Open Hearing: Countering the People’s Republic of China’s Economic and Technological Plan for Dominance

[Senate Hearing 117-305] [From the U.S. Government Publishing Office] S. Hrg. 117-305 COUNTERING THE PEOPLE'S REPUBLIC OF CHINA'S ECONOMIC AND TECHNOLOGICAL PLAN FOR DOMINANCE ======================================================================= HEARING BEFORE THE SELECT COMMITTEE ON INTELLIGENCE OF THE UNITED STATES SENATE ONE HUNDRED SEVENTEENTH CONGRESS SECOND SESSION __________ MAY 11, 2022 __________ Printed for the use of the Select Committee on Intelligence [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 47-983 PDF WASHINGTON : 2022 ----------------------------------------------------------------------------------- SELECT COMMITTEE ON INTELLIGENCE [Established by S. Res. 400, 94th Cong., 2d Sess.] MARK R. WARNER, Virginia, Chairman MARCO RUBIO, Florida, Vice Chairman DIANNE FEINSTEIN, California RICHARD BURR, North Carolina RON WYDEN, Oregon JAMES E. RISCH, Idaho MARTIN HEINRICH, New Mexico SUSAN COLLINS, Maine ANGUS KING, Maine ROY BLUNT, Missouri MICHAEL F. BENNET, Colorado TOM COTTON, Arkansas BOB CASEY, Pennsylvania JOHN CORNYN, Texas KIRSTEN E. GILLIBRAND, New York BEN SASSE, Nebraska CHUCK SCHUMER, New York, Ex Officio MITCH McCONNELL, Kentucky, Ex Officio JACK REED, Rhode Island, Ex Officio JAMES INHOFE, Oklahoma, Ex Officio ---------- Michael Casey, Staff Director Brian Walsh, Minority Staff Director Kelsey Stroud Bailey, Chief Clerk C O N T E N T S ---------- MAY 11, 2022 OPENING STATEMENTS Page Warner, Hon. Mark R., a U.S. Senator from Virginia............... 1 Rubio, Hon. Marco, a U.S. Senator from Florida................... 3 WITNESSES Mulvenon, James, Ph.D., Senior China Analyst..................... 5 Prepared statement........................................... 7 Murdick, Dewey, Ph.D., Director, Georgetown University, Center for Security and Emerging Technology (CSET).................... 13 Prepared statement........................................... 15 Nikakhtar, Hon. Nazak, Partner, Wiley Rein LLP; Former Assistant Secretary for Industry and Analysis, U.S. Department of Commerce....................................................... 23 Prepared statement........................................... 25 Prepared statement dated July 30, 2020 before the Senate Committee on Commerce, Science and Transportation.......... 61 COUNTERING THE PEOPLE'S REPUBLIC OF CHINA'S ECONOMIC AND TECHNOLOGICAL PLAN FOR DOMINANCE ---------- WEDNESDAY, MAY 11, 2022 U.S. Senate, Select Committee on Intelligence, Washington, DC. The Committee met, pursuant to notice, at 2:52 p.m., in Room SH-216, Hart Senate Office Building, Hon. Mark R. Warner (Chairman of the Committee) presiding. Present: Senators Warner, Rubio, Feinstein, Wyden, Heinrich, King, Bennet, Casey, Gillibrand, Collins, Blunt, Cotton, Cornyn, and Sasse. OPENING STATEMENT OF HON. MARK R. WARNER, A U.S. SENATOR FROM VIRGINIA Chairman Warner. Good afternoon. I call this hearing to order. Welcome to our witnesses. As I've explained, there are a couple of fairly significant votes this afternoon, so there will be some moving in and out. But again, to our witnesses, Dr. James Mulvenon, Senior China Analyst; Dr. Dewey Murdick, Director of Georgetown University's Center for Security and Emerging Technology; and Hon. Nazak Nikakhtar, a partner at Wiley Rein and Former Assistant Secretary for Industry and Analysis at the Department of Commerce. I would start by saying that the Intelligence Committee doesn't actually have that many open hearings, if today's attendance is any indication of why we don't. But the truth is, on this the Vice Chairman and I believe it's really important not just, obviously, for the people who are here but to do this in a public setting to make sure that we are fully aware of the challenges we face from the People's Republic of China, because the nature of this challenge extends far beyond the intelligence and military spheres. Let me be clear at the outset. When I talk about China, my beef is with the Communist Party of China. It is with Xi Jinping and their authoritarian order. It is not with the Chinese people or in any way the Chinese diaspora, particularly in terms of Chinese-Americans who've made great contributions to our country. But the PRC poses, I believe, a unique challenge to the United States. Not only United States, but the whole so-called Western liberal international order. No other state actor in recent history has been able to compete with both the West diplomatically, militarily, and now economically, particularly in our subject today, in technology, at the scale that China can. And that's why for several years now this Committee, on a bipartisan basis, has focused on the technological and economic challenges posed by the PRC. But as strong as we are in this country, we can't do this alone. We need our allies. We also need the American public, including the private sector and our academic institutions and our media outlets to better understand the Chinese Communist Party's efforts to overtake and lead on particularly critical technologies, and the global implications if the PRC is able to do that--of what that would mean for the United States and others if we ceded that territory. That's why in addition to these open hearings, we also have on a bipartisan basis, again, been hosting what we've called classified roadshows with intelligence, community leaders, industry sectors, academia and others on the threats posed by the CCP's authoritarian regime. Today's hearing, which will focus on the state of the US- China technology competition, builds on other efforts we have undertaken. Ongoing efforts in terms of these classified roadshows, but other public hearings. One of the more recent ones we had was in August 2021 when we held an open hearing on the counterintelligence threat posed by the PRC. I think for many of us, and I say this as a former telecom guy, the wakeup call for me was with Huawei when several years ago we realized that the PRC had positioned its national champion as a dominant supplier of communications infrastructure across, candidly, much of the globe. And if you actually looked at where Huawei equipment was being sold in the United States and the overlay with some of our anti-ballistic missile installations, it was really chilling. And the truth was, if we had not raised that flag, Huawei and the PRC were poised to cement and dominate the market, not only for 5G, but for next generation wireless services like O-RAN as well. Truthfully, I think we were caught as a nation and the Intelligence Community, the military, into an industry we were, frankly, caught flat-footed when we realized that there was not only not any American alternate but very few Western technology telecom competitors. Despite the fact that had Huawei been truly successful, the clear privacy and national security risk presented by that company with its direct ties to its authoritarian regime in Beijing would be a tremendous threat to our whole communications infrastructure. But as we discovered, 5G is just the tip of the iceberg. In the last couple of years, policymakers have realized that the PRC has been diligently working over the past decade to identify a set of emerging and foundational technologies that will confer long-term influence into the entire innovation ecosystem and global supply chains. It is in this context that we realized we needed a national strategy to identify and counter the PRC's ambitions across a set of key technologies--not just 5G, but obviously artificial intelligence, quantum computing, biotechnology, precious metals--and that we need to safeguard our own and our allies' leadership in existing foundational and enabling technologies like semiconductors. Out of that realization, we've started to act. Legislation currently moving through Congress, like the CHIPS Act and the U.S. Innovation and Competition Act, as well as repeated engagements with the private sector through these roadshows I previously mentioned, are all steps in the right direction. But this belated realization by American policymakers reflects a complacency with our own innovation and, quite honestly, a little bit of inattention to PRC's objectives and their efforts. For a long time, we thought it didn't matter whether we actually made both the innovation and the products here in the United States. We thought as long as we captured the value in designing and providing services based on those products, we'd basically win out. The conventional view underestimated how effectively one country, in this case the PRC, could exert control over the entire ecosystem by leveraging control over certain key foundational technologies, not only through control of the technologies themselves, but also through the supply chains. And something that I think oftentimes we didn't focus on was those standards setting bodies that often set the rules, standards, protocols for so many technologies. We dominated that. We in America in particular dominated that for decades. In the case of Huawei and 5G, it was the first time we realized not only did China have a leading company, but they were literally setting the rules of the game. This is not a lesson that we need to learn the hard way once again. If we don't set the standards and protocols for these technologies, our democracies and other allies will not win out; the PRC will. Not only will they set the standards to achieve their illiberal vision of CCP control, but their advantages will translate into military capabilities, geopolitical influence, and economic advantages. I look forward to the witnesses' testimony on this issue. For Members' information, today we'll be doing something a little out of the ordinary. Rather than going by order at the time of the gavel, we will be asking questions by order of seniority in five-minute rounds. With that, I turn to my good friend, the Vice Chairman, Senator Rubio. OPENING STATEMENT OF HON. MARCO RUBIO, A U.S. SENATOR FROM FLORIDA Vice Chairman Rubio. Thank you, Mr. Chairman. Thank you to all the witnesses for being here today. I think it is an important hearing we are going to discuss. We often talk about China's plans and intentions behind closed doors. But the fact of the matter is that their ultimate goal and what they're trying to do is really not that big a secret. They seek to displace the United States and to become the world's most dominant economic, industrial, technical, and military and geopolitical power. That's their goal. We in this country for a long time had this hope for the better part of 20 years, this consensus, really, that once the Chinese Communist Party in that country became rich, it would become more like us--move toward democracy, have respect for the rules of economic engagement and so forth. Well, obviously that's not materialized. In fact, they've used the last 20 years to wage an economic war against the United States, stealing jobs, exploiting the free and open market, oftentimes with help by American corporations driven by the short-term profits that can be gained by having access to the Chinese market. And as part of that goal was to leave us as Americans economically dependent, not just on their massive market, places you want to sell things, but supply chains as well. And we've seen that disruption play out during a pandemic. Imagine in a time of conflict. And so, they know that once we are dependent on them, our manufacturing base, our supply chains, critical minerals, and not to mention the dangling the promise of access to their massive market, well then our options will be limited and their leverage will be extraordinary. And they've been able to achieve this through their military-civil fusion strategy, through their national laws that compel the transfer of sensitive information to the government, and frankly, by weaponizing some of our companies against us here in the United States. In many cases, we find that it's American corporations, because they manufacture there or because they want to have access to their market, that are then turned around and become advocates in favor of the Chinese position on any sort of different issue that we face here domestically. The Intelligence Community--I think at this point leaders on both sides of the aisle have been pretty clear that this is the single greatest challenge this Nation has ever faced. We have never faced a near-peer adversary that poses such a comprehensive challenge the way that China does today. The Soviet Union was a military and a geopolitical rival. They were never an industrial or technical or commercial rival. China is all of that and more. And as I said earlier, if we think having supply chain disruptions as a result of a pandemic shutting down some factories has been bad for our economy, imagine it being shut down deliberately as leverage against us in a time of future conflict, because that's what we can expect to see. It leaves us vulnerable, and it's something we need to begin to address. I will make one final point and then the two things I hope we can take from this hearing. I think this matters because I think it matters if the most powerful--. Let me put it to you this way. If the most powerful and influential nation on earth is a dictatorship that is willing to enslave its own people in death camps and commit genocide against its population, if that's how they treat their own people and that's the most powerful country in the world, that's not going to be a good