the challenges we
discussed earlier around mineral supply chains, but it also
makes me wonder what we might lose by building a more arm's-
length economic relationship with China. Is there evidence that
Chinese entities actually respond to American import
restrictions by improving their labor practices?
Under Secretary Silvers. Thank you very much,
Congresswoman. We do strongly support supply chain resilience
initiatives such as the CHIPS Act, building up a domestic
supply chain and manufacturing base for things like
semiconductors. That's just critical to our future. We believe
we can do that while still maintaining our leverage to shape
practices within China to the extent we can. But as important,
perhaps, shape the practices of importers and where they decide
to source from.
I think the last decades have shown that we may not have
complete leverage in terms of shaping how China intends to run
its system, but what we do have a lot of leverage over is what
products we allow into this country. And I think what we have
seen is Congress on a bipartisan basis pass laws like the
UFLPA. And we have significant reason to believe that that is
causing a lot of companies to pull their supply chains out of
Xinjiang province. And so I think we can pursue the really
important domestic supply chain and manufacturing resilience
strategies that you mentioned, while also keeping enforcement
strong to keep these kinds of forced labor products out of our
system.
Representative Salinas. Thank you. I think we can do both
as well. Thank you. I yield back.
Chair Smith. Thank you.
Commissioner Wexton.
Representative Wexton. Thank you very much, Mr. Chairman.
Can you all hear me OK?
Chair Smith. Yes, we can. Perfectly. Thank you.
Representative Wexton. Good. Wonderful. Thank you so much
for being here today. Thank you so much, Mr. Secretary for
being here as well. Before I get started with my questions, I'm
going to tell you I have an illness which affects how I speak,
which makes it kind of hard for me to speak in a way that is
understandable. I'm sorry if I do that. And please do not
hesitate if I say something you have trouble understanding.
Please do not hesitate to let me know, and ask me to repeat the
question, or repeat the question yourself to make sure you got
it right, OK? Can you do that for me, please? [Laughs.]
Under Secretary Silvers. I will. Thank you.
Representative Wexton. Thank you so much.
I represent Virginia 10, which is a Northern Virginia
district. And it had till very recently one of the highest
populations of Uyghur Muslims in the United States. And it's
still--we have a very big population here in Northern Virginia.
So this is something that is really important to a lot of my
constituents. I commend the work that the DHS and the Forced
Labor Enforcement Task Force have been doing on this issue.
I'll admit I was kind of skeptical when we had the sense that
the administration was slow-walking with passage of this bill.
Now it's been passed, you guys are doing a really fantastic job
getting everything done. So I really appreciate that and just
thank you. So, really thank you for that and the work you've
been doing.
But there are methods and models for human rights to do due
diligence. And we're not seeing companies demonstrating that
they know how their operations and supply chains affect human
rights. So it's a problem. The companies don't--I don't know
that they actually know how their supply chains are affecting
human rights, or whether they're just being deliberately blind
to how they're affecting them. Sorry about that, my dog wants
to come in. [Laughs.] I'll let her in in a minute.
But anyway, so the CDP--is the CDP giving clarity on what
it will ask if companies--how companies can demonstrate they're
not causing, contributing to, or benefiting from human rights
abuse in the PRC? Do you approve giving training and telling
people how they should be avoiding contributing to human rights
abuses in the PRC? Are you telling companies about what they
should be doing?
Under Secretary Silvers. Thank you very much. Thank you
very much, Congresswoman. We are indeed speaking regularly
through engagements, as well as guidance that we have published
to companies about what we expect from them. We have published
guidance and we speak directly with C-suite executives and
board directors and compliance teams at companies to tell them
what we expect of them when it comes to supply chain
transparency and due diligence. I think that is really one of
the incredible features of the UFLPA--that it turns the system
around so that importers are responsible for knowing their own
supply chain. They have to take the steps. They need to own the
issue.
We have published through the multi-agency Forced Labor
Enforcement Task Force that I'm honored to chair, substantial
guidance for what the best practices are for achieving that
supply chain transparency, conducting that supply chain due
diligence, and managing risk when it comes to forced labor in
very complex supply chains. And we have emphasized repeatedly
that forced labor is now, in 2023, a top-tier compliance issue
for companies that they have to own and take responsibility
for. And I think that message has been clearly received.
And I think it's been received based on the data I shared
and the anecdotal evidence. And then I think if you look at our
enforcement data, over $1.4 billion in shipments detained for
inspection across a range of sectors--I think it speaks for
itself. And the importing community has heard it and is
responding. But there is more work to do.
Representative Wexton. Thank you, Mr. Undersecretary. I
really appreciate that.
Do you feel that you have the resources that you need in
order to be able to do this work? Do you feel like you have
enough resources? I know you said something about having to
pull resources from other places in order to have the resources
to get the committee up and running. And do you feel like you
have to have the resources that you need? Or do you need more
resources to do this work?
Under Secretary Silvers. Thank you for that question. We do
need more resources to support both CBP's operations at the
ports as well as for the Forced Labor Enforcement Task Force to
maintain the entity list and do the other work that Congress
charged it with doing. We very much appreciate the resources
that Congress appropriated to CBP for forced labor enforcement
recently, but more is needed both for CBP and the Forced Labor
Enforcement Task Force. In the meantime, though, we are pulling
resources from elsewhere in the department, because bottom
line, this is a high priority area for us. And we are going to
resource it to get the job done. But we would look forward to
working with Congress to get us more so that we can do more,
more quickly.
Representative Wexton. Thank you very much, Mr. Secretary.
One other question for you. I very much appreciate you talking
about the de minimis system, because we've all seen companies
popping up that are using this exclusively as their way of
exporting. So the goods come directly from the factory, they
didn't go through customs, they don't go through the regular
channels, and it makes it really hard to be able to determine
whether they were made by--sourced by forced labor. So it makes
it really hard to be able to enforce the UFLPA. And so I want
to make sure how we can best manage Section 321 to ensure that
companies like Shein, which stand credibly accused of exporting
products sourced from forced labor, are prohibited from
exploiting the de minimis loophole. How can we amend Section
321 to make sure that we don't have this problem anymore?
Under Secretary Silvers. Thank you, Congresswoman. I share
your concerns about potential abuse of the de minimis exception
for packages valued at under $800. The UFLPA does apply. We do
enforce in that context. But there are a lot of challenges to
our enforcement given the volume of packages, and the limited
data received as to those packages. We are procuring software
that is helping us to better target in the de minimis
environment. We are looking at regulatory and statutory changes
that can help us procure better data and enforce more
meaningfully in the de minimis context. But I do want to
emphasize that de minimis is subject to UFLPA, and we take the
issue quite seriously and are doing everything in our
administrative ability to do it.
Congresswoman, I do just also want to address--you
mentioned that in the 10th congressional district in Virginia
you have a very large Uyghur community. I just want to say that
engaging with Uyghur communities across the United States has
been one of the more fulfilling parts of my job. It is
absolutely horrific what is happening to them and their family
members in Xinjiang province, but it is also inspiring to see
their resilience and their advocacy. And we appreciate the
chance to honor them and be their champions through our
enforcement of these laws.
Representative Wexton. Thank you very much, Mr. Secretary.
I'm afraid I don't know how much time I have left, but I have
one more question. Which is that, without getting into sources
and methods, could you please tell us a bit about how you've
actually been able to enforce the UFLPA with the de minimis
exception? Do you do spot checks with the carriers? Or how do
you determine what's actually being shipped?
Under Secretary Silvers. Thank you, Congresswoman. We
conduct data-driven targeting across the vast volume of trade
that comes into this country every year. And we enforce based
on our analysis of trade data, based on our use of technologies
like supply chain mapping tools, based on referrals that we
receive from nongovernmental organizations, civil society
organizations, which so often are our ears and eyes on the
ground, and we so value our partnership with them. Their
activities have led to numerous enforcement actions by the
Department of Homeland Security. And we act on other
intelligence and data that we receive to make sure that any
cargo that is coming into this country where we have a
suspicion that forced labor might be involved, is inspected
thoroughly.
Representative Wexton. Thank you very much, Mr. Secretary.
Mr. Chairman, I just want to quickly make a comment, which is,
we also need to make sure that we do work about the mutual
pairing assistance program, because that's another way that
they're getting around that whole Xinjiang issue. But anyway,
we can deal with that another day. Thank you so much, Mr.
Secretary, for being with us.
Thank you, Mr. Chairman. I yield back.
Chair Smith. Thank you very much, Commissioner.
Let me just ask one final question. I have others that
we'll submit for the record. But Enes Kanter Freedom makes an
excellent point about how China has absolutely silenced the
NBA. He points out that one of his friends, Daryl Morey, who
tweeted ``Stand with Hong Kong''--on his efforts with regard to
Free Tibet, and then he did Free the Uyghurs. And he says,
``Enes, don't give up. When I tweeted about Hong Kong, the NBA
made me take down my tweet and made me apologize. They made me
put statements out which I didn't want to put out.'' He then
encouraged Enes to continue on, because he felt so bad about
what the NBA had done to him.
Well, we have written--our Commission--to the National
Basketball Association's Players Association. And we asked them
to inform and to help NBA players terminate contracts with
Chinese sportswear companies, like Anta, Li-Ning, and Peak,
that all pledged to continue using cotton and rayon from
Xinjiang. They are still selling those products on their
websites as well as on Amazon. Again, you know the story of
Enes Kanter Freedom and what a heroic man he is. He has lost
his entire career because he said ``Free the Uyghurs.''
I can't believe--and I'll use the word again--the cowardice
of the NBA in kowtowing to Xi Jinping and company, the Chinese
Communist Party, to silence every single player. Well, now
these individuals were trying to say, How do we help any NBA
player get out from under being part of sportswear using cotton
and rayon, like I said, from Xinjiang? In your opinion, should
goods from these companies be banned from import into the U.S.
market?
Under Secretary Silvers. Mr. Chairman, President Biden gave
an interview on CNN a few days ago. And he was asked whether he
would let up on criticizing the human rights situation in China
as part of the administration's China policy. And he, and I'm
paraphrasing, but he said something like, When it comes to
slave labor we're not staying quiet. That's just who we are.
And at the Department of Homeland Security, and on behalf of
all the member agencies of the Forced Labor Enforcement Task
Force, zero tolerance policy. Wherever the facts lead, we are
going to enforce our forced labor laws strictly. And we have
done so in year one. And we are only accelerating in our
efforts. And I think that message has been received loud and
clear from the importing community.
Chair Smith. In your opinion, is Anta, Li-Ning, and Peak
violative of the Uyghur Forced Labor Act?
Under Secretary Silvers. I'm not going to speak to
particular companies and enforcement actions.
Chair Smith. Would you take that back, and really take a
hard look at that?
Under Secretary Silvers. I will take it back. And I will
also say, just at a more general level, that we can, and have,
and will continue to enforce our forced labor laws when it
comes to Xinjiang cotton. That is a prioritized enforcement
area for us. We have taken enforcement actions with respect to
Xinjiang cotton, regardless of who the apparel company is or
what kind of label is on the product. And we're going to
continue to do so because it's the law and it's the only right
thing to do.
Chair Smith. Thank you. I appreciate it. And I really look
forward to continuing working with you and your department. So
thank you.
Under Secretary Silvers. Thank you, Mr. Chairman. Thank
you, Co-chair.
Chair Smith. We're going to now move on to our next panel.
I know Commissioner Wild, you had no questions, right?
Representative Wild. No questions.
Chair Smith. Okay, thank you. I'd like to now welcome to
the witness table our second panel and thank them in advance
for their tremendous leadership on these issues.
We have Mr. Isaac Stone Fish, who is a visiting fellow at
the Atlantic Council and author of the book ``America Second:
How America's Elites Are Making China Stronger.'' The book
highlights how the PRC and Chinese Communist Party has
leveraged its economic clout to demand political and
ideological compliance across American corporations, Hollywood,
and academic institutions. He has extensive insight on the
Chinese Communist Party's pernicious influence in the U.S., and
how it impacts our daily lives. In addition, Mr. Isaac Stone
Fish is an adjunct at New York University's Center for Global
Affairs, a contributor to CBS News, a columnist on China risk
at Barron's, and founder and CEO of the Strategy Risks
Corporation.
We will begin however, with Mr. Enes Kanter Freedom. As a
professional basketball player, he had a celebrated career in
the National Basketball Association, having played for the Utah
Jazz, New York Knicks, Oklahoma City Thunder, and Boston
Celtics over 11 years. In 2021, leading up to the Beijing 2022
genocide games, Mr. Freedom became the most outspoken athlete
both on and off the basketball court about the PRC's human
rights violations and the NBA's willingness to acquiesce to the
dictates of the Chinese Communist Party. His commitment has led
him to being ousted from the NBA. They fired him simply because
he spoke truth to power.
Just to give you some context of how good a player he was--
what a good player at the time of his banishment--his player
efficiency rating among NBA players all-time ranking was 61, a
metric that basketball fans will absolutely recognize. Rather
than buckling under and yielding, Mr. Freedom continued to
stand tall and firm. In fact, social media app TikTok, which is
owned by the Chinese company ByteDance, even banned his account
because of his posts about Chinese human rights violations. His
account was reinstated, however, when the TikTok CEO was
questioned about it before Congress. Well, Mr. Enes Kanter
Freedom, I hope you will post about this hearing today to boost
awareness of this important topic.
We will then hear from Ms. Shi Minglei, a Chinese Christian
who also goes by the beautiful name of Hope. She became a human
rights advocate after her husband, Cheng Yuan, was arrested by
the Chinese National Security Bureau in July of 2019. Cheng
Yuan was a prominent leader who championed health rights for
the Chinese people. His work was so influential that the
tyrannical regime in Beijing grew scared and accused him of
subversion of state power. Cheng Yuan is currently languishing
in a Chinese prison located in China's Hunan province.
This is a prison where political prisoners were found to be
subject to forced labor, sewing gloves for American tool
manufacturing company Milwaukee Tool. Gloves that are still
sold on Amazon and at Home Depot locations across the United
States. And I would note parenthetically that yesterday the
Commission wrote a letter to the leadership of Milwaukee Tool--
the one I put into the record a few moments ago--to address
this very issue. Ms. Shi Minglei, motivated by her Christian
faith and love of her husband, aims to expose and end the
forced labor of Chinese political prisoners. Thank you so much
for being here and joining us today.
Finally, we will be joined by Dr. Aynne Kokas, who brings a
wealth of knowledge on today's topic, on corporate complicity.
She's the author of ``Trafficking Data: How China is Winning
the Battle for Digital Sovereignty,'' which dives into how the
Chinese government is essentially refining the art of gray-zone
warfare by influencing and exploiting the U.S. tech sector in
Silicon Valley. Dr. Aynne Kokas is also the author of the
award-winning book, ``Hollywood--Made in China,'' detailing how
investment from China has shaped Hollywood. She is currently
associate professor of media studies at the University of
Virginia, focusing on China, U.S. media, and technology
relations. And, again, thank you for being here.
What a panel of leaders, amazing leaders, and experts.
Thank you for your collective wisdom. And this is the book. So
thank you for giving me a copy. [Laughter.] I will read it in
August, when I read all my books. I'd now like to turn to Mr.
Freedom for his testimony.
STATEMENT OF ENES KANTER FREEDOM, HUMAN RIGHTS ADVOCATE AND
FORMER NBA BASKETBALL PLAYER
Mr. Freedom. Yes. Chairman Smith, and Co-chairman Senator
Merkley, and the members of the Congressional-Executive
Commission on China, thank you all for having us, and having me
here today.
I want to start with--I'm a basketball player. I love going
out there, competing with my teammates and trying to win a
championship. But some of the things that have happened in my
life obviously made me take a very different route. So for the
last 10 years I have been talking about the problems that are
happening in Turkey. There are lots of human rights violations
and political prisoners over there. And, you know, my family
had to publicly disown me because they were getting affected so
much. They put my dad in jail. They raided my house. And just
recently they put a bounty on my head. They put my name on the
Interpol list, and I have 12 arrest warrants.
When the topic was Turkey, the NBA was very supportive,
especially the commissioner, Adam Silver, and my teammates, and
the coaches, and the five different organizations that I played
for. That actually gave me so much hope and motivation to fight
against the dictatorship in Turkey. And just three years ago, I
was actually doing a basketball camp in New York with
Congressman Hakeem Jeffries. And after the basketball camp I
was taking pictures with the kids one by one. And I remember
taking a picture with this kid, and his parents called me out
in front of everybody, and said: How can you call yourself a
human rights activist when your Muslim brothers and sisters are
getting tortured and raped every day in concentration camps in
China?
So I turned around, I was like, I promise I'm going to get
back to you. So that day, I canceled everything. I went back to
my hotel, and I called my manager. I was like, I need you to
find me a concentration camp survivor. He found a lady. You
know, we sat down and had a one-hour conversation. And I
remember she was telling me about all the torture methods and
all the forced sterilization, and abortion, and stuff. And I
was like--at the end of our conversation, I asked her: What can
I do to help? She said, nothing. I was like, so we just had
this one-hour conversation for no reason? I was like, no. She
said, I'm in America. I can do whatever I want. I can say
whatever I want. And I can eat whatever I want. Help those 2 to
3 million Uyghurs who are in concentration camps.
So I wanted to bring an awareness and I wanted to do it in
a very unique way, because I remember when I was a kid whenever
I watched an NBA game the first thing I was watching was the
shoes. What color they are, if they are comfortable. And the
next day I was telling my dad, please buy those shoes for me.
So we decided to reach out to artists around the world, you
know, and who've been oppressed by their government, and we
created the shoes. This is non-slave labor. And we put all
these messages on our shoes--there was no rule against this
because three years ago when we were in the NBA bubble all the
players were putting on their shoes, Black Lives Matter, Black
Revolution, George Floyd, which I'm not against.
So my first topic was ``Free Tibet.'' Our first game--I was
playing for the Boston Celtics, and our first game was against
the New York Knicks, our biggest rivalry. And I remember
putting on these ``Free Tibet'' shoes. I went out there, I
started to warm up. A minute before the game, two gentlemen
from the Boston Celtics came to me and said: Take your shoes
off. I was like, excuse me? Your shoes have been getting so
much attention internationally. You've got to take your shoes
off. It was the perfect moment for me because I was just
getting ready for my citizenship test. So I closed my eyes. I
was like, OK, there are 27 amendments. My First Amendment,
freedom of speech. I turn around and I said, no, I'm not taking
them off. [Laughter.]
So they're like, What are you talking about? I said, I
don't even care if I get fined. I'm not taking them off. They
said, We're not talking about a fine. We're talking about
getting banned. So at halftime, I went back to my locker room.
I played zero minutes. I looked at my phone. There were tons of
notifications. I clicked on the one that my manager sent me. He
said every Celtics game is banned in China. Really. It took
them 24 minutes--first quarter, 12 minutes second quarter, 12
minutes--to ban every Celtics game on television. So that game
I played zero minutes, and I had played every game before that.
We lost the game, obviously. [Laughter.]
And after the game, there was a media storm. And I told my
manager, I don't want to do any media because I don't want my
teammates to think that I'm doing it for attention. So actually
after the first game, the NBPA, the Players Association, called
me and said: Do you know what you did? You can never wear those
shoes again. I was like, am I breaking any rules? They said,
no, but you cannot wear them ever again. I talked about the
problems that were happening in Turkey for the last 10 years,
and all I got was support. But when the topic was China, one
day and my phone was ringing once every hour.
So they were pressuring me and my manager so much. I was
like, you know what, I promise I'm not going to wear ``Free
Tibet'' shoes ever again. They said, promise? I promise. I hang
up the phone. For the next game, I wore ``Free Uyghurs'' shoes.
[Laughter.] So they called me after the game. They said you're
a liar. You lied to us. I was like, first of all, I never lied
to you. I never said I'm not going to wear ``Free Uyghur''
shoes. I just said I'm not going to wear ``Free Tibet'' shoes.
So after the third game one of my teammates walked up to me and
said: You know this is your last year in the NBA, right? You're
never going to get another contract after this because when you
criticize the NBA and Nike, it's over for you.
And that pretty much happened. You know, February came and,
you know, I got released and it was over for me. You know, I
want to say I love basketball. My job is not--I'm not a
politician. I should be on a basketball court working out and
getting ready for the season, but unfortunately because of the
things that I said it's not going to happen. But, you know
what? It's bigger than myself. It's bigger than basketball.
It's bigger than the NBA. And I will continue to be, you know,
a voice of all those innocent people out there who don't have a
voice. And thank you all for, you know, organizing this
beautiful hearing to be our voice. So this definitely means a
lot to us. Thank you so much, guys.
Chair Smith. Mr. Freedom, thank you so very much for your
courage, but also for--what a sense of humor, despite all that
you have----
Mr. Freedom. You've gotta laugh. You know, if you lose your
smile, you lose hope.
Chair Smith. Well, thank you.
Mr. Freedom. Thank you.
Chair Smith. Ms. Shi, Hope herself. [Laughter.]
STATEMENT OF SHI MINGLEI, WIFE OF
CHINESE HUMAN RIGHTS ACTIVIST CHENG YUAN
Ms. Shi. Yes. Thank you, Mr. Chairman. Thank you, Senator
Merkley and the Congressional-Executive Commission on China for
convening this hearing.
My name is Shi Minglei. I'm the wife of a famous Chinese
human rights activist, Cheng Yuan, who is currently serving a
five-year sentence at a facility called Hunan Chishan Prison.
There, as I will discuss in more detail later, prisoners are
forced to work making gloves for a famous American brand,
Milwaukee Tool.
But first, I'd like to tell you about my husband. In 2008,
Cheng Yuan left a job in finance to found an NGO called Nanjing
Based Justice For All, which was initially focused on combating
employment discrimination against persons with hepatitis B,
which is a significant issue in PRC. From there, he expanded
his work to other areas of social justice, including advocating
for an end to the PRC's one-child policy and standing up for
the rights of laborers and Chinese human rights lawyers after
the 709 crackdown, by founding NGO ChangSha Funeng. This work
led PRC security agents to arrest him on July 22nd, 2019. And I
haven't seen him since. He was arbitrarily detained, tortured,
charged with subversion of state power, and secretly tried and
sentenced to five years' imprisonment. That's how he ended up
at Hunan Chishan Prison.
Another activist who was imprisoned there is Lee Mingche, a
Taiwanese human rights activist who was arrested by the PRC
government in March 2017 and released in April 2022. After his
release, Lee revealed that while he was imprisoned at Hunan
Chishan Prison, he was forced to produce gloves, including
gloves bearing the Milwaukee Tool logo. One of Lee's jobs was
to cut materials into the shape of a glove. Another of Lee's
jobs was sewing the cut materials into actual gloves.
I am told my husband is currently forced to do a
significant amount of sewing as well. Lee said that if
prisoners refused to work or to meet the quota, they were
subject to a variety of punishments, including being forced to
stand for several hours straight, having their contact with
family members cut off, and, in some cases, being subjected to
beating, including with electric batons. Lee has attested to
many of these facts under penalty of perjury and is willing to
testify to them under oath as well.
Another recently released prisoner, whom I will refer to
using pseudonym Xu Lun, as he is still in the PRC, has
similarly reported being forced to produce gloves bearing the
Milwaukee Tool logo while imprisoned at Hunan Chishan Prison.
Xu confirmed that failure to meet the production quotas was met
with punishments like being forced to stand and being beaten
and shocked with electric batons. Xu also confirmed workdays of
about 11 hours, at least six days a week, with minimal breaks,
and being paid only $3 per month. That works out to an hourly
wage of one cent.
Due to the lack of rule of law in the PRC, however, it is
extremely dangerous for former prisoners located there to speak
publicly to these issues. That is precisely why big companies
like Milwaukee Tool are able to get away with benefiting from
forced labor in the PRC. They know that the lack of human
rights protection in the PRC means it's difficult, if not
impossible, for victims to hold them accountable.
Meanwhile, it's extremely beneficial to Milwaukee Tool's
bottom line if those who are actually making their gloves are
paid only one cent per hour. Of course, they would prefer to
have their gloves manufactured in the PRC rather than in the
States, where they would have to pay workers several thousand
times more, and where the kinds of abuses people like Mr. Lee
and Mr. Xu suffered would not be tolerated. In this way,
American workers can also be considered--counted among the
victims of Milwaukee Tool's disregard for human rights.
As for my husband, I'm deeply concerned about his
wellbeing. In recent visits by other family members, he has
confirmed that he is forced to work 11 to 12 hours a day,
hunched over a sewing machine. He was also put in solitary
confinement for three months, tortured, forced to stand for
hours, deprived of sleep and food, and forced to drink water
from the toilet. Thus, Mr. Chairman, Senators, Representatives
and CECC representatives, I'm calling on you to stop American
companies like Milwaukee Tool from using forced labor in the
PRC now. I'm looking forward to taking questions, but may be
not able to answer all these questions due to safety concerns
and contemplated litigation. Thank you.
Chair Smith. Ms. Shi, thank you very much for your
testimony, and for your courage as well. And for your great
love for your husband.
Ms. Shi. Thank you.
Chair Smith. We'll all continue to work for his release.
I'd like to now yield to Mr. Stone Fish.
STATEMENT OF ISAAC STONE FISH, VISITING FELLOW, ATLANTIC
COUNCIL
Mr. Stone Fish. Commissioners, I appreciate your focus on
these issues, and issues that we ignore at our peril. I'd like
to talk about business complicity both in the present and
issues I'm worried about in the future. And the major one is
lack of transparency. Congressman Smith, you talked about Anta
earlier. I don't know if folks realize that Anta also owns
Louisville Slugger, a beloved American brand, and Wilson. And
Anta itself has very clear ties to forced labor. I do wonder if
Major League Baseball, tennis associations, understand how
they're being complicit with forced labor by using those
brands--storied American brands.
On the issue of transparency, American corporations for
decades have been very entwined with China and the Chinese
Communist Party. And as corporations have become more vocal in
the United States, they've become more quiet about what they're
doing in China. And we have wonderful laws and tools that push
that. The UFLPA I think is a fantastic one. I worry right now
about how easy it is for American corporations to support the
Chinese military. There's a focus on civil-military fusion, but
frankly it's a lot simpler than that. The People's Liberation
Army, the military in China, is the armed wing of the Communist
Party. It's not a separate organization. So any SOE is part of
the same organization as the PLA--Bank of China, ICBC, a lot of
these major companies are just part of the same organization
that is the Chinese military and may at some point soon be
killing Americans.
The other issue I want to talk about is the way that major
American military companies have deep ties to China. Boeing,
Raytheon--I'm quite worried about the fact that the most
important defense corporations have major markets in China,
Boeing especially. And in China, there are no private airlines.
Every plane that Boeing sells in China, it sells to the
Communist Party. And so we're in a situation where we're
facilitating not only the growth of the Chinese economy and the
Chinese military, but also making it so American corporations
have different interests and incentives then a lot of the
people in this building.
I want to continue with that and talk very concretely about
the risks of war. We are at a very perilous time right now. And
I worry that we're not having the national conversation about
what would happen if China invades Taiwan. What does that mean
for major American corporations who not only may be acting
against the interests of the American people, but also,
frankly, are putting a lot of their Chinese staff in danger?
This Commission so wonderfully focuses on vulnerable people in
China, and I don't think we really think through, Oh, if China
invades Taiwan, so many people who have worked for Apple, and
Microsoft, and Boeing will be seen by the Chinese Communist
Party potentially as enemy combatants. And they will be
harassed, and they will be rounded up, and potentially worse
things will happen.
And it's unfortunate that I have to speak this way, but we
are in a scenario--again, I can't predict the future, but we
are in a scenario where World War Three might be upon us and
there'll be massive, massive ethical concerns for that. I'm
also quite worried about the treatment of Chinese Americans
here. We have a horrible history in this country of rounding up
people who are citizens or, worse, citizens of countries that
we were fighting. Germans in World War One. Japanese in World
War Two. And we need to have a national conversation about how
we're going to ethically protect our own, going to protect
Chinese Americans.
It's something that really, really worries me, and it's
something that I think we need to talk about. The solutions are
already in our wonderful political tool book. It's open and
raucous debate. It's more transparency for American companies.
