[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
COUNTERING CHINA: ENSURING AMERICA REMAINS THE WORLD LEADER IN ADVANCED
TECHNOLOGIES AND INNOVATION
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HEARING
BEFORE THE
SUBCOMMITTEE ON
INFORMATION TECHNOLOGY
OF THE
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 26, 2018
__________
Serial No. 115-107
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Printed for the use of the Committee on Oversight and Government Reform
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Available via the World Wide Web: http://www.govinfo.gov
http://oversight.house.gov
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Committee on Oversight and Government Reform
Trey Gowdy, South Carolina, Chairman
John J. Duncan, Jr., Tennessee Elijah E. Cummings, Maryland,
Darrell E. Issa, California Ranking Minority Member
Jim Jordan, Ohio Carolyn B. Maloney, New York
Mark Sanford, South Carolina Eleanor Holmes Norton, District of
Justin Amash, Michigan Columbia
Paul A. Gosar, Arizona Wm. Lacy Clay, Missouri
Scott DesJarlais, Tennessee Stephen F. Lynch, Massachusetts
Virginia Foxx, North Carolina Jim Cooper, Tennessee
Thomas Massie, Kentucky Gerald E. Connolly, Virginia
Mark Meadows, North Carolina Robin L. Kelly, Illinois
Ron DeSantis, Florida Brenda L. Lawrence, Michigan
Dennis A. Ross, Florida Bonnie Watson Coleman, New Jersey
Mark Walker, North Carolina Raja Krishnamoorthi, Illinois
Rod Blum, Iowa Jamie Raskin, Maryland
Jody B. Hice, Georgia Jimmy Gomez, Maryland
Steve Russell, Oklahoma Peter Welch, Vermont
Glenn Grothman, Wisconsin Matt Cartwright, Pennsylvania
Will Hurd, Texas Mark DeSaulnier, California
Gary J. Palmer, Alabama Stacey E. Plaskett, Virgin Islands
James Comer, Kentucky John P. Sarbanes, Maryland
Paul Mitchell, Michigan
Greg Gianforte, Montana
Michael Cloud, Texas
Vacancy
Sheria Clarke, Staff Director
William McKenna, General Counsel
Troy Stock, Information Technology Subcommittee Staff Director
Sarah Moxley, Senior Professional Staff Member
Sharon Casey, Deputy Chief Clerk
David Rapallo, Minority Staff Director
------
Subcommittee on Information Technology
Will Hurd, Texas, Chairman
Paul Mitchell, Michigan, Vice Chair Robin L. Kelly, Illinois, Ranking
Darrell E. Issa, California Minority Member
Justin Amash, Michigan Jamie Raskin, Maryland
Steve Russell, Oklahoma Stephen F. Lynch, Massachusetts
Greg Gianforte, Montana Gerald E. Connolly, Virginia
Michael Cloud, Texas Raja Krishnamoorthi, Illinois
C O N T E N T S
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Page
Hearing held on September 26, 2018............................... 1
WITNESSES
Mr. John Neuffer, President and CEO, Semiconductor Industry
Association
Oral Statement............................................... 4
Written Statement............................................ 6
Mr. Dean Cheng, Senior Research Fellow, Asian Studies Center,
Davis Institute for National Security and Foreign Policy, The
Heritage Foundation
Oral Statement............................................... 12
Written Statement............................................ 14
Ms. Sarah Cook, Senior Research Analyst, East Asia, Freedom House
Oral Statement............................................... 20
Written Statement............................................ 22
Mr. Rob Atkinson, President, Information Technology and
Innovation Foundation
Oral Statement............................................... 35
Written Statement............................................ 37
COUNTERING CHINA: ENSURING AMERICA REMAINS THE WORLD LEADER IN ADVANCED
TECHNOLOGIES AND INNOVATION
----------
Wednesday, September 26, 2018
House of Representatives,
Subcommittee on Information Technology,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:05 a.m., in
Room 2247, Rayburn House Office Building, Hon. Will Hurd
[chairman of the subcommittee] presiding.
Present: Representatives Hurd, Issa, Cloud, Kelly, and
Krishnamoorthi.
[Audio malfunction in hearing room.]
Mr. Hurd. Welcome, everyone. We do not have an echo, so
let's try that again.
The Subcommittee on Information Technology will come to
order, and without objection, the chair is authorized to
declare a recess at any time.
Good morning. For more than 40 years, the U.S. has
encouraged China to develop its own economy and take its place
alongside the U.S. as a central and responsible player on the
world stage, but China does not want to join us. They want to
replace us. More importantly, China has not been playing fair.