world. And that is, unfortunately, what we're headed toward if we don't deal with that. And if anyone has any illusions about the nature of the Communist Party of China, ask the people of China and people living in places like Tibet and Hong Kong and Xinjiang, and they'll tell you what this government is capable of doing. In closing, what I hope we'll hear today are your views on China's economic and technological plan to dominate key technologies and control critical supply chains. And also, perhaps as part of this hearing, we can begin to think more about how we can dramatically increase our efforts to reduce our economic vulnerability to the Chinese Communist Party. Thank you for being here with us today. Chairman Warner. Again, I thank all the witnesses for being here. I'm not sure who's going to go first, so I'm going to throw it to the panel and whoever is going first, proceed. STATEMENT OF JAMES MULVENON, Ph.D., SENIOR CHINA ANALYST Dr. Mulvenon. Good afternoon. Senator Warner, Mr. Chairman, Vice Chairman Rubio, other Members of the Committee, thank you for inviting me here today. I first need to say my name is James Mulvenon. I'm here in my personal capacity. I'm not representing either the company I work for nor any of my Intelligence Community sponsors. They asked me to say that. For the Committee's reference, the three of us have a rough show-run that we've worked out. I'm going to introduce at a strategic level the key elements of the Chinese strategy and the elements of that strategy, and then pass it to my other colleagues to discuss specific Chinese progress in certain technology areas. And then, clearly, the toolkit that the U.S. Government has for us to be able to deal with these threats-- what's working, what's not and how could Congress help us fresh out the toolkit. The overwhelming strategic point, which just echoes what Senator Warner said in his introduction, is that China does have a deliberate, published national economic and national security strategy to achieve the very levels of domination that Senator Rubio mentioned in his introduction. And as part of that, these strategies are designed to create an unfair, asymmetric environment for U.S. and other multinational companies operating in the Chinese market to force the transfer of technology to domestic national champions who will then turn around and push our companies out of the China market and then compete with them globally. The main features of this strategy are multifold, but deliberate. First is a focus on industrial planning. We're all familiar that Communist parties like five- and ten year plans, but the Made in China 2025 Plan, the Mid- to Long-Range Science and Technology Plan are dedicated roadmaps for how to achieve their objectives over the next 20 years. I find it notable that whenever we pay too much attention in English to any of these plans, they are suddenly deleted from the Chinese Internet and then it becomes difficult to find them. My question, of course, is what do you have to hide? That is also followed, as Senator Rubio said, by very dedicated national strategies for what is now more commonly known as military-civil fusion. We've done a lot of work in the last couple of years across the Community looking at this issue and really explicating it. Finally, there's a level of state subsidy through that industrial planning that disadvantages our companies. And those subsidies are directed primarily toward national champion companies chosen by the parent ministries in China to be the focus of their funding, the focus of their technology development. And then once our companies go to China, they find themselves having to joint venture with these national champions at the direction of the regulator, which then facilitates that technology transfer. In the last five to ten years, China has also published a blizzard of new laws and regulations, despite not being a rule- of-law country, but a rule-by-law country. But these are codified to be able to use against multinational companies to defend the predatory and extractive practices of the government. As Senator Warner mentioned, the Chinese for the last 15 to 20 years have used the international standards regime as a trade weapon in order to shape the future of the architecture in ways that benefits their companies like Huawei and ZTE by local directives, Greenfield investment strategies inside the United States once we started to cotton on to the idea that they were trying to force us to do transfers in China, instead decided to come where the technology was, which was in the U.S. And then finally, their global mercantilist policies, which undermine many elements of the international rules-based order that we had put in place since Bretton Woods. In my own research, I've focused significantly on the illegal technology acquisition side of their strategy. In 2013 with two government employees, I wrote a book called ``Chinese Industrial Espionage'' that detailed in extraordinary detail all of the elements of both the nontraditional collection side that I'm sure the Committee has heard about a lot in terms of their ability to hoover up large volumes of information in the United States and then exploit it back in China. But also their planetary-scale cyber-espionage program as well as their efforts to steal technology here in the United States. And then finally on the nontraditional side, obviously significant focus on China's 500-plus national, provincial, and municipal talent programs as a way of luring back researchers in the United States and other Western countries with financial incentives in order to transfer that technology. I would only highlight that one little-discussed aspect of the talent programs is that it allows them to have contact with experts who can help them understand the intangible elements of innovation that they can't understand in the stolen blueprint or the stolen source code. It helps them fill in the mortar between the bricks. I would close by saying that while this Committee deals with a lot of areas of the intelligence challenge that are primarily achieved through national technical means, that this is one of those intelligence challenges that lends themselves very easily to open source intelligence. Not only are all the strategies and documents and regulations that I've mentioned publicly available, but all of the underlying data needed to assess those strategies, whether it's the technical journal articles, the patents, the corporate records, the government and military procurement bidding tenders, are all publicly facing. The bad news, as you can imagine, is that they're all in Chinese, which China regards as its first layer of crypto in terms of being able to disguise what they're doing. Open source intelligence allows us to really get deeply into these issues, as I think my colleagues will confirm. Let me close my remarks there and I look forward to your questions. [The prepared statement of Dr. Mulvenon follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] STATEMENT OF DEWEY MURDICK, Ph.D., DIRECTOR, GEORGETOWN UNIVERSITY, CENTER FOR SECURITY AND EMERGING TECHNOLOGY (CSET) Dr. Murdick. Thank you, James. Chairman Warner, Vice Chairman Rubio, Members of Committee, thank you so much for the invitation. In 2018, a Chinese state-run newspaper identified nearly three-dozen critical technologies that they believe made themselves vulnerable to potential sanctions and export control. These articles covered a wide range of examples, from the difficulty with producing high-strength steel, which impacts rocket engines and aviation landing gear, all the way to the challenges with building high-resolution LiDAR, the eyes of many unmanned vehicles. These articles express the feeling that the U.S. and other powers could strangle China at any time. The Chinese are keenly aware of their deficits and are making strides toward achieving technical self-sufficiency. They regularly leverage a wide range of government powers in an attempt to dominate key technical areas and not just the cutting edge ones. Understanding who is leading and who is following in emerging technologies between the U.S. and China requires evaluating the right markers for the right question. I find it helpful to look at what the Chinese compare as their strengths and weaknesses to the U.S. in the emerging technology development. For example, the Institute for International and Strategic Studies at Peking University notes China's own technical strength has been improving progressively in recent years and it has become an influential S&T power. In AI and machine learning, the Chinese consider themselves to be leading in product-driven R&D: areas like facial and speech recognition, computer vision, and training talent at scale. In basic research, the U.S. and China are comparable in their eyes in terms of scientific research, paper publication, and citations. Yet the Chinese acknowledge they lag behind the U.S. in originality and groundbreaking research, and also in their ability to attract and retain top AI talent. The U.S. still has a large lead in AI chips, algorithms, machine learning and other core technologies in promoting military AI applications and application of military technologies and biosynthesis and drug discovery, where they see the U.S. making a lot of advances and breakthroughs. Furthermore, though the U.S. relies heavily on foreign chip manufacturing, it maintains an overall technical advantage through its possession of key intellectual property and the integration of that intellectual property in advanced semiconductor supply chains. Though China's circuit industry is rapidly developing, it faces foreign dependencies that keep it well behind the United States. This is their self-assessment of where they are. Beyond AI, the Chinese are also aware of places where they maintain leverage over the U.S. in key parts of the global supply chain. In 2019, a majority of malaria test kits, for example, as well as more than 90 percent of some key antibiotic imports, came from China. The pandemic has demonstrated the massive disruptive effects of foreign dominance of the bio- economic supply chains with a direct impact on U.S. research and medical care. China gaining advantages in key technologies, be it artificial intelligence or semiconductors for computing, be it genome editing or quantum technologies, would have considerable implications in global security and potentially even U.S. Intelligence Community operations. The United States needs to prepare now for the long term. As China's tech ecosystem matures and becomes increasingly innovative, the United States risks being increasingly surprised or even falling behind, because we don't have a comprehensive view of what China and other actors are doing across the technical landscape. I see three basic classes of tools or responses that, when used together, can achieve the greatest effect. They are: one, run faster. Spur on the innovation system. Two, slow competitors down--and you'll hear more about this soon. Coordination with our allies is essential, in my opinion, to maximize effectiveness. And three, monitor the S&T landscape, which is a critical point of success when dealing with a long-term competition with a high-tech peer, which is where I believe we are moving with China. On this last point of S&T monitoring. China's rapid rise in science and technology has been facilitated by a massive and sustained state support that is staffed by more than 60,000 open source collectors and analysts. This allows China to prioritize areas of exploration dynamically and helps ensure the country is not surprised by worldwide innovations. To my knowledge, no part of the U.S. Government, including the IC, has developed a scalable countermeasure to this Chinese approach. We need to embrace this transformative S&T landscape- monitoring mission. When used in combination with run faster and slow them down policy options, it will help maintain leaderships and critical emerging technologies in supply chains now and into the future. Thank you, and I look forward to the discussion. [The prepared statement of Dr. Murdick follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] STATEMENT OF HON. NAZAK NIKAKHTAR, PARTNER, WILEY REIN LLP; FORMER ASSISTANT SECRETARY FOR INDUSTRY AND ANALYSIS, U.S. DEPARTMENT OF COMMERCE Ms. Nikakhtar. Thank you, Dewey. Senators, Committee Members, and staff, thank you for the opportunity to speak today. And thanks for everything that you do for America. As a lawyer, economist, law school professor, and former government official. I've been on the front lines of the China economic challenge for decades. I set up the China/Non-Market Economy office at the Commerce Department nearly 20 years ago and audited Chinese companies for the U.S. Government. Recently, I served as both Assistant Secretary for Trade and CFIUS and Acting Undersecretary for Export Controls. Now back in private practice, I represent global industries that are fighting back against predatory practices that are weakening critical supply chains. It is from all of these vantage points that I offer my views today. These views and opinions expressed are mine only. In my written testimony, I described China's deliberate predatory tactics to weaken the economies of the United States and our allies. To be clear, this is not an issue of trade or protectionism. China has publicly stated that its goal is to weaken U.S. and other countries' supply chains to the point where we are