Most American companies don't break out their China revenue, so
we have a very difficult time of knowing what exactly they're
doing in China. The more we can learn, the more we can
understand, the better it is. So I'll stop there. Thank you
very much.
Chair Smith. Thank you, Mr. Stone Fish, so much for that
testimony and your leadership.
Ms. Kokas.
STATEMENT OF AYNNE KOKAS, C.K. YEN PROFESSOR,
MILLER CENTER, UNIVERSITY OF VIRGINIA
Ms. Kokas. Thank you so much. Thank you, Chairman Smith,
Co-chairman Merkley, and distinguished members of the
Congressional-Executive Commission on China. It is an honor to
present my testimony.
As the U.S. grapples with how to approach China's expanding
digital influence, fragmented U.S. laws interact with expansive
Chinese government oversight in a way that pressures
corporations to prioritize compliance with Chinese laws and
policies. Drawing from my recent books, ``Trafficking Data,''
and ``Hollywood Made in China,'' I recommend enhanced data
oversight in the U.S. to reduce digital rights violations by
tech corporations from both the U.S. and China. More
comprehensive U.S. digital oversight would align the U.S. with
its allies and partners and countervail against pressure
companies face from Chinese regulations. I look forward to the
discussion and would be happy to expand on any of these points
during questioning but let me highlight the key points of my
testimony.
First, U.S. technology oversight assumes corporations have
the capacity to track and mitigate harm, which we've seen time
and again is not actually the case in many situations. Second,
most Chinese corporate data oversight laws have
extraterritorial scope and nontransparent enforcement. The
opacity of these laws obscures which firms are exploiting data
and generating other harms in the normal course of their
operations, not just in China but in the U.S. and with our
allies and partners. Number three, limited U.S. data protection
and the potential for financial, civil, and criminal penalties
in China incentivizes following Chinese laws where there are
not U.S. equivalents. So by not regulating within the U.S.,
it's not that we're creating more freedom for our companies,
it's that we're incentivizing them to follow Chinese laws.
Number four, similar pressure encourages firms to modify
content to adhere to Chinese laws.
In the absence of comprehensive data privacy over
oversight, the patchwork of sector-based and state-based
oversight in the U.S. fails to keep pace with evolving
technologies. I'm thinking about things like the Health
Insurance Portability and Accountability Act, which does not
cover key technologies like commercial DNA testing and smart
health monitoring, or COPPA, the Children's Online Privacy
Protection Act, which does not account for the ways that
children's data is accessible on devices like Amazon's Alexa or
Google Home, and how increasingly savvy users under the age of
13 are able to access that user data anyway. And finally on the
mental health impact on teens who are over the age of 13, many
of whom we see at the University of Virginia.
States offer different protection for their citizens,
different access for corporations to user data, biometric data,
financial data, and access to different state networks and
devices. This creates a very difficult environment for any sort
of compliance and, as a result, companies have an incentive to
choose to go to different states rather than to comply with
data oversight. But corporate and user data oversight form the
foundation of a wide range of emerging information and
communication technologies, like generative AI. So therefore,
long-term competitiveness depends on good U.S. data protection
laws.
Now, by contrast, in China what we see is uneven
enforcement and forced data localization. China's 2017
cybersecurity law requires critical infrastructure data to be
stored in China. The personal information protection law
expands data localization requirements to make the transfer of
data overseas subject to a security assessment by the
Cyberspace Administration of China, very broadly defined.
Similarly, opaque enforcement encourages corporations to comply
with the most conservative interpretations of the law. For
example, China's national security data audit system
established by the data security audit, which has
extraterritorial implications, so applies to companies that
operate in China and in the U.S., can review any data that
might influence national security. Similarly opaque are the
oversight mechanisms of the 2020 Hong Kong National Security
Law, which I know this Commission has dealt with in great
depth.
So corporations in the United States that are subject to
Chinese laws face significant pressure to comply with Chinese
laws in the absence of U.S. data protection in areas like the
connected device industries, precision agriculture, gaming,
payment, mobility, communication sectors, and beyond. I talk
about these in my book, ``Trafficking Data,'' and I'm happy to
talk about them in the Q&A as well. So the pressure--we also
see that pressure for Chinese market access interacts with U.S.
laws to shape content. Now, this is an area that I talk about
in my book ``Hollywood Made in China.'' We had the recent--in
2019 ``Abominable'' contained a map of contested Chinese
maritime claims. I know some of you may have heard about the
discussions of the ``Barbie'' movie over this past weekend. If
you want to talk about that, I'm happy to discuss it further.
We also saw the recent case with ``Top Gun: Maverick.''
Now my recommendations are as follows--and I focus
primarily on the digital sector because I think this is an area
where Congress needs to act and where this Commission's
leadership is essential. First of all, working with allies and
partners to establish standards for international data
transfer. Aligning adequacy standards for cross-border data
transfer with the European Union and Japan, and other allies
and partners. Join or rejoin key trade agreements that enhance
transparency and cross-border data transfers. Enhance U.S.
oversight to prevent international data trafficking, through
things like the bipartisan RESTRICT Act, which we just heard
Senator Warner discussing, and which was subject to--I think he
mentioned $100 million of TikTok lobbying money.
Regulate the data broker industry. We also see the UPHOLD
Privacy Act of 2023 and the Protecting Military Service Members
Data Act of 2023 offering first steps in this direction.
Enhancing SEC reporting of data storage practices by publicly
traded firms, and then building out a national security data
privacy monitor to mitigate data trafficking. Finally, and this
is what I say as the director of the East Asia Center at the
University of Virginia, fund Chinese Area studies. A lot of
companies don't necessarily know what they're doing because
they don't have people who work in those companies with this
expertise. This is of crucial national security importance, and
I look forward to the Commission's leadership on this.
Thank you so much for your time and attention, and I
welcome your questions.
Chair Smith. Thank you so very much, Ms. Kokas.
Senator Merkley has a vote pending in the Senate, so I
certainly yield to our distinguished co-chair.
Co-chair Merkley. Well, thank you very much, Mr. Chairman.
And I want to turn right away to the NBA. And I believe before
the experience you went through, Mr. Freedom, Daryl Morey, the
general manager of the Houston Rockets, had tweeted in support
of Hong Kong. And I think he suffered immediate backlash as
well. So I just want to make the point that this is not just
one vignette. This is an absolutely broader challenge because
of the amount of money the NBA seeks to make in China. Did you
have conversations with any of the NBA players who were
considering or had endorsement deals with the Chinese
sportswear companies? And did you get any kind of feedback from
them, or did you get any support from players for the stand you
were taking?
Mr. Freedom. You know, when I started to talk about the
problems that were happening in China, it was the perfect
moment because it happened right before the Beijing Winter
Olympics. People call it The Genocide Games. So forget about
the NBA. I tried to reach out to the NFL, MLB, MLS, the NHL,
WWE. I even tried to reach out to Olympians. I was, like,
listen, you know, while we are dribbling a ball, on the other
side of the world there's a genocide happening. You know, we
can come together, and we can actually bring so much voice for
these innocent people.
You know, they all said the same thing. They said, listen,
I think what you're doing is so courageous, so inspirational.
Keep doing what you're doing. We love you. We support you. We
just cannot do it out loud. I asked them a simple question. You
know, I was like--I asked them, why? They said, well, you know,
we live on deals. We want to get another contract with the
league that we play with. And then my following question to
them was, put yourself in their shoes. If your mother, if your
sister, if your daughter was in those concentration camps
getting tortured and raped every day, would you still pick
money and business over your morals, values, and principles?
They usually turn around and leave the room, you know. And
the one thing that broke my heart, I played 11 years in the
NBA, I had hundreds of teammates, hundreds of coaches, I had so
many friends who I used to call my brothers because I used to
see them more than my family, which I haven't seen in over 10
years. After I got released, not one of them texted me and said
good luck with whatever is coming your way next. Not one of
them called me. I was shocked. I started to ask myself, am I
doing anything wrong? You know, I don't talk about politics,
because human rights is above politics. I don't care if you're
from the right, from the left, whatever party you cheer for,
whoever you vote for. You have to care about human rights.
So they were just scared about--If I do an interview, or if
I ever talk about--if I do a podcast, they just didn't want me
to mention their name because they knew that if I ever said,
Oh, this player supported me, this player said this and that,
all their endorsement deals would be gone. So it was a very
lonely road for the last year and a half. But I still check
their stats. I still see if they're healthy or not. I still
cheer for the Celtics, cheer for the teams that I played for. I
just hope they understand at the end that, you know, what we
are doing is--what I'm trying to do is bigger than basketball,
bigger than the NBA, bigger than everything that that we ever
have done.
Co-chair Merkley. Well, we all greatly appreciate your
stand on behalf of human rights.
Mr. Freedom. Of course.
Co-chair Merkley. And I personally, and Congressman Salinas
coming from Oregon, we also appreciate greatly your time with
the Portland Trailblazers. [Laughter.]
Mr. Freedom. Oh, thank you so much. I had an amazing time
there.
Co-chair Merkley. Ms. Shi, has Milwaukee Tool acknowledged
the problem, or their involvement with prison forced labor in
China?
Ms. Shi. No. We sent several letters. And we also requested
a conversation. But they refused to meet me in person.
Co-chair Merkley. Are there other American companies in a
very parallel position to Milwaukee Tool that you've had any
contact with?
Ms. Shi. Yes. I also found another American company
involved in this case. We can hand over the details later.
Co-chair Merkley. And we----
Ms. Shi. By the way, we also contacted Walmart, Home Depot,
and Amazon, because they are the major channels on Milwaukee
Tool. Fortunately, Walmart took action after I sent a letter to
their CEO, and they deleted Milwaukee Tool gloves on their
website. And they also promise they won't sell them anymore in
the store. But Home Depot and Amazon are still selling
Milwaukee Tool gloves made with forced labor.
Co-chair Merkley. One of the things that we've discussed a
lot on this Commission is transnational repression, in which
those who stand up for human rights here in America, their
families are threatened. Obviously, your husband's already
suffering in prison. Has anyone walked up to you on the street
and said: We know where other family members are in China and--
or intimated that there would be further consequences of your
speaking out?
Ms. Shi. Until now, I think I'm safe in the States. But
actually, when my husband was arrested, I was suddenly put
under home arrest for half a year. And they also accused me of
subversion of state power, even though my job is just global
Ecommerce in the business area.
Co-chair Merkley. OK. Thank you. And, Mr. Stone Fish, are
there examples of U.S. companies that have been challenged by
China who have stood up to China that we can celebrate in a
more positive way?
Mr. Stone Fish. It's a great question. And unfortunately,
the companies that do that don't want to get credit for it. We
work with a lot of these companies. And reporters will come to
me and say, Hey, I'd love to do a positive piece on a company
that's reducing its exposure to China. And so I'll talk to our
clients, and they'll say: Absolutely not. And I do hope that
that changes because I think it's a very important trend. And I
do think people need to know, especially people in the business
community, that there is a way to reduce your exposure to
China, to reduce your reliance on the Communist Party, and
still make money and succeed. But unfortunately, all of the
companies that I know that would fit that qualification would
much prefer to be silent. And I think that's a shame.
Co-chair Merkley. Thank you. My time is up but I'll submit
some questions for the record about whether we should have
disclosure requirements for U.S. companies doing business in
China, and if so, what those should look like, and other issues
related to companies facing penalties for violating PRC laws.
Thank you very much.
Chair Smith. Thank you, Senator. Thank you so much, again,
each of you, for your testimony, your leadership. And I'm
looking forward to reading your book during the August recess,
so-called. District work period, as we really refer to it as.
I do have a number of questions. You know, let me just say
for the record, we will invite the NBA and the NBA Players'
Association to testify. Obviously, they're free to turn us
down. I hope they won't. I hope that they realize that the
courage that Enes Kanter Freedom has provided is something that
they all ought to aspire to. You know, injustice need not be
forever, and I would argue cowardice need not be forever. You
know, money should not trump standing up for people, as you
pointed out, Mr. Freedom, who are being raped every day, who
are being so horribly mistreated, children.
I mean, it is genocide, and genocide--``who remembers the
Armenians''-- many, many years back; you remember Lemkin? He
coined the term genocide. Same goes for the Holocaust. We
really do need to be much more vigilant and strong. And you
have done that at great cost to yourself. I'm in awe of that
kind of courage. And the fact that the others have not--and I'm
sure in their heart of hearts, many of your fellow players do
have strong concerns about what is going on in all of China,
but also in Xinjiang with the genocide. And so thank you for
that leadership.
We will invite them. We'll invite Milwaukee Tool to come,
and others. And I would point out that we had a number of
hearings, and so did the Lantos Commission. I chaired one with
our distinguished chair at the time, now Co-chair Senator
Merkley, before the Olympics. And we had companies come and
testify. And I remember Coca-Cola, I asked them specifically
about the genocide. And it was like he lost his voice. Wouldn't
say a word because of fear of losing market access. And again,
the more that we enable the Chinese Communist Party through our
acquiescence to those bullying tactics, the more that they will
use them.
I even remember when Liu Xiaobo got the Nobel Peace Prize--
there were threats made against the Peace Prize Committee and
others. And it was like that was the last we heard of it after
that. I was there. I'm the one who led the effort in Congress
to have him and two others named as Peace Prize recipients. And
it was forgotten so quick because China was threatening whole
countries about their support of Liu Xiaobo. They wouldn't even
let his wife accept the Nobel Peace Prize.
But again, Senator, I do thank you. You had those
corporations here at that hearing. And it was very telling how
fearful they were of saying just one word about the genocide
and about all things human rights-wise with China. We had
argued, just for the record, very vigorously. Senator Marco
Rubio and I had written letters to the Olympic Committee
because they got these bogus assurances from the Chinese
Communist Party, that they would adhere to human rights. It was
like, are you kidding me? It's deeds, not words. Their words
are very deceptive, if not outright lies. So in this case, they
were.
And the issue of having the Olympics--you know, it's too
bad that the genocide Olympics did occur there. I'm all for the
Olympics, but not there. As we all are. So I do thank you,
again, for all of that. We will invite the NBA. I hope they say
yes, sooner rather than later. Because I think if a few others
follow your courageous lead, it could have a very cascading
positive effect on human rights, because now they know they--
OK, so they barred the Celtics TV coverage in China for a
while. Big deal! I mean, is money everything? I hope not.
And you know, it was discouraging to watch Bill Gates as he
met with Xi Jinping the other day. You know, he's done some
work on health and the like, but Microsoft and others have been
enablers in the most egregious ways for decades. I had a
hearing back in 2006, in which I invited Microsoft, Yahoo,
Cisco, and Google to talk about how they were censoring and
providing personally identifiable information on users to the
Chinese secret police. So I swore them all in. I asked, Why are
you following that? Yahoo had given up all this information
that put Shi Tao into prison for 10 years about the Tiananmen
Square remembrances. Ten years, for just conveying to a human
rights group in New York how they were being censored about
what they could say about Tiananmen Square.
We had Google during that hearing, the Google that you
would get in China, that showed Tiananmen Square--not a single
mention of the massacre, of the bayoneting. All part of the big
lie. The bigger the lie, the better, I think, from the Chinese
Communist Party perspective. And they're all part of it. I
pointed out that IBM--I read a book on IBM and the Holocaust,
very well footnoted--and IBM then called my office and
complained--about how they helped the Gestapo go after
individuals because they had very, very good capabilities. They
shared it all with the Nazi Party and the Gestapo, and they
found Jewish people and others who were unmentionables and,
obviously put them into concentration camps.
So it was really--what a telling. And here we have it being
repeated now, as it was in 2006 at this hearing. So we need to
learn from it. And big corporations in tech really need to do
far more to be on the side of freedom and democracy and not on
the side of human rights abuse. Let me also just ask, Ms. Shi,
to you. Are you in any kind of contact with your husband? How
is he doing?
Ms. Shi. Yes. Since January this year, my family members
can visit him. But before that, for three and a half years we
couldn't visit him. But still, my letters to him through my
sister-in-law were all seized by the prison. And even a photo--
even some photos of me and my seven-year-old daughter, and they
just deprive him from seeing the photos. And so it's really
hard for me to contact him.
Chair Smith. Okay. Mr. Stone Fish, you know, one of the
issues of the transference of military capability and know-how,
dual-use items which they have picked up almost with impunity
to turn into a force that we may face someday, that Taiwan may
face sooner rather than later, sadly. There was--you might
recall the Cox Commission; Christopher Cox, a member of
Congress from California, did an amazing job. A bipartisan
commission that looked at all of that and said: We're arming
China. We're making them a first-rate, capable, militarily
speaking, courtesy of making money off of them. Hughes Aircraft
and all these others were more than accommodating to give them
everything they possibly want.
You mentioned an issue that I haven't focused enough on.
And that is especially the Chinese nationals who are working
for U.S. corporations. Should the balloon go up and there is
fighting, God forbid, but there could be, how at risk they will
be. And when you mentioned Boeing, I immediately thought of
McDonnell Douglas and Boeing, and all of the airlift capability
that gives their troops. You know, in the United States--
whether it be American Airlines, or United, should we go to war
they get pressed into service to move troops and materiel.
Well, what do you think the Chinese will do with our aircraft
that we sold them?
And, you know, this myopic view that so many have here that
just sell and, you know, make a buck and move on, well, that
could be used to move troops as well. So you might want to
speak to that issue because the Cox Commission was in the
1990s. Why haven't we learned? And, again, on the data, I look
forward to reading your book. Your testimony was excellent.
Your leadership is excellent. Maybe you could just elaborate a
little more on what we could be doing to mitigate the damage.
Because it's, you know, is it too far gone? You know, I was
sickened by the Gates interview with Xi Jinping.
Xi Jinping ought to be at The Hague for crimes against
humanity, not having Americans, business leaders in that case,
and American politicians--you know, I look at this in a
bipartisan way. When Brent Scowcroft traveled to Beijing right
after the Tiananmen Square Massacre to assure the Chinese
Communist Party, ``No problem here,'' I was shocked. He's a
Republican, and I spoke out then. I feel similarly about the
kowtowing that's going on by some in our government.
Thankfully, our first witness is not in that group. Mr. Silvers
is standing up strongly. But not enough people are. So maybe I
could start with Mr. Freedom. If you just wanted to comment
further.
Mr. Freedom. Yes, of course. Thank you. I think even just
bringing awareness is very important. But more than awareness,
you know, when we are in the locker room, we always say let's
play hard, let's play smart, let's have fun. And the coach
comes in and says: Well, don't just talk about it, be about it.
So it is important to just talk about and bring awareness, but
I think we need to figure out what we can do to help those
people over there. And like you said, Chairman, this is a non-
political issue. This is a human rights issue. So every part of
the country needs to just help those people over there, because
while we are living comfortably in this country, on the other
side of the world people are losing their lives, losing their
homes, and losing their loved ones. So we've got to do whatever
we can to help those people over there.
So, like I said, again, I'm not a politician. I'm an
athlete. I still consider myself an athlete. You guys know
better than me what we can do or not. But those people over
there can't even breathe anymore. So we've got to do whatever
we can to help them.
Chair Smith. I do hope you will inspire other NBA players,
including the NBA Players Association, to stand with you. And
you ought to be invited back based on your skill and your
ability and not the fact that you----
Mr. Freedom. Of course. Many, many athletes over there, you
know, sign contracts. Not only NBA, but companies like Nike. I
mean, just look at Nike. Nike stands with Black Lives Matter in
this country. They stand with the LGBTQ community. They stand
with No Asian Hate, the Latino community. But everybody knows
about the slave laborers and sweatshops. You know, they keep
preaching about how important the social justice issues are,
but when it comes to using slave labor they're one of the
biggest companies that uses slave labor. So we've got to do
whatever we can to put pressure on these companies.
Chair Smith. Thank you.
Mr. Freedom. Of course.
Chair Smith. And we will invite Nike to our hearing as
well.
Mr. Freedom. I love it. I love it.
Chair Smith. Ms. Shi.
Ms. Shi. Last Saturday, we went to Home Depot, brought our
kids. I have one daughter. She is seven years old. Every time
she goes to Home Depot with me, she will look around and see
whether the Milwaukee gloves are still sold there. She even
knows exactly the three models made in the Hunan Chishan
prison. And last Saturday, Daniel, a kid whose father is
Chinese human rights lawyer Chang Weiping--also detained in
China, they just moved to Minnesota, and we hosted them. And he
went to Home Depot along with us. And he said, Auntie Shi, if
you fail in the lawsuit against Milwaukee Tool, when I grow up
I will be a lawyer and I will do the lawsuit for you.
You know, he's only 10 years old. We pass this information
on to the kids, My daughter knows ``Don't buy Nike'' because
they are using slave labor, because their fathers are good
human rights activists in China. So I really encourage them to
continue to think positively and continue, know that God loves
us, and God has justice. But every time, it's just
heartbreaking--you know, talking about the hard issues with our
kids. So we need to take some action now. And we hope that all
products made by forced labor in China will be banned
immediately. And also we hope the companies will be held
accountable for that. Thank you.
Chair Smith. Thank you. Mr. Stone Fish.
Mr. Stone Fish. Thank you. That was an excellent point--the
military companies complain about regulations, but sometimes
they love them because they can hide behind them. And so having
a regulation or a law that restricts the ability of American
companies to support the PLA, or to enter into joint ventures
with the PLA, or to source from PLA-owned factories will be a
massive compliance headache but will also allow major U.S.
companies to say: Listen, I still want to do business in China,
I just have to follow U.S. laws. So I have to reduce my
investment in the PLA. I have to move out from all of these
issues. And it's a compromise. And it's a way to work. And I
think the UFLPA is a very excellent model for that.
I'll make another point about Scope 3 emissions, which are
basically emissions that a company makes throughout its
lifecycle. You brought up the great example of cobalt mining in
the Democratic Republic of Congo. For so many companies, Scope
3 is just China. They have such a massive manufacturing
presence there. So regardless of which side of the aisle you
are on on climate change, forcing more environmental
transparency forces companies to disclose how exposed they are
to China and the Chinese market. And it's another way of both
increasing transparency and raising the cost of investment in
China.
Chair Smith. Thank you, Mr. Stone Fish. Ms. Kokas.
Ms. Kokas. Thank you so much, Chairman Smith, and thank you
for that excellent question.
To your final question of whether we're too far gone, I
teach a class called ``The Data Ethics of TikTok'' at the
University of Virginia. And I have our students read the TikTok
terms of service. And they read it, and they get very
depressed, but then they still stay on TikTok. [Laughter.] And
their question is, What can we do? And one of the answers is,
we need systemic regulation so that these are not decisions
that 18-year-olds have to make by themselves while reading
terms of service ad nauseam.
And also, one of the things we talk about is the importance
of mitigation strategies. So no, we're not going to solve the
issue of data trafficking and international data transfers.
It's probably just like in the forced labor context--we were
just talking about the de minimis issue, and how it's very
difficult to resolve it. But does that mean we don't try to
mitigate? No, we keep working. And so some things--some low
hanging fruit includes joining or rejoining trade agreements
like the CPTPP which China is trying to join, and Taiwan is
trying to join, and has data transfer agreements. Enhancing
reporting requirements for companies through existing
mechanisms like the Securities Exchange Commission. Where are
they storing their data? How are they transferring it?
National security data privacy--we've had some movement in
this direction. The American Data Privacy and Protection Act
was introduced last year. And there were, admittedly, problems
with it, but it's a step forward. And right now, the U.S. is so
far behind our allies and partners on a lot of these issues in
terms of data privacy and protection that we can't even come to
consensus with the people that we normally agree with on
things. So I think that this is a really important area that
Congress can move on. And not just for me, not just for the
people on this panel, but for all of the people who are coming
forward and are feeling rather hopeless right now.
Chair Smith. Thank you.
Ms. Kokas. Thank you.
Chair Smith. Commissioner Salinas
Representative Salinas. Thank you, Mr. Chair, and thank you
to all the panelists.
Dr. Kokas, your testimony paints a really revealing picture
of the risks posed to Americans, both by the lack of strong
standardized data protection in the U.S. and by our exposure to
Chinese laws. And clearly Congress has its work cut out for us
to ensure that we're able to protect Americans' data. In fact,
we just saw a data breach in Oregon of almost our entire DMV
system, about 3 million Oregonians, nearly the entire
population of the state. So can you talk a little bit more
about the implications of strong domestic privacy laws for
international norms?
Ms. Kokas. Yes. I spent last summer in Japan as an Abe
fellow. And one of the really interesting parts about that
dynamic was talking with Japanese policymakers about their data
transfer agreements and the data adequacy agreement that they
had established with the European Union. And how by not having
those data adequacy agreements with the United States, it
actually prevented them from being able to have better trade
with the U.S. and more alignment in terms of ballasting against
Chinese data gathering in Japan and the European Union, in the
United States.
So by making the decision to kind of go our own way--and
there's a reason for this. It's not--it didn't occur by
accident. It's that the country has enriched itself, and I have
probably personally enriched myself through my 401(k) balance,
by the rapid growth of tech stocks. And this is a way that
we're able to grow and enrich the country. But it's also that
now tech companies do not have the same types of incentives
that they once did in terms of alignment with U.S. national
security interests. Also, these have become really significant
international issues that are driving a lot of national
security interests, not just domestically but internationally.
And the power of the Chinese tech sector means that this isn't
something that the U.S. can do by itself.
So I thank you for your question. And also, to one of my
points, the importance of aligning state and national standards
and using federal resources to help provide technical support
for state organizations, which are really doing their best but
are often faced with quite untenable circumstances. Thank you.
Representative Salinas. Thank you. Mr. Stone Fish, you
noted that the key to addressing corporate complicity and
Chinese human rights violations is to promote transparency. And
as a reporter, you have no doubt, I'm sure, thought about the
consequences of bringing to light previous opaque connections.
I wonder, though, whether transparency is sufficient. We heard
about the NBA's connections to China, Mr. Kanter Freedom has
clearly brought about a high degree of public awareness of how
the NBA works to appease the Chinese government to protect its
own businesses. We've heard of TikTok and making headlines for
risking exposure of Americans' data. These kinds of stories are
widely reported. My question is, is transparency enough to
reform corporate operation? And what kinds of disclosures would
you like to see that might actually have some teeth? And what,
as Members of Congress, do we need to do to put those teeth in
there?
Mr. Stone Fish. Thank you. I think those are excellent
questions. In the spirit of transparency, I'm an ex-reporter. I
run a data and consulting company, so I don't want to pretend
to be speaking objectively on these really important issues. I
think you're absolutely right. I think transparency is a step,
but there's far more that needs to happen. I think the national
security argument is a very important one, and letting
companies know and understand that unless they take action, the
U.S. Government's going to get very involved in a way that's
bad for corporations and bad for the U.S. Government. And that
if tensions worsen and China gets close to or, God forbid,
invades Taiwan, national security concerns will take over. And
there's massive amounts of human rights implications with that.
And I hope we're careful and can take a deep breath and have
conscious debate at that time. But companies need to know that
they're going to be in a very difficult situation.
And I think the argument that we find to be the most
effective, and it's sad that this is true, it's not about
national security. It's not about human rights. It's about
regulatory risk and it's about the bottom line. So make it
clear to companies that this is how this loses you money, and
that reducing your exposure to China has very clear financial
benefits. One of the issues is with hacking and with Internet
Protocol. You know, companies pay massive externality costs
because of all the technology that they just leak into the
Chinese ecosystem. And that's a very major cost. And the more
that we bring that to light the more companies can calculate
that better on their bottom line.
Another one is insurance. Insurance premiums on deals in
China are way too low because we're not properly pricing the
risk. And the government has a role that it can play in that.
So if you make it more expensive through insurance for
companies to make certain kinds of investments in China, it's
going to change the math for them. And they're going to do it
differently. The other thing that I think is very effective--
and I applaud this Commission for doing it--is companies are
very afraid of being hauled in front of Congress to testify.
It's embarrassing. It distracts their CEO time. It forces them
to answer difficult questions. So the more that companies
understand that, the better it is.