They coerce American companies into entering into joint
ventures with Chinese companies with close links to the
Communist Chinese Government as the price for market access.
The United States Trade Representative, which led a seven-
month investigation into China's intellectual property theft,
recently found that Chinese theft of American IP currently
costs between $225 billion and $600 billion annually.
The Chinese have not been secretive about their ambitions
and their goals. Chinese President Xi made it clear upon taking
office that his dream for China is, and I quote, ``the great
rejuvenation of the Chinese nation.'' Critical to Xi's vision
of a rejuvenated China's dominance is manufacturing, modern
advanced technology.
In 2015, China's State Council introduced the Made in China
2025 initiative with the aim to modernize the Chinese economy
and become the world leader in manufacturing. Made in China
2025 focuses on promoting breakthroughs in critical sectors of
the Chinese economy, and of the sectors this hearing will focus
primarily on next-generation IT, a topic that this subcommittee
has been exploring for three and a half years. A next-
generation IT includes the hardware that make up today's
technology and the networks that support communications.
Examples include 5G networks, semiconductors, cloud computing,
artificial intelligence, blockchain, and quantum computing.
As we explore these issues, we cannot lose sight of the
many abuses the oppressive Chinese Government perpetuates on
its citizens. In China today Uighur Muslims are sentenced to
years in prison for praying. Mothers and fathers are shipped to
reeducation camps for practicing Falun Gong and never heard
from again. The communist Chinese Government oversees one of
the strictest online censorship regimes in the world, and the
Human Rights Watch recently stated the broad and sustained
offensive on human rights that started after President Xi
Jinping took power five years ago shows no sign of abating. The
U.N. estimates as many as 1 million Chinese citizens are
currently quarantined in concentration camps.
The Communist Party that runs the Chinese Government is an
oppressive regime with an abysmal human rights record. As
Americans, we believe everyone has a right to life, liberty,
and the pursuit of happiness. The millions of men, women, and
children living under the oppressive Chinese regime in China
deserve better from their government. Our nation faces a great
challenge rising from the East, but we have met greater
challenges before, and I am confident we can meet this one.
And I am also looking to explore how we do other things
than tariffs. How do we put a regime in place that deals with
the practices that we know China is doing? They are stealing
our technology. They are forcing intellectual transfer. Alibaba
is treated like a U.S. company in the U.S., but are American
companies treated like Chinese companies in China? No. We know
China prevents investment in key future sectors, but we allow
Chinese investment in those sectors here in the U.S.
I think there are other tactics we can be taking other than
tariffs in order to deal with and ensure America and American
companies specifically stay the leaders in innovation, and I am
looking forward to exploring these issues today. And as always,
I am excited to explore these issues with the one and only, my
friend and colleague, Robin Kelly from the great State of
Illinois.
I thank our witnesses for being here today and look forward
to hearing from them innovative solutions to ensure that
America remains the world leader in advanced technologies and
innovation.
Mr. Hurd. And now, it is my pleasure to recognize the
ranking member of the subcommittee, Ms. Kelly, for her opening
statement.
Ms. Kelly. Thank you, Mr. Chairman, and thank you for
calling today's important hearing. And I too want to welcome
the witnesses.
China is mounting a serious challenge to the United States
for global leadership in technology and innovation. China's
success so far is attributed to two policies: China uses
pressure tactics on American companies requiring them to
transfer technology to Chinese firms as a condition of doing
business in the Chinese market; and China's making world-
leading investments in research and development. In fact, for
the first time Chinese investment in R&D will surpass U.S.
investment next year. Together, these policies have transformed
China into America's chief global competitor in advanced
technology.
Unfortunately, this administration's response has been to
start a trade war with China with few results to show for it.
Tariffs will not stop China from making huge investments in
research and development, but tariffs are hurting Americans.
Farmers are already feeling the effects. Soybean farmers in my
home State of Illinois, which we are number one in soybean, are
losing out on contracts in China, and workers have been laid
off as a result.
American shoppers will soon feel the effects. A recent
study by the National Retail Federation estimates that the most
recent round of tariffs will cost U.S. consumers $6 billion in
higher costs for products like furniture and luggage. The
Consumer Technology Association estimates that tariffs on
technology products will cost Americans another $3 billion for
devices such as modems.
On top of the counterproductive tariffs, the Trump
Administration's immigration policies are damaging our own
ability to compete for the talent we need to remain a lead in
technology innovation. The Administration recently announced
that it was rescinding employment authorization for technology
workers' spouses under the H-4 visa program. That sends a clear
message that highly skilled immigrants who come to work for
American technology companies are not welcome.