helpless. Obviously, we need a strategy that protects ourselves from harm. We've seen China's stranglehold over its trading partners in Africa, Latin America and South America through the One Belt/One Road debt trap. How do we avoid a similar fate? Through the rigorous use of our laws and the creation of new laws where there are gaps. First and foremost, we absolutely need outbound investment reviews that are currently absent from law. Joint ventures, as you heard, are happening all the time in China where U.S. companies are collaborating with the Chinese military to develop dangerous technologies and manufacturing know-how, when technology is developed abroad that falls outside of export control jurisdiction. Plus, the movement of supply chains outside of the United States to adversary nations is generally unregulated, like critical lifesaving medical equipment. Without medicine and supply chains to build our defense systems, how will we survive under attack? This gives our adversaries the ultimate trump card. Second, we need an export control system configured to allow us to run faster, while at the same time blocking China's ability to benefit from our technology. China's military advancements in hypersonic weapons were facilitated by the transfer of U.S. technology. One company's short-term profits years ago now threatens global security. Our export system failed. We need to fix it. Third, we need to control the export of sensitive data that can be weaponized by our adversaries to conduct massive surveillance and develop dangerous AI-enabled weapons. Data transfer needs to be regulated through new laws on export controls; so does sensitive research at universities. Fourth, when we authorize the transfer of sensitive technology to China through export licenses, supercomputer enabling technology, for instance. Today we can't even be sure that our technology is not being used for military purposes when it goes to China and not being used for weapons of mass destruction. This is because China restricts our ability to conduct end-use checks--and has for a long time in China. That's a big problem if we're allowing exports of critical technology to China today. Fifth, we need national security reviews of Greenfield investments. If you heard, through the CFIUS process, China buys land here and conducts surveillance, connects to our energy grid, accesses our control technology from within our own borders, and wipes out our domestic industries by underpricing from within our own borders. This is a problem. Sixth, any revenue loss from sales to China through export restrictions, make no mistake, can be regained from investing domestically and in our allies' markets. We need investments and safe locations to strengthen our supply chains. Consider the U.S. to be an emerging market, not China. Seventh, we need laws to address China's additional trade- distortive practices where we currently have no laws. Overcapacity in fiber optic cables--this is the infrastructure of 5G and China's running overcapacity. The economic harm caused to businesses from cyberattacks and the displacement of businesses from global markets due to China's predatory pricing behavior around the world. To address this, we need additional Section 301 investigations into these practices to recoup the economic loss to U.S. businesses resulting from these harms. If the investigations result in tariffs, then we ought to shift the tariff responsibility onto the Chinese exporter and away from American importers. Americans should not be paying for China's predatory behavior. And finally, we should use the 301 tariffs collected to create an innovation fund dedicated to capitalizing high technology in critical industries. In other words, use the tariff revenue paid by China to build out our critical supply chains. In sum, remember, the more we invest in China's non-market economy, the more we move production to China to avail ourselves of its cheap prices, forced labor, and other non- market distortions. The more we buy cheap Chinese products rather than goods from market economies, the more we allow distorted, non-market forces to capture a greater share of the global market. In this way we are accelerating the demise of capitalism and the market based system. We need to reverse this. Thank you and I look forward to your questions. [The prepared statement of Ms. Nikakhtar follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Warner. I want to thank all three witnesses. And I want to point out a couple other quick things and then get to my question. One, I think we also do need to acknowledge while China has picked national champions, they have combined the best of both systems to a level. They do have a ferocious startup industry in China, oftentimes supplemented by their $500 billion in intellectual property theft each year. And so, they have that ferocious competition until that national champion emerges. I think we need to be clear-eyed about our potential competitor here. This brings back two points that maybe I should have made in my opening comments. I remember, and it was driven a lot by this Committee, when we woke up about 5G and Huawei and tried to finally get all the right people who we thought in the room from USG, we had I think three intelligence agencies. We had DOD, we had Commerce, we had State, we had NTIA, we had OSTP. And for those who might be watching this, these are all relatively large organizations with all these acronyms. We had the FCC. And it was absolutely clear that these people had never been in the same room talking about taking on a question like how do we give up the spectrum that's going to license 5G, how we think about making competition with our allies, how we address what was happening with Huawei. That is a preface. And the other preface before my first question is if you then look at the technologies where we need to be competitive against China, we all have I think marveled sometimes at the game plans that they've laid out. And as I think Dr. Mulvenon said, James said, that they'll put this out until the West discovers it and suddenly they disappear from the websites. But I just know within recent years when I've asked the intel community, what are the key technologies we ought to be competing with? We got one list from the ODNI, a somewhat overlapping but not entirely the same list from CIA. Commerce has got a different list. The White House through OSTP may have another list. So if we can't figure out who to get in the room or what is even the major focus areas of our attention. Senator Cornyn really took the lead on helping move forward this idea around semiconductors. I'm not sure we'd have been making the progress even on semiconductors but for COVID because of the immediate shortages we were seeing. The first question I would ask is for the whole panel. Ms. Nikakhtar, you seem to have looked at this from a trade standpoint, but if you were going to structure, make a change in government on how we would put the right people in the room to make these honest assessments, because I remember from the fact that our intel community can't even look, frankly, at what was happening domestically. They can look abroad, but they can't look here domestically. How do you get the right folks in the room? And I'd ask the whole panel on that. Is there a new structure they've put together? Is it a working committee? What's the structure to make that happen? Ms. Nikakhtar. Honestly, the National Security Council is a wonderful body. And this is the convening body that brings everybody together, and they do a good job at bringing everybody together. The fundamental problem, because I've been at these meetings in various positions, is that not every agency, not every bureau within an agency is like minded. And so you have bureaus within an agency trying to torpedo one another. And I personally don't know how to solve that. I wasn't born in this country, but if I were a Cabinet member, I would make sure--I mean, if I were President, I would make sure that I had every single Cabinet member likeminded, every Cabinet member ask their staff, what is your forward-leaning China strategy? That way you can convene everything at---- Chairman Warner. You think it has to come from them. What about your colleagues? What do you guys think? Dr. Mulvenon. It's early days, but I am hopeful about the Agency's new Transnational Technology Mission Center, at least as a locus for doing these types of strategic-level assessments on technology. I share your frustration. I'm old enough to remember the 1996 Militarily Critical Technologies List when it was published by the Pentagon, which for a brief moment in time was a definitive, governmentwide list that we could all use to then assess technological progress and make export control decisions. But then the promise was that it was going to be updated and then it never was. One suggestion, Senator, that I've heard that I think makes some sense is given that many people in the Intelligence Community in a sense are cutoff from the high tech industries and may not be as current as they should be. That partnering with organizations like the National Academy of Sciences for those studies makes more sense because of their networking connections. Chairman Warner. Dr. Murdick? Dr. Murdick. Lists are always problematic, especially in a dynamic space of emerging technologies where they're always changing. And I think to be able to build this kind of capability, you need a systematic analytic capability that covers both domestic and foreign capabilities. We don't really have a place in the U.S. Government for that kind of capability. And to be able to answer the kind of questions you need, you need to be able to have people who can go deep enough to actually answer the substantive questions, not just from a who do we partnership perspective, from a state perspective, or from commerce, or from DOD. I think you need to have, what I would call, an independent capability within the government that you can regularly turn to and they can coordinate with all the rest of the U.S. Government entities and even take money for it for analysis tasks, but actually get at this analytical capability. And I think the reason I encourage this is even just watching how China has made their advance. Obviously, we don't want to mirror China, but they have put a tremendous amount of resources in--. Sixty thousand people is not a small number of people to actually look at what's happening worldwide from the S&T space. And I think that that analytic capability is essential. And I think there's a variety of ways to do that to be able to move the things forward. Chairman Warner. On the next round, I'm going to come back and ask, as we think about this with our allies around the world, should that be in a more formal alliance or organization structure or should it be one off? I will remind Members before I go to Senator Rubio that today we are doing something slightly different than normal. We are going to go by order of seniority. With that, Senator Rubio. Vice Chairman Rubio. Thank you. Let me just start. I'm going to ask a question at the front end, but I want you to answer at the end, to just give you a couple of minutes to think about it. As an example, I know we're all aware of the chips. We're all involved in semiconductor vulnerabilities and the like. But there's a bunch of pretty startling vulnerabilities that we have on the supply chain that are really critical beyond textiles and things of this nature. One, as an example, I think the figure is right, about 90 percent of our key antibiotics are sourced from manufacturing. And what I'm going to ask you to think about in the next couple of minutes while I go through these other two questions, is if you can give me another example of something like that that maybe is not as broadly known, but that's a key vulnerability that we never want to have to depend on them for. Here's the first question. I don't know who wants to take it. Maybe all three of you do. It's been publicly reported now that as the iPhone 14 comes out that Apple is thinking about using a memory chip made by a product that is from a company that is not just a Chinese-government-owned entity, state-owned business, but it has close ties to the military. So an American goes to buy or we broadly sell in this country to see an iPhone 14 that has that memory chip in it. Beyond being annoying, right, that we're getting it from them, what is the actual vulnerability that that creates for us on a mass scale? The memory chip? Ms. Nikakhtar. Let me start by answering that. You first, Senator, asked for different types of technologies. Seventy- seven percent of the lithium ion battery cell capacity is located in China. Chemicals, nobody talks about chemicals. The ability to make chemicals for semiconductors, for a whole bunch of things also resides in China. A whole bunch of things. But I want to get to the second point of your question. In that example, Senator, that you mentioned, it was actually that the U.S. company in China who's hiring American tech engineers to then go to YMTC to make those chips for it. Obviously, there's threats of backdoor, but the threat that nobody's really talking about is the brain drain that this is creating in the United States--the lack of innovation. These are companies--I think you had alluded to it, Senator, earlier in your opening statements, which is every time we try to stop this, it's the U.S. companies that are