And the final thing I'll say is on the role that consumers
can play. Consumers are far more critical of Beijing and the
Communist Party than Wall Street and the executive branch of
the government, I would argue. And so the more that actual
consumers have a voice in their purchasing decisions, the more
they know about where the goods, the labor, that they're
consuming comes from, the more likely that they'll push against
what corporations are doing. And corporations will speak to the
market and act to reduce their China exposure.
Representative Salinas. Thank you. Thank you, again, to the
panelists. I yield back.
Chair Smith. Commissioner Nunn.
Representative Nunn. Thank you, Chairman Smith, and also to
the bipartisan panel here. I think this is not only a really
good conversation, it's incredibly timely. Professor Kokas, you
highlighted at the beginning that when the United States
Government fails to define this battlespace, the Chinese will
do it for us. And I think that is an absolute truism. You need
only look at what Ms. Shi has highlighted today as being so
very true. I would offer that the same is also true for our
business and innovation sector. If we in the United States fail
to define this battlespace, the Chinese are going to do it for
us.
Mr. Kanter Freedom, more than a decade playing professional
sports in the NBA--I mean, you are an individual who came, from
a community that had a totalitarian regime, to the United
States. You're now an amazing U.S. citizen. You're still an
incredible basketball player. You came under this vacuum of
leadership by corporate America that allowed the Chinese to
define what our principles would be in the United States simply
because you wore a pair of shoes that said, I don't support the
Chinese government's abuse of Tibet or its abuse of the
Uyghurs. Who specifically did you feel the most pressure from?
Was it someone in China? Or was it somebody right here in the
United States?
Mr. Freedom. It was actually the Players Association, to
whom I give thousands of dollars every month to protect my
rights against the NBA, you know? And I was very confused. I'm
like, why are they pressuring me? They should be on my side,
not the NBA's side.
Representative Nunn. Absolutely right.
Mr. Freedom. And one of my teammates said, well, if there
is no NBA, there is no Players Association. So they've got to
do whatever they can to put pressure on you. At one point, I
was talking to someone from the NBPA, the Players Association.
They said, if you don't stop--if you don't stop wearing those
shoes, we are going to change the rules so no one can put any
kind of message on their shoes. And I was like, I cannot
believe that they are telling me that they're going to change
the rule in the whole NBA, so no one can.
Because it was so beautiful, seeing all these players
writing these beautiful messages on their shoes about their
kids, about if someone passed away, RIP blah blah, you know? It
was a beautiful message. And then during the NBA bubble, the
NBA was the one that was telling us, you know, be outspoken
about the social justice happening in America. They put the BLM
logos on the floor. They put the phrases on our jerseys, which
was controlled by the NBA. We couldn't pick what we wanted.
Adam Silver was the one telling all the players, hey, just go
out there and speak, give interviews and stuff.
And all of a sudden when the topic was China, you know,
they were just all silent. And they were just going against
what I was saying, which was nonpolitical, you know? So it was
someone from America. And I was like, how can the biggest
dictatorship in the world, China, control a 100 percent
American-made company and fire a U.S. citizen? And I would just
keep asking that question to myself. I was like, are we really
free? Is it only the NBA? The more I studied, the more I
realized, the NBA is not the only one. You see Hollywood, Wall
Street, academia, big tech, you know, farmland. And I started
to ask this question of myself; you just keep talking about the
freedom we have in this country--are we really free? So it was
literally someone from the NBA who was American.
Representative Nunn. Mr. Kanter Freedom, you highlight the
story of wearing ``Free Uyghur'' shoes. As an amazing NBA
player, you were pulled--didn't play a single game when you
wore those shoes. And within 24 minutes of that game alone, the
Chinese government said they were going to pull all Boston
Celtics games. As a result, the NBA basically not only
pressured you, but gave, (1), the Boston Celtics a horrible
loss. [Laughter.] (2), deprived people of China a great
opportunity to see not only a great game, but really give an
on-ramp for more Chinese to see what is true and great about
America, our freedom of speech.
And (3), perhaps worst of all, we saw an American
institution that wraps itself in the flag and is proud to stand
on every social issue for the voice of, as you highlighted, our
First Amendment freedom of speech rights, but then muzzles our
own American population because of a hopeful pot of money
coming out of China to keep them going. This is frustrating not
only on multiple levels--and Mr. Stone Fish has highlighted
this--this is the soft power that China controls all over the
world. But to have it come home to roost here in the United
States puts us in a highly detrimental place, Mr. Chairman. And
I appreciate that this Commission is really looking at what the
Chinese have done to subvert our own basic freedoms in the
U.S., as they've done in Ms. Shi's case back home.
I want to speak very specifically now on a couple of issues
that are of acute interest. Professor, you know, I'm an
information operations warfare officer with the U.S. Air Force.
One of the things that we have looked at specifically is this
relationship--China has tried to manipulate the battlespace,
specifically in the digital sector. Can you please speak about
some of these emerging technologies, specifically artificial
intelligence, blockchain--with China's blockchain-based service
network, their consumer-facing applications, as you
highlighted, TikTok here domestically, but WeChat domestically
in China, and the contribution of the Chinese Communist Party's
global surveillance state for data collection and how it's
manipulating. It's a lot.
Ms. Kokas. Oh, no, but I love it. It's a great question. I
won't be able to answer it all today, right here, but I'll do
my best. I like to think about this on three different levels.
On one hand, the risk that kind of comes up most commonly is
the risk to individuals. So, like, what's happening when I'm
being surveilled? I would argue that this is actually kind of
the lower level. We can kind of even put that aside because
most people are not that interesting. Maybe members of this
Commission are, but you know, most people are not.
Then there's this level of economic competitiveness. It's
the fact that there's this asymmetrical trade in data between
the U.S. and China. So companies like ByteDance and companies
like TikTok can operate in the U.S., but equivalent firms
cannot operate in China. So there's data that Chinese companies
in the U.S. are able to gather and as a result, they are able
to out-compete U.S. firms.
So this is an economic competitiveness risk, which then
feeds into--you know, when we talk about the communication
space, the movement away from the creation of controlled
communication environments, where we don't actually know
precisely what the terms of service mean, what the long-term
implications are--there aren't really mechanisms in the U.S. to
prevent private companies from executing on their own terms of
service. So in the event that this changes our communication
environment, there's very little that we can do.
Now in the context of something like WeChat, people who
start WeChat accounts in China and then continue using them in
the U.S., there is a CitizenLab report that noted that Chinese-
registered accounts--and even those that switched to
international numbers--can still be subject to Chinese terms of
service. So we are already seeing this kind of expansive
censorship and expansive use of Chinese government
extraterritorial oversight in a U.S. context.
Now, when we think about the long-term issues of things
like generative AI, this asymmetrical trade becomes
particularly important because these firms, as a result of
civil-military fusion, are pressured by the Chinese government
and can be pressured by the PLA to share their insights to be
able to develop new tools in a wide range of different areas,
from health,to communication,to financial services. And these
not only out-compete, but they also have dual uses.
One area that I thought was very interesting that I
couldn't do a lot of research on because of my lack of
clearance was the precision medicine industry and the
investment of Chinese firms in the precision medicine industry
in the U.S., and the development not just of new precision
medicine tools, but potentially bioweapons in the long term. So
that's something that I would, in your context, perhaps look at
in greater depth.
Representative Nunn. Both enlightening and frightening at
the same time. The other area that you highlighted here is the
uneven enforcement by the CCP. Here in the United States, at
least you have the ability to go in front of a court and have
your day. For a recent series of raids done by the Chinese
Communist Party on U.S. financial sectors--I'm talking here
Bain Capital, Mintz--these growing hostilities--some American
companies doing business in China are recognizing that their
future there is short term if they don't completely abdicate to
Chinese rules of enforcement. Talk to us about how that is not
only a bludgeon to basically force U.S. companies to give up
their American principles, but it's also becoming a very
dangerous tool. Those who are doing business within China are
going to be sacrificing their long-term capital, no longer
being U.S. institutions, but really Chinese institutions that
happen to operate in the United States.
Ms. Kokas. This is a really important point. And again, I'm
happy to discuss it in greater depth. But I think that we need
to think about this on a couple of different levels. First of
all, it's the role that individuals play. So individuals now
post-COVID face significant checks on their ability to move.
COVID checks require you to share your passport number or your
residence permit, your Chinese bank account number. So to be
able to do anything, like be able to get into a cab or rent a
scooter or purchase something, you have to be able to follow
these checks and be able to submit yourself to this type of
surveillance. So people who are working for those companies,
both foreigners and Chinese people, in order to continue to
exist within a Chinese context have to follow, essentially, the
most conservative versions of these rules in order to continue
to operate.
Now, one of the things in talking with people from the
American Chamber of Commerce that's been very revealing is that
in a lot of situations it's not actually possible for companies
to follow all Chinese laws at the same time, so they're
inevitably violating some laws. So as a result, there's always
the potential of a crackdown somewhere. And as we're seeing
increasingly vague laws (we just had this espionage law that
came out on July 1st) that apply to companies, in addition to
data security and oversight regulations. This increases the
difficulty for companies to operate and to be able to operate
legally.
And I don't know what that looks like for the future and
what types of decisions companies have to make in order to
maintain their presence in the Chinese market. So I would say
that this is an area where enhanced reporting requirements,
particularly for Chinese investments, become really important
so that at a very minimum those decisions are more visible.
Representative Nunn. Professor Kokas, I think those are
exceptional recommendations. The areas where I think this
Commission can be very effective too is holding the
transparency. Look, this has got to be a team fight. We have
the opportunity to stand for American principles with the U.S.
Government, with the American people. We also need our business
and innovation sectors to be on the same page because we are
essentially allowing winners and losers to operate in this
space; those who decide to do the bidding and will of the
Chinese Communist Party get to have some sanctuary and
therefore a market share, while those who hold the same
principles that they would operate under in the United States
are deprived of that.
And as a result, we're enfranchising the bad behavior of a
few corporations who exploit humans, who torture individuals,
who sacrifice American principles, so they can get a market
advantage over those who are doing the right thing. I think
transparency is a huge part of what this is. And I thank the
Chairman for bringing this forward in a bipartisan way. I hope
those companies have the opportunity to come here and justify
their existence as well. Thank you very much, panel.
Chair Smith. Thank you, Commissioner Nunn, so very much.
Ms. Wexton, I know--I think you're still online.
Representative Wexton. I'm still here. Thank you very much,
Mr. Chairman. Good to see everybody. Thank you so much for
coming today. This has been very, very enlightening--a very
enlightening discussion, so I'm really glad to have been here
for it.
I do want to ask Mr. Stone Fish--when Shein announced that
it was going to engage in independent audits now, spot checks
to address forced labor, experts like Adrian Zenz said that
these audits would be inadequate if state-sponsored forced
labor was in any way involved. And it creates a systematically
corrosive environment in which targeted groups mobilize through
extensive government and grassroots recruitment efforts. With
this environment in mind, what tactics have you seen companies
like Shein take in hiding the source of materials mined,
produced, or manufactured, either in whole or in part, with
Uyghur forced labor?
Mr. Stone Fish. Thank you, Congresswoman. I think that's an
excellent question. You cannot do audits in China today
anymore. It is not safe. You don't get concrete information.
And you're often putting your Chinese staff in danger. When you
hire a company in China to go do an audit, you're sending
someone to a plant and you're incentivizing them to lie.
Because what if they go to a plant and they find forced labor,
and they know that if they speak out about it maybe they'll be
in danger, or their families or their friends or their
children. So there's no way to do it. And what we strongly
recommend is using open-source information, which you can do
safely from outside of China, to paint very accurate pictures
of links between corporations and various elements of the
Chinese Communist Party.
And that's a model that we, ourselves, take at the company
I run, Strategy Risks. It's using open-source information to
show the links between companies and the Chinese Communist
Party. And we think that's incredibly important. It's also--as
the information environment in China degrades--it's going to
get more and more difficult for journalists, for policymakers,
for companies--as Commissioner Nunn was saying--to get good,
concrete information from China. And so we need to understand
that big data, AI, open-source collection methods, are going to
be necessary for transparency.
Representative Wexton. Thank you very much for that answer.
Another question, your testimony said that we need to require
corporations to disclose their exposure to China. But companies
in their filings to the SEC often don't break out their China
revenue, hiding behind broader categories like ``Asia.'' The
more information investors, regulators, and citizens have about
how American companies are exposed in China the better. That's
one of the reasons that I'll be reintroducing my Uyghur Forced
Labor Disclosure Act, which passed in the 116th Congress with
bipartisan support. But a lot of my colleagues believe that
issuers should only be required to disclose information that's
material, and they already are obliged to disclose it, and they
don't think that this is material. Please explain why it's
important that corporations disclose their financial ties to
China, including their supply chains.
Mr. Stone Fish. That's an excellent point. It's, for so
many companies, the most important market outside of the United
States, and for some even more important than the United
States. And so the idea that not giving a full picture on your
most important market, or one of your most important markets,
is just beyond me. I think another thing that companies do to
hide behind this is they don't clarify whether or not when they
say ``China,'' they're including Hong Kong, or Macau, or
Taiwan. And so I think requiring clarity there as well is
incredibly important--so that when companies say ``Greater
China'' or ``China,'' what exactly are they saying? Because
there's a real need for investors to make material decisions
based on what their exposure is. So I applaud you,
Congresswoman, for pushing on this issue.
Representative Wexton. Thank you very much, Mr. Stone Fish.
And I would applaud you for the change of heart that you've had
as you've progressed through your career. Please talk a little
bit about how you came to that, and how you came to the
conclusion that you wanted to fight for good rather than be
part of the problem. If you could talk a little bit about that,
that'd be great.
Mr. Stone Fish. Thank you. I love that question. That's a
fun one to answer. I lived in Beijing for six years. I was a
journalist. And it's hard to blame anything but naivete. When
you're living in Beijing, you think the way things are is the
way things are supposed to be. You bask in that environment.
And it was only coming back to the States and seeing prominent
Americans talk about China, not like Chinese people do--which
is incredibly diverse and fascinating--but like the Communist
Party. So they would say things like, China has 5,000 years of
history, and China only wants peace. China has lifted hundreds
of millions of people out of poverty. And you wonder, why are
they just repeating Chinese propaganda?
And then I forced myself to go back and look at all the
times that I did that, and all of the ways that I praised or
facilitated the Communist Party. And it was a very
uncomfortable transition, but I think it's really important for
us to do--to go through and see how we did this, and just be
very open-minded about these things. I do worry now a little
bit about self-censorship in the other direction. I'm, myself,
very anti-Communist Party, but there are legitimate reasons to
support the Party. And one has to be able to have a
conversation about it.
You know, I don't want us to be in a scenario where if
someone says something nice about Beijing, they're
automatically accused of being a Chinese spy, or of being a
toady, or a lackey. I think we need to have a reasoned debate.
And I applaud this Commission for the way that it frames these
issues and discusses these issues. So thank you for that.
Representative Wexton. Thank you very much. I want to thank
all the witnesses for being here today. And I want to
acknowledge everything you guys have been through. I mean, it's
true that a lot of you are still dealing with the effects of
what your families are going through in China here in the U.S.
And I feel really bad for you about that. But we're trying to
make sure that we do what we can to stop this transnational
coercion. Thank you so much. And even Professor Kokas, I think
you may not consider yourself very ``interesting''-- I'm sure
you are very interesting to the Chinese Communist Party. So
lock down all your devices, please.
Thank you all so much for coming. It was really
fascinating. Take care. And I yield back.
Chair Smith. Thank you very much, Commissioner.
I'd now like to yield to Commissioner Wild.
Representative Wild. Thank you so much, Mr. Chairman. And
let me just commend the chairs of this Commission and the staff
who have put together an incredibly dynamic hearing with
absolutely fascinating witnesses. So much of what we do here in
Congress often goes unnoticed by the public. And part of that
is just because it doesn't seem that interesting to the outside
world. And we've all found that when we can make subjects
interesting, people are more likely to listen. And thank you
for helping us to do that. I'm honored to be a member of this
Commission.
I just want to say a few things. First, Mr. Freedom, full
disclosure, Sixers fan here. [Laughter.] I think the last time
you and I saw each other was in January of 2021. We were on
Zoom at the peak of COVID and talking about human rights and
equal justice around the world. And I think at that time, you
weren't yet a United States citizen. And now you are one. So
congratulations on that. I have to say, you're a very good
storyteller. You said a couple of times, I'm not a politician.
But I suspect that there is a place for you in U.S. politics,
if you're interested [Laughter.] because you're so good at
telling stories.
You made the comment that human rights is about politics.
You also very vividly illustrated that fighting for human
rights can be lonely. It can be a lonely task. But what we've
also seen through this hearing, and what we know if we just
look around the world and look at different companies, is that
fighting for human rights is sometimes at odds with the
almighty dollar, or euro, or lira, or whatever currency a
company is dealing in. And that profits often transcend concern
for human rights. And I think that's what this hearing is all
about. It's sad, but I'm glad that we are having it. The other
thing I'll say about your comments, you made the comment that
somebody in the Players Association said to you, If there's no
NBA, there's no Players Association. I would suggest to the
Players Association that they study the power of organized
labor and what they have done in this country and elsewhere to
really advance their rights.
So with that said, Mr. Stone Fish, I just want to comment
on what you said about the power of the consumer. We often have
seen campaigns at the grassroots level against products,
companies. And they don't start because somebody in Congress is
talking about it. They start because there is an activist, or a
group of activists, who are going out there and dispersing
information, which, of course, is a little easier now with
social media. And, you know, more power to them. Quite
honestly, rather than Congress leading the way, what we often
see is that governments--and I'll speak for Congress here--
often take our direction from what consumers in the population
are talking about, and worried about, and advocating about. So
I agree with you that the power of the consumer is huge.
You know, Dr. Kokas, let me just say, first of all, thank
you for having your students read the terms of service--the
TikTok terms of service. They might be the only people in the
world who have, but I'm glad somebody did. [Laughter.] Some
lawyer, or group of lawyers, spent a lot of time on those terms
of service, so it's nice that somebody read them. But you've
made some really fascinating points in your testimony. And
we've talked a lot about what companies are doing wrong. And I
really do worry that often corporate America, or maybe
corporations around the world, talk out of both sides of their
mouths. You know, they can condemn human rights abuses but, you
know, We have to have this relationship because it's critical
to our profit margin.
What I'd like to do--just because we've talked a lot about
the negative--can you give us any examples of U.S. companies
that have navigated these dynamics with China differently, in a
positive way, how they have navigated the PRC market and still
done well? They've still been able to continue selling products
in the world's largest market, while still standing up for
their fundamental principles. Do any come to mind for you? And,
by the way, I open this up to anybody--but you in particular,
because you've studied it so much.
Ms. Kokas. Thank you. I think that that's a really
important question. And one of the things that we've seen is
that companies do the right thing when they face pressure, most
consistently----
Representative Wild. Back to Mr. Stone Fish's point, right?
Ms. Kokas. Right. Yes. And this isn't just pressure
internationally, but also pressure from their consumers. So the
``Top Gun'' case that I discussed--you know, there was a huge
outcry after Tom Cruise's bomber jacket had the Taiwan flag and
the Japanese flag obscured. And then eventually Tencent pulled
out, so there was less financial incentive for the film to move
forward--making those statements. So I think really shining a
light on things becomes really important. And that's one of the
reasons why I have my students read the terms of service, so
that at a very minimum they know what's happening.
And that's why I think hearings like this are so important.
And also transparent reporting requirements that are easy for
consumers to read and that occur quarterly, are the sort of
things that companies have to respond to. Now, I would urge--
there are existing statutes in place, there are already
existing reporting requirements that just could be tweaked.
The other thing that I think is useful is to look at things
like ESG indices that help to--and this isn't something that
Congress would do, but it's something that Congress could
support--where when we enhance reporting requirements, there's
a way to actually financially reward companies that are
involved in those particular indices. So I think Mr. Stone Fish
is ready to go. So I'll let him----
Representative Wild. Go ahead.
Mr. Stone Fish. Thank you. I think that's an excellent
question. We rank companies on their China exposure. And I can
say with almost certainty that the company that has the lowest
China exposure doesn't want people to know that. And I do hope
with the new regulatory climate----
Representative Wild. And why is that? Why do they not want
people to know that?
Mr. Stone Fish. Because some investor, some board member,
some business tie they have will see that and then perhaps get
angry and get upset. It's actually very fundamental with the
NBA as well. We did a big project with ESPN, ranking NBA team
owners on their China exposure, and we found that a lot of the
pressure came not from the team itself, but from the owner.
It's very similar with Hollywood, too. It's not just that this
film offended Beijing or kowtowed to Beijing. It's that someone
involved with the making of the film, or the parent company, or
the studio thought that this could jeopardize their business
relationship.
And so there's no--you know, we rank on a scale from zero
to 100, and there's no zero. There's no company that has no
exposure to China. I mean, we are in a very entwined world. We,
in 2019, traded 25 times more with China than we did with
Russia. The number is much higher now. And so where we are in
this very messy process is, we are decoupling. We are de-
risking. We are moving in that direction, so that hopefully in
six months or a year, if tensions continue to go the way
they're going, there will be companies that can stand up and
proudly say: Yes. I have removed my China exposure. And this
makes me a healthier company, more responsible to my
shareholders and to my consumers.
Representative Wild. Well, thank you. You know, it's
interesting because there seems to be almost a kneejerk
reaction to ``made in China'' products. I will tell you,
political candidates who have political swag--T-shirts, hats,
whatever--that are found to have a tag that says, ``made in
China,'' they're going to hear about it, and it's going to
become a negative hit on them. But so many people I don't think
really understand the full cycle. So what a lot of consumers,
voters, and other people in the U.S. might be thinking about
is: We've outsourced so many things to China. We've lost market
share. We've had factories close down, including in my own
district, the Pennsylvania Seven. You know, workers have lost
their jobs.
But the reason for that is not only that there are very low
wages and lower costs of operating in China, but that that
comes at the expense of the Uyghurs and the people who are
producing these products in China. And that's the part that
often--I will tell you--and I don't fault anybody for this,
because it takes a lot of critical reading and thinking--but I
think it's really important that we draw that full circle.
And that it's not just about your factory closed and
everybody lost their job. Huge, and very, very destructive to a
community. And why did that happen? Well, because the Chinese
can produce it more cheaply. And why can the Chinese produce it
more cheaply? And that's really the question. When we're
talking about human rights, that needs to be elevated and
really needs to be talked about. Not just that we're losing
market share. And, you know, as I said, I represent--or maybe I
didn't say--I represent a district where manufacturing is king.
It is the largest sector of our economy, which I'm really happy
to report, because for a long time it wasn't. We lost Bethlehem
Steel, which closed specifically because of Chinese steel.
Really, we were on a downward slide. We have come back. And
quite honestly, the CHIPS and Science Act that was passed here
is going to make a huge difference in manufacturing communities
like mine--and, of course, we know that the Chinese waged a
particularly high-profile campaign on social media against the
CHIPS and Science Act. And I think that [Laughs] there's a
reason for that.
I want to switch gears for just a minute, and--well, let me
just finish this line of questioning. You know, as we talk
about all of these things, we still have to acknowledge that we
are very interconnected. As Secretary Yellen said on her visit
to China, we seek to diversify not decouple. I think that's a
really important message. And people have to understand that.
Can any of you speak to what more we can do as policymakers to
assist businesses that want to invest fully here in the United
States, but are reliant on doing business in the PRC, at least
in the short run, for certain parts or processes? Because I
hear about that a lot in my community, things that cannot be
made without things in the supply chain coming from China. How
can we support those companies?
Mr. Stone Fish. I'll answer that. There are things that
can't be made outside of China, but there are plenty of things
that can. And so----
Representative Wild. But that takes ramp-up. I mean, let's
face it, we're seeing that right now with semiconductors. I
mean, it's going to take a while to get to where we need to be.
But go ahead, I'm sorry.
Mr. Stone Fish. No, I think that's an excellent point. And
it does take ramp-up. And it's good that we're starting now.
Or, you know, starting over the last couple of years. I think
the issue is that so many American champions of American
solutions also have large ties to China that aren't
economically required. I will have to double check this, but I
believe Mountain Pass, which is seen as the U.S. solution to
the rare earths problem, is something like 7 or 8 percent owned
by Chinese companies. And that's not the solution that the
American people need.
And it's not that this company needs that stake in order to
survive. We deal with companies on this all the time. When, you
know, a company has, say, 1,200 factories in China, the idea
isn't, Shut them all down. The idea is, okay, of these
factories, maybe 10 or 20 percent are nonessential, but are
also very entangled with the Chinese Communist Party. And those
are the ones that you get rid of first.
Ms. Kokas. One thing that I think is also useful is
rewarding mitigation strategies. Shutting down a factory is
more visible, but rewarding companies and working with
companies to develop their mitigation strategies, and honoring
that, and honoring that ramp-down time is really important,
because it's not financially feasible in a lot of cases to shut
things down.
Representative Wild. I completely agree with you. I'd love
to have another discussion at some point about the pragmatic
approach to doing that, because I think you're absolutely
right. But those are great words. We've got to figure out how
we do that to support those.
I want to switch now, if I may--do I have a few more
minutes? Thank you, Mr. Chair.
Ms. Minglei, thank you so much for being here. And thank
you for advocating for workers in the PRC, as well as for your
husband. You have a lot of courage and you've spoken very
powerfully. And, you know, the defense of universal human
rights, and dignity, and fighting against the use of forced
labor, is just so incredibly important. Your husband, as we
know, was arrested and sentenced to five years' imprisonment in
2019 due to his activism, including defending workers from
discrimination in the workplace.
As you may have gleaned from my initial comments, I am a
big fan of organized labor. I think that it serves a purpose. I
think the Players Association should take some lessons from
them. But it's just critically important because that is how an
ordinary worker gains power--not alone, but collectively. And
that's how it has to happen. And, of course, we know that pro-
worker advocacy is dangerous in the PRC, because they don't
have organized labor, as we know it, there. There's the All-
China Federation of Trade Unions, which is government
controlled and is the only legal organization that workers can
join, am I right?
Ms. Shi. Yes.
Representative Wild. Let me just ask you--I just want to
express my solidarity, I hope that comes through, for the
sacrifices that you and your husband have endured. I hope
that--have you been able to speak with him?
Ms. Shi. Not really. Actually, since he was arrested, I
have never had a chance to meet his lawyers. I was in China--we
finally came to the United States two years ago. But before
that, for almost two years, I would go to the detention center,
the court, and I also went through the Chinese procedural
process. I went there 24 times, but never had a chance to visit
him and never had a chance to call him, never had a chance--
like, even recently, my letters are still seized by the prison.
And they just don't even----
Representative Wild. You're not sure he's even receiving
them?
Ms. Shi. Yes. They just don't give the letters to him. My
family members confirmed. I have sent several letters to him,
and he said he didn't receive them. So even a photo--because
when he was arrested, my girl was only three years old. And
they arrested him in front of my daughter; the same day, I was
put into backwards handcuffs and also interrogated overnight. I
left my daughter in the preschool, and they didn't allow me to
pick her up. My girl is now a 7-year-old, so almost four years.
I really wanted to just give him a photo. You know, as a
father, you really want to see how your baby is growing. But
even this very tiny request--the Chinese government won't let
him have that photo.
So this is why human rights is so important. I also work in
the business area and my job used to be global commerce
director. And I also was the supply chain director for one
year. I know all of the business area. But the point here is,
don't ask a company about the profit, don't ask about the
expense, just ask them one question: As a human, where are
human rights? If we don't have human rights, we lose freedom.
Representative Wild. Well, I think--I have to say, I think
that is the exact point of this Commission.
Ms. Shi. Yes.
Representative Wild. I'm grateful that it was created and
exists. And the challenges--that's too soft a word--but what
your husband has gone through, what you have gone through, what
your daughter has gone through, highlight just how critical
this situation is. And that's just one story. I am sure there
are many, many stories like that. And, of course, that
suppresses any thoughts that other workers might have about
collectively coming together to fight this kind of abuse. So
thank you for telling the story. Thank you all for being here.
It's incredibly important. And I hope that one day we will be
able to look back on this and see some improvement.
I've never believed that the solution is to just completely
shun China. I agree with the Secretary--diversify not
decouple--it's just a reality. But we also have to remember
that there are many, many people there who are not the PRC,
they are just residents, citizens of China. And they are not
bad people. And that's something that often gets--a message
that gets lost too. So we just have to keep amplifying this, I
really believe. But thank you all for really compelling
testimony. With that, I yield back.
Chair Smith. Thank you so much, Commissioner Wild.
And I too would agree with what my friend and colleague has
just said, that our argument is not with the people of China,
it's with the oppressors. We stand with the oppressed, not the
oppressors. And the Chinese Communist Party are the oppressors.
So I thank all of you for your extraordinary testimony. Is
there anything you would like to add before we end this
hearing? If not, I would ask unanimous consent that the
comments of Jim McGovern, our ranking member on the House side,
be made a part of the record. Also, Sarah Cook, who is the
senior adviser on China, Hong Kong, and Taiwan for Freedom
House, and Maya Mitalipova, who is the MIT Director of the
Human Stem Cell Lab, that their testimony be included in the
record. And that the statement of Roger W. Robinson, Jr. in
partnership with the Coalition for a Prosperous America, be
made a part of the record as well.
I want to express my deepest thanks to Jenny Wang for her
work on this hearing--I really deeply appreciate the leadership
she has shown; Matt Squeri; Scott Flipse; Piero Tozzi, our
chief of staff for the China Commission; Diana Moyseowicz, for
her help as well. You know, there are many, many witnesses who
could be here. I think we've got the best of the best who have
given us insight and information that is actionable. And I
can't thank you enough for that.
We will continue this series on corporate complicity by
inviting the corporations themselves to be here--including
Nike, the NBA, the NBA Players Association, and others. Of
course, Milwaukee Tool. In the past, some have said yes, and I
think that's a good thing. I mean, hopefully they'll all say
yes. And hopefully they'll come to see that they can make an
enormous difference. The NBA, which is not hurting for money--
we're talking about value added in terms of dollars that they
make, and players make. It is a very lucrative league without
China. So my hope is that the moral imperative that Enes Kanter
Freedom brings to a sharp point here at this hearing is heard
by them. There are good players who I think want to do the
right thing. Hopefully, they'll be encouraged by your
leadership to do so.
So, without any further ado, this hearing is adjourned. And
again, I thank you.
[Whereupon, at 12:34 p.m., the hearing was concluded.]
?
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A P P E N D I X
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Prepared Statements
Prepared Statement of Robert Silvers
Good morning, Chairman Smith, Co-Chairman Merkley, and
distinguished Commissioners. Thank you for the opportunity to discuss
the critical work of the Department of Homeland Security (DHS) and the
Forced Labor Enforcement Task Force (FLETF) to combat the scourge of
forced labor in global supply chains, including that stemming from the
People's Republic of China's (PRC) systematic use of forced labor to
profit on the backs of ethnic and religious minorities.
The United States has long recognized and condemned the PRC's
ongoing genocide and crimes against humanity against predominantly
Muslim Uyghurs and other members of ethnic and religious minority
groups in the Xinjiang Uyghur Autonomous Region (Xinjiang). This
includes the abhorrent practice of using these groups' forced labor in
the mining, production, and manufacture of goods.
U.S. laws that prohibit the importation of goods made with forced
labor reflect our values. We are proud at DHS to enforce our forced
labor laws. We do so because they are the law of the land. And we do so
because it is the right thing to do.
Congress charged the FLETF with driving initiatives that support
enforcement and enhance compliance by leveraging the authorities and
expertise of the Task Force's member agencies--DHS, along with the
Departments of State, Labor, Commerce, Justice, and Treasury, and the
Office of the U.S. Trade Representative.
In my role as Chair of the FLETF, I focus on ensuring that the U.S.
Government is doing everything it can to eradicate forced labor from
global supply chains. Under the leadership of Secretary Mayorkas, we
are facilitating the flow of legitimate trade while working across the
government and with non-governmental organizations (NGOs) and industry
to keep goods made with forced labor out of U.S. commerce.
Our country has enforced forced labor laws for many years. But it
was the unwavering commitment and determination of the Congressional-
Executive Commission on China (Commission) and other supporting Members
of Congress that, on a broad and bipartisan basis, led to the passage
of the Uyghur Forced Labor Prevention Act (UFLPA). This new law has
brought a sea change to the way we approach these issues.
uflpa implementation
Our implementation of the UFLPA has been speedy, strong, and
surgical. Speedy, because we implemented ahead of the schedule required
by the law. Strong, because we devote the full weight of our resources
to enforcing the law. We made it clear that when it comes to forced
labor in Xinjiang or goods made by persecuted minorities removed from
their homes in Xinjiang, we will brook no quarter. And surgical because
our enforcement is based on sophisticated risk assessment,
intelligence, and data-driven targeting.
There are several components of the UFLPA that make it uniquely
powerful in addressing the PRC's state-sponsored cruel and inhumane
forced labor regime. These, among other things, include the public
identification of illicit actors through the UFLPA Entity List and the
law's key enforcement mechanism: a rebuttable presumption that goods
mined, produced, or manufactured wholly or in part in Xinjiang, or by
entities identified on the UFLPA Entity List, are prohibited from
importation into the United States.
the uflpa rebuttable presumption and
u.s. customs and border protection (cbp) enforcement
The UFLPA charges CBP with the enforcement of a rebuttable
presumption that the importation of goods mined, produced, or
manufactured wholly or in part in Xinjiang, or by entities identified
in the UFLPA Entity List, are prohibited from entry to the United
States under Section 307 of the Tariff Act of 1930, as amended (19
U.S.C. 1307).
Since the UFLPA's rebuttable presumption took effect in June 2022,
CBP has targeted more than 4,200 shipments under the law, valued at
over $1.4 billion, sending a clear message to importers that we take
our mandate seriously.
CBP uses a risk-based methodology, leveraging dynamic models that
utilize the latest intelligence and analysis to identify shipments that
warrant further scrutiny. DHS is partnering with industry to test
innovative artificial intelligence and machine-learning technologies
that can streamline supply chain tracing and improve CBP's analytical
capabilities. We are also exploring more precise scientific testing for
cotton and other commodities that can help us determine the true origin
of goods.
Our early enforcement posture has been robust, but we do face
challenges. The UFLPA mandate came without additional funding for CBP
enforcement efforts, the FLETF's work on the UFLPA Entity List, or
other FLETF enforcement-related activities. We appreciate Congress's
subsequent support provided to CBP, but more is needed. To meet the
FLETF's UFLPA mandate, we have shifted resources toward this mission,
and we look forward to working with Congress to secure much-needed
additional funding.
We also are pursuing strategies to address the risk of goods made
with forced labor entering the United States through low value, de
minimis shipments that have less detailed data available for our
review. As there is no de minimis exception to the UFLPA, we are firmly
committed to meeting this challenge, including undertaking initiatives
to increase information availability and assess risk in the de minimis
environment. We welcome the opportunity to work with Congress to
address these challenges together.
Alongside our enforcement activities, DHS and CBP are committed to
supporting industry's compliance and due diligence efforts to prevent
illicit goods from entering legitimate commerce in the first place.
Toward that end, we have held more than 400 engagements with the trade
community and provided extensive information and guidance to industry
to help our trade community partners understand our implementation and
enforcement of the UFLPA and to support their own complementary
efforts.
Recognizing that many in the trade community may not have
sufficient resources or mechanisms to identify indicators of forced
labor in their supply chains, CBP recently held its first Forced Labor
Technical Expo to highlight tools and technologies that promote due
diligence by enhancing transparency and verifying the provenance of
goods. We also issued best practices guidance based on lessons observed
to date, including documentation that traces a given product through
the entire supply chain. Additionally, CBP developed an interactive
Digital Dashboard with statistics on UFLPA enforcement that provides
insight for the public on stopped entries by industry sector and
country of export. As part of our commitment to transparency and
accountability, we will continue to assess what additional data we can
publicly report.
the private sector's response to the uflpa
Since we began enforcement of the UFLPA, we have seen significant
evidence that industry is taking compliance seriously. Private sector
decision-makers are rapidly coming to understand that there is
collective will on the part of Congress and the Executive Branch to
stand firmly behind a zero-tolerance policy for goods made with forced
labor. They understand that they have a responsibility to examine their
entire supply chains for any indicators of forced labor and to take
immediate steps to mitigate the risks from suspect suppliers.
We are still in the early stages of quantifying the impact of the
UFLPA on private sector behavior, but early data show significant
promise. For example, one respected supply chain mapping and
verification technology company reports that ``transactions from
entities potentially subject to enforcement under the law decreased by
approximately 40 percent between June 2022 and March 2023. The same
period also saw the overall value of transactions decrease by
approximately 50 percent.'' \1\ We are seeing similar trends from other
providers which support extensive anecdotal reporting from the trade
community that industry is taking UFLPA enforcement seriously and
taking steps to ensure compliance, including moving their supply chains
out of Xinjiang and away from suppliers that cannot deliver the
requisite transparency.
---------------------------------------------------------------------------
\1\ Altana Technologies (2023, June), The fight against forced
labor is a struggle. As we pass the one-year anniversary of the Uyghur
Forced Labor Prevention Act's enforcement....Linkedin. [https://
www.linkedin.com/posts/altana-ai_altana-illuminating-the-xinjiang-
forced-activity-7078081734608617472-JqRg]
---------------------------------------------------------------------------
We will continue to monitor the data for trends and act on that
data, and continue every effort necessary to ensure that the United
States is not a dumping ground for goods produced through the suffering
of others.
uflpa strategy and the entity list
As Chair of the FLETF, DHS led the development and implementation
of a comprehensive strategy that identified illicit actors through the
UFLPA Entity List and called for strategic partnerships and
collaboration with key stakeholders across government, industry, civil
society, and like-minded international partners.
Since passage of the UFLPA, the FLETF initiated extensive
engagements with industry and NGOs in the development and
implementation of a strategy to prevent the importation of goods made
with forced labor in the PRC. We continue to solicit and review
information about the PRC's forced labor schemes, as well as regarding
effective corporate compliance programs and other industry efforts to
conduct due diligence.
With the information collected from stakeholders and our federal
partners, the FLETF issued the Strategy to Prevent the Importation of
Goods Mined, Produced or Manufactured with Forced Labor in the People's
Republic of China (the UFLPA Strategy) in June 2022, identifying 20
entities for the inaugural UFLPA Entity List. This strategy provides
extensive guidance for how we expect importers to examine their supply
chains for indicators of forced labor and establishes a framework for
partnership with industry and civil society.
We continue to refine and implement the UFLPA Strategy. The FLETF
is committed to expanding the UFLPA Entity List by identifying
companies that utilize or facilitate the use of forced labor in or from
Xinjiang in line with the statutory standards. This commitment was
recently demonstrated by the addition of two new entities to the UFLPA
Entity List. There is more work to do, and the FLETF will continue to
add entities to the UFLPA Entity List as warranted by the facts and the
law.
We have an extraordinary partnership with the NGO community, whose
research and monitoring efforts are critical to our understanding of
forced labor schemes and efforts to obscure the true origin of goods.
Through our collaboration with NGOs and the development of our own
knowledge base, the FLETF is expanding our expertise in identifying and
assessing suspected entities, and we anticipate more additions to the
UFLPA Entity List in the coming months. There is an active pipeline of
referrals that our agencies are examining, and we will continue to move
expeditiously to act on these referrals.
Collaboration and engagement with stakeholders across the trade
community is a critical component of our work to fully implement the
UFLPA Strategy. We have engaged with hundreds of representatives from
the private sector, including meetings with C-Suite executives and
board directors, to emphasize our message that forced labor must be a
top-tier compliance issue. In the same way that corporate compliance
programs routinely include safeguards to address corrupt foreign
practices, money laundering, export controls, sanctions, and privacy
laws, the private sector must direct institutional attention to
compliance with forced labor laws. My engagements have taught me that
the overwhelming majority of corporate leaders want to do the right
thing. Through our enforcement actions, we are making clear that it is
incumbent on them to do so, and we have provided detailed guidance to
show them what we expect to see in terms of due diligence.
conclusion
The PRC's ongoing genocide and crimes against humanity against
Uyghurs and other minorities in Xinjiang has continued for years, but
with the passage of the UFLPA, we have taken a significant step towards
justice, accountability, and fair competition. This is a testament to
the impact that Congress and the Executive Branch can have when they
work together. There is much more work to do. But we are all-in on this
mission.
We will further our collaboration with civil society to expand our
intelligence on forced labor schemes and their presence in global
supply chains. We will continue our enforcement activities wherever the
facts lead. We will build on our partnerships with the private sector
to share information and guidance that can enhance due diligence
practices and compliance policies. We will press forward with further
innovation and deployment of technologies that support this mission.
And we will continue to work closely with the Commission and Congress
to advise you of the important work being done.
I thank the Commission and Congress for your support in the fight
against forced labor. Thank you again for the opportunity to appear
before you today, and I look forward to taking your questions.
______
Prepared Statement of Enes Kanter Freedom
Chairman Smith and Co-chair Merkley, and members of the
Congressional-Executive Commission on China, thank you for the
opportunity to be here today.
I'm a basketball player. My job is to go out there and compete with
my teammates and try to win an NBA championship. I ask people when they
call me a retired NBA player, not to--because I refuse to accept that
my career ended the way it did. My entire life I worked so hard to
achieve my NBA dream, and I made it. However, because I wanted to stand
up for what is right, my career ended in a very brutal way.
I have been talking about the human rights violations in my home
country, Turkey, for the last 11 years. There are many innocent people
in Turkey being persecuted by Erdogan's regime. Due to my outspokenness
about the human rights violations and political prisoners in Turkey,
Turkish President Erdogan fired my dad from his job as a scientist. My
sister went to medical school for 6 years, and she still can't find a
job. My little brother was playing basketball and he got kicked off
every team because he shares the same last name as me. They were
affected so much that they had to put a statement out publicly
disowning me. The letter is still on the internet. The Turkish
government didn't believe it, and they sent police to raid my house in
Turkey. They took all their electronics away because they wanted to see
if I am still in contact with my family or not. They couldn't find
evidence, but they threw my dad in jail. The U.S. put so much pressure
on Turkey, and they finally let him go.
After that, they revoked my passport, tried to kidnap me in
Indonesia, put my name on the Interpol list, put a bounty on my head,
and in 10 years they sent 12 arrest warnings for me.
One of the reasons I was fighting so hard against this brutal
regime is because I had so much support from the NBA--support from the
commissioner, Adam Silver, my teammates, and every organization I
played for (5 different teams--Utah, Oklahoma, the New York Knicks,
Portland, Boston).
Especially the support from my teammates and the NBA gave me so
much hope and motivation to fight.
When I was playing for the New York Knicks, I didn't travel to
London for an exhibition game against the Washington Wizards because I
was scared for my life. Commissioner Adam Silver came out in a press
conference and said, ``As an NBA family we support Enes Freedom and his
fight against the Turkish regime, we support every player to stand for
whatever they wanna believe in.'' I wanted to cry that day because of
how much support I felt.
Three years ago, in 2020, Covid hit and the NBA took us to Orlando
to continue to play the games. It was during the George Floyd protests
that the NBA told every player that this is all about social justice,
and that they are here to bring change. We are more than athletes. I
respect everyone who peacefully protests. During those times the NBA
put Black Lives Matter logos on the floor and put those phrases on our
jerseys (this was controlled by the NBA--we couldn't pick what we
wanted to pick). In every interview we were doing, the NBA was telling
us to talk about social justice issues. All the players were putting
these social justice messages on their shoes and we brought lots of
attention about what's going on.
My activism towards China started with a simple basketball camp. I
had a beautiful basketball camp in New York. In fact, Congressman
Hakeem Jeffries joined me at that camp. After the basketball camp, I
sat down and was taking pics with the kids one by one. I remember
taking a pic with this kid and their parent called me out in front of
everyone and said, ``How can you call yourself a human rights activist
when your Muslim brothers and sisters are getting tortured every day in
concentration camps in China?'' I was still smiling for the camera,
after I took a picture with his kid. I turned around and said, ``I
promise I'm going to get back to you.''
That day, I canceled everything and went back to my hotel and
started to educate myself about what's going on. I know on the Internet
you can find all kinds of news, so I called my manager and told him
that I need him to find me a concentration camp survivor. In a couple
weeks, he found a lady who was a survivor. She and I had a one-hour
conversation about all the torture methods, the gang rape, the forced
sterilization and abortion methods. I couldn't believe my ears. At the
end of our conversation, I asked her, ``What can I do to help you?''
She answered, ``Nothing.'' I said, ``What do you mean, `nothing'? So we
had this 1-hour conversation for no reason?'' She said ``Listen, I live
in America, I can do whatever I want, I can say whatever I want, I can
eat whatever I want, I'm free. I have my freedom here. Help those 2 to
3 million Uyghurs who are in concentration camps, getting tortured, and
raped every day.''
At that moment, I said to myself, I don't care what it takes, I'm
going to help these people.
I wanted to do it in a unique way, because when I was a kid
watching an NBA game, the first thing I looked at was the NBA players'
shoes. I looked at the color, the brand, if they're comfortable or not,
and the next day I was asking my dad to please buy them for me. Every
kid loves shoes, so I wanted to inspire the young generation with
something I knew they would pay attention to.
I reached out to artists around the world who were oppressed by
their regimes, and I told them to put all of the struggles, pain and
stories on the shoes. I created these shoes without using slave labor.
My first topic was ``Free Tibet.'' I was playing for the Celtics,
and it was our first game of the season against the New York Knicks at
Madison Square Garden. Because it was opening night at the Garden,
everyone was there to watch that game. Knicks vs. Celtics is always a
good rivalry so the whole country and world was watching that game. I
put ``Free Tibet'' on my shoes and started to warm up with my
teammates. We sang the National Anthem, and there was 1 minute left
until the game started. We were in a huddle in front of our bench when
two gentlemen from the Celtics came up to me and said, ``You need to
take your shoes off immediately.'' I asked them why and they said,
``Your shoes have been getting so much attention internationally and we
are getting many calls so please take them off.''
It was the perfect moment for me because I was just getting ready
for my citizenship test. So I closed my eyes and said, ``Okay, Enes,
there are 27 amendments and my First Amendment is freedom of speech.''
I opened my eyes and told them ``No, I'm not taking my shoes off.''
They kept telling me to take them off, and I said, ``Even if I get
fined, I'm not taking them off.'' They said, ``We're not talking about
a fine, we are talking about getting banned.''
They were really threatening to ban me from the NBA because of my
shoes.
I played zero minutes that half and after the first half I went
back to my locker room and checked my phone. There were thousands of
notifications and I clicked on the one that my manager sent me saying,
``China just banned every Celtics game on television.'' It literally
took China 24 minutes (1 quarter 12 minutes, 2nd quarter 12 minutes) to
ban every Celtics game. The game went into overtime and we lost the
game. I played zero minutes that night after previously playing in
every game before that. After the game, every media outlet wanted to
talk to me, and I told my manager no, because I didn't want my
teammates to think I'm doing this for attention.
After the first game, the NBPA (The NBA Players Association) called
me and said, ``The NBA is pressuring us so much. You can never wear
those shoes again.'' They were calling me and my manager every hour,
wanting to make sure I was not going to wear them ever again. I spoke
about the problems happening in Turkey for the last 10 years without
consequence, yet I speak about China for 1 day and my phone was ringing
every hour asking me to stop what I'm doing.
The NBPA told me that if I didn't stop, they would change the rules
so that no player can put any kind of message on their shoes ever
again. I couldn't believe how much they were pressuring me because I
paid thousands of dollars to the players association every month to
protect my rights against the NBA, but on this topic they were on the
NBA's side.
At one point I was so frustrated, and I told them, ``Okay, I
promise that I'm not going to wear `Free Tibet' shoes ever again.''
They asked me a few times to promise them and I said, ``I promise'' and
they said, ``Okay, problem solved.''
The next game I wore ``Free Uyghurs'' shoes. The NBPA called me
after the game and said, ``Enes, you are a liar, you lied to us, we can
never trust you again.'' And I told them, ``I never lied to you. I just
said, `I'm not going to wear ``Free Tibet'' shoes ever again, but I
never said I'm not going to wear ``Free Uyghurs'' shoes.' '' So, at
that point, they understood that they were not going to be able to make
me delete my tweets, apologize to the Chinese government, and put any
false statements out there.
After the third game, one of my teammates walked up to me and said,
``Enes, you know this is your last year in the NBA, right? If you ever
criticize China or NIKE, then you're never going to be able to play
basketball in this league. So have fun, smile, and I hope we win a
championship this year because this is your last year--your basketball
career is ending.''
My agent called me after the fourth game and said, ``Enes, I work
for you, I don't work for the NBA, so I have to keep it honest with
you. If you say another word about the Chinese government, then you're
never going to play basketball in this league again. No team will sign
you, and all the owners who look like they care about social justice,
in reality all they care about is money and business, so you won't be
playing again.''
After the fifth game, I had a conversation with Commissioner Adam
Silver. We had a 30-minute phone conversation and at the end, he even
admitted the following: ``We are a business, Enes, it's a different
system in China.'' I asked him, ``What do you think about China banning
every Boston Celtics game on television?'' and he said, ``It's not
true.'' I told him that there were lots of legitimate reports out there
and he said, ``I don't know about it''--which was a lie.
It was the perfect moment for me because it was right before the
Beijing Winter Olympics, so I tried to reach out to everyone. Not just
NBA players...I tried to reach out to the NFL, MLB, MLS, the NHL, WWE,
and even the Olympians.
But unfortunately, they all said the same thing: ``Enes, what you
are doing is so amazing, so courageous, so inspiring; we love you, we
support you, but we cannot do it out loud. I asked them why, and they
said, ``We have shoe deals, endorsement deals, jersey sales, and we
want to get another contract with the league that we play with.''
I asked them one simple question: ``Put yourself in their shoes. If
your mother, your sister, or your daughter was in those concentration
camps getting tortured and raped every day, would you still pick the
money and business?'' They usually turned around and left the room.
After a couple of months, one of my friends called me. His name is
Daryl Morey. He was the first guy who tweeted and said, ``Stand With
Hong Kong'' and the NBA lost millions of dollars because of it. I was
playing for the Boston Celtics when he tweeted, and the Celtics made us
unavailable to the media for 2 weeks because I was the only player in
the NBA that supported Morey's tweet publicly. When we had a
conversation after a couple of months regarding me talking about China,
he said, ``Enes, don't give up; when I tweeted about Hong Kong, the NBA
made me take my tweet down, they made me apologize, they made me put
out some statements which I didn't wanna put out. But you don't give up
and you keep going.''
February came, and there was a trade deadline. Many of my teammates
knew that I had played my last game in the NBA and they were telling me
you will get traded or let go. And they were right.
The Boston Celtics traded me to the Houston Rockets, (who are known
to be China's team because of players like Yao Ming). And the Houston
Rockets released me immediately.
It was over, and everyone in the NBA knew it, too.
After I got released, about 3 weeks later, China put the games back
on television. ESPN did an investigation and found out that 49 NBA
owners have 10 billion dollars tied up in China. I had a conversation
with the ex-owner of the Milwaukee Bucks and he even said: ``China's
taken a very aggressive stance, which is `if you want to bitch about
us, you're out'--I get it, it's business.''
I played 11 years in the NBA, I had hundreds of teammates and
hundreds of coaches, yet not one of them reached out to me or texted me
to say good luck with whatever is coming next. They were so scared that
if I ever did an interview, that I would mention their name saying,
``He texted me or he supported me.'' They knew that if I ever did, it
would affect their contract situation or their endorsement deals.
I just turned 31 years old. I'm young, healthy, and love
basketball. I still work out almost every day and I'm in really good
shape. Everyone knows that the only reason I'm not in the NBA is
because of the things that I spoke about. I averaged a double-double
with Portland the year before I spoke out about the issues in China.
I have NO regrets. If I had to do it all over again, I would do it
even stronger. This is bigger than me, bigger than basketball and
bigger than the NBA.
People keep talking about me losing my career, but they need to
realize that I lost my family because I wanted to stand up for the
victims of human rights violations in Turkey. Me losing my career is
nothing compared to losing my family.
Freedom is not free, and it's going to come with some consequences.
But someone had to stand up for the innocent around the world, no
matter how much money or business I have lost because of it.
According to my manager, I lost around 50 million dollars, with all
the NBA contracts and endorsement deals that I could've signed.
I sleep in peace at night knowing that I did the right thing. My
only question is: How can the biggest dictatorship in the world, China,
control a 100% American-made company and fire an American citizen?
Thank you all.
______
Prepared Statement of Shi Minglei
Thank you, Mr. Chairman, and thank you to the Congressional-
Executive Commission on China for convening this hearing.
My name is Shi Minglei. I am the wife of a famous Chinese human
rights activist, Cheng Yuan, who is currently serving a five-year
sentence at a facility called Hunan Chishan Prison. There, as I will
discuss in more detail later, prisoners are forced to work making
gloves for a famous American brand, Milwaukee Tool.
short introduction of cheng yuan
First, I'd like to tell you about my husband. In 2008, Cheng Yuan
left a job in finance to found an NGO called ``Nanjing-based Justice
For All,'' which was initially focused on combating employment
discrimination against persons with hepatitis B, which is a significant
issue in the People's Republic of China. From there, he expanded his
work to other areas of social justice, including advocating for an end
to the PRC's one-child policy and standing up for the rights of Chinese
human rights lawyers after the 709 Crackdown by founding NGO Changsha
Funeng.
about the changsha funeng case
Cheng Yuan's fruitful and influential human rights work led PRC
security agents to arrest Cheng Yuan and his two colleagues Wuge
Jianxiong and Liu Dazhi on July 22, 2019, which is known as the
``Changsha Funeng NGO Case.'' And they were called the Changsha Three.
I haven't seen Cheng Yuan since he was arrested in 2019. He was
arbitrarily detained, tortured, charged with ``subversion of state
power,'' deprived of the legal right to access to his legal defense,
deprived of communication rights with family members and lawyers, and
secretly tried and sentenced to 5 years' imprisonment. That is how he
ended up at Hunan Chishan Prison.
persecution against cheng yuan's family members
to force him to plead guilty
The persecution against Cheng Yuan also expanded to our family
members. On the same day he was arrested in 2019, I was suddenly placed
under home arrest with my 3-year-old daughter. I was handcuffed, put
into a black hood, and interrogated for almost 20 hours in a secret
place by Chinese national security agents in plainclothes. The Chinese
national security agents threatened to bring my 3-year-old girl to
undergo interrogation with me. That night my daughter was left in her
preschool until night, and they didn't allow me to pick her up. After
that day, my daughter and I lived under surveillance for half a year.
The Chinese national security agents also froze my bank account and
seized my photo ID, passport, driver's license, and even my Medicare
card to silence me. Cheng Yuan's brother, sister, my mom, and my
relatives, also my colleagues and my ex-boss, were harassed by Chinese
national security agents.
no rule of law in china
Here I want to point out that the sentences against Cheng Yuan and
the Changsha Three are totally illegal. They indicate the PRC
government's abuse of the Chinese national security law against NGO
activists and Chinese civil society, its arbitrary detention, and its
deprivation of lawyers' rights, torture, and secret sentencing. All of
these are against the UN conventions the PRC government signed, and
they're even against Chinese constitutional and procedural law itself.
And even now, the court refuses to give our family members Cheng
Yuan's verdict document. It has become a state secret and is hidden
away from the public, which is also against Chinese procedural law
itself.
released prisoners testified about forced labor in hunan chishan prison
Another activist who was imprisoned there is Lee Mingche, a
Taiwanese human rights activist who was arrested by the PRC government
in March 2017 and released in April 2022. After his release, Lee
revealed that while he was imprisoned at Hunan Chishan Prison, he was
forced to produce gloves, including gloves bearing the Milwuakee Tool
logo. One of Lee's jobs was to cut materials into the shape of a glove.