lobbying for the CCP and doing the CCP's bidding. Vice Chairman Rubio. The second question is, and we've seen the vulnerability of Americans' genetic information, whether it's housed in our research and medical systems, whether it's what you voluntarily turned over because you want to know where your ancestors came from or whatever it might be. I think data, obviously, is probably the most valuable commodity in the world. And the Chinese can compel the biological data of the largest population in the world. And then they can combine that with whatever they buy and/or access through different ways beyond the privacy concern. Because the individual may not want their stuff out there in the hands of anybody, much less a foreign government. Why do they want that genetic information? Obviously, it has to do with biologics. It has to do with biomedical research and development. But what are the advantages of being in possession of a vast dataset of genetic information, not just on the people in their own country, but so many different countries around the world, particularly the United States? Dr. Mulvenon. Before the pandemic, I would have said that we were primarily concerned with organizations like the Beijing Genomic Institute and others because of their unethical practices, because of their connections to the military, because of their connection to the military's biological warfare programs in the PLA. After the pandemic, once we realized that the hyper-globalized model of pharmaceuticals was broken, and that things would not just seamlessly move across borders wherever there was market demand, but in fact national interests had come back to the fore. Clearly having that huge store of data in a lower-ethical-standard environment, to be clear, than the United States, in terms of research ethics on genetic data, means that they would be able to, on the positive side, use their supercomputing capacity to more quickly identify and develop vaccines and pharmaceuticals. But also then, unfortunately, on the offensive side, be able to then figure out how to mutate and be able to modify those genomics. And so as we move to a world in which we become more and more biological- and machine-integrated as humans, understanding how to make those modifications, particularly their focus on CRISPR and other technologies and the unregulated use of CRISPR in China to do gene modification-- that's a very heady and dangerous mix, Senator. Dr. Murdick. Senator Rubio, you asked a really interesting question and one that is actually very hard to answer because we're still doing a lot of basic research and it's unclear exactly where everything will be opening up. But let me give one scenario. Personalized medicine is increasingly learning how to treat the individual and how to work with the individual's whole system. And the more diverse that that data is, the more that they will be able to move beyond what is a much-less-diverse genetic pool in China and to be able to now see what's happening in the U.S. There are a number of examples that will drive innovation. And the more they have this data, the more they'll be able to make breakthroughs in innovation. And I think that's one of their goals: they want to be a competitor and actually make a lot of innovation. And by having access to genomic data at the scale from around the world, it will open up new vectors of innovation that I think will make competition that we can't even imagine in this room right now. Chairman Warner. Senator Feinstein. Senator Feinstein. Just for a moment. My experience with China goes back to when I was mayor of San Francisco. And one of the things I wanted to do was establish a relationship with the Chinese city. We picked Shanghai. Wang Daohan was mayor. We established a relationship. Then Jiang Zemin became mayor. He became president of the country. In the meantime, trade ideas went back and forth between our two cities. We took Chinese students; we had all kinds of exchanges going on, and I felt it really worked. Now what I see today is all of that kind of thing is gone and the people-to- people relationship which is so intrinsic to friendship and progress and faithful trading has changed to a much more hardened situation. And I really very much regret that because I will never forget. Those of you that knew Jiang Zemin when he was president of the country know he also sang. And it was the kind of relationship where you could sit down with a group of people, have dinner. He would sing a few songs and it was amazing. And now all that is different. How do we bring personal relationships back into the equation? As I review my material, it's all hard edged, it's all companies, it's all economy. But relationships matter. And I deeply believe that. If any of you, you must know China, have ideas, I would certainly welcome them. Ms. Nikakhtar. Senator, maybe I can start. I agree with you, relationships matter. But then how do you foster relationships in a country that's closely monitoring the information that its population gets and is engaging in a propaganda of how the United States is bad? I think that maybe back in time there was opportunity to grow and foster this relationship. But we're now competing with the CCP and its massive propaganda machine and I think our efforts will be exploited and I just don't think the CCP wants that. Senator Feinstein. You don't think China can change from where it is today? Ms. Nikakhtar. I always think countries---- Senator Feinstein. If it was changed in the past as it has. Ms. Nikakhtar. Yes, I was born in Iran and Iran was very different then than it is today. Senator Feinstein. Iran isn't China. Ms. Nikakhtar. Right, countries can change for better or for worse. I think under this current CCP leadership with President Xi, China will not change. It's only going to get more and more combative with the United States. Senator Feinstein. Well, I'll tell you, I would like to do my utmost as a United States Senator from California to try and restore the roots of friendship that once existed and enabled the beginning of the entire trade agenda. If anybody has any thoughts, I would welcome them. I listened carefully to what you said and I understand that a hardness has entered into this relationship, and I think all of us ought to try to change it because this is a huge country with smart people and a dynamism that can make the world better if we're able to make the contacts, the agreements, and the changes to bring it into the modern day without negative influence. I just wanted to say that. Thank you very much. Dr. Murdick. I just wanted to add one thing. You asked for ideas and I think that's really where we're going to have to continue to look, because there are challenges on the ground. However, I just wanted to add from a more encouraging perspective two points. One, if you view China as purely out to destroy us, that's all they want to do, I think that mind view actually limits options. I actually don't think their sole purpose is to destroy us. They want respect. They want a place at the table. They want to be able to remove the vulnerabilities they feel like they have. I'm not saying these are benevolent, by the way, but I think viewing them as a competitor and viewing that there are things that will be worth working on together and there are things that are not worth working on together. The challenge, however, in this is two parts and one of them is people-to-people interactions that building trusting relationships, but the other is a dearth of information. If you don't have solid information on what China is doing, it's easy to get sucked into a discussion that you're underprepared for and you're actually not realizing what's actually happening. And I think the U.S. Government can raise the bar, if you may, and understand more about China by investing more in our analysis capability, and then arm people who are engaging personally so that they aren't going to get swept in the wrong way, because they don't understand the context and can negotiate through a strength of knowing and power. And I do believe that those personal relationships ultimately will make a difference. But I would encourage that those relationships to be well-informed. Senator Feinstein. Thank you. Chairman Warner. Senator Collins. Senator Collins. Thank you, Mr. Chairman. Ms. Nikakhtar, first let me thank you for your very powerful testimony and your very specific recommendations. I was also pleased to hear the discussion of the supply chain for pharmaceuticals. This is an issue I've been very concerned about ever since the FDA testified that 72 percent of the facilities making active pharmaceutical ingredients are located in either India or China. We simply are very vulnerable in that area. Let me move to my question. Of the $107 billion in total exports to China in 2019, I am told that all but $500 million were exempt from export controls or did not require an export license in the first place. I think that's absolutely stunning. That is less than one-half of one percent of all exports from our country to China that are subject to any form of effective export control oversight. That seems to me to be potentially extremely harmful to our national security, economic and technological advantages, that the United States has traditionally enjoyed. As a former implementer of policy at the Commerce Department, where do you think we have not effectively used existing tools to protect our national economic security interests against the PRC? Ms. Nikakhtar. Thank you for the brilliant question. I'm going to add a statistic on to what you said, which I found very disturbing. I think it was about 2018 or 2019. Ninety-nine point one percent of the export licenses were either granted or returned without action, meaning the agency took no position. Ninety-nine point one percent. Of what is controlled and you actually have to get a license for: Ninety-nine point one percent. The other point I want to make is, and I find this very troubling. I do this because I just want to help this country protect its national security interests. The back end of the early 2010s, there was export control reform in the government and export control rules on dual-use items were pretty much loosened to create gaps in the laws to allow these exports. You have definitional issues. You have areas where just licenses are exempt. That needs to be reformed again given current threats. And I would support anybody's effort who really wants to help me and maybe others to sweep through these regs and then recommend some solid changes. Senator Collins. Thank you so much. Dr. Murdick, China's Ministry of Foreign Affairs is undertaking a very aggressive diplomatic effort in international organizations to establish favorable worldwide technology standards that China wants that are favorable to the PRC and its values. On a scale of one to ten, how effective has our State Department and other diplomatic arms of NATO and the West been at pushing back at these efforts? Dr. Murdick. Just a brief comment on history. The standards efforts that China is engaged in trying to implement now, in the push that they've had, was motivated by what they perceived as a very effective U.S. effort. In aerospace and a variety of other places, the standards that we helped influence in GPS and other places were a gold standard. They said, wow, we really want to do the same thing. So first of all, we motivated them by our success to try to do something similar. They're working very hard. It's hard for me to provide a number and I'm not trying to avoid the question in that sense, but I'm not actually sure how I would characterize it with a number. I think it's too soon for me to be able to judge what is the success. I think it's an ongoing dynamic space and it depends on the particular industry and the particular standards bodies where we've been more successful and where we haven't been as successful. But I do want to lay the foundation that a lot of the foundation is based on previous U.S. successes in the standard space. Not exactly the answer you're probably looking for, but it's the best I can do right now. Chairman Warner. Senator Heinrich. Senator Heinrich. Dr. Murdick, you've said that the U.S. Government needs an analytic capability to survey and monitor the global science and technology landscape that we currently don't possess. If I could put you in charge of just such an effort, what would it look like? How would you structure it? Where would it fit into the current USG org chart? Dr. Murdick. Obviously, political reality will temper this, but I'm going to go ahead and speak from an idealist perspective. From my perspective, an organization that does this type of analysis needs to be independent. They need to be able to receive money from all over the government. They need to have a seat at the table in terms of decisionmaking. But their primary goal is to do analysis. I think there are Federal elements here, but there are also regional elements. Just having everyone sitting in the U.S. capital region is probably not a great idea because there's innovation happening all around America. And both the information that this group would need as well as the results of some of the findings would be relevant to the sector. It's probably the majority--or half, let's say--of the staff would be in the D.C. area. The rest would be throughout the U.S. And I think it would probably have, I don't know, maybe a number of hundreds of analysts