Lee said that there were three to four cutting machines devoted to
cutting Milwaukee Tool gloves. Another of Lee's jobs was sewing the cut
materials into actual gloves. I am told my husband is currently forced
to do a significant amount of sewing as well. Lee said that if
prisoners refused to work or to meet quotas, they were subject to a
variety of punishments, including being forced to stand for several
hours straight, having their contact with family members cut off, being
denied commissary rights, and, in some cases, being subjected to
beatings, including with electric batons. Lee has attested to many of
these facts under penalty of perjury and is willing to testify to them
under oath as well, though he is currently facing difficulties
traveling to the United States.
Another recently released prisoner, whom I will refer to using the
pseudonym Xu Lun, as he is still in the PRC, has similarly reported
being forced to produce gloves bearing the Milwaukee Tool logo while
imprisoned at Hunan Chishan Prison. Xu confirmed that failure to meet
the production quotas was met with punishment like being forced to
stand and being beaten and shocked with electric batons. Xu also
confirmed workdays of about 11 hours, at least 6 days a week, with
minimal breaks, and being paid only 20RMB, or about $3US, per month.
That works out to an hourly wage of 1 cent.
reasons big companies like milwaukee tool use forced labor in china
Due to the lack of rule of law in the PRC, it is extremely
dangerous for former prisoners located there to speak publicly about
these issues. That is precisely why big companies like Milwaukee Tool
are able to get away with benefiting from forced labor in the PRC. They
know that the lack of human rights protection in the PRC means it is
difficult, if not impossible, for victims to hold them accountable.
Meanwhile, it is extremely beneficial to Milwaukee Tool's bottom line
if those who are actually making their gloves are paid only 1 cent per
hour. Of course, they would prefer to have their gloves manufactured in
the PRC, rather than in the U.S., where they'd have to pay workers
several thousand times more, and where the kinds of abuses people like
Mr. Lee and Mr. Xu suffered would not be tolerated. In this way,
American workers can also be counted among the victims of Milwaukee
Tool's disregard for human rights.
concerns about cheng yuan's well-being and call for action
to stop forced labor
As for my husband, I am deeply concerned about his well-being. In
recent visits by other family members, he has confirmed that he is
forced to work 11 to 12 hours a day, hunched over a sewing machine. He
has also said that he has been subjected to solitary confinement,
forced to stand for hours, deprived of sleep and food, and forced to
drink water from the toilet. And although he has not specifically said
that he has been working on gloves bearing the Milwaukee Tool logo, the
mere chance that he might be should be intolerable to Americans.
Thus, Mr. Chairman, Senators, Representatives, CECC
representatives, I am calling on you to stop American companies like
Milwaukee Tool from using forced labor in the PRC now!
Mr. Chairman, I ask that two documents be entered into the record.
The first is an investigative report from Wisconsin Watch about
Milwaukee Tool's forced labor in Hunan Chishan Prison, and the second
is an Explainer regarding Cheng Yuan's case. [Both appear under
Submissions for the Record.]
Thank you.
______
Prepared Statement of Isaac Stone Fish
Distinguished Chairmen and Commissioners:
Boeing keeps me up at night. The company considers China one of its
most critical markets. It's also a key element in an American
warfighting strategy. In June the CEO of Raytheon--another crucial
defense contractor--admitted to having ``several thousand suppliers in
China'' and claimed decoupling was ``impossible.'' Boeing is far more
exposed to China than Raytheon is. If China invaded Taiwan, would
Boeing exercise its considerable influence in Washington to weaken the
Pentagon's warfighting efforts?
Corporate America has a China problem. For decades, Beijing has
successfully incentivized many elite American corporations, business
leaders, and politicians to strengthen the ruling Chinese Communist
Party, and to entangle themselves within China--often at a cost to
America.
It goes like this: Beijing and its allies publicly excoriate a
relatively small number of people and institutions--freezing out the
NBA in 2019 after a deleted tweet, say, or criticizing Mercedes-Benz in
2018 for quoting the Dalai Lama in an Instagram post. The global
companies fear a boycott in the Chinese market, or regulatory scrutiny.
Chinese officials then reach out to the company's government affairs
department, or its leadership, or its diplomat consultants--more on
that later--and urge them to apologize. To yield. Fascinatingly and
disturbingly, sometimes companies that yield get punished further. And
sometimes companies and individuals that don't yield find themselves
rewarded by Beijing. The Party's unpredictability and unevenness leads
businesses to be overcautious--which only makes the strategy more
effective. And so, companies seek to placate Beijing.
How did this problem of corporate complicity start, and how can
Americans fix it?
There is a clear origin story. Before Walt Disney thanked a public
security bureau that rounded up Uyghurs and sent them to concentration
camps, before LeBron James criticized the Houston Rockets' general
manager for discussing democracy in Hong Kong, before Marriott fired an
employee for supporting Tibet, before Boeing ran ads praising Beijing,
before the late business tycoon and Republican super-donor Sheldon
Adelson personally lobbied to kill a bill condemning China's human
rights record, before Ronald Reagan called China a ``so-called
Communist country,'' Henry Kissinger, whose relationship with the Party
became a blueprint for this whole mess, sat with Premier Zhou Enlai in
a Chinese government guesthouse in July 1971, discussing philosophy.
By his charm, flattery, and persistence, over dozens of
conversations over several years, Zhou initiated Kissinger as a
``friend'' of China. (``Friend'' is a technical term for a non-Chinese
person who supports the Party.) Zhou, and successive Party leaders,
convinced Kissinger that strengthening ties between the United States
and China was not only good for America--they benefited the individuals
involved (in this case, Kissinger). And Kissinger, arguably the most
influential person in 20th century foreign policy, spread these ideas.
Kissinger's trips to China shaped history not only by
reestablishing a relationship between the two countries. They also
inaugurated two crucial phenomena that still shape American corporate
and political behavior today. First, Beijing successfully employed
tactics from the United Front Work Department: strengthening American
``friends'' and weakening ``enemies.'' As Chairman Mao Zedong put it,
the United Front ``mobilizes friends to strike at enemies.'' Second,
Kissinger's trips engendered the rise of a whole new industry, that of
``diplomat consultants,'' who fit nicely into the long-standing Chinese
tradition of trading access for accommodation.
It's a tradition with sadly bipartisan enablers. Former defense
secretary William Cohen, democracy icon Madeleine Albright, president
George H.W. Bush, and especially former secretary of state Kissinger
enriched themselves by instructing American firms on how to cohere to
Party standards, chill anti-Party speech, and ensure that they were
strengthening the Party in America. They do this not only when acting
in their capacity as consultants, but also in their capacity as
``formers'': dulling criticism while serving on think tank boards,
ensuring cooperation with China while chairing U.S. Government panels,
pretending to journalists that they seek a strong U.S.-China
relationship because it helps America. In other words, since founding
the consulting firm Kissinger Associates in 1982, Kissinger--and so
many like him--have been businesspeople masquerading as diplomats.
Corporate complicity in America is a difficult problem to discuss
because it involves criticizing so many powerful individuals. We cannot
address the problem abstractly. Moreover, decorated Americans and
storied brands make mistakes, and act in complex ways: people and
institutions aren't just `Chinese lackeys' that jeopardize American
interests--they sometimes take actions that help, and sometimes take
actions that hurt, America's manifold and often contradictory
interests.
And as war with China grows increasingly likely, this difficult
conversation about corporate complicity grows increasingly urgent.
I should disclose at this point that I'm not a disinterested
observer, nor are my views objective. It will be helpful here to share
my background, and a mea culpa for some of my own compromises and
ethical lapses, before I discuss how to address this mess. I'm a former
Beijing-based journalist, who covered Chinese politics and culture for
Newsweek. I visited all of China's twenty-two provinces, its four
municipalities, its five (inaccurately named) autonomous regions, the
``special'' administrative regions of Hong Kong and Macau, and the
country of Taiwan, which Beijing has long disingenuously claimed.
In 2022 I published a book, ``America Second'' (Knopf), which arose
out of my frustration with how Americans, and American corporations,
discussed China. Not in the wonderful, awful, plain, or madcap ways of
Chinese people, but in the ways of the Party. They'd repeat Party
phrases like ``China has lifted hundreds of millions of people out of
poverty,'' or ``China has 5,000 years of history.'' The problem is not
the veracity of the phrases--the problem is repeating phrases which,
like the two quoted here, are Party propaganda. Context and history
matter. One can be, for example, an American socialist, and think that
the country should nationally be socialist--but no one with any sense
of history should ever call themselves a National Socialist.
The book also arose out of a desire to apologize for committing
similar ethical lapses, from my two decades researching, living in,
travelling through, working on, and countering China. I'd self-censor,
tempering my criticisms to avoid offending the Party. I've taken money
from organizations linked to the Party: still, today, I consult for
corporations that strive to maintain access to China. Sometimes, I
self-censor in the opposite direction, being more critical than I
actually feel on China in settings with other China hawks. The data and
consulting company I run, Strategy Risks, benefits from an increasingly
risky world. Indeed, I started the company several years ago with these
trends in mind. Let me never pretend to be a disinterested observer.
These are complicated issues, and expressing oneself accurately is
challenging. Still, I'd like to do better.
The solutions to corporate complicity and kowtowing to Beijing
aren't to be found in mandating any sort of objectivity around China;
rather, they lie in promoting transparency and healthy debate. Require
corporations to disclose their exposure to China. Public companies, in
their filings to the SEC, often don't even break out their China
revenue, hiding behind broader categories like `Asia.' The more
information investors, regulators, and citizens have about how American
companies are exposed to China, the better.
Strong libel laws that protect U.S. activists, journalists, and
thinkers benefit America's battle against the pernicious aspects of
Beijing. I'm delighted that, on July 4th, I can write the words ``Henry
Kissinger is an agent of Chinese influence''--a conclusion I drew from
dozens of hours of research into Kissinger's business dealings, back
when I was a journalist--and know that our wonderful First Amendment
protects me.
And the solution to corporate complicity requires a healthy debate
about war with China. Should the United States go to war with China to
defend Taiwan? Does that mean World War III? If there is a war, how are
we defending ourselves from the possibility of a Chinese attack? If
there is a war, how do we ensure that we protect Chinese Americans, and
people in China? I worry that we're suppressing this conversation, even
though war may be near.
Play the grim parlor game: if one of those Chinese spy balloons had
exploded over America, how many Americans would have to die for us to
go to war with China? The possibility of war is very real, and very
worrying.
I worry, too, about our awful history of Japanese internment during
World War II, and the ethical sacrifices U.S. bureaucracies will make
and have made in times of crisis. I worry about the millions of Chinese
who have worked for, or closely with, American companies and whom
Beijing may soon see as enemy combatants. I worry about American
companies supporting the Chinese war effort, or hampering the American
war effort. And I worry that--like after 9/11--fear and xenophobia, and
not caution and strategy, will drive our actions.
We must prepare. Prepare by ensuring that we adhere to our values
of diversity, integration, and protecting our own. Prepare by working
with Boeing, Raytheon, and other pillars of our military production to
reduce--immediately--their exposure to China. Prepare by encouraging
American companies to have contingency plans to protect their Chinese
staff, and their staff in China. Prepare by admitting to ourselves that
if Beijing attacks Japan, or Taiwan, or kills a number of Americans--
public pressure may demand a response, even if that rashly leads to the
next world war.
Prepare for the looming specter of World War III, not because you
strive for war, but because you strive for openness, transparency, and
civic debate. Be prepared, because the alternative is far worse. Talk
about it.
Prepared Statement of Aynne Kokas
Chairman Smith, Cochairman Merkley, and distinguished members of
the Congressional-Executive Commission on China, it is an honor to
present my testimony.
As the United States grapples with how to approach China's
expanding digital influence, it is imperative to explore the role of
U.S. corporations operating in the country as well as firms that serve
as U.S.-based data brokers. My testimony explores the ways that
fragmented U.S. data oversight laws interact with Chinese government
data oversight to pressure corporations to prioritize compliance with
Chinese laws and policies. Additionally, I delve into similar dynamics
that have fueled misinformation and censorship in the media sector.
Drawing from my recent books, Trafficking Data: How China Is Winning
the Battle for Digital Sovereignty (2022) and Hollywood Made in China
(2017), I make recommendations to reduce U.S. corporate digital rights
violations by Chinese firms, as well as firms operating as data brokers
in the U.S. I argue for the importance of focusing attention on how to
bring overarching U.S. digital oversight in line with our allies and
partners to better serve as a countervailing force against pressure
companies face from Chinese government regulations. I look forward to
the discussion and would be happy to expand on any of these points
during questioning.
My testimony focuses on four key findings:
1. U.S. data oversight laws follow a risk-based model, which
assumes corporations have the capacity to mitigate harm.
2. Many Chinese corporate data oversight laws have expansive
extraterritorial scope and lack transparency. The opacity of these laws
makes it difficult to determine the extent to which firms are
exploiting data in the normal course of their operations.
3. Without comprehensive data protections in the U.S. and the
potential for financial, civil, and criminal penalties in China,
companies must navigate a complex legal landscape.
4. The intersection of pressure for Chinese market access with
weak U.S. laws has further created an environment ripe for censorship
and disinformation.
U.S. technology oversight assumes the capacity to mitigate harm.
However, there are currently no comprehensive data security laws in
place either domestically or extraterritorially.
Fragmented sector-based and state-based oversight fails to keep
pace with evolving technologies, leaving U.S. citizens vulnerable to
data breaches and exploitation.
Sector-based oversight, such as the Health Insurance Portability
and Accountability Act (HIPAA), neglects key areas of the health
technology sector, from commercial DNA testing to medical devices to
smart watches. The Children's Online Privacy Protection Act (COPPA)
requires parental consent for self-disclosure of information by
children under 13,\1\ but has serious limitations--it protects children
under 13 only when information is shared by them, rather than by an
adult.\2\ Once a parent consents to the child's self-disclosure, sites
can freely collect any shared information.\3\ Moreover, the law does
not appear to cover household-level (rather than individual-level) data
that might include that of children under 13, such as that collected by
Google Home and Amazon Alexa devices.\4\
By failing to update existing sector-based laws to reflect the
breadth of opportunities for data-gathering by firms, it becomes
impossible to move forward with even the most basic standards of user
data protection.
State-based oversight further fragments the U.S. corporate data
security landscape, with state legislatures facing pressure to oversee
complex laws that often exceed their technical capacity, budgetary
constraints, and scope of oversight. States with more technical
resources already offer digital rights enforcement to their citizens
(e.g., enhanced protection of biometric data for Illinois residents,
financial data for New Yorkers, and user data for those living in
California, Utah, and Virginia), thereby creating a patchwork of data
protection regulations across the country. For example, there are
multiple competing standards for how people in different states can use
popular apps like TikTok and WeChat. This makes it difficult for U.S.
businesses and citizens to navigate the complex and often conflicting
regulatory environment.
Adding to this complexity are third-party data brokers, who acquire
and sell corporate data. In bankruptcy proceedings, banks can require
firms to liquidate their data as an asset, increasing the vulnerability
of user data.\5\ Data broker activity in bankruptcy proceedings and
elsewhere further fragments U.S. data oversight and highlights the need
for comprehensive national data protection regulations.
Corporate and user data form the foundation of a wide range of
emerging information and communication technologies. It is important to
prevent data trafficking, the uncontrolled movement of commercial data
across borders through government pressure, not just for immediate
security purposes, but also to protect long-term competitiveness in
communications, artificial intelligence, healthcare, payments, and
other critical sectors.
Chinese laws, by contrast, are wide-reaching with strong data
localization requirements, unclear enforcement or statutes of
limitations, and an extraterritorial scope.
The Cybersecurity Law of the People's Republic of China \6\ \7\
requires critical information infrastructure data to be stored in
China. China's Personal Information Protection Law (PIPL) offers
enhanced data localization requirements beyond the critical information
infrastructure data localization which makes transfer of data overseas
subject to a security assessment by the Cyberspace Administration of
China.\8\ Article 3 of PIPL includes broad corporations that process
personal information within China's borders, emphasizing the
extraterritorial nature of the law's scope.
PIPL is one of many Chinese laws that implicate worldwide corporate
operations. The ``Provisions on the Governance of the Online
Information Content Ecosystem'' asserts potential criminal or civil
liability for consuming, producing, or sharing ``negative''
information. The Law of the People's Republic of China on Safeguarding
National Security in the Hong Kong Special Administrative Region,
colloquially known as the Hong Kong National Security Law, permits the
Chinese government to hold people and platforms liable for crimes
committed extraterritorially, which puts particular pressure on firms
with large Chinese operations.\9\
Further, most Chinese digital oversight laws lack clear enforcement
parameters, encouraging corporations to comply with the most
conservative interpretations of the law. The Provisions in Online
Governance, Cybersecurity Law, Personal Information Protection Law, and
Hong Kong National Security Law all lack clear enforcement provisions,
but one of the more interesting opportunities for government access to
corporate data is China's national security audit system, established
by the 2021 Data Security Law,\10\ that can review any activities that
influence or might influence national security data. All companies
operating in China are subject to the regulations, and the scope of
what constitutes national security data is neither fixed nor
transparent. Through the data audit process, regulators can pressure
firms to share data with the Chinese government as a condition of their
continued operation.
Corporations gathering user data in the United States that are subject
to Chinese laws face significant pressure to comply with Chinese laws
in the absence of comprehensive U.S. data protections.
This dynamic is apparent in the Internet of Things (IoT). Haier, a
Chinese company, purchased GE Appliances in 2016 for $5.4 billion,\11\
the world's largest consumer appliance company.\12\ Since then, Haier
has launched an entire line of connected consumer electronics called GE
Smart Appliances \13\ that gather data and store it on apps developed
by Haier U.S. Appliance Solutions, Inc. Haier has also developed the U+
Connect platform, which collects data through all connected GE
Appliances and Haier-connected products.\14\ Haier uses Baidu's
TianGong smart IoT platform to connect equipment, manage devices, and
store data for the U+ Connect platform that GE Appliances use,\15\
thereby integrating GE Appliances into China's data storage system.
Precision agriculture is another prominent area where this dynamic
plays out. Syngenta, a firm that gathers and integrates data about
agricultural yields,\16\ is one of precision agriculture's major
players. ChemChina, the state-owned China National Chemical
Corporation, became the world's largest supplier of pesticides and
agrochemicals with its $43 billion acquisition of Syngenta in 2017 and
it is also the top pesticide seller in North America. \17\
Syngenta collects data via drones and satellites to help farmers
manage crop yields \18\ and sells seeds, fertilizers, and pest
management to AgriEdge users at a discount. AgriEdge has become
integrated into the U.S. agricultural landscape, covering 10.5 million
acres of arable U.S. land in 2021, with more than 95% of growers using
whole farm management systems from Syngenta.\19\ Even the Ram, a
popular farm vehicle which holds a greater than 25% stake in the U.S.
truck market, now offers packages that include AgriEdge.
By integrating the U.S. agricultural and IoT ecosystems with a firm
owned by a Chinese state-owned enterprise, the U.S. is taking a risk
that the extraterritorial nature of Chinese laws will force firms to
share key data about how U.S. homes and agricultural ecosystems
function. I discuss other examples in the gaming, social media,
satellite, smart city, and payment sectors in my book, Trafficking
Data. However, regardless of the sector, the Chinese firms face no
legal data storage requirements in the United States.
Beyond industry-specific exposure, COVID-19 protocols in China
control the behavior of people working at corporations in China. Access
to essential payment, mobility, and communication apps in China now
require sharing, at a minimum, one's passport number or residence card
number, but more commonly, a Chinese bank account, enabling both
monitoring and punitive action. Such technical systems require
individuals doing anything in China, whether visiting family, working,
or doing research, to either depend on a Chinese colleague or friend,
allow tracking, or submit oneself to the scrutiny of a residence
permit, to engage in the most basic activities of living. When using a
term like corporate complicity, it is important to recognize that many
of the workers or corporations in question must balance their ability
to continue to function.
Pressure for Chinese market access interacts with weak U.S. laws to
contribute to censorship and disinformation.
These shifts in market power are changing our digital landscape in
two key ways.
First, firms are changing the content they produce. To gain access
to China's profitable but tightly regulated media market, Hollywood
studios must comply with Chinese censorship rules, which can impact the
content of films. For example, in Doctor Strange, the character of The
Ancient One was portrayed as a Tibetan monk in the original version of
the movie, but in the Chinese version, this character was changed to be
a Celtic woman to avoid offending the Chinese government, which does
not recognize Tibet as an independent country.\20\ Similarly, the
character of The Mandarin, who is portrayed as a villain in the
original version of the movie, was changed to be non-Chinese in the
Chinese version.\21\ While it is clear that ``yellow peril''
stereotypes like those visible in characters like The Ancient One and
The Mandarin present problematic representations of race, it is the
market under which studios changed those characters that is most
significant. In Mulan (2020), the film's global release evoked Chinese
central government narratives urging the prioritization of the central
government at the expense of dangerous borderlands.\22\
Figure 1: Nine-dash line maritime claim in Abominable (2019)
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Source: South China Morning Post
Second, firms are extending Chinese market policies globally in the
absence of laws. The University of Toronto's Citizen Lab reported that
accounts that fall under WeChat's Chinese terms of service, accounts
first registered in China (or ``China-registered-accounts),'' are
subject to ``pervasive political censorship'' even outside of China,
even when those accounts move to international numbers.\23\ This
includes foreign students, immigrants, and businesspeople who first
download WeChat in China but switch phone numbers when they move
outside of China.
Recommendations
The following recommendations are based on my award-winning books
Trafficking Data: How China Is Winning the Battle for Digital
Sovereignty (Oxford University Press, 2023) and Hollywood Made in China
(University of California Press, 2017). These strategies are critical
for reducing U.S. corporate violations of digital rights violations in
relation to Chinese firms and all firms that serve as data brokers in
the United States.
Work with Allies and Partners to Establish Standards for
Data Transfer
Review and align the U.S. with adequacy standards
for cross-border data transfer established by the European Union and
Japan.
Join key trade agreements like the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) and
other trade agreements that enhance transparency in cross-border data
transfers while also requiring the protection of personal information
for users.
Enhance U.S. Oversight to Prevent International Data
Trafficking
Work with states to harmonize state-level data
security oversight through federal legislation. This could include
practices such as issuing best practices for state data-security
oversight. Grants for specific state-level data security projects would
help to enhance state-level technical oversight capacity.
Build out a national data privacy framework to
prevent consumer data exfiltration to non-allied countries. Such a move
is important not just to protect user data, but it is also essential to
help build consensus among democratic allies, many of whom have
different approaches to data oversight than the United States.
Enhance technology sector collaboration across
developed democracies as outlined in S. 604, the Democracy Technology
Partnership Act.
Develop more precautionary approaches to the use
and introduction of ICT products and services. Approaches like S. 686,
the bipartisan
RESTRICT Act, represent an important first step.
Regulate the data broker industry in the United
States. S. 631, the
UPHOLD Privacy Act of 2023, S. 1029, the Protecting Military
Servicemembers' Data Act of 2023, and H.R. 3045, You Own the Data Act
and others, offer first steps in this direction.
Enhanced SEC reporting of data storage practices by
publicly traded firms would use existing reporting mechanisms to
enhance corporate accountability for how, when, and where firms share
their data. Explore ways to require data storage and security reporting
by privately held U.S. firms. Improved transparency in data storage and
security practices is valuable not just due to the ability to track
data trafficking, but also in the provision of helpful metrics to
include data storage and security in environmental, social, and
corporate governance investment indices.
Fund Chinese area studies so that workers can better understand the
implications of their business decisions related to China. The lack of
secondary and tertiary education opportunities to learn about China
means that most people entering the U.S. workforce do not have a
working understanding of China's political system, which can lead to
uninformed decision-making both in terms of the under- and over-
estimation of risk. Funding from Title VI, the Fulbright U.S. student
China program, the East-West Center, the Woodrow Wilson Center, the
National Endowment for the Humanities, and the Kluge Center at the
Library of Congress, has been central to my ability to research and
teach about China at the University of Virginia and as a student in
public universities in California and Michigan. To prevent corporations
from enabling human rights violations, there is a crucial national
security need to fully fund the study of China and Chinese by American
students and scholars.
Dr. Aynne Kokas is C.K. Yen Chair, Miller Center for Public Affairs;
Director, University of Virginia East Asia Center; Non-Resident China
Studies Fellow, Baker Institute for Public Policy, Rice University; and
Associate Professor of Media Studies, University of Virginia.
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______
Prepared Statement of Hon. Chris Smith
Today's hearing, ``Corporate Complicity: Subsidizing the PRC's
Human Rights Violations,'' will come to order.
Since the Tiananmen Massacre in 1989--and for some, even before--
far too many elite leaders of America's most profitable corporations
and like-minded government enablers here and around the world have
embraced and welcomed the Chinese Communist Party with open arms.
The predictably false hope that robust trade would somehow help
China matriculate from a dictatorship to a functioning democracy had no
compelling precedent in history--especially a country that is owned--
lock, stock, and barrel--by a brutal Communist party.
That false hope has been further exposed every single year since
the early 1990s by China's ever-worsening abuse and violence against
its own citizens.
The pervasive use of government-sanctioned genocide, torture, rape,
forced abortion, involuntary sterilization, forced organ harvesting,
sex and labor trafficking, religious persecution, kangaroo courts
(particularly for political and religious prisoners), free speech and
assembly violations, the atrocities they have committed in Hong Kong
after making solemn promises to protect basic rights as well as the
Sino-UK Agreement--and of course there are so many other crimes against
humanity--an absolutely shameful record of wanton cruelty.
Tragically, the abuse and violence has only gotten worse under Xi
Jinping. With his infamous executive order of May 26, 1994, President
Clinton abolished the requirement that the Chinese Communist Party
achieve ``significant progress'' in protecting human rights as a
condition for extending Most Favored Nation status (MFN)--the
elimination of import tariffs by the U.S.
A few months earlier in 1994, before President Clinton's
capitulation, I travelled to Beijing and met with foreign ministry
officials and argued that President Clinton wasn't going to back down
or back off his promise to end MFN unless China reformed its barbaric
practices. I even conveyed to CCP officials a bipartisan letter signed
by 100 Members of Congress--left and right, Nancy Pelosi was on that,
Frank Wolf was a co-signer, and many others--and we said we stand with
President Clinton, and we stand with human rights.
While there, I also met with the U.S. Chamber of Commerce in
Beijing who thought we were wrong to link MFN with human rights. After
a spirited exchange over breakfast, I came away with the inescapable
conclusion that no human rights violation by the CCP would disrupt
lucrative business deals.
A few months later--to my shock and dismay--President Clinton
delinked human rights from trade. He did it on a Friday afternoon,
after almost everybody in this building had left to go back to their
districts. I was lingering, doing some work in the office. I ran over
to the press gallery and did a press conference, impromptu. If you go
to C-Span, you can see it. I wasn't the only one: Nancy Pelosi ended up
doing her own press conference. We were shocked that he delinked. He
had accused--and rightfully--George Herbert Walker Bush of coddling
dictatorship and I agreed with that after Tiananmen Square.
The symbiotic U.S.-China trading relationship--that emerged in the
1990s and continues to this day--allowed many to become incredibly rich
and powerful while conveying to the CCP extraordinary industrial
capacity and know-how for both consumer goods, and ominously, military
products and capability.
That CCP military capability today, however, poses an existential
threat to Taiwan, numerous nations in the region--and to the United
States of America.
Today, it is deeply discouraging to see the ongoing complicity of
American companies in aiding and abetting the Chinese Communist Party's
heinous crimes against humanity and genocide.
Many are complicit in concealing the PRC's abuses. Many are
complicit in the PRC's restrictions on freedom. Many are even complicit
in amplifying the Chinese Communist Party's propaganda across our
country--spreading political and ideological stances that are
completely contrary and antithetical to what the United States stands
for.
American companies and consumers should not be subsidizing tyranny.
In January, I introduced--I should say re-introduced--the China
Trade Relations Act of 2023 to end MFN, now called normal trade
relations, with China.
Actually, it's almost a carbon copy of what we were talking about
in 1993, with President Clinton. I did press conference after press
conference, thanking him for linking human rights with trade--only to
see one year later that he delinked it.
Every single person testifying here has done an enormous amount of
work and provided leadership. We're so grateful that you're here. One
of our distinguished witnesses today has paid an enormous price: the
loss of his amazing 11-year basketball career in the NBA--for his
courageous stand for human rights, especially for the Uyghurs, the
victims of Xi Jinping's ongoing genocide.