and data collectors. They would bring the data together. They would be able to provide analysis on S&T challenges. They would be able to have a monitoring situation so that you could answer questions and be alerted when things are changing. And that this information would be available to U.S. policymakers and as appropriate to the public and industry as well as relevant. I think the U.S. can learn, actually, something from the Chinese implementation of this in terms of the scale of investment. And we're not talking about more than, I don't know, could be a couple hundred million dollars. We're not talking about a colossal--. We're not launching multiple satellite constellations here. We're talking about a reasonable and consistent and sustained development that has an analytic capability that looks at both foreign and domestic. It provides strategic input. It provides input on where unwanted tech transfer is happening. And it provides the kind of information that's actionable and useful to policymakers. In a thumbnail, that is a few thoughts I have. Ms. Nikakhtar. I'd like to quickly add to that. I would take a little bit from what Senator Warner had also asked. There are two lists in the government. There's the emerging technologies list that just came out from the White House. And then it's BIS's, I think 2019 or 2020, foundational technologies list. You combine those two, you've got a pretty darn good list of where we need to focus on. And then the National Labs. Our National Labs know stuff about what we're doing, our competitive advantage. And our adversaries, what they're doing, how far they are in terms of even commercializing their R&D. I think the National Labs are a completely underutilized crown jewel in American policymaking, and I think we really need to leverage them. Senator Heinrich. I agree with you, although in the fact that I interface with those labs all the time, sometimes pulling that information out of the labs in a usable way for the government and particularly for policymakers can be quite challenging. Let me ask you about export administration regulations and the current definition of fundamental research. Ms. Nikakhtar, you've talked a lot about that and you write that the exception of fundamental research is a gaping hole right now. Can you give us some context for why that gaping hole exists in the first place and what we need to do to change it? Ms. Nikakhtar. Yes. Basically, the rule is pretty squishy and it basically says that if the building blocks essentially are built from fundamental research, then pretty much what generates from it is also this fundamental research. And if you might have the intent of publishing it at some point then it's exempt from export controls. I mean, we're lawmakers. When you leave squishy things like that, can anybody exploit it? Absolutely. And the reason why I'm completely nervous about this is because I've got a friend who's doing some critical semiconductor research in Silicon Valley. And he calls me and he goes, there's a prominent university in California who has these Chinese nationals coming in and doing research on the next generation of semiconductor technology. And my response is, oh my gosh, of course this is because of the fundamental research exception because this is how it always gets used. And then he's like, what's the fix? And I said, issue an ``is informed'' letter to the universities to say cut it out for these technologies and then go back and change the definition of fundamental research. And I don't need to tell you guys, but an agency's regulations belongs to the agency, they can change it any time they want. Why wouldn't they do it? Over. Senator Heinrich. Okay. Thank you. Chairman Warner. And one of the things, I think, Senator Heinrich, when you asked that question, as we've seen on the intel side, you've got some pretty good folks who do some pretty good research in issue areas. But at least the folks on the Intel Committee, they can't even look at what we're doing domestically. How we figure out where that's located and letting them have a full 360 would be really important. Senator Blunt. Senator Blunt. Thank you, Chairman. Dr. Murdick, we're in conference right now on a bill regarding largely competition with China. Most of us, if not all of us, are free-market thinkers in terms of how things should sort out. But clearly, what is the best way to compete with a country that largely subsidizes and moves quickly in technologies without either regulation or without having to have total outside financing to be your competitor? Do you think it's reasonable that in these areas like chips that the United States makes a government-taxpayer-funded commitment to bring that industry back here? Dr. Murdick. With respect to competition with China, I just wanted to have one meta comment or high-level comment, which is the U.S. strength is because we have a highly distributed system. We do not run a command economy. We have a lot of innovators working, a lot of people moving. There are times when we get the need for the government to step in to correct subsidies that are happening within China or other places. So I do think it makes sense to step in when it's been very clearly identified. We've lost a core capability of chip manufacturing. It needs to be done in a way that enables the diverse and distributed innovation system to flourish. We can't put it under a thumb or put it in a constraint in a cage that tries to control too much of how it happens. But I do think that we clearly have identified there's a gap here. We can bring back a manufacturing capability if correctly executed, that will enable us to bring that competition back. Now, there are a number of other areas that will also need this kind of attention. And that's why I mentioned that we need to be monitoring and dynamically watching the situation because it's a very fast and rapidly moving space. And it moves at a speed outside of lawmaking in its traditional form. Senator Blunt. You're saying we don't want to find out that suddenly we're behind like we might have a few years ago in 5G, for instance? Dr. Murdick. Yes, exactly. And I think there are very discrete and clear things that we can do to make sure that that information is flowing. To Senator Warner's last point, we don't have a good foreign-domestic, red-blue analytic view that we have wonderful intelligence assets that can find very pristine and immaculate information that will help. But that needs to be contextualized effectively with an unclassified base that these pristine and exquisite sources can augment insight. I do think we have the opportunity to do this, if that's helpful. Senator Blunt. Alright. Dr. Mulvenon, do you want to add anything to that? This idea of how we compete with countries that are highly subsidized? Dr. Mulvenon. Well, I think the first thing I would say, Senator, is that we shouldn't compete alone. That in particular one of the things that I support about the current Administration's policies is the emphasis on a coalition of the willing in particular tech areas, looking at how we can bring together countries with similar value systems, democratic countries, similar legal systems, and break down some of the barriers that we have between us. A very good example of that is in 5G. We are all aware of the fact that for a long time Huawei was the only company that really had an end-to-end offering from handsets to servers and base stations. But the obvious industrial coalition between companies like Cisco and Juniper and Nokia and Ericsson would have fallen afoul of antitrust regulation unless the U.S. Government effectively moved to break down those barriers, so that there could be an alternate 5G end-to-end offering to compete head-to-head with Huawei. That is a solvable policy problem, particularly given the likeminded countries that we're dealing with. So, I would just say not competing alone, but using our OECD allies, and I'm including the South Koreans, the Japanese, the Singaporeans, the Taiwanese, all of our European friends. We obviously have a lot of work to break down a lot of our barriers, common data privacy protections first--. Senator Blunt. Let me see if I can get one more question in here for Ms. Nikakhtar. I was interested in the discussion Senator Collins had about pharmaceuticals. One question that's come up that I wonder about is the United States, with vaccines, obviously, a big thing now. Do we have the capacity within our own system to produce and deliver end-to-end vaccines without dependence on China, particularly, or outside the United States supply chains? Ms. Nikakhtar. Thanks for that question. There are a lot of pharmaceuticals and active pharmaceutical ingredients that we can actually make in the United States if we use our current facilities and we're able to retool and re-shift so we can produce them. I think the first step is to look at what our manufacturing companies, our pharmaceutical companies, not just what they make today, but give them a survey of all these active pharmaceutical ingredients and say what can you do with the facilities you have? What's the lead time? What's the cost? And okay, now that I can solve that in a case of emergency, what can I actually now not make in the United States and maybe Canada? And then, how do I solve for that? Senator Blunt. That sounded like a no, but we could get there. Ms. Nikakhtar. No. Exactly. That's right. No, but we can get there. Senator Blunt. Alright. Thank you, Chairman. Chairman Warner. I think we've seen in the midst of COVID where something like 80-plus percent of the APIs were coming from either China or India. Senator King. Senator King. Thank you. First, Dr. Mulvenon, I absolutely agree. I think it's a huge mistake to not take advantage of our allies. And if you add the EU and us and Japan and South Korea and Australia and other countries, we're bigger than China. We have a bigger market and a lot of intellectual horsepower, so I think that ought to be part of the strategy. And having uttered that word strategy, it strikes me that what we're doing here today is we're throwing darts at a policy dartboard. And this whole thing started with your discussion of the detailed strategy and doctrine that the Chinese had developed. I believe we need to do that same kind of thinking. Our policy toward China is all over the place. It involves trade, it involves intellectual property theft. We haven't even mentioned the word military here today--enormous military competition. And I feel that there's no comprehensive or cohesive or comprehensible overall strategy. Dr. Mulvenon, I just served on a commission on cyber, a national commission. It involved Members of Congress, private sector, and members of the executive. And I found it a very useful exercise to be assigned to think about a large issue in a comprehensive way. Do you think that we ought to be thinking about having a national strategy to deal with China? Dr. Mulvenon. Well, we do have elements of a national strategy. I wish it was more explicit. Obviously, we were all disappointed that Secretary Blinken got COVID last week, because he was going to articulate for the first time, I think, the comprehensive nature of the strategy. And I think that is coming eventually. The Indo-Pacific framework that was published gives us a lot of clues. But I would say the following. Industrial policy is a 16- letter word, not a four-letter word. We've had a lot of really successful industrial policy---- Senator King. I agree with that, by the way. And in facing a rival like China, we've got to get over our aversion to the idea of industrial policy, which indeed we are on the CHIPS Act. That's industrial policy. Dr. Mulvenon. Well, I mean if you go back to the Eisenhower Interstate System, there are ways in which we can have market- based policy solutions that are industrial policy that are not socialism, to be fair. And semiconductors in particular, which is a major focus of mine, I agree with General Selva when he was the vice chair of the Joint Chiefs he said, we can't protect everything. He said, I want to protect semiconductors because that's the hill I want to die on. Because it's the foundational technology under all of the other advanced technologies. Senator King. And that is something that we are taking an active role in. But I think that your example of the scientists working on advanced semiconductors, who are Chinese nationals-- I mean we've got to just be more sensible about this. Let me ask a broader question. China had this explosion of economic growth and now they seem to be re-imposing the old central planning. Everything is controlled from the government. Is there a danger that they will not kill, but stifle the golden goose by re-imposing a state central planning dead hand of government on what was really a capitalist explosion? Dr. Mulvenon. I agree with you, Senator. I have been, frankly, stunned by the retrogression in Chinese economic development over the last decade because private sector enterprises, private enterprises accounted for a huge majority of the amazing growth of the Chinese economy between 1978 and the late aughts. But the current regime is clearly focused on re-centralization of planning, re-emphasis on state-owned enterprises, and frankly, a squelching of entrepreneurship. The recent crackdown on the tech companies that were outside of government control. And to Senator Warner's point, it's no accident. The last time I was in China, you went in a bookstore and there was a whole section of the bookstore with books of some variation of a title of Where is China's Steve Jobs? And the idea was that they were looking for innovators, but---- Senator King. He's probably in jail somewhere. Dr. Mulvenon. Or forced under common prosperity to give away millions of dollars of his hard-earned money. But the idea was that the political and legal and intellectual property milieu in which you have to innovate in China does not encourage mavericks to rise up through the system, as I think that Jack Ma and others have discovered in the last two years. Senator King. I don't think we can rely on that to save us, but I do think it's a factor in what's going on now. I have this feeling--I serve on the Armed Services Committee--and of these two heavily armed blind giants stumbling toward one another in a conflict that neither one wants and it would be catastrophic for both. But there needs to be some discussion about where we want to go. The old saying is if you don't have a destination, you'll never get there. And I think we need to have a better definition of where we want to get and have a more comprehensive thought about how we want to deal with China on a whole series of levels. Thank you, Mr. Chairman. Chairman Warner. Senator Cornyn. Senator Cornyn. Thank you, Mr. Chairman, for this hearing. This is exactly the sort of hearing we need to be having, an open session so that not just the Committee can hear, but the American people can hear and be better informed about the competition that we're having with the PRC and the Chinese Communist Party. Ms. Nikakhtar, I was happy to see that you cover in your written testimony the importance of an outbound screening mechanism. And I'd like to get you to talk about that first, and then maybe have the other witnesses talk about it as well. As you noted, Senator Casey and I have a piece of legislation called the National Critical Capabilities Defense Act. But some of the figures that you mentioned here, Mr. Mulvenon, I think from these figures that we see here in this testimony, it looks like U.S. venture capitalists have funded the rise of the Chinese economy. And we know they don't play by the same rules that we do and they don't follow the law. They shamelessly steal secrets and they coerce American investors into joint ventures, steal their IP and their know-how. And of course, that was part of what we tried to address in the CFIUS reforms. But we also tried to include an outbound screening mechanism to see what American companies were doing investing in China and its impact on the United States, not only from an economic standpoint but from a national security standpoint. And I want to thank Senator Casey for working with me on this, and I with him. Thankfully, the House COMPETES bill has a piece of that in it. And I think it provides us an opportunity in the conference committee that a number of us are on to try to include this in that final conference report. But Ms. Nikakhtar, you mentioned in your testimony that this could be one of the most important pieces of legislation before Congress today. And the numbers that you mentioned here totaling $3.5 trillion in market value of holdings by U.S. financial investments in China in 2020. Of course, we know this is a part of the CHIPS Act. The semiconductor bill is going to be focusing on providing incentives for re-shoring of semiconductor manufacturing. But these companies are global companies. And I for one, and I bet I'm not alone, don't want to see those companies using some of these taxpayer dollars that we're trying to provide to incentivize re-shoring of semiconductor manufacturing to enhance their investments in the PRC, which is exactly where we are and who we are competing against. Maybe you can start and talk about why you think this is important and then hear from the other witnesses. Chairman Warner. Before the witness starts, I just want to indicate that because of the voting, I'm going to run and vote and come right back and we'll move down the line. But I think Senator Cornyn's got a very good question. Vice Chairman Rubio [presiding]. Ms. Nikakhtar. Senator, your question is about the outbound legislation, right? And the importance of that? Senator Cornyn. It was about the outbound screening mechanism and the National Critical Capabilities Defense Act. Ms. Nikakhtar. Okay. Perfect. I just wanted to make sure. No, like I said and you pointed out, it's one of the most important pieces of legislation because this is a gap in the laws. We have the limits of export control jurisdiction. What is that? U.S.-origin items and then certain items produced from technology. But this doesn't involve the movement of plants abroad. This doesn't involve the companies that are forming joint ventures or just like building facilities in China and then developing technology in China. Even if they avail themselves of the CHIPS Act money--and I know the CHIPS Act is so, so important--there's got to be guardrails so they don't double down and make more investments in China because of the revenue saved because we gave them taxpayer dollars for subsidies. Back to the outbound legislation. Right now, legally, we actually do not have the ability to stop this flow of dangerous capabilities to our adversaries. We're not talking about the rest of the world. We're talking about the adversaries. And I just wanted to give you some really, really critical examples of where export controls--. We don't control these things. We don't control lifesaving medical cancer detection equipment. Semiconductor capabilities, even those that are below controls, what good is it to move things abroad when we can't even make any of those in the United States? High- capacity batteries. We are struggling to make lithium ion battery cells in the United States because we've moved everything over to China. Materials, chemicals, critical material chemicals. People don't adequately understand how much of the chemicals that we're enabling China to produce. Active pharmaceutical ingredients, we already talked about that. I can go on for hours listing technologies. We certainly don't have that time, so I'll stop there. But I really want to say, look, by moving the supply chains there, we've become hostage to our adversaries. Businesses will not protect national security. That is not their job. That's the government's responsibility. And thank you, thank you, thank you for identifying this gap in the law and developing a legal mechanism to fix it. Senator Cornyn. Can I let the other two witnesses comment briefly? Vice Chairman Rubio. Yes, you can. Dr. Mulvenon. Senator Cornyn, you may remember actually a member of your staff invited me to testify before Senate Banking. And I think I was the only person on the panel in favor of FIRRMA against the venture capitalists and the other corporate types. And I was very happy that it passed. Of course there were some pieces missing from the original legislation, in particular monitoring of JVs in China, and the outbound investment. I fully support the legislation and the concept paper, which I read first, about the legislation. And the two things I like best about it are, first, the way you parameterized the first tranche of outbound investment that would be subject to the regulation, clearly delineating what was subject to it and what wasn't. And also, your point that we shouldn't wait for allies. That we needed to be able to make a lot of those moves unilaterally first and let our allies catch up with us. And I think those are the two strongest parts of the bill. Vice Chairman Rubio. And I'm sorry to interrupt. I promise, we will get back to that second answer, Senator. But we're running out of time on this vote and I want to make sure Senator Bennet gets to vote. Senator Bennet. I really appreciate that, Mr. Chairman. Thank you very much. We're running out of time on the vote. I wanted to come back to Dr. Murdick's red-blue analogy in terms of our analytic capabilities. And it hopefully suggests a way forward. Senator Sasse and I have been working on several bills to better position ourselves for the competition and better direct our investments. In the last year's Intelligence Authorization Act, we advanced a national technology strategy which we continue to push forward. We're currently working on a bill to establish the capability to conduct technology net assessments in order to determine U.S. leadership on critical technologies relative to other countries, particularly China. What we found through our work on this Committee is that while the Intelligence Community looks at what China and other countries are doing on emerging technologies, no one in the government, as we were talking about earlier, is really looking at how such trends compare to the U.S. private sector activity. Our new Office of Technology Net Assessment would review U.S. competitiveness and technologies critical to economic and national security based on a fusion of intelligence, including open-source intelligence and commercial data. Would a capability like this help us determine where we need to direct investment and answer some of the questions we're asking today and protect leadership and technologies that matter most to U.S. economic and national security, do you think? Dr. Murdick. Clearly, the net assessment type model is quite exciting and has a lot of potential. And I think that pursuing that kind of approach makes a lot of sense. I think it's important, wherever this capability is, that they have the authorities and incentives to be able to answer the questions in a full way. Authorities, meaning that they can get at both the red and blue like you were highlighting. I think that's a central point. And also the incentives. The U.S. tends to use open source as a complement for SIGINT and HUMINT and other sources. And I think other models are using the open source as a first resort and then laying on top of that the classified sources. I think to get another assessment, it's important that you look at the big picture first and then fill in the pristine information on top of it. And so it's a methodological--in making sure those incentives are honored. Senator Bennet. We'd like to work with you on that. And with the last couple of minutes remaining though, thank you for your testimony. I think it really is important and I'm very, very pleased that Senator Cornyn said what he said about the importance of doing this in public. I think it is very clear too, having been on this Committee now for however many years it is, that our failed experiment of prioritization and making stuff as cheaply as possible in China has been just that, a catastrophic failure for the United States of America. And it's going to require something totally different for us to compete. I wonder with a couple of minutes left, what does that industrial policy look like? How do we do it in a way that harnesses the imagination of the capitalist system that we have, as opposed to the way that the Chinese are doing it? And finally, how are we going to know that we're actually succeeding so when people are sitting at that table at some point in the not-too-distant future, they're actually telling a story about how we're outcompeting rather than have our lunch eaten by Beijing? I don't know who would like to start, but I'd be happy to hear all of you or any of you. Thank you. Ms. Nikakhtar. I can. Go ahead. Dr. Murdick. Just very briefly. I'll be short, though. This is a good time to re-engineer our innovation system and to be able to think about--. There is a good friend of mine who wrote a paper dealing with the system, re-engineering of the American R&D system. There are options and ways to be able to take the strengths of the U.S. system and be able to effectively engage in a way that recognizes the government authorities that we actually have--where we actually have authorities, where we can engage and where we should be letting the innovation system work in that beautiful American way of it's hard to predict. Just a very small comment. I'll let you go deeper. Ms. Nikakhtar. Thank you. Look, representing industries, folks are really excited about this potential for industrial policy and many of us have been champions of it for a long time. What you see is you were getting a lot of excitement. You've got companies with really exquisite IP, clean rare earths processing, for example, that actually have the IP, but they've never really had the financial means to get this launched. There's a lot of IP that's in the works that this is also catalyzing. Catalyzing is the key word. But I think to make this successful, these companies are still reluctant to make the investments in the United States because they're like, I'm going to be displaced by cheap Chinese stuff because China is configured to outcompete all the time. They're really freaked out about that. We've got to think of a mechanism that once our industries through our industrial policy are growing, we're able to really cut out unfair predatory competition. And then finally to your last point, how do we know that we're succeeding? When the world starts buying our goods and not the Chinese goods. Vice Chairman Rubio. Senator Casey, you voted already? Senator Casey. I did. Vice Chairman Rubio. Okay. Senator Casey. Mr. Chairman, thank you very much. I want to thank our witnesses. I'll focus my question and some comments before it on Ms. Nikakhtar. In particular, I'll be quoting you in reference to some