He will testify today that after he was released, about 3 weeks
later--released means fired, of course--China put the games (that had
been barred from Chinese TV because he wore basketball shoes that said
``free the Uyghurs'') back on television. ESPN did an investigation and
found out that 49 NBA owners have $10 billion tied up in China.
Money talks and human rights go right out the window.
The Chinese Communist Party ordered the NBA to sanction--to fire--
Enes Kanter Freedom and like cowards, they obeyed.
I'd like to yield to my good friend and colleague, Co-chair of our
Commission, Senator Merkley.
______
Prepared Statement of Hon. Jeff Merkley
Thank you very much, Mr. Chairman. And welcome, it's good to have
you with us. I'm glad we're continuing to dig into the issue of
corporations' connection to the Chinese Communist Party's human rights
abuses in China and elsewhere. This has been an intense interest, a
bipartisan and bicameral interest of our Commission. With so many of
the issues we monitor, the CCP's abuses are sometimes amplified or even
abetted by the actions of actors closer to home. When products from
cotton to car parts are made on the backs of Uyghur slave labor,
companies seeking to get those products into the U.S. market subsidize
the economic machinery of genocide. When authorities crush Hong Kong's
cherished freedoms, they count on multinational corporations to
continue business as usual. When mass surveillance and biometric data
collection target repressed populations, some American companies
provide the technology, the services, or the data that bolster the
surveillance state.
Our commissioners have taken such an interest in these issues
because it's unacceptable to us if any American business props up
genocide, enables censorship, or legitimizes actions that trample on
basic universal freedoms. That's why last Congress I chaired hearings
focused on: the message that leading American companies were sending by
lending their prestige to the 2022 Beijing Olympics, and we focused on
the way the PRC leverages technology for deeply repressive purposes and
on the coercive economic dynamics that all too often lead companies to
self-censor or even parrot propaganda. We sent letters to some of the
most respected brands in America when their actions put them at risk of
complicity in human rights abuses, companies like Apple, Hilton,
Amazon, Airbnb, NBC, the National Basketball Association, and more.
This Commission's signature initiative to guard against corporate
complicity has been the Uyghur Forced Labor Prevention Act.
Representative McGovern, Senator Rubio, Representative Smith, and I
spearheaded that legislation to protect American consumers and to hold
corporations trading in the products of forced labor accountable. At
our April hearing, we heard from experts about the initial
implementation of this law and the difficult road ahead to make sure we
enforce it effectively. I'm grateful that Under Secretary Silvers, the
Chair of the Forced Labor Enforcement Task Force, is with us today to
help us grapple with those challenges.
As we heard at that April hearing, businesses should now consider
themselves on notice that protecting their supply chains from being
tainted by forced labor must be a top tier issue of corporate
compliance--because it is for the U.S. Government. But that's only the
start of the paradigm shift that we need. We need businesses across the
economy to diversify their supply chains to be less susceptible to
Chinese coercion and to avoid complicity in human rights abuse. We need
greater transparency about businesses' data practices, exposure to the
pressure coming from China, and more. And defenders of freedom need to
speak out so businesses know there will be reputational costs for
abetting human rights abuse.
Thank you to all of our witnesses for your role in speaking out. I
appreciate you sharing your expertise and personal stories with us and
I look forward to your testimony.
Prepared Statement of Hon. James P. McGovern
Good morning. I join my colleagues in welcoming those present at
today's hearing on business and human rights in China. I regret that I
am not able to join you in person.
Today's hearing is not the first time the Congressional-Executive
Commission on China has taken up the role of businesses and their
potential--even actual--complicity in the commission of grave human
rights violations in the People's Republic of China.
We did our best to engage the corporate sponsors of the 2022 Winter
Olympics, held in China in February 2022, to use their leverage in
support of human rights. But our efforts and those of many other human
rights advocates fell short--the Games were not postponed and they were
not moved. It turns out that the profit motive that fuels the engine of
capitalism is far more powerful than the principle of human dignity
that lies at the heart of America's Bill of Rights and is the core of
international human rights laws and norms. ``Reputational risk'' cannot
compete.
This reality informed the bipartisan Uyghur Forced Labor Prevention
Act that I was privileged to lead and which became law in December
2021. Rather than rely on moral suasion, the law creates a rebuttable
presumption that all goods produced in the Xinjiang region of China are
made with forced labor. Importing goods made with forced labor is
illegal in the United States--has been since 1930. Now the burden of
proof lies with those who want to import goods to show that their
supply chains are free of forced labor. We will hear today from DHS
Under Secretary Silvers that the law has brought a sea change to the
way the Government approaches forced labor issues. That is a very good
thing.
But I cannot help but express my frustration that it seems to be so
hard to get the private sector to pay attention to grave human
violations that occur in the places they do business, in concrete ways
that actually matter.
We will hear today about several ways that the PRC government
pressures businesses to comply with its ideological and ``security''
interests. That is information that has been shared with us
consistently in the past and it is important to continue to document
and draw attention to the ways these pressure campaigns work.
But I hope the witnesses will also talk about how we can do a
better job of getting businesses to comply with the spirit of human
rights laws. For all the kudos we have received for passage of the
UFLPA, there have also been plenty of complaints about the ``burden''
it creates for the private sector.
The reality is that Congress ends up having to write human rights
laws as tightly as possible, because experience suggests that they will
not be honored otherwise.
My question for the witnesses today is, Why is it so difficult to
get businesses to comply, and what can we do about that? Is the best
option--perhaps the only option--to make sure that compliance is in the
financial and market interest of businesses?
If that's the case, maybe my colleagues across the aisle should
rethink their opposition to economic, social, and governance guidelines
for investment--since ESG rules are the very thing that Uyghur
advocates have been asking us to use to end Uyghur slave labor.
One further point: I understand that implementing a law like the
UFLPA requires resources. This Commission must be clear that talk about
human rights in China--or anywhere else, for that matter--has to be
backed up with funding. Cuts to the budgets of agencies that implement
human rights policy will gut that policy. It is important to keep this
in mind during appropriations season.
Thank you.
Submissions for the Record
----------
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Submission of Maya Mitalipova
Forced Organ Harvesting and Corporate Complicity in China
The Chinese government is building the world's largest DNA database
by acquiring DNA sequencing data from companies within China and across
the globe, including the USA.
Numerous biotechnology companies are assisting the Chinese police
in building this database and may find themselves complicit in these
violations. They include multinational companies such as U.S.-based
Thermo Fisher Scientific and major Chinese companies like BGI (Beijing
Genome Institute), AGCU Scientific, and Microread Genetics.
Chinese authorities are enrolling in genome surveillance tens of
millions of people in Tibet and Xinjiang (aka East Turkistan), who have
no history of serious criminal activity. Those individuals have no
control over how their samples were collected, stored, and used.
Neither do they know of the potential implications of DNA collection
for them and for their extended families.
The indiscriminate collection of biometric data in China was first
reported by Human Rights Watch. Beginning in 2013, state authorities
obtained biometric samples from nearly the entire population of Tibet
(3 million residents) and in 2016, a similar program was launched in
Xinjiang, where data from the region's estimated 15 million Uyghurs and
other Turkic people was collected under the guise of free annual
physical exams. Note, the Han Chinese population of the region was
exempt from this program. Despite it being ``free exams,'' no results
were returned to these residents.
Mass DNA sequencing is a costly project. The least expensive
sequencing of a small portion of DNA today costs $100 per sample. To
sequence 15 million samples in Xinjiang can cost at least $1 billion to
$2 billion. To maintain these databases for tens of millions of
samples, you need a substantial number of professional bioinformatic
specialists, specialized computers and software, and expensive
sequencing machines.
Why is the Chinese government investing billions of dollars to
sequence the DNA of the entire population of Xinjiang and Tibet?
What can DNA sequenced data be used for? DNA sequencing can be used
in basic biological research, disease discovery, finding of novel
treatments, forensics, ancestry research, and in organ transplantation.
Now let's see which of these uses can be applied to Uyghur people
in Xinjiang:
Finding disease mutations and ancestry research? In the
region, where the Chinese government is conducting genocide against
Uyghur people by detaining up to 3 million (according to the State
Department) of them in prisons and camps? The answer is ``NO.''
For forensic investigation? On the rest of the population
of Uyghurs who are not yet detained? On people who are tightly
monitored by extensive surveillance cameras? On people whose passports
have been confiscated by authorities since 2016? On people whose
kitchen knives are chained in their homes? They live in open air
prisons.
They have no way to commit a criminal act even if they want to. On
the margin it can add to the cost of DNA sequencing by tightening
surveillance capacity. But the answer is ``NO.''
Then the only other reason for DNA use left is for organ
transplantation.
And ``YES,'' its use for forced organ harvesting and
transplantation can absolutely justify the enormous cost of mass DNA
sequencing.
According to witnesses, authorities in Xinjiang, on a mandatory
basis, withdraw not only blood for DNA, but also perform an ultrasound
check of all internal organs including an iris scan. Again, patients
never receive the results of these health checks.
China's organ transplantation industry amounts to, at a minimum,
60,000 organ transplants per year. The least expensive kidney
transplant costs around $70,000 and other organs can cost up to half a
million dollars.
In free countries like the USA and Europe, organ donor recipients
are on a waitlist for years for matching donor organs, while in China
the matching donors can be found in a few weeks. The Chinese government
favors forced organ harvesting from prisoners of conscience and this
has been practiced for decades, involving a very large number of Falun
Gong practitioners and now Uyghurs. According to research conducted by
Ethan Gutmann, an estimated minimum of 25,000 Uyghurs are subject to
forced organ harvesting per year.
For successful organ transplantation, doctors rely on several
important criteria including three main blood tests, cell surface tests
and limited DNA tests to determine if a patient and a potential donor
are a match. Current genetic tests detect differences in DNA sequences
at just a few specific locations in the genomes of transplant
recipients and their organ donor. The fewer the differences, the better
the chances of long-term acceptance of the new organ. Whole genome
sequencing data for a large number of genes would give a better match
of donor and recipient organs, which in turn will result in no
rejection and long-term survival of transplanted organs.
When a patient requests an organ in China, his/her DNA-sequenced
data will be blasted against millions in the DNA database stored in
computers. Within a few minutes, a perfect match will be found. If a
potential donor of the organs is not in prison or a camp, then Chinese
authorities can easily find a reason to detain a match to be killed for
their organs on demand.
This is the main reason why the Chinese government invested
billions of dollars in DNA sequencing of the entire population of
Xinjiang and Tibet. Because it will make exponentially many more
billions of dollars per year in return.
Thermo Fisher's involvement in forced organ harvesting in Xinjiang
is undeniable. But, while it has vowed to stop selling sequencing
machines to the region and to stop providing technical support to
maintain them, the company is very successfully selling HLA kits and
other custom-made DNA profiling products for organ transplantation, as
high as in the ten million range. Thermo Fisher's Huaxia PCR
amplification kit was developed specifically to identify the genotypes
of Uyghur, Tibetan, and Hui ethnic minorities.
The continued sale of DNA profiling products and technologies by
Thermo Fisher to China has to be stopped by Congress!
I urge Congress to question, and if necessary to sanction, Thermo
Fisher for aiding China in the genocide of the innocent Uyghur people
and prisoners of conscience throughout mainland China!
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Statement of Roger W. Robinson, Jr., in Partnership with
the Coalition for a Prosperous America
Mr. Chairman, I am grateful for this opportunity to submit the
statement before you today as the former Chairman of the U.S.-China
Economic and Security Review Commission, Chairman and Co-founder of the
Prague Security Studies Institute, and an advisor to the Coalition for
a Prosperous America. As a former international banker, a senior White
House official and founder of a successful business and think tank, it
is a privilege to bring my over forty-five years of experience in
national security and global finance to the table in seeking to enrich
these important proceedings.
The topic of this hearing is very timely, as the CCP's economic
aggression towards our nation has been a driving force--and funding
engine--for most other forms of its malign behavior and hostile
actions. Without sufficient economic and financial resources and
influence from Western businesses, the CCP would be unable to
accomplish their overarching strategic goals and inflict more immediate
harm to the human rights and well-being of all people groups, but
notably those living under the oppressive regime of the CCP.
We are talking about multi-faceted economic aggression here, going
well beyond traditional trade and commercial topics. For the most part,
the Commission is well aware of the various iterations of China's
economic aggression, and they need not be repeated here. That said, the
CCP's economic and financial warfighting is, in no small part,
dedicated to ensuring that it continues to attract massive annual
dollar and other financial flows from the U.S. and allied capital
markets.
My testimony will focus on this last point, as absent China's
continued, and largely unfettered, access to the U.S. debt and equity
markets alone, most, if not all, of their economic predations globally
would be severely hobbled, if not made impossible. The Commission would
likely benefit from an improved understanding of the inordinate
financial risks facing American investors associated with holding
Chinese corporate securities and sovereign bonds, the monumental
national security and human rights concerns being funded and/or
facilitated by these CCP corporate proxies and potential policy
solutions that, in my view, should be enacted forthwith.
Potential Policy Solutions
Rather than postponing a discussion of such potential policy
solutions to later in this testimony, I believe there is merit to
outlining them at the outset.
Chinese CCP-controlled companies should be delisted and de-
registered from U.S. exchanges (including the Over-the-Counter
market)--and excised from U.S. indices, and the investment products
benchmarked against these indices--as soon as practical (i.e., in no
more than 180 days) and American persons worldwide should be prohibited
by law from holding these Chinese corporate securities, if these
companies are found to be:
1. Non-compliant with any U.S. federal securities laws and
regulations;
2. Sanctioned or blacklisted by any agency of the U.S. government
for actions counter to U.S security or foreign policy interests and/or
human rights violations or abuses;
3. Refusing to permit American shareholders from holding the
actual shares of Chinese publicly traded companies via scandalous,
``shell company'' substitutes like Variable Interest Entities (VIEs)--
domiciled in the Cayman Islands or other off-shore locations--rendering
American investors without adequate legal protections, minority
shareholder rights or actual Chinese shareholdings;
4. Moving the shares of non-U.S. regulated, non-transparent
Chinese companies from domestic Chinese exchanges directly into U.S.
indices and investment products benchmarked against them, notably
thousands of so-called ``A- share'' companies;
5. Associated in any way with the PLA or PLAN, and/or CCP
security or intelligence services;
6. Reliably reported to be engaged in human rights violations,
such as aiding and abetting genocide, trafficking in forced labor,
equipping concentration camps and helping build Beijing's surveillance
state;
7. Helping arm, equip, or otherwise provide economic support for,
the malevolent activities of adversaries of the U.S., such as Russia,
Iran, and North Korea;
8. Participating in activities that disrupt the established,
rules-based international order, such as building and militarizing
illegal islands in the South China Sea; impeding freedom of navigation
in international waters and violating international environmental
standards;
9. Utilizing illegal means to manipulate international
organizations, data, and groups to advance the CCP's global agenda;
10. Not subject to the rule of law;
11. Failing to safeguard minority shareholder rights;
12. Not engaged in adequate material risk disclosure and standard
corporate governance practices;
13. Subject to Article 7 of China's National Intelligence Law
which requires, on demand of the CCP, the weaponization of Chinese
companies for espionage, military activities, and other strategic
purposes; and
14. Permitting the establishment of Chinese Communist Party cells
in their senior management structures.
Moreover, the issuance of dollar-denominated Chinese sovereign
bonds (which I term ``Anti-Liberty CCP Bonds''), which provides
billions of dollars annually in discretionary cash directly to the
Communist Party, should be prohibited by law.
How Does China View the Capital Markets Landscape and Define Success?
China experiences success when greatly expanding its
access to hard currency financing and income, particularly via the sale
of securities of CCP-controlled enterprises in Western capital markets
and as a sovereign borrower.
The CCP likely has no better American friend than Wall
Street firms in protecting it from being meaningfully penalized by the
U.S. government for its malevolent behavior in the form of capital
markets sanctions and restrictions--arguably Beijing's worst fear.
Maintaining this formidable, ``elite capture'' shield against financial
decoupling by the U.S. is essential and constitutes a major victory to
date for the CCP.
Having some 5,000 Chinese companies traded on U.S.
exchanges (including as many as 4,000 ``A-share'' companies listed only
on domestic Chinese exchanges) represents a highly successful ``force
multiplier'' in the funding of the CCP to the tune of trillions of
dollars over the past decade or two.
Listing--or even just trading--on U.S. exchanges imbues
thousands of Chinese CCP-controlled enterprises with the equivalent of
an American ``Good Housekeeping Seal of Approval'', stimulating other
global exchanges to grant such market entry. Moreover, it sends a U.S.
signal that could well end up relaxing strict regulatory compliance in
allied capital markets and probably giving their regulators and asset
managers a ``green light'' to add the securities of ``bad actor''
Chinese companies to the investment portfolios of millions of their
retail investors.
As for metrics, the publicly available numbers tell part of the
tale and, hence, China's ``success'' in our markets can be measured to
a certain extent. It is also important to track the progress of
BlackRock, J.P. Morgan Chase, and others in their pursuit of at least
one of their ``holy grails''--selling wealth management, mutual funds,
ETFs and other investment products and services directly to Chinese
retail and institutional investors. The CCP has mastered the technique
of moving the goal lines of such Wall Street ``holy grails'' closer to
realization during periods of uncertainty and Chinese funding
shortfalls.
The CCP counts on the Treasury Department, the Securities and
Exchange Commission, the National Economic Council and, to a lesser
extent, the Commerce Department as well as some on the House Financial
Services and Senate Banking Committees to, in effect (and perhaps
unknowingly), take Wall Street's side (read the CCP's side) during
policy debates inside and outside of the Executive Branch and shape the
``fine print'' regarding the scope and substance of sanctions,
enforcement actions, waivers and the deliberate creation of loopholes.
Other factors concerning how China defines its success in the
capital markets include:
Acceptance of Chinese sovereign debt in global capital
markets via the inclusion and growth of Chinese bonds in major global
bond indexes (e.g., FTSE World Government Bank Index, JP Morgan Global
Aggregate Bond Index, Bloomberg Barclays Global Aggregate Index), and
the volume and size of China Interbank Bond Market.
Capital formation with minimal loss of shareholder voting
rights via market capitalization of Chinese companies versus
shareholder voting rights granted to foreigners.
Development of a modern financial services industry,
without creating dependence on Western companies via progress in
implementing eight main tasks of Fintech Development Plan for 2022-
2025; growth of wealth management AUM; shift from traditional retail
holdings of individual securities, real estate, and bank deposits to
mutual funds and other pooled investment vehicles; and M&A activity in
Chinese investment banks.
Creation of a NASDAQ-style capital markets system that
can support a leading technology via company listings and market
capitalization of ChiNext (Shenzhen Stock Exchange) and STAR Market
(Shanghai Stock Exchange), and the number of large, high-profile IPOs
in mainland markets instead of U.S. and Europe.
Stability of major financial institutions, including
China's Big Four publicly traded banks, via their total assets and
market capitalization.
China's Strategy and Financial Market Ambitions
In my view, China likely must achieve annual economic growth of 5%
or more to avoid slow-motion economic and financial implosion. Last
year, China grew by some 2% (as the 3% figure is regarded by many
experts as deliberately exaggerated). The country's real estate
disaster, a massive debt burden, relatively low consumer spending as a
percent of GDP and a host of other indicators makes clear that China is
now somewhat adrift--seeking to cobble together a new growth model
given that their traditional model of infrastructure development and
debt stimulus has finally hit the wall.
In short, China must access hundreds of billions of dollars
annually to remain a going concern over time (read continued CCP rule).
There is no ``going elsewhere'' for such large amounts of capital when
the U.S. controls as much as 60% or more of the world's dollar
liquidity, the world's reserve currency and capital markets that are
nearly the size of the rest of the world's combined. Capital markets
sanctions are Beijing's single greatest non-military fear because--like
the Soviet Union before them--the CCP knows that it is predominantly
about the money (read access to trillions of dollars of American funds
under management).
Other factors concerning how China views the capital markets
include:
Beijing taps global capital markets to finance enhanced
economic development and growth.
China sees capital markets development as necessary to
help blunt U.S. financial tools, including sanctions regimes and
potential dollar weaponization against the PRC.
China does not view the financial services industry as an
industry that should be developed for its own sake; they are not
pursuing financialization of their economy in the style of the U.S. and
U.K.
China is not interested in creating an independent
financial services constituency that could challenge the existing power
structure (witness the train of events following the cancellation of
the Ant Financial IPO on the eve of its initial public offering).
China's strategy is to use its command economy (at least when it
comes to finance and the markets) to manipulate the global financial
system to serve its funding, lobbying, and other strategic interests.
Given the CCP's total control over Hong Kong, this task has been made
considerably easier. The large-scale inclusion of CCP-controlled
companies in the U.S. and allied capital markets--in terms of both
listing and trading--is a major ``validator'' for China. The spikes and
surges in bilateral tensions have flown right over China's capital
markets penetration activities like storm clouds that pass over and do
no harm. This fact alone constitutes quite an amazing success for the
CCP.
Not that long ago, at a time when there were some 1,260 Chinese
companies on the Commerce Department's Entity List for egregious
corporate national security and human rights abuses, of that number
only 16 were listed on the Treasury Department's OFAC List (i.e., the
NS-CMIC List), impeding their ability to raise funds on the U.S.
capital markets. Beijing has also, thus far, escaped any ``sanctions
harmonization'' efforts in the Executive Branch, whereby a U.S.-
sanctioned Chinese company by any relevant government agency would
automatically cost the company access to U.S. exchanges and the ability
of American persons to hold its securities. These are examples of how
China achieves its key strategic objectives and ambitions--at U.S.
expense.
With respect to the types of Chinese CCP-controlled enterprises
which are presently listed or traded on U.S. exchanges, it is not
pretty. Examples include: Chinese companies that are equipping
concentration camps in Xinjiang; trafficking in forced labor; aiding
and abetting genocide; constructing the ``surveillance state'';
militarizing China's illegal islands in the South China Sea; building
advanced weapons for the PLA, including components for its last two
aircraft carriers and first hypersonic glide vehicle; providing lethal
and non-lethal aid to Russia in its war of aggression against Ukraine;
and the list goes on. Indeed, many of the Chinese companies traded in
the U.S. capital markets are presently under various U.S. sanctions
regimes. It is an epic understatement to say that these malign Chinese
corporate activities are impacting negatively on democratic societies
and economic competitiveness, especially our own.
As mentioned above, China primarily relies on its perceived allies
in the Executive Branch to do the heavy lifting on its behalf, with the
priority being resisting, diluting, and otherwise eviscerating any
capital markets sanctions directed its way. Whether it involves a
waiver of federal securities laws via, for example, the Public Company
Accounting Oversight Board's MOU with the China Securities Regulatory
Commission in May 2013, or waiving enforcement of President Biden's
Executive Order 14032, China has been able to largely count on the
cooperation of the Treasury Department, the Securities and Exchange
Commission, the National Economic Council and other senior Executive
Branch decision-makers in the financial space to calm the waters and
discreetly build the loopholes.
Most often it is a sad testament to the ``revolving door'' between
Wall Street executives and key officials in the economic and financial
agencies of government that gives rise to direct or indirect conflicts
of interest, particularly with regard to capital markets sanctions
designed to protect our national security, fundamental values, and the
fiduciary interests of U.S. retail investors.
Congressional Committees with jurisdiction over this issue
portfolio are likewise subject to intense Wall Street and Executive
Branch lobbying or interventions that have often diluted and narrowed
the legislative intentions of Committee members and staff (e.g., large-
scale political donations).
The bilateral financial relationship is largely dominated by a
relatively few large U.S. asset managers (e.g., Black Rock, Vanguard,
State Street, etc.) and index providers (e.g., MSCI, FTSE-Russell,
etc.). Firms such as Sequoia and KraneShares are also reportedly
factors in maintaining a steady flow of U.S. investor capital into the
coffers of the CCP.
CCP Strengths in the Capital Markets
As the world's second largest economy perceived to be
flush with cash and a potential market of 1.3 billion consumers, China
has harnessed, directed and manipulated Western greed to advance its
strategic aims to an unprecedented, perilous degree.
Never in memory has this ominous level of ``elite
capture'' within the U.S. by our foremost adversary been achieved.
Despite the relatively near-term prospect of a shooting
conflict with the United States over Taiwan that could largely wipe out
U.S. investors in Chinese securities, there appears to be no one in the
Executive Branch that can answer the straightforward question: What is
the total amount of U.S. investor risk exposure to some 5,000 Chinese
companies traded in the U.S. capital markets, including passive
investment products? This reality alone is emblematic of China's
strength in dissuading the U.S. government from even questioning this
massive, asymmetric financial risk to our country and its citizens,
much less viewing the CCP--as many Americans do--in roughly the same
league of adversary as the former Soviet Union and Nazi Germany.
China has prospered by knowing that it largely continues
to receive all of the benefits of an open, free-market U.S. economy and
the rules-based international trading and financial systems, without
abiding by the rules.
Pay-offs, corruption, intimidation, covert action and
extortion have been hallmarks of China's wholesale penetration of U.S.
society--and the capital markets are no exception.
At a time of growing market saturation in the U.S. and
ever finer spreads, American asset managers, index providers, and other
market players are fairly desperate to replicate their U.S.-based
successes in the relatively virgin territory of the Chinese domestic
financial system, individual's savings and still-
nascent markets. China is acutely aware of these Wall Street cravings
and has exploited them masterfully.
As an authoritarian police state, China can turn on a
dime when deemed necessary--witness the near overnight end of its
coveted zero-Covid policy. This ``command'' system provides Beijing
with greater agility to exploit targets of opportunity than their
Western counterparts, such as cornering world markets in rare earths,
cobalt, lithium, and other key resources for future economic
competitiveness and global influence. Ironically, Beijing often
attracts funding in the U.S. capital markets for the Chinese CCP-
controlled enterprises mandated to secure these strategic objectives.
The phenomenon of ``national champions'' and the ability
to pick winners to receive massive government subsidies, priority
resources, and other competitive advantages--without any regard to
corruption safeguards and other Western constraints--often permits
Beijing to win strategic contracts and ``buy off'' countries, regions,
and even continents (e.g., Africa), sidelining the U.S. and our allies.
China has achieved a virtual free pass--absent meaningful
U.S. penalties--in its ability to collaborate with the world's most
heinous regimes and has successfully forged an updated ``axis of evil''
with Russia, Iran, and North Korea. To date, there has been virtually
no serious sanctions for these malign activities in the U.S. capital
markets.
China has submitted an avalanche of patent applications,
particularly concerning technologies which connect to the internet.
State-directed efforts such as these are not just designed to unfairly
enhance Chinese competitiveness, but also for the malevolent purpose of
denying cutting-edge technologies to the U.S. and its allies. Worse
still, China is attracting the funding to develop these technologies
often from the U.S. debt and equity markets.
Other CCP market strengths include:
A centralized regulatory regime that can enact reforms
quickly inside China's relatively young capital markets industry.
China is enacting reforms and plans to steadily
develop its capital markets with internal and external capital.
Beijing has focused its capital markets on
boosting small and mid-sized enterprises, especially in the technology
sector.
China has room to grow, with retail investors largely
untapped, compared with the relatively saturated financial industry in
the U.S. and Europe.
It is encouraging development of a wealth
management industry.
China is exacting concessions and favors from major U.S. and
European financial firms in exchange for relatively limited access to
its retail investment market.
CCP Weaknesses in the U.S. and Allied Capital Markets
Not one of the roughly 5,000 Chinese companies listed or
traded on U.S. exchanges is compliant with U.S. federal securities
laws, including Dodd-Frank.
95% of Chinese enterprises listed on the NYSE and NASDAQ
are scandalously structured as Variable Interest Entities (VIEs),
involving substituting the actual shares of Chinese companies with the
shares of shell company contracts in the Cayman Islands with no actual
Chinese stock changing hands, no minority shareholder rights and very
limited, if any, legal recourse for U.S. investors.