of the areas of questioning that Senator Cornyn raised on outbound investment. I wanted to start by way of a predicate quoting the 2022 Annual Threat Assessment. It says in pertinent part, quote, ``Beijing's willingness to use espionage, subsidies, and trade policy to give its firms a competitive advantage represents not just an ongoing challenge for the U.S. economy and its workers, but also advances Beijing's ability to assume leadership of the world's technological advancement and standards.'' End quote. In your written testimony, you note, quote, ``U.S. financial investments in Chinese-domiciled companies total over $2.3 trillion in market value of holdings at the end of 2020.'' This is on page 24 of your testimony when you make that statement. And then you have just above it, a list of the capital and investment types. It's just breathtaking. It's everything from telecommunications to robotics, biotechnology, AI, surveillance, semiconductors, pharmaceuticals. It goes on and on. That gives people a good sense of the challenge we have. Later in your testimony, you say, and I'm quoting here, ``We have for centuries regulated the transfer of defense articles to foreign adversaries. Today in much the same way, we need to regulate the transfer of technology, economic flows, and supply chain capabilities to them.'' Unquote. And as Senator Cornyn mentioned, we have the National Critical Capabilities Bill and you talk about that in your testimony as well, in some of your earlier testimony. I guess a two-part question. One is, what are the limits of existing regulatory tools, including export controls? That's question one. Question two is why is an interagency outbound investment review mechanism necessary to win the competition with regard to the Chinese government? Ms. Nikakhtar. Thanks for a really thoughtful question. First, what are the limitations of existing regulatory tools? I think we have a lot of gaping holes in our export control system and I think we really need to tighten those up. Greenfield investments. I mean, gosh, what an incredible way that we're allowing domestic investments to be exploited. Really, the transfer of sensitive data--data centers--not to the rest of the world, but to adversaries who we know are going to take the data from our data centers and use it for their AI machine. That's another area. And then certainly the outbound investment mechanism because--. We talked about the limits of export controls. So when you have these facilities in foreign countries and you develop the technologies there, release technologies there, aren't critical manufacturing capacities there, we empower them and not ourselves in the United States. But another point that your thoughtful question had me realize is that China has all these national security laws that actually have companies that are in China, transfer data to them whenever the CCP wants. And then, they have the corporate credit system, like the social credit system but for corporations. It even applies to foreign corporations in China, that if you don't act anytime that the CCP wants to enable them and to act in their best interests, they can take all these adverse actions that the EC Chamber of Commerce, European Chamber of Commerce, basically said that it amounts to life or death for a company. And we're allowing our companies with critical capabilities to go over there. It makes no sense. And again, I really want to stress that it is not businesses' responsibilities to take care of national security. It is all of yours. And then, thank you for what you doing. Remind me of the second question. Senator Casey. Why would this outbound investment mechanism be necessary? I know you've said it. I would just like you to restate it. Ms. Nikakhtar. Like we said. China has made abundantly clear. This isn't McCarthyism. China's made it abundantly clear that it is holding our supply chains hostage to gain leverage, not only for the United States but the rest of the world. That's why we need this legislation. Thank you. Senator Casey. Thanks very much. Thank you, Mr. Chairman. Vice Chairman Rubio. Senator Sasse. Senator Sasse. Thank you, Chairman. Thanks to all three of you. This has been an informative hearing. Obviously, in the SCIF we cover topics like this regularly, but it's clear that the American people broadly don't understand these issues. And corporate America certainly doesn't. I've become increasingly concerned as I learn more and more about how premier U.S. law firms ostensibly represent private, in scare quotes, Chinese companies, where American lawyers work on cases in what feels a lot like a revolving door of senior government officials leaving Administrations going out and being hired at law firms. And then a lot of their clients become these Chinese fake private companies. As Chairman Warner says again and again, our beef is not with 1.4 billion Chinese people created in the image of God. It's with the Chinese Communist Party and their malevolence and their export of surveillance-state autocracies and their genocide in Xinjiang and more and more. Could you walk the American people through how China uses former U.S. Government employees and particularly those who've had access to our government secrets? Ms. Nikakhtar. Yes, it's really terrifying. What is the Stalin quote? We'll use the rope that the capitalists sell us to hang them. There's debate on whether that's a quote or not. But the true thing is that it's money. It's money, money, money. When the Chinese companies dangle money in front of folks who've been in the government and have access to exquisite data and know how the ins and outs of the government work, know how to exploit regulations, it's really hard for people to say no to money. And so you see this revolving door and then there's various reasons why people go into the government. But one of the key reasons is to get a better job on the way out. When the CCP exploits that with being able to pay a lot of your bills--all your legal bills. And when there's this rat race within law firms, who can generate more revenue and with status within the firm, who can generate revenue. How do you resist that temptation? The way my firm does it is we bring trade cases against China, so there's an inherent conflict of interest. So, I don't have that. But most, as you pointed out, law firms don't. And so then how do you resist all of these temptations and these expectations of you that you're supposed to generate revenue, when the Chinese make it so easy? Senator Sasse. And what is the Chinese government via these companies seeking advice about from these law firms? Is their goal better governance compliance? Ms. Nikakhtar. Yes, it's twofold. It's just lobbyists. Lobbyists. Just pepper the government with lobbyists, so they can just hear, hear, hear from an echo chamber. And the other one is they hire people who know people in the government and then know how to manipulate the laws. The more you know the intricacies of the laws, the more they're interested in you because you can build in nuances to basically create backdoors for them to circumvent the laws. And that's what they're looking for. Senator Sasse. Anything the two of you want to add to this? Dr. Mulvenon. Senator, it certainly is a function of our open system, which is in stark contrast to the opacity, of course, that our companies face on the Chinese side. And perhaps that's worthy of some mention. All of the proliferation of documents that I mentioned, many of which are unpublished. Our companies will go into meetings with ministry regulators in China and the regulator will push and draft unpublished regulation across the table for them to read and to be enforced. And they ask, can I keep a copy of it? And they said, no, that's just an unpublished draft and pull it back. They don't even have the ability then to seek remedy with the U.S. Government or with other people who could help them in those situations. Not to mention the fact that, of course, while there have been some improvements in the intellectual property courts in China, the court system itself is not an independent branch of government. It is fundamentally dominated by the Chinese Communist Party. And the judges in those courts are first and foremost responsible to the Communist Party discipline before the legal discipline. That is just one of these unbelievable asymmetries between the two sides and further creates that asymmetric environment for our companies. Dr. Murdick. I'll take on one small part of this. One of the challenges in working in the government is you have limited time to think and you don't have a lot of space to do that thinking. You tend to rely on what's being said outside, because you need someone who has had time to be able to draft out, particularly in emerging technology spaces because these are very complex. They're technical--technically hard to understand. There's a lot of players involved. It's important to get that information. And I think that information dearth that we've put on Senators and Congress, individuals, as well as Executive Branch, actually puts you at an increasing disadvantage because you're actually dependent on people outside, who might actually have a conflict of interest, to inform you on what to do. And therefore, coming back, I do think there is an opportunity to increase this analytic insight so that you can be informed by sources that conflict of interest is more clearly controlled. Senator Sasse. I know I'm nearly out of time. It's been reported that there are currently 20 former Senators and Congress people that lobby extensively on behalf of the Chinese government and Chinese fake private corporations. Is there any reason why that is in the interest of the United States citizenry or governance? Ms. Nikakhtar. I've thought a lot about this, and I really want to answer this question because I don't understand what their end game is. If you're taking money from the CCP and you're lobbying on their behalf, at some point somebody's going to have to win this conflict. And if we lose, where are you going to run? Where are you going to hide? You've actually enabled this to happen. And when China is the dominant power and we become a vassal state, it's affected you too. I just fundamentally do not understand why these people are trading in their future, their children's future, for a few dollars today. Senator Sasse. Thank you. Vice Chairman Rubio. Senator Wyden. Senator Wyden. Thank you, Mr. Chairman. First question for you, Ms. Nikakhtar. I'm very troubled about the use of the $10 trillion private equity industry to mask investments by Chinese-government-linked actors in critical infrastructure and technology. And you may be aware that as Chairman of the Senate Finance Committee, I've been working on legislation that would close disclosure loopholes for private investment vehicles like hedge funds, private equity, and venture capital firms. In your view, would there be a national security interest in fully understanding who is behind these funds that are acquiring companies with critical technology? Ms. Nikakhtar. A hundred percent. We've got to explore all of the disclosure loopholes and close those. And then when we trace the financing back, it has to go back to the ultimate beneficial owner. And I think companies do not do adequate due diligence to figure this out. And I think sometimes our intelligence communities fail to do that. Senator Wyden. Would it be fair to say you believe legislation requiring disclosure of beneficial ownership of these very large investment vehicles would make the CFIUS review process more thorough and efficient? Ms. Nikakhtar. Yes, Senator, I do. And I would actually take it a step further. I actually think that companies that do business of a certain dollar amount with the CCP need to disclose that to the government, too, so we really understand what these transactions are that companies are making. So, yes. And then again, I would take it a step further. Senator Wyden. It'd be fair to say between the two questions I asked and the additions you just made, where you said you'd go further, you think to a great extent, we're just pretty much in the dark with respect to anything resembling useful, fulsome information about these funds? Ms. Nikakhtar. As the former head of CFIUS at the Commerce Department, yes, we were completely in the dark. Our Intelligence community didn't have adequate information. And I was frequently in the office until three in the morning using any open source information I could to get to the ultimate beneficial owner. So, yes. Senator Wyden. That really is what you are left with is just flailing about trying to find open source, when, if we had government doing its job and insisting on disclosure and insisting on accountability, you would have that information. Is that fair to say? Ms. Nikakhtar. Flailing about, yes. Sometimes I found really good data, yes. And a lot of sleepless nights, yes. Senator Wyden. Very good. You clearly have the expertise to use open source information. I don't think it should come to that. I think we ought to be adopting the suggestions. Ms. Nikakhtar. You're absolutely right. It was just tongue- in-cheek. It was never through open source, the exact type of information I need to take it across the finish line. You're absolutely right. Senator Wyden. Very good. Dr. Mulvenon, I am told you're an expert in China's Internet censorship. This has been an issue of great importance to me, and on the Finance Committee in particular. And we have looked at the way the Chinese government uses Internet censorship to silence its critics. Internet censorship, whether at the hands of the Chinese government or nominally private companies not only undermines free speech and human rights, but has an economic impact on companies who can't or won't be able to participate in markets under those terms. For example, a recent U.S. International Trade Commission report described how censorship is creating barriers to the entry of U.S. tech firms in China and protects Chinese companies from competition. The question would be, given China's expanding economic influence, how do we stop the PRC cyber and censorship policies and its views--very odd and ominous views--on Internet sovereignty from spreading outside of China? Dr. Mulvenon. I agree with you, Senator. I've been looking at this issue for a long time. We're entering a new era where the Chinese model, if you will, of the so-called panopticon surveillance state is now being globalized. We used to talk about the Chinese Internet censorship issue largely in a China context in terms of inbound and outbound information from China itself. But the export of the Chinese surveillance industry, whether it's via SmartCities in Africa and other belt and road countries, up to and including China's proposals to the international standards bodies, which propose, frankly, a re- architecting of the Internet and Internet 2.0 that is extremely surveillance friendly and very national sovereignty friendly, vice our traditional model of focusing on a global notion of Internet freedom. Senator Wyden. One more question if I might ask. There have been a number of reports of the PRC using its economic power, in particular its status as a market for American entertainment, to influence the movies and the television that Americans consume. Doctor, what do you see is the future of this kind of censorship and how widespread it might be? Dr. Mulvenon. Frankly, I've been deeply troubled by the trends over the last 10 or 15 years where major studios, because of China's rapidly growing theater market, are reluctant to depict any negative depictions of China in movies up to and including, as I'm sure you're aware, the CGI re- rendering of the remake of ``Red Dawn'' where all of the Chinese in the movie were remade through CGI into North Koreans so that studio did not anger the Beijing regime. And I don't see how we reverse that given the economic pull of the theaters, except to acknowledge that it is in fact happening and it is fundamentally not compatible with our values. Senator Wyden. Mr. Chairman, can I get one last question in? Thank you, Mr. Chairman. This influence, obviously, of the PRC could be indirect. For example, Twitter's owner has heavily invested in China. Tesla cars are manufactured in China, rely on the Chinese market, depend on Chinese lithium for batteries. Do any of the three of you have concerns that the PRC might try to leverage Tesla's dependence on China to limit anti-PRC content on Twitter? Ms. Nikakhtar. Can you repeat the last part? I had a hard time hearing. Senator Wyden. Do you have concerns that the PRC might try to leverage Tesla's dependence on China to limit anti-PRC content on Twitter? Ms. Nikakhtar. Absolutely, absolutely. By having more of any company's operations and supply chains in China, we're giving them full ability to basically be the puppet master and dictate how these companies operate companywide, owner-wide. Once you hold them hostage, you can essentially compel them to do anything. And people forget that in China you don't have the ability to make decisions yourself. Senator Wyden. I'm way over my time. If either one of you want to make a quick comment, please do. But I get the sense that maybe the previous answer to my question is in line with the other witnesses today. Is that true? Okay. Thank you. Chairman Warner. I'm going to momentarily bigfoot for one second, since I've got a TV headline upstairs. And this will be a lightning round. We touched a little bit on this earlier around, and I agree that the alliance of democracies. Should that be--brief, brief answers because I've got one more question quickly after this and then I want to get Senator Sasse to close out. But should it be a formal alliance or not? I had pushed the Administration to maybe think about this in a more formalized way. There are good arguments both ways. There might be different alliances on different issues. Although I'd point out the fact that by not having some formal alliance approach on semiconductors, for example, Germany is moving even quicker than us, even though we had the idea to start with. Maybe done it in alliance? But I think you got the gist of the question. Right down the line: formal alliance, not formal alliance in recognizing it? Maybe different countries. If you had a core group, you could expand or contract based upon the technology. Dr. Murdick. Yes, I think if you're dealing with the right parties who actually have the play in the question, I think a formal alliance makes a lot of sense. I think most of these questions, for them to be effective, require multi-party engagement because a single actor trying to stop a multi-party system just gives an opportunity for people to run around that single actor saying no. Ms. Nikakhtar. Some formal, some informal. Sometimes our allies don't want to be out there because the fear of repercussions from China. On a case-by-case basis, sometimes formal, sometimes informal, to give our allies top cover. Dr. Mulvenon. In my 2021 word bingo was plurilateral. In other words, by specific industries or specific technology, so that you only have the right countries in the room. Semiconductors, for instance. We know the Netherlands has to be in the room because of ASML and their EEV technology. But if you keep it small like that, then you can set standards and you can have industrial planning within those small groups and have coherence, whereas you can't have that at a multilateral level like the Wassenaar Arrangement, which is just too big, too diffuse. Chairman Warner. My concern with that--I'll go to the last question--and I'd like to get the response. Then I'm going to turn over to Senator Sasse. And I apologize for jumping back in like this--is that when you're thinking about technology development, it's hard to decide who the right countries are at the right end. Maybe we're doing some of this in a NATO level. We're doing some of this at a QUAD level. I don't know. It's a fair question that most of you are not completely unformal, but I'd like to continue that. The second half of this, which we've talked a lot about, the need for us to make investments. I do think, particularly Dr. Murdick, some of your ideas about how we might structure this in the government makes sense. One of the things I'm concerned with is our first time out of the chute here has been semiconductors. I would posit if you didn't have a huge high- employment industry that was losing share, and we didn't have the moment of COVID where suddenly that supply chain loss drove beyond even the industry, I'm not sure we would making this kind of $52 billion investment. How would we ever--? Maybe I'll just leave this for the record and you can come back to me on it. If it's a new technology, where China's about to sweep the field, and there's not a mature industry to invest in that's got the lobbying power here or we're not seeing the immediate repercussions of that until potentially years down the line, how do we make a decisionmaking process that at least elevates this to say you, Congress, ought to be thinking about making a major investment? And I would love to get your answers on that but recognizing that I've abused my jumping in front of my friend. Senator Sasse, you get to close out this. And thank you, thank you, thank you. We've had a large number of my colleagues on both sides of the aisle who have come up and said, very good hearing. Senator Sasse. Senator Sasse [presiding]. Senator Sasse. Chairman, thank you for scheduling this in public. It's a very important topic. I wish I could hold you all hostage for half an hour, but the reason I'm the only one left here is that the vote closes soon, so I'll also ask you to speak quickly. But pursuing more of what the Chairman just said, I want to get back to something like a D10 or a D12 technology standard- setting and free trade agreement. But first, explain to us what is Chairman Xi doing in his own tech crackdown right now? What's motivating him? Dr. Mulvenon. Well, I think that there is an inherent suspicion in the Chinese central government about private entrepreneurship. You see this. There's a number of indications and warning of this. One is the re-imposition of the requirement for party committees within private enterprises as the only reliable mechanism of political control that they're familiar with. Secondly, it is fair to say that Alibaba and Tencent were reeled back in because they had been so fabulously successful at creating a new mobile digital payment market that it was having a negative revenue effect on the Chinese state-owned banking system. And so in some sense what you see is the revenge of the regulators because of course the state banks and the state bank regulators are the same people just rotating jobs every couple of years. There was a sense that as they were developing eCNY and their own digital currency that they could imagine--this is my prediction, that there will be a future in which the Chinese state digital currency will subsume what had previously been the private enterprise mobile payment system, and that would allow them to have that kind of central understanding of what's going on, on their central blockchain, which helps them with their capital flight concerns, helps them with their anti-corruption investigations. There's a lot of things merging together, I think, that explain why they didn't want so-called rogue elements. It's also true, by the way, that these entrepreneurs that they're reining in are not members of the tribe, in a sense. They're not red princelings. They're not red family members. They have not asked under common prosperity for any high-ranking party kid to give millions of dollars to charity. There really is this sense from Xi Jinping that there is a red tradition and that there are groups of people that he trusts. And these by- the-bootstrap entrepreneur guys were not in that circle of trust. That's just my personal view. Senator Sasse. Very helpful. And what's the state of the internal debate with Xi and his closest cronies about a digital decoupling that they rather than we initiate? Dr. Mulvenon. Well, I actually agree with the idea that it's a false dichotomy to say that the U.S., viewing this hyper-globalized economy, seeing these early problems with the pandemic, has now been the one that is decoupling. It is important to remember from a regulatory perspective that the Chinese state has never allowed us to invest in areas like telecommunications services and other areas. So to get upset about removal of Huawei equipment from the U.S. telecoms market, the natural question is, what is the current Ministry of Industry and Informatization allowing companies to do in their market? I would argue that their protectionist system was a form of decoupling even before we began thinking about re-shoring. I think the causation era was backward in terms of blaming the U.S. now for severing connections with China. Ms. Nikakhtar. And may I just quickly add to that? To the extent that U.S. businesses don't care, I try to remind them all the time that as China's digital currency flourishes, this is a mechanism to displace U.S. and Western competitors to manufacturers out of the market because they're just not going to accept dollars. Senator Sasse. Helpful. Sir? Dr. Murdick. Just to add in one more point on the last question. Obviously, I'm not privy to the internal discussions that are happening within China. However, there's a very interesting, I referenced it earlier, this Peking University piece from The Institute of International Strategic Studies. At the very end of this document they lay out, basically, the dynamics of technical decoupling has evolved from a one-way to a two-way process. China and the U.S. have different starting points, but they are moving toward a common goal, which objectively facilitates a two-way decoupling trend. Whether the technology level or industry level. Both China and the U.S. are facing losses brought about this decoupling and China's losses might be greater at this point. There is a clear thinking about this as a two-way process. And I think it's really important to understand that they recognize there are losses involved in this space. But this seems to be an ongoing discussion, and they're monitoring whether they can convert from a loss position, which is what it seems that they're assessing, to a position where they can have a little less loss. Senator Sasse. Very helpful. The vote is technically closed, so I need to sprint to it. But on behalf of the whole Committee, thank you for all three of your work and your time with us today. I'm going to followup with you with some more questions related to an ideal version of a D10 or a D12 or a TPP with technology standards and teeth. But thank you for your work. This hearing is adjourned. [Whereupon at 4:45 p.m., the hearing was adjourned.] [all]

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