China engages in little, if any, material risk
disclosure, corporate governance, risk management or the rule of law--
standard requirements for their American and other Western corporate
counterparts. The CCP is also stepping up harassment of American and
allied diligence and research firms and auditors, such as Bain and Co.,
the Mintz Group, Deloitte and others. The CCP is likewise shutting down
Western access to traditional Chinese databases like Wind Information
and Capvision and seeking to blind further U.S. asset managers, index
providers and U.S. investors by criminalizing standard market diligence
and research activities by Western firms. Even the U.S. Chamber of
Commerce has stated that this recent Chinese offensive against Western
professional services firms ``dramatically increases the uncertainties
and risk of doing business in China''.
Article 7 of China's National Intelligence Law of 2017
permits the ``weaponization'' of all Chinese enterprises for strategic
purposes, such as espionage and PLA activities, at the discretion of
the CCP. This entirely negates the view that Chinese companies can be
considered purely commercial, benign entities.
The CCP has required all companies in China to establish
Communist Party cells in their senior management structures, possibly
including foreign-owned Chinese firms, which completely refutes the
long-held argument that China possesses true ``private sector''
companies.
China's real estate crisis--implicating some 30% of GDP,
as much as half of the annual revenues of the provincial governments,
some 40% of all bank lending and roughly 80% of the net worth of the
Chinese population--remains an asymmetric risk to Western investors
with little transparency on how this ticking economic bomb will be
defused, if it is even possible.
China's economic growth model of infrastructure
investment and a massive accumulation of debt to stimulate demand has
largely run out of gas and cannot be offset by relatively anemic
consumer spending as a percent of GNP (some 50% versus more than 70%
for most G-7 countries). In short, China will likely not be able to
grow its way out of a debt overhang of more than 300% of GDP, putting
U.S. retail investors at greater risk.
China is a malevolent, ``bad actor'' country--witness its
``no-limits'' partnership with Russia and client state relationships
with North Korea and Iran--that will likely take more aggressive
actions against the U.S. strategic interests in the Pacific (e.g., the
South China Sea) as well as move ahead with the forced reunification
with Taiwan in the relatively near term. Accordingly, the CCP's ``old
friends'' on Wall Street are having an increasingly difficult time
justifying their large-scale risk exposure to Chinese securities,
including those of U.S.-sanctioned enterprises. For over two decades,
China and its U.S. financial supporters have avoided any granular
policy scrutiny by the national security community, the Congress, the
media and others. Hopefully, these days are rapidly coming to an end.
Over the course of 2023 and 2024, Beijing, Wall Street
and certain conflicted American government regulators will likely be
subject to the introduction of bipartisan Congressional legislation
designed to make it illegal to: 1) hold the securities of ``U.S.
adversaries'' (including Chinese publicly traded companies) in the
International Fund of the federal Thrift Savings Plan; 2) continue
China's use of Variable Interest Entities as vehicles to list on U.S.
exchanges; 3) continue including non-U.S. regulated Chinese ``A-share''
companies in U.S. indices and the investment products benchmarked
against them; 4) continue the issuance of Chinese dollar-denominated
sovereign bonds, directly funding the CCP via the proceeds of these
``Anti-Liberty'' bonds; and 5) hold U.S.-sanctioned Chinese companies
in U.S. investment portfolios.
President Xi Jinping continues to serve as a one-man
wrecking ball for the CCP, particularly vis-a-vis China's relationships
with its U.S. and allied capital markets facilitators. His deep
distrust and paranoia toward all things viewed to be threats to the
primacy of the CCP and its hold on power will likely negate a number of
measures designed by some of his more market-wise colleagues to elevate
the comfort level and risk appetite of U.S. and allied investors
(witness the new CCP effort to criminalize standard diligence and
business information-gathering) by Western professional services
companies.
Other weaknesses include:
Reliance on dollars, euros, yen and pounds for foreign
exchange reserves caused by a lack of internationalization of renminbi.
An undeveloped corporate debt market.
An undisciplined and erratic retail investor base.
Overleveraged and overinvested in the real estate market.
CCP reluctance to allow ``national champions'' that could
one day challenge its hold on power.
CCP unwillingness to adopt GAAP and PCAOB standards.
An undue reliance on U.S. know-how for capital markets
execution.
A Chinese government tendency to intervene and manipulate
market outcomes.
A ``low-trust'' culture which pervades Chinese capital
markets and the perceived and real risk of fraud.
Framework for Viewing China's Presence in the U.S. Capital Markets
China has largely perfected leveraging U.S. and allied
greed and the quest for profits, jobs, exports and market share. It
will likely continue to achieve notable successes in achieving its
strategic aims through the skillful employment of these and other tools
of persuasion--including intimidation and extortionary practices that
have a proven track record. Although Beijing occasionally goes
overboard with its immense espionage campaign against the U.S. and its
allies (e.g., secret police stations in major U.S. cities to round-up
and/or track Chinese dissidents), it has yet to pay any material price
for these malevolent undertakings in the U.S. capital markets.
China has engaged in over two decades of economic and
financial warfare against the United States with no meaningful
opposition, or even an announced recognition that such warfare is
underway. Multilateral institutions have been recruited and, in effect,
weaponized to adopt China's brand of standards and norms, and to
provide friendly cover for some of its most heinous human rights abuses
and national security violations. The U.S. has, to date, foolishly
underwritten this enormous tab over the course of many years with the
witting, and unwitting, transfer of trillions of investment dollars
from scores of millions of U.S. retail investors to the coffers of the
CCP and the Party's corporate proxies.
In my view, it is not possible to identify a strategic-level,
financial scandal of anywhere near this scale in modern history,
whereby a democracy (notably our own) has engaged in the multi-
trillion-dollar underwriting of an authoritarian police state (read
China) bent on undermining our values and way of life, aided and
abetted by some fiduciarily malfeasant Wall Street firms and other fund
managers, and certain conflicted U.S. government regulators at the top
levels of the Treasury Department, the SEC and the National Economic
Council.
Threats to the United States
The prospect of an upcoming U.S.-China military conflict
over Taiwan (if Taiwan's DPP party wins the Presidential election early
next year) is probably the greatest threat the CCP faces of being
electrocuted in the U.S. capital markets--not because of Wall Street's
revulsion, but a more militant, bipartisan consensus in Congress and
among the American people.
The PLA and its Navy are veritably intoxicated by the
array of advanced weapon systems they have brought online, including
hundreds of new surface combat ships, several classes of submarines,
lasers, sophisticated cyber capabilities, hypersonic glide vehicles and
missiles, rail guns and new generation ICBMs. The desire to deploy and
make use of these military capabilities against U.S. and allied assets
is intense and perilous. A shooting, ramming, blinding or other
incident in the South China Sea or elsewhere would now likely impact
China's access to U.S. capital markets for the first time.
China's efforts to restrict further the access of
professional Western market research and diligence firms seeking to
gather standard, risk-related information will likely complicate its
ability to attract adequate amounts of U.S. and allied capital,
particularly when Congress better understands the dimensions of the
U.S. financial ``free-lunch program'' for the CCP, described above.
Assessing the Counter-Arguments--The Prospective Costs of Financial
Decoupling
The cost to American investors of a sudden financial
decoupling from China (e.g., an armed conflict with the U.S.) would
likely be quite severe, but ultimately manageable.
It appears that no U.S. officials have talked publicly
(and perhaps not even privately) about the total financial risk
exposure of American institutional and retail investors to thousands of
Chinese corporate securities, but it is likely well over a trillion
dollars and likely some multiple of that number. We just do not know.
Accordingly, the U.S. appears to have done frighteningly little in the
way of ``national financial risk management'' with respect to China,
and some of the probable ``downside'' outcomes referenced are likely to
result in serious financial losses for average Americans that could be
avoided, if the Congress acts now, preferably on a veto-proof basis.
A more gradual financial decoupling could mean a good
deal of market volatility over a several-month-period, a highly
workable circumstance.
Just as the interruption and restructuring of China-based
supply chains entails costs, so too does the potential loss of Chinese
investment in Treasuries and the excising of thousands of unfit Chinese
companies from U.S. investment portfolios.
For China, any meaningful contraction of access to the
U.S. capital markets would likely have disastrous consequences over
time, given the non-convertibility of its currency and fairly desperate
need for hundreds of billions of dollars annually to fuel even its
diminished economic growth rates. A more serious cut-off of access to
the American capital markets would likely prove the death knell of CCP
rule over a relatively short number of years, given China's massive
``overhead'' requirements to service its population and maintain
reasonable living standards to keep the peace at home.
The cost of doing nothing and maintaining the status quo
could mean the loss of American competitiveness in a number of key
technologies and industrial sectors, including those vital to 21st
century security. In a very short number of years, the U.S. could
likewise lose the capability to prevail in an armed struggle over
Taiwan, or even the South China Sea, and could be, in effect, compelled
to cede regional hegemony to the PLA and the CCP, not to mention
stimulate the nuclearization of Japan, South Korea, and Australia.
Overarching Considerations
As things stand at this writing, China continues to enjoy largely
unfettered access to the U.S. and allied capital markets. There are no
meaningful capital markets sanctions in place on either side of the
Atlantic and the CCP and its publicly traded corporate proxies continue
to defy gravity--with the cooperation of Wall Street and certain
conflicted official regulators--with respect to investor protection,
national security concerns and corporate human rights abuses.
Even in the tunnel-vision American financial community, there
should be a growing recognition that the CCP is an avowed adversary of
the U.S. comparable in many ways to the former Soviet Union and Nazi
Germany. The preferential treatment and massive American funding which
China is presently pocketing would be far more difficult, if not
unthinkable, were this new ``Cold War'' mindset to become official U.S
policy--a Cold War begun decades ago, and prosecuted daily, by the CCP.
Wall Street firms have publicly made clear that they will continue
to engage in undisciplined ``business as usual'' with Chinese publicly
traded companies until such scandalous market activities are made
illegal. Accordingly, as stated earlier, the Congress will almost
surely need to pass legal prohibitions on a range of Chinese funding
and trading activities in our capital markets. A number of specific
recommendations in this regard have been cited earlier in this
testimony, but include: American holdings of notorious, unregulated
``A-share'' companies; Chinese enterprises embedded in the
International Fund of the Thrift Savings Plan; the listing or trading
of U.S.-sanctioned Chinese companies; continued use of near-fraudulent
VIEs; the exclusion of Chinese companies not in compliance with federal
securities laws; and a number of other prudent measures that we
expect--and require--of other foreign participants in our markets.
There is also a need for U.S. legislation that prohibits any Communist
Party cells from being established in the China-based operations or
joint ventures of U.S. asset managers, banks, and other financial
institutions.
Finally, the leadership at BlackRock, and perhaps others on Wall
Street, have exhorted American investors to triple their risk exposure
to Chinese publicly traded companies from the already outrageous and
perilous level that it is today. To me, this not only screams fiduciary
malfeasance, but, intended or not, also reflects greed in its most
calloused and irresponsible form.
Moreover, contrary to the arguments often used by these market
players to justify their China-related investment decisions on our
behalf, such holdings often involve considerably higher risks and lower
returns than elsewhere in their investible universe. Merely one example
is the Tennessee Consolidated Retirement System (TCRS). For the last 10
years TCRS has not invested in China, Russia or a host of smaller
emerging countries due to the results of a screening methodology that
the TN Treasury uses to evaluate nations eligible for investment in the
emerging market portfolio.
Annually, the TN Treasury evaluates each investable emerging market
country using a ``Global Democracy Index,'' developed by the Economist
magazine in combination with an index of corruption called the
``Corruption Perceptions Index,'' created by Transparency
International. Countries which score badly on the combination of
corruption and democracy are eliminated as possible investment options.
Tennessee has been using this screening method for more than a decade
and in that time not once has China scored well enough to merit
investment. Regarding returns, at the one-year mark, the Tennessee
Emerging Markets Portfolio--as of Dec. 2021--had a 7.71% return,
compared to the MSCI-EM return of -2.5%. At the 5-year mark, as of Dec.
of 2021, TCRS had a 10.16% compared to MSCI-EM which was 9.9% and the
MSCI-EAFE (followed by the Thrift Savings Plan for the I-Fund baseline)
which was only a return of 9.5%.
``A-Shares'' and Passive Investments Not Covered by the Holding Foreign
Companies Accountable Act
Congress, the media, and independent regulators like the SEC have
recently focused on the risks posed to U.S. investors from Chinese
companies directly listed on U.S. stock exchanges. While I initially
welcomed this focus and encourage further action, it does not address
the bulk of ``bad actor'' Chinese companies that are still present in
American passive investment products. Their presence is in the form of
nearly 4,000 A-share and H-share companies found throughout passive
investment funds, such as Exchange Traded Funds (ETFs) and mutual funds
and has received little or no regulatory scrutiny or fiduciary
diligence. Tens of millions of Americans are unwittingly exposed to
these notorious ``A-shares'' in their investment portfolios and
retirement accounts.
The financial industry will not lead. Congress must do so. To
ensure against further American investment dollars flowing to Chinese
companies that pose investor protection, national security, and human
rights concerns, Congress should take the following actions:
Pass legislation that requires index providers and asset
managers to address the risks posed by A-share and H-share companies;
Require a proper implementation of the Holding Foreign
Companies Accountable Act (HFCAA) such that its December 2022 agreement
with the Chinese regulatory authorities is actually enforceable, or
that non-compliant Chinese companies are immediately delisted and de-
registered from U.S. exchanges;
Expand the HFCAA to cover Chinese companies traded in the
United States via passive investment products, despite not being
directly listed on U.S. exchanges, to ensure that ETF products traded
on U.S. exchanges are PCAOB-compliant, consistent with the investor
protection imperatives of the Act;
Compel the SEC to require further disclosures and issue
new rules for index providers as it pertains to oversight of proper
diligence (including the security-minded and human rights-related
variety) and risk management--both almost entirely missing today;
Compel the SEC and other U.S. Government agencies to
require more information for investors and fiduciaries with regard to
the geographic location of companies, their industries or sectors,
their linkages to foreign governments or foreign actors, the presence
of companies on U.S. sanctions lists and other national security, human
rights, or political risk factors;
Require index providers to reevaluate their index
inclusion criteria, which currently expose U.S. investors to material
and reputational China-specific risks and further require them to
justify continued inclusion of any such risky China securities;
Harmonize U.S. sanctions policy against Chinese companies
in order to close current gaps that exist between different sanctions
lists. This will assist index providers, asset managers and investors
in their compliance and due diligence processes;
Establish a new, official list of known Chinese corporate
human rights abusers, so that these enterprises can be denied access to
our debt and equity markets and prohibited by law from their securities
being held by American persons worldwide;
Enact a national policy to prohibit U.S. investors from
investing--either here or abroad--in the securities of Chinese
companies which have established CCP cells in their management and/or
decision-making structure.
A-Shares in U.S. Index Funds: Just How Massive Is U.S. Risk Exposure?
In May 2018, after three years of deliberation and negotiations
with Chinese regulatory authorities (and considerable arm-twisting from
Beijing), major index provider MSCI released a list of large-cap China
A-shares to be included in the MSCI China Index, Emerging Markets (EM)
Index, and All Country World Index (ACWI) beginning in June that year.
The MSCI EM Index previously only included shares of Chinese companies
listed in Hong Kong or the United States. As of June 2018, MSCI had
over $1.8 trillion in assets benchmarked globally to its Emerging
Markets Index suite, 30.99% of which was comprised of China-based
securities.
By November 2019, MSCI had increased and expanded its index
exposure to mainland Chinese companies significantly by including mid-
cap China A-shares and quadrupling the inclusion ratio of China A-
shares in the MSCI EM Index from 5% to 20%. The total index weighting
of China A-shares jumped from 0.7% to 3.3%, drawing in an estimated $80
billion in foreign inflows to the Chinese market. As of August 2020,
the overall weight of China A-shares in the MSCI EM Index had risen to
5.1%, where it currently remains.
FTSE Russell followed in MSCI's footsteps and was the second major
index provider to include China A-shares in its indices. In June 2019,
FTSE added 1,097 China A-shares into its FTSE Global Equity Index
Series (GEIS, which covers the FTSE Emerging and All-World Indices) in
the first stage of inclusion (20%), drawing an expected $10 billion
from U.S. passive investors. As of June 2020, China A-shares
represented approximately 6% of the FTSE Emerging Index. Roughly 4,000
China A-shares are available to U.S. investors at this point through
their inclusion in indices.
Undisclosed Risks to Investors
Index providers neglect to consider the full range of China-
specific material risks to investors when determining index
constituents and weighting. These include considerations of
reputational risks relating to national security, export controls and
sanctions regimes, human rights violations, political factors, or even
full consideration of traditional environmental, social, and governance
(ESG) factors.
Retail and institutional investors are exposed to a wide range of
publicly traded Chinese companies involved in developing weapons
systems, new ``dual-use'' technologies, and building infrastructure in
support of China's military modernization goals; and companies involved
in facilitating the ongoing genocide of Uyghurs and other Turkic
Muslims in Xinjiang, the systematic intimidation and coercive
assimilation of Tibetans, and the mass surveillance and government
interference in people's lives in Hong Kong. Beyond these, additional
risk factors to consider include U.S. sanctions designations and any
other blacklists that may signify a material reputational and financial
risk to investors.
As of at least June 2022, a look at five of the larger mutual funds
offered by industry leaders--Fidelity Emerging Markets Index Fund
(FPADX), State Street Emerging Markets Equity Index Fund (SSKEX),
BlackRock iShares MSCI Total International Index Fund (BDOKX), Vanguard
Emerging Markets Stock Index Fund (VEMAX), DFA Emerging Markets Core
Equity I (DFCEX)--(which happen to be included in the new Mutual Fund
Window available to TSP beneficiaries)--includes at least 14 underlying
companies directly linked to China's military-industrial complex and
listed on either the Department of Defense's Section 1260H list or the
Treasury Department's NS-CMIC List or both, in just these five funds.
This is in addition to several companies on the Commerce Department's
BIS's Entity List and others with documented links to the oppressive
Chinese surveillance state and connected to Uyghur forced labor.
Federal Government's Thrift Savings Plan Investing in Our Adversaries
The U.S. Government is facilitating the investment of billions of
taxpayer dollars in CCP-controlled companies via the federal workers'
retirement system, the Thrift Savings Plan (TSP). The Thrift Savings
Plan is the largest defined contribution pension system in the world,
with more than $730,000,000 in assets. In June 2022, the TSP's
administrators on the Federal Retirement Thrift Investment Board
(FRTIB) enabled TSP participants to invest up to 25% of their savings
(a minimum of $10,000) in more than 5,000 mutual funds via a new
platform called the ``Mutual Fund Window.'' The TSP's Mutual Fund
Window initiative was launched in June of last year and has already
received more than $47 million in investments. No due diligence or
screening has been performed to ensure the mutual funds included in the
new TSP platform exclude U.S.-sanctioned or other Chinese corporate
``bad actors.''
Participants are unable to determine what mutual funds are included
in the Window until after they have transferred a minimum of $10,000.
The Coalition for a Prosperous America's (CPA) research has
demonstrated that the Window's largest emerging markets funds include
problematic CCP-controlled companies in their investment portfolios.
CPA's research also found that five of the largest international
funds in the Window had an average weight of 22 percent toward Chinese
companies, and all five funds held companies listed on the U.S.
Department of Treasury's list of Chinese Military-Industrial Companies,
the Department of Commerce Entity List, the Commerce Department's
Unverified list, or the Department of Defense Chinese Military
Companies list. Companies are placed on these lists because they
threaten U.S. national interests, have been involved in serious
technology theft, and/or are implicated in the genocide of the Uyghur
people.
The FRTIB claims it has neither the time, expertise, nor the
resources to research the mutual funds offered to current and retired
federal employees, military personnel, and veterans in the interest of
ensuring that CCP-controlled corporate bad actors are excluded from
their portfolios. The FRTIB also claims they are not obligated to
restrict investment in problematic Chinese companies. For example, the
FRTIB has not fulfilled its 2020 public pledge to remove Chinese
companies from the TSP's International Fund (I Fund).
Worse still, in May 2020, the Department of State notified Congress
that the passage of the Beijing-drafted National Security Law obviated
the distinction between Hong Kong and the People's Republic of China,
and that Hong Kong could no longer be considered autonomous. Despite
this determination, the FRTIB has refused to remove 32 Hong Kong-based
Chinese companies from the International Fund of the TSP.
Through the research conducted by CPA and its allies, several
Chinese Communist Party-owned companies were found in the funds,
including the Aviation Industry Corporation of China (AVIC), China
General Nuclear Power Group (CGN), and COSCO Shipping--all PLA-linked
enterprises. The funds also included companies under scrutiny for
forced labor practices, as well as those involved in China's growing
surveillance state.
By some estimates, American investors have provided as much as $2-
$3 trillion or more in investment capital to Chinese companies over the
past decade (including passive investment vehicles). This is, in no
small part, due to a May 2013 bilateral MOU between U.S. and Chinese
securities regulators, whereby U.S.-listed Chinese companies enjoy
preferential access to U.S. capital markets because they are not
required to meet the same requirements as U.S. public companies. U.S.
capital markets have funded China's unprecedented military build-up;
its Belt and Road Initiative; gross violations of human rights,
including genocide and crimes against humanity; predatory and market
distorting trade practices; and the wholesale theft of American
technology and intellectual property.
The U.S. Government has sanctioned hundreds of Chinese companies
for their role in enhancing the threats to our national security posed
by the PLA and egregious human rights violations, but they still
benefit hugely from largely unrestricted access to U.S. capital markets
and are held by hundreds of widely available mutual funds, public
pension funds, and university endowments. In 2019, BlackRock--as the
lead asset manager of the investment portfolio of the Thrift Savings
Plan--advised the FRTIB to increase the TSP International Fund's
exposure to CCP-controlled firms. BlackRock continues to be one of the
most vocal investment managers encouraging expanded investment in
China, and in 2021 became the first U.S. investment management firm to
provide investment products directly to Chinese retail investors--
perhaps as a reward.
To be clear, no U.S.-listed Chinese-domiciled companies held by
either the core TSP funds, or the Mutual Fund Window, are compliant
with federal securities laws and regulations, such as legally mandated
audit requirements designed to protect American investors. Due to the
negligence of the TSP's managers, American servicemen and women, and
other government employees may be unwittingly funding their country's
leading adversary--including companies involved in the PLA's
modernization efforts or the CCP's genocide against the Uyghur people.
We should be able to all agree that CCP-controlled companies should
not be financed through the retirement savings of U.S. government
employees. The FRTIB should not be allowed to abdicate its due
diligence and fiduciary responsibilities to our military and federal
workforce. At a minimum, the FRTIB should take steps to ensure that the
TSP Mutual Fund Window publicly discloses: 1) which TSP regular or
mutual funds hold Chinese-domiciled companies, including those based in
Hong Kong; 2) whether any such company has been sanctioned or otherwise
listed by an agency of the United States government; and 3) whether any
such companies are non-compliant with U.S. securities laws and
regulations, including PCAOB audit requirements.
Harmonizing Government Sanctions--How to Guide Investors Away from Bad
Actor Chinese Companies
Capital markets sanctions have been scarcely utilized to date,
despite being a highly effective tool to advance America's national
security, fundamental values, investor protection and other national
goals. Polling conducted by CPA shows an overwhelming majority of
Americans are concerned about investing in risky Chinese companies and
support stricter investment requirements and safeguards. A poll
conducted by Morning Consult shows sixty-two percent of voters are
troubled that Americans can invest in Chinese and Russian companies
that have been sanctioned by the U.S. government or have not complied
with U.S. securities and other laws.
To accomplish the mission of ramping down U.S. capital investment
in unfit Chinese companies, three Executive Orders have been
promulgated by both Republican and Democratic presidents in an effort
to selectively enforce capital investment bans on Chinese companies in
critical industries and linked to the CCP's military and military-civil
fusion operations. The first two EOs, enacted by President Trump--EO
13959 (now amended by EO 14032) and EO 13974 (now rescinded)--focused
on Chinese enterprises on the U.S. Department of Defense's Chinese
Military Company List (as called for by the annual NDAA) and required
that they be placed on the Treasury's Office of Foreign Assets Control
(OFAC) list. If a company were on the DOD list, then it was
automatically slated for a prohibition on the buying and selling of its
securities within a certain window of time.
Under the Biden administration, these policies were updated with a
new EO, 14032. This EO expanded the scope of capital markets sanctions
beyond the DOD list and now includes what are known as surveillance
technologies companies. This new EO, however, rescinded the concept of
forced divestment by canceling out EO 13974, and created a new list
within OFAC, as opposed to the DOD-only list. Now OFAC can add a
broader swath of companies across more categories to its Non-SDN
Chinese Military Industrial Complex Companies List (NS-CMIC List).
Regrettably, but true to form, the Treasury Department is reluctant
to engage in the process of making additions to its list, despite
commitments from the White House to update the list on a rolling basis.
Indeed, the list is basically just gathering dust at this writing. This
Committee and others need to try to compel Treasury to follow through
on sanctions updates at regularized intervals and in alignment with
broader U.S. policy aims and priorities. Rather than adding companies
to this list and updating the EO's annex, Treasury issued some squishy
guidance at the one-year mark of the Biden EO and basically undercut
the While House's own intentions by releasing a contradictory and
intentionally vague FAQ sheet, which reads in part, regarding the
concept of ``divestment'':
``U.S. persons are not required to divest their holdings of
CMIC securities during the relevant 365-day divestment period
and may continue to hold such securities after the divestment
period. E.O. 13959, as amended, permits purchases or sales made
solely to effect the divestment of CMIC securities, but only
during the 365-day divestment period. Accordingly, any such
purchase or sale is prohibited after the 365-day divestment
period, absent OFAC authorization.''
Further, in addition to this highly--and deliberately--confusing
FAQ, Treasury has failed to add new sanctioned entities, not yet
releasing one new tranche of sanctioned entities since the initial EO
(though a few companies were added when a rule in the Federal Register
clarified the intermingling of the Trump-era EO list, the DOD list, and
the new, updated Biden-era EO, which allowed for less than ten
additional companies to be added to the NS-CMIC list annex).
As of October of 2022, the Commerce Department's well-known Bureau
of Industry and Security (BIS) Entity List contained 1,167 listed
entities, while the NS-CMIC list contained only 68. While we understand
that these lists are not the same and require different legal standards
and thresholds for listing, common sense and U.S. policy would indicate
these lists should be in complete or near-complete alignment.
Tragically, but again not surprisingly, only 16 Chinese corporate
wrongdoers are on both lists. This means that only 1.4% of those
companies being subject to specific licensing requirements for the
export, reexport and/or transfer (in-country) of specified equipment
and technologies are likewise being denied fundraising privileges in
the U.S. capital markets.
As stated on the Commerce Department's BIS website, ``Since its
initial publication, grounds for inclusion on the Entity List have
expanded to activities sanctioned by the State Department and
activities contrary to U.S. national security and/or foreign policy
interests.'' It would stand to reason, therefore, that these same
concerns regarding sanctioned activities and corporate behavior
contrary to U.S. national security and/or foreign policy interests
would also apply to attracting capital in our markets which easily
could facilitate the means of production of the very goods the U.S. is
supposedly concerned about. Also, when a company is added to the NS-
CMIC List, subsidiary or parent companies must also be considered and
included.
There is much room left to institutionalize and utilize capital
markets sanctions as a powerful new force and tool kit in economic and
financial statecraft as well as to help clean up our heavily soiled
capital markets.
One key area for inclusion is the concept of sanctions
harmonization. Better than the notion of sanctions reciprocity,
sanctions harmonization links up current lists run by various U.S.
Government departments and agencies in an interlocking process such
that being sanctioned or listed by one enables the other to undertake
sanctions action as well, and ultimately lead to--at long last--
increased listings by OFAC and more rigorous routine reviews.
Current U.S. Government arrangements provide little transparency on
why some Chinese companies are selected to be on one list, but not
another. Across the U.S. Government, there are dozens of reports,
lists, advisories, or sanctions tranches issued on a recurring basis.
Some of these include: the U.S. Commerce Department's Bureau of
Industry and Security (BIS) Entity List, the Military End User List,
the Unverified List, the Department of Defense's 1260H or CMC List
(formerly 1237 CCMC List), the new Uyghur Forced Labor Prevention Act
Entity List maintained by the Department of Homeland Security, the OFAC
NS-CMIC List, and more.
There is an urgent need to put in place a process by which agencies
responsible for enforcing and implementing sanctions better communicate
with each other and the Congress to ensure that every company that is
listed by any agency goes through a review by all agencies for
inclusion on each individual sanctions list. To that end we support
draft legislation Congress is currently considering to address this
very issue. The goal is to require the agencies that maintain malign
entity lists (Departments of Commerce, Treasury, Defense, and Homeland
Security) to better coordinate, review listing decisions of other
agencies, and decide on listing such entities on their respective
lists. The bill requires that agencies reviewing a company or entity
that was listed by another agency provide a legal justification to
Congress (affirmative or negative) and notify the public. Moreover,
Global Magnitsky Act sanctions must be included in this policy arena,
requiring some necessary updates to separate out human rights
accusations from those of corruption, enabling further actions and
sanctioning to take place by Treasury.
Additionally, the State Department must be included at the table as
the U.S. government's preeminent authority on human rights. State
Department warnings such as the one issued on December 8, 2020, on bad
actors present in U.S. capital markets or the Hong Kong or Xinjiang
Business Advisories must be issued and updated on a recurring basis and
linked to sanctions from Treasury, notably inclusion on the NS-CMIC
List.
While both houses of Congress unanimously passed legislation to
require a report annually to be produced by Treasury--in consultation
with DOD, State, and the intelligence community--on the presence of
malign Chinese companies in the U.S. capital markets, the measure
failed to be included in the final China bill voted on this summer. To
properly tackle ending the CCP's abusive exploitation of the U.S.
capital markets (and Wall Street's facilitation of same), Congress must
have the necessary information. This can be done in consultation among
Treasury, the SEC, the State Department, the Department of Defense, the
National Security Council, and others to ensure that Congress has
better information with which to make informed decisions to protect our
capital markets, investors, and nation from the CCP's financial
predations.
As an illustration of the challenge facing the U.S, the federal
government has recently implemented the CHIPS Act and export controls
designed to prevent China building advanced semiconductors with
military capabilities. Yet financial industry data shows that last
year, U.S. investors provided $8.8 billion to Chinese semiconductor
startups, more than six times greater than the $1.3 billion invested in
comparable U.S. startups. Much of those 8.8 billion dollars came from
U.S.-based public and private investment funds. Why are we supposedly
working hard to prevent Chinese access to advanced U.S. semiconductors,
while simultaneously permitting multi-billion-dollar American funding
of Beijing's development of such dangerous, militarily relevant
capabilities?
Another telling anecdote is that of CSSC Holdings Ltd. As of June
2022, household names in the investment world--BlackRock and Vanguard--
are providing Exchange-Traded Funds (ETFs) and other investment
products to consumers that track indices containing Chinese companies
building and modernizing the Chinese Communist Party's military. CSSC
Holdings Ltd. was listed as a constituent of the MSCI Emerging Markets,
MSCI ACWI, FTSE Emerging, and FTSE All-World indices. These indices are
tracked by trillions of dollars of assets under management globally
through associated ETFs.
Most Americans are not positioned to analyze the indices tracked by
their ETFs, or to have a handle on which Chinese companies are in their
ETFs and other index funds. This is, in part, what is desperately wrong
with this picture. What happened to fiduciary responsibility along the
trail? Do these prominent U.S. asset managers fully understand and
appreciate the risks to their corporate reputations and brands once a
large swath of the empirical facts and evidence are made available to
the American people? Have those Members of Congress who have, to date,
fulsomely supported the positions taken by these asset managers
concerning China's presence in our capital markets thought through how
this is ultimately going to play out politically? Apparently not.
On June 17, 2022, the People's Liberation Army Navy (PLAN)
successfully launched its third aircraft carrier from Shanghai's
Jiangnan Shipyard. The new carrier enables PLAN to launch a wider
variety of aircraft and is reportedly equipped with technology
furthering PLAN blue water naval capabilities. Jiangnan Shipyard, where
the Fujian was built, is a commercial and naval shipbuilding facility.
Jiangnan was wholly acquired in 2019 as a subsidiary of China State
Shipbuilding Corporation Holdings Limited (CSSC Holdings Ltd.). CSSC
Holdings Ltd. is the publicly traded arm of China State Shipbuilding
Corporation Ltd., a Chinese state-owned enterprise carrying out
shipbuilding and repairs for cargo customers and PLAN military vessels
and is included in some of the world's most prominent investment
indices. Foreign capital flowing into Jiangnan Shipyard directly via
its commercial business or indirectly via CSSC Holdings Ltd.
securities, may both directly and indirectly support PLAN
modernization.
Development of the PLAN's fourth aircraft carrier is reportedly
underway at Jiangnan Shipyard, with the carrier's launch expected
between 2025 and 2027.
CSSC was designated as a Non-SDN Chinese Military Industrial
Complex Company (NS- CMIC) on June 3, 2021. This listing, under
Executive Order 13959 (as amended by President Biden in Executive Order
14032), prohibits U.S. persons from purchasing or selling any
securities of companies deemed to be supporting China's military-
industrial base. This prohibition does not apply to subsidiaries, like
CSSC Holdings Ltd. or Jiangnan Shipyard, that are not also explicitly
designated by the Treasury Department's Office of Foreign Assets
Control (OFAC). Correspondingly, CSSC was designated by the Department
of Defense as a Chinese Military Company operating directly or
indirectly in the United States by the Biden Administration in June
2021, in accordance with the FY21 NDAA's section 1260H.
As of June 2022, CSSC Holdings Ltd. was listed as a constituent of
the MSCI Emerging Markets, MSCI ACWI, FTSE Emerging, and FTSE All-World
indices. These indices are tracked by trillions of dollars of assets
under management globally, for example, through the associated
Exchange-traded funds (ETFs). The primary ETF providers include
BlackRock's iShares products and Vanguard's UCITS products,
respectively.
In addition to issuing yuan-bonds, as of 2015, the CSSC corporate
family has raised nearly $2.6 billion through euro- and dollar-
denominated debt placement via markets such as the U.S. Over-the-
Counter market, Frankfurt, and Bank Sarasin (Switzerland) markets and
JP Morgan bond-focused ETFs, among other debt markets. Nearly all of
this was underwritten by Western banks, most commonly Barclays and
Societe Generale. Four of CSSC's euro- and dollar-bonds have yet to
mature.
These cases underscore why greater transparency and more robust
disclosure must be required of U.S. index providers and fund managers.
U.S.-sanctioned and known bad actor Chinese companies must be
prohibited from investment exposure by Americans through the imposition
of targeted capital markets sanctions. Considering the recent spy
balloon incident and CCP-led aggression against Taiwan, American
investors must stop funding the People's Liberation Army and Navy and
enabling their military modernization via the manufacture of advanced
weapons systems. It is sadly ironic that Americans are simultaneously
financing our own military modernization and that of the CCP.
Recommended Policy Actions
To reinforce the policy recommendations enumerated at the outset of
this testimony, there are three basic pillars to consider when
assessing the status and suitability of Chinese publicly traded
companies to list or trade in the U.S. capital markets: national
security, human rights, and investor protection. Thus far, China must
receive a failing grade in the category of investor protection by any
reasonable measure. It has been also amply demonstrated that a
disturbing array of sanctioned and other Chinese corporate national
security and human rights abusers are included in America's most
popular international indices and investment products. These are the
facts of the case. Chinese enterprises have been receiving preferential
treatment by the U.S. government--notably the Public Company Accounting
Oversight Board (PCAOB)--since well before the May 2013 bilateral MOU
which enshrined this preferential treatment for Chinese public
companies over American market participants. Congressional action is
clearly warranted here, given the glaring shortcomings of the well-
meaning Holding Foreign Companies Accountable Act (HFCAA).
CCP-controlled Chinese companies must retain largely unfettered
access to the U.S. capital markets--period. The reverse is not true.
Our capital markets constitute arguably the most powerful non-military
lever and sanctions tool that the U.S. possesses in its economic
arsenal. Although it is preferred that the exercise of such leverage be
in concert with U.S. allies, it is not a requirement, given America's
dominant position in the global financial domain.
In comparison, Chinese equity markets are regarded by most market
experts as glorified casinos, largely manipulated by Chinese leadership
(e.g., witness the equities market meltdown in the summer of 2015).
Like its equity markets, China's huge bond market is largely non-
transparent and comprised of the securities of ``black box''
enterprises. Hong Kong has been all but snuffed out--courtesy of
Communist Party repression--as a credible global financial hub and it
is now just another Chinese city. There exists precious little
reciprocity with regard to the treatment and latitude accorded U.S. and
allied financial sector companies in China's capital markets and
financial system. Indeed, the stunning lack of reciprocity alone can
only be described as scandalous and unsustainable.
Concerning capital markets diplomacy, there are basically zero
existing joint efforts underway among the U.S. and its partners and
allies with respect to the glaring shortfalls and abuses in investor
protection norms and national security and human rights concerns by
Chinese companies in Western capital markets. The principal reasons for
the absence of such urgently needed cooperation among allies are a
concerted effort to preserve Wall Street and other market fees, the
lure of selling investment and wealth management products to average
Chinese institutions and citizens, and the often-conflicted policy
positions of the economic and financial agencies of government.
Few policymakers appear mindful of the devastating consequences for
the cause of freedom resulting from the trillions of dollars that have
thus far been transmitted from the investment portfolios of scores of
millions of unwitting American and allied investors to the bank
accounts of the Chinese Communist Party and its proxy enterprises.
Tragically, this explains, in no small part, how China has been able
to: 1) achieve near parity militarily with the U.S.; 2) construct its
elaborate surveillance state: 3) establish control over vital global
resources and technologies; 4) vacuum up much of the world's strategic
business, military and personal data and many other malevolent
activities. That said, all one hears in the halls of the Pentagon is
``it's [the capital markets] not in our lane''.
In addition to the aforementioned U.S. Government actions, below is
a mere sampling of what else should be happening among partners and
allies. This includes:
A permanent G-7 working group on the national security,
investor protection and human rights dimensions of the Chinese
corporate and sovereign presence in each nation's capital markets;
A revival of the now-moribund Economic Secretariat of
NATO to do the same, with a concentration on military and security
concerns;
The harmonization of security-minded regulatory regimes
among the allies;
The authorization--and institutionalization--of an array
of capital markets sanctions tools and policy options to push back
against, or respond to, the actions of malign publicly traded Chinese
companies as well as the CCP's ongoing efforts to penetrate and
undermine our societies and way of life;
The passage into law of a number of legislative
initiatives (some enumerated above) in the U.S. Congress, and its
allied counterparts, designed to make illegal the kind of Chinese
government abuses listed above in the ``Strengths'' section of this
testimony;
The allied establishment of permanent senior interagency
or inter-ministerial groups, reporting directly to the Head of State,
on the massive Chinese funding, espionage and other unfair and/or
malign activities in the U.S. and allied capital markets;
The standing up of Economic and Financial Warfare Centers
in the U.S. and allied countries (e.g., within the Indo-Pacific Command
of the United States) to counter the various forms of such financial
and related warfare being waged by the CCP and its corporate proxies
against Western countries on a daily basis for over two decades;
The establishment of a ``Sixth Domain'' of American and
allied warfighting--notably the ``Economic and Financial Warfighting
Domain'' (joining the land, sea, air, cyber and space domains)--to end,
at long last, this scandalous multi-
trillion-dollar U.S. and allied underwriting of the Chinese Communist
Party's police state and the PLA, courtesy of Beijing's clever and
successful weaponization of our capital markets.
Conclusion
Mr. Chairman, in closing, I would like to address what we, as
individual investors can do to safeguard our hard-earned retirement and
investment dollars, our country, and our fundamental values.
There are probably well over 100 million of us, Mr. Chairman,
holding the stocks and bonds of U.S.-sanctioned and other Chinese
corporate ``bad actors''. Do we really believe that the American people
would have wanted to be holding--unwittingly--the securities of Soviet
companies or those supporting Nazi Germany? Do we really believe that
my former boss, President Reagan, would stand by and permit the multi-
trillion-dollar American funding of those that would destroy our
democracy and everything we hold dear? As his NSC Senior Director of
International Economic Affairs, I was in a position to know, and I can
assure you that he would not--not for a moment.
Accordingly, I call upon the members of this Committee, and the
Congress more broadly, as well as my fellow American retail investors
to go to their fund managers, stockbrokers, financial advisers, pension
system administrators, college endowments, corporations, unions, and
others, and say the words: ``Not with my money. Take me out of Chinese
companies, particularly those buried in my Exchange-Traded Funds,
mutual funds, and other passive investment products.'' Nancy Reagan
captured this sentiment succinctly in her anti-drug campaign in the
1980s, ``Just say no!''.
If the Congress passes the necessary laws recommended in my
testimony; if we take a stand as individual Americans in defense of
where our money is going and how it is being used by Wall Street firms
and other supposed financial gurus who often cannot see further than
their quarterly quotas and bonuses, we can not only set free some 300
million people without a shot fired--as was the case with the Soviet
Union--but some 1 billion 300 million Chinese nationals living under
the fear, repression and brutality of a fascist dictatorship.
Remember always, money often kills in the hands of authoritarian
police states.
We must act now before it is too late and scores of millions of our
nation's investors face material, if not debilitating, financial
losses. For example, more likely when, not if, the first shots are
fired in the Taiwan Strait--as soon as next year--it will be too late.
We cannot wait another day. Let us together make the American
``defunding'' of the Chinese Communist Party the 21st century
equivalent of our ``finest hour''.
______
Statement of Sarah Cook
Emerging Pressures on U.S. Businesses and Risks of Complicity with
Beijing's Censorship and Propaganda
Thank you for the opportunity to submit a written statement for
today's hearing. This brief submission focuses on several recent
developments and incidents in China and globally that may affect the
business and human rights landscape in the coming years as it relates
to the information space, drawing on research from Freedom House and
other sources.
Legislative changes adopted in China since 2021, additional
regulatory shifts, and specific incidents that have occurred and been
documented by Freedom House in our China Media Bulletin and Beijing's
Global Media Influence projects point to the following circumstances as
potential risks and scenarios that U.S. businesses and policymakers
should be aware of and prepared for:
1. Shifting red lines and arbitrary enforcement of laws related to
permissible versus criminalized speech or information sharing
In recent months, China's security and propaganda apparatus has
turned its sights on foreign consulting and auditing companies,
conducting coordinated raids, detaining employees, broadening an
espionage law, and airing slickly produced ``special reports'' about
its crackdown on state television. The campaign has sent waves of alarm
across the international business community. Notably, recent prison
sentences against high- and low-profile civic activists serve as a
reminder that the private-sector cases are just one piece of a much
larger pattern of politicized prosecutions in China, one whose
examination can provide insight into what further targeting of U.S.
businesses and employees by Chinese security forces may entail. A
review by Freedom House in May 2023 of over two dozen cases that had
gained public visibility in the prior three months provided some sense
of the scale of the problem, the sorts of behavior being punished, and
the profound flaws in the legal system that enable such prosecutions.
The article provides a full analysis and numerous cases involving
political and religious prisoners, shedding light on how even seemingly
minor infractions--which would be tolerated or even praised in a
democracy and some of which were deemed permissible within China in the
recent past--can now yield harsh punishments.
Under the revisions to the Espionage Law that came into effect on
July 1, foreign businesses and their employees may be at greater risk
than previously of overstepping these boundaries. Even prior to the
change, implementation rules to the law adopted in 2017 and described
in a post by Chinese law expert Jeremy Daum outline various ``non-
espionage conduct'' that could still be encompassed. Reading between
the lines, such conduct includes various human rights causes and
persecuted communities whose members are routinely prosecuted and
subjected to long prison terms after questionable trials: political
activism deemed ``subversion of state power,'' investigative reporting
perceived as ``distorting facts,'' advocacy for Uyghur or Tibetan
minority rights deemed ``separatism,'' or peaceful practice of faiths
like Falun Gong or certain forms of Christianity being deemed to be
carrying out activities ``endangering national security.''
The case of Dong Yuyu, a journalist for the Chinese state-owned
newspaper Guangming Daily, is one example of how previously routine
engagements between respected individuals, even journalists at state-
run outlets and foreign diplomats, could now be suspect in the current
political and legal context in China. Dong, a savvy observer of
international relations, was widely known among foreign journalists,
business executives, and diplomats. Sensing the regime's growing
sensitivity to such interactions, he had become more circumspect in his
writings and careful in his meetings with foreigners, but his
precautions were apparently insufficient. He was detained in February
2022, three months before retiring, on espionage charges after meeting
with a Japanese envoy. Dong's case is now moving to trial and is
perhaps the most chilling for the business community, given that raids
on consulting and auditing firms have also been linked to the enhanced
espionage law.
Recent restrictions on the information available from academic
databases or collections of judicial verdicts--content that was
previously easily available to foreign researchers, journalists, and
corporations--could also add to the narrow path for those seeking to
better understand what is happening in China beyond CCP-
approved narratives in traditional and social media. If an individual
were to obtain the same information now that had previously been openly
available through an innovative workaround or Chinese contact, that
person could reasonably be deemed as attempting to access ``state
secrets'' or engaging in espionage and be subject to prosecution.
2. Growing pressure to self-censor corporate speech
The Chinese government is adept at using foreign business
investment, market access, and the legal risks facing firms and their
employees in China as leverage to dictate speech outside China's
borders. Examples of this development are the incidents in 2018 related
to drop-down menus of hotel chains and airlines or the deletion of a
Mercedes Benz post on a foreign social media platform. Besides
government pressure, Chinese state media and vocal nationalist netizens
(whose detractors are more heavily censored on Chinese platforms) have
also been known to apply pressure on foreign companies to say--or not
say--certain things regarding human rights conditions in China. The
recently released 2023 survey results from the American Chamber of
Commerce cited such pressure. Seventy-two percent of U.S. companies in
China reported facing pressure in 2022 to make (or not make) statements
on politically sensitive issues and 45 percent cited an increase in
pressure compared to previous years. Among these businesses, 57 percent
of respondents reported that the pressure came from the Chinese
government and 37 percent from Chinese media, although the wording of
the question conflates pressure to speak--or to self-censor--and is
vague about what topics fall under ``politically sensitive'' items. As
pressure from Chinese state entities grows alongside the legal risks
for firms and employees, businesses are more vulnerable to feeling
forced to concede to such requests and to omit publicly that they were
done under pressure.
3. Pressure to infringe on the speech or privacy of others
This type of action is arguably more problematic than self-
censorship of corporate statements themselves, but not often
disaggregated in discussions of corporate complicity with CCP diktats.
Yet it is profoundly impactful and a known deployment of the various
leverage points possessed by Beijing to co-opt or coerce foreign
businesses into restricting speech and access to information inside and
outside China. The lengths the regime is willing to go to are evident
as far back as 2007 when a NASDAQ employee in China was detained by
state security, resulting in a Chinese dissident television station
being denied the ability to report from the exchange's headquarters in
New York. More recently, in February 2023, Apple removed within days
the Damus social media app from its store in China at the demand of the
Cyber Administration of China, with it joining hundreds of other
applications omitted from the store (including those of U.S.-based news
outlets). Just last month, in the latest example of censorship pressure
vis-a-vis the arts, the Chinese embassy urging a Polish venue to cancel
an exhibit by a dissident Chinese artist. These incidents are only a
small sample of cases from around the world in the corporate, media,
and cultural sectors.
Hundreds of incidents that have occurred globally over the past
decade demonstrate that once the CCP--or a company, media outlet, or
owner with close ties to the Party--gains a foothold within an
information dissemination channel, manipulation efforts inevitably
follow. This may not occur immediately, but can evolve over time or be
activated as soon as a test case with sufficient significance to
Beijing emerges. At that point, CCP leaders, diplomats, and other
state-linked actors will not hesitate to use previously acquired
economic and political leverage to impose their will. While most such
incidents that have gained public attention involved censorship or
other manipulation, demands on foreign firms in China to provide
government agencies access to user data upon request is also a risk.
Last September, the CAC urged firms to improve the ``traceability'' of
users. Any foreign company providing digital technology services in
China will inevitably face such a request, compliance with which would
risk landing a user in prison over internationally protected speech on
political, religious, or social topics.
4. Expanding demands from Hong Kong authorities
Following the adoption of the National Security Law, the Hong Kong
government has been increasing demands on foreign companies, especially
technology firms, to enforce limits on speech or access to information,
both within Hong Kong and globally. Apple has come under growing
pressure to remove certain apps from its store in Hong Kong, with one
December 2022 report finding that 53 Virtual Private Network apps had
been made unavailable in the territory after adoption of the National
Security Law. Also in December, Hong Kong-based users noticed that the
``safe browsing'' feature on the Apple-owned web browser Safari had
temporarily blocked the website GitLab, which has been censored in
China. In 2021, Hong Kong authorities ventured further afield and asked
a website-hosting company in Israel to shutter a pro-democracy website,
warning that refusal could result in fines or prison time for employees
under the territory's National Security Law.
5. Enticement to aid Beijing with its foreign media influence
efforts
As the CCP, Chinese diplomatic missions, and their proxies invest
more and more resources in influencing foreign media environments and
reaching overseas audiences, the funds also available to businesses--
including public relations (PR) firms--who assist them is notable.
Country case studies and other research from a recent Freedom House
report, Beijing's Global Media Influence, reveal the extent to which PR
firms have been working to get Beijing's message out and to co-opt
local voices in countries as diverse as the United States, Panama,
Taiwan, and Kenya. In at least some cases, the effort involves covert,
coercive, or potentially corrupting activities. Last month, Freedom
House published a detailed analysis of this phenomenon, drawing on
recent filings under the Foreign Agents Registration Act (FARA) and
shedding light on millions of dollars in potential profits per year
flowing to this sector.
But while a wide range of corporations and governments--
authoritarian and democratic--make use of PR firms' services to
encourage sympathetic coverage and counter negative reporting, there
are several factors that arguably make Beijing's practices both notable
and potentially problematic. The first is the sheer scale of resources
devoted to media influence efforts by the Chinese Communist Party (CCP)
and large China-based corporations with close party ties. The potential
for enormous and long-term profits entices international PR firms,
creates economic dependencies, and discourages work with other clients
that might threaten those relationships. A second factor is Beijing's
layered use of intermediaries and proxies, which makes it harder for
foreign interlocutors to fully appreciate who is behind a particular
submission, invitation, or request. And lastly, some actions by PR
firms and their Chinese clients have veered from ordinary public
relations into censorship, intimidation, disinformation, or
circumvention of local laws.
Opportunities for resisting censorship requests and the role of
counter-pressure from headquarters, investors, and foreign regulators
On a more positive note, as evident from some of the above examples
and others, it is not a foregone conclusion that requests from the CCP
to restrict access to information or cancel events will yield their
desired outcome. The dissident artists' exhibit in Poland has continued
as scheduled. Google has not ceded to demands to alter its search
results for Hong Kong's anthem after they apparently contributed to a
pro-democracy protest song being played at international sporting
events instead of China's national anthem. And the above-mentioned
Israeli website vendor, after initially complying with the demand,
reversed course and reinstated the site.
Moreover, even as U.S. businesses in China are eager to please
Chinese consumers and stay on the good side of the government, they may
also yield to pressure related to their global reputation, talent
recruitment, or from corporate headquarters, investors, and foreign
regulators. One striking finding from the AmCham survey was that 80
percent of U.S. businesses in China had introduced or were planning to
implement Environmental, Social, and Governance (ESG) strategies in
China, including as a result of requests from these sources. Such
strategies may run into conflicts with other business prerogatives in
the country, but external actors could potentially push firms to stay
true to those principles.
Conclusion
The CCP's growing repression at home and brazenness in its foreign
relations has contributed to heightened tensions with the United States
and poses a risk to U.S. citizens and businesses in the country. Recent
news reports and the AmCham survey point to the growing recognition of
these risks and to actions some businesses are taking in response,
including reducing investment in China. But the risks are not only to
profit margins. In a political system as tightly controlled, arbitrary,
and brutal as China's is today, the risk of complicity in suppressing
the rights of innocent Chinese citizens or of putting a company's
employees in danger is high. And with Beijing's growing global
footprint in the information space, even leaders of businesses with no
presence in China are likely to face visits from Chinese embassy
officials with requests for censorship or opportunities to polish
Beijing's image.
Anyone engaged in the media or corporate space should acknowledge
these possibilities and be prepared in advance for how to resist when
pressure to adjust content in Beijing's favor inevitably emerges. It is
these individual choices that will not only help uphold free speech but
also protect at least some innocent people--
foreigners and Chinese nationals alike--from languishing in Chinese
prisons.
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Witness Biographies
Robert Silvers, Under Secretary for Strategy, Policy, and Plans,
Department of Homeland Security; Chair, Forced Labor Enforcement Task
Force (FLETF)
Robert Silvers was confirmed by the Senate as the Under Secretary
for Policy on August 5, 2021. He is responsible for driving policy and
implementation plans across all of DHS's missions. Mr. Silvers also
serves as Chair of the interagency Forced Labor Enforcement Task Force
(FLETF). Mr. Silvers previously served at the Department of Homeland
Security during the Obama administration as Assistant Secretary for
Cyber Policy. In that role he oversaw private-sector engagement,
Federal Government incident response, and diplomatic outreach
pertaining to cybersecurity and emerging technology. Mr. Silvers also
previously served as DHS's deputy chief of staff, managing execution of
policy and operational priorities across the entire department.
Isaac Stone Fish, Visiting Fellow, Atlantic Council
Isaac Stone Fish is the author of America Second: How America's
Elites Are Making China Stronger, a book about American political and
business leadership's deep ties to Beijing. A Mandarin speaker and
formerly a Beijing correspondent for Newsweek, Mr. Stone Fish spent
seven years living in China, and has visited every Chinese province,
municipality, and special administrative region. He serves as a
visiting fellow at the Atlantic Council, a contributor to CBS News, an
adjunct at New York University's Center for Global Affairs, and a
columnist on China risk at Barron's. Mr. Stone Fish is the founder and
CEO of Strategy Risks Corp., which quantifies corporate exposure to
China.
Aynne Kokas, C.K. Yen Professor, Miller Center, University of
Virginia
Aynne Kokas is the C.K. Yen Professor at the Miller Center, the
director of the University of Virginia East Asia Center, and an
associate professor of media studies at the University of Virginia.
Kokas's research examines Sino-U.S. media and technology relations. Her
award-winning book Trafficking Data: How China Is Winning the Battle
for Digital Sovereignty highlights how Silicon Valley data governance
practices help China build infrastructures for global tech oversight.
Her book Hollywood Made in China argues that Chinese investment and
regulations have transformed the U.S. commercial media industry. Dr.
Kokas is a non-resident scholar at Rice University's Baker Institute of
Public Policy, a life member of the Council on Foreign Relations, and a
fellow at the National Committee on United States-China Relations'
Public Intellectuals Program.
Shi Minglei, advocate and wife of Chinese human rights defender
Cheng Yuan
Shi Minglei, a Chinese Christian, became a human rights advocate
after her husband Cheng Yuan, a prominent rights defender, was arrested
by the Chinese National Security Bureau in July 2019. Due to his
influential and successful work, he was secretly sentenced to five
years in prison. To date, he has been arbitrarily detained for almost
four years and is jailed in China's Chishan prison. After learning that
her husband was subject to forced labor in prison, Ms. Shi began
publicly spearheading awareness campaigns and preparing civil lawsuits
against participating businesses. She aims to expose global supply
chains benefiting from the forced labor of Chinese political prisoners.
Enes Kanter Freedom, human rights activist and former NBA
basketball player
Enes Kanter Freedom is a human rights activist, professional
basketball player, and Nobel Peace Prize nominee. Since the 2021 NBA
season, Mr. Freedom has used his global platform to advocate for the
rights of Uyghurs, Tibetans, Hong Kongers, Taiwanese, and others facing
the Chinese Communist Party's oppression. In February 2022, he was
traded from the Boston Celtics to the Houston Rockets, who ultimately
waived him. Mr. Freedom lost his NBA career for speaking out against
human rights violations in China.
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