And President Trump has not led the major increases in R&D
investment and education funding that are necessary to stay
ahead of China's commitments. Over the past three years, China
has outspent the United States by approximately $24 billion on
investments in telecommunications infrastructure. China is
planning to invest an additional $400 billion over the next
five years to win the race to deploy 5G wireless technology for
cell phones. The United States is falling behind. China has
already deployed 350,000 cell sites for 5G, while the U.S. has
only deployed 30,000. Overall, while the U.S. remains a leader
in spending on research and development, China is expected to
surpass the U.S. in total research spending by the end of this
year.
China is also catching up to the United States in
education. According to the National Science Foundation, China
now awards nearly as many doctorates in science and engineering
as the United States. Expanding STEM education is key for
America to remain a leader in innovation in the global economy.
To that end, I have introduced today's American DREAM Act to
incentivize college graduates with degrees in a STEM field to
teach for five years. This legislation would help the United
States build the pipeline necessary to educate the next
generation of innovators in science and technology.
President Trump has gotten the U.S. into a trade war with
China, which is harming American farmers and businesses. This
trade war lacks a clear strategy with no end in sight. The
United States should be investing in research and in education
to preserve America's global leadership in technology and
attract the best talents from around the world.
Again, thank you, Mr. Chairman, for the opportunity to
discuss this extremely important topic with our panel. Thank
you.
Mr. Hurd. Thank you, Ranking Member. And I agree;
education, immigration, two ways we can solve this problem.
And now, it is a pleasure to introduce our witnesses. Our
first, Mr. John Neuffer, president and CEO of the Semiconductor
Industry Association. Thank you for being here. Mr. Dean Cheng,
senior research fellow, Asian Studies Center, Davis Institute
for National Security and Foreign Policy at The Heritage
Foundation. Say that three times fast. Ms. Sarah Cook, senior
research analyst for East Asia at Freedom House; and Rob
Atkinson, president of the Information Technology and
Innovation Foundation.
And welcome to you all. And pursuant to committee rules,
all witnesses will be sworn in before you testify, so please
stand and raise your right hand.
[Witnesses sworn.]
Mr. Hurd. Thank you. Please let the record reflect that all
witnesses answered in the affirmative.
In order to allow time for discussion, please limit your
testimony to five minutes. The entire written statement has
been made part of the record. And thank you for your
submissions. A reminder, the clock in front of you shows
remaining time. When it is yellow, you have 30 seconds. When it
is red, your five minutes are up. Please remember to press the
button to turn your microphone on before speaking.
And now, it is a pleasure to recognize Mr. Neuffer for your
opening remarks.
WITNESS STATEMENTS
STATEMENT OF JOHN NEUFFER
Mr. Neuffer. Thank you. I work for a tech association, and
I'm glad to see we're not the only ones with--that have
technical difficulties with our equipment.
Good morning, Chairman Hurd, Ranking Member Kelly, and
members of this subcommittee. I'm John Neuffer, and I'm
testifying on the behalf of Semiconductor Industry Association.
Thanks for the opportunity to testify before this committee
regarding one of the most pressing challenges facing the U.S.
semiconductor industry today: How to maintain U.S.
semiconductor technology leadership in light of the full-
throated effort by China to compete with the U.S. in advanced
technologies, especially in regard to those Chinese Government
policies and practices that threaten our intellectual property
and distort markets.
Invented right here in America, semiconductors are the
building blocks upon which U.S. technological leadership rests.
They power virtually all modern electronics from communications
to transportation to health care to energy to military systems.
U.S. ship makers lead the world. We account for close to half
of the $412 billion global semiconductor market. We are the
Nation's fourth-largest exporter after aircraft, refined oil,
and automobiles. We have a global trade surplus of over $6
billion, and a bilateral trade surplus with China of over $2
billion. Importantly, nearly half of our manufacturing
operations are right here in America, spread across 19 States,
not just in Silicon Valley. And the industry employs close to
25,000 workers in the U.S. with well-paying jobs.
So China is a critical market for our industry, to be sure.
At the center of the world's electronics supply chain, China
is, unsurprisingly, the leading destination for U.S.
semiconductor exports. We are especially concerned with Chinese
actions, policies, and practices that force the transfer or
allow the outright theft of our technology. This includes the
forced transfer of our technology as a condition of market
access, which you've addressed this morning, the plethora of
formal and informal requirements that force the disclosure of
intellectual property, and persistent economic espionage to
steal viable IP.
In 2014, China is--set in motion a massive effort to
indigenize its semiconductor ecosystem with the goal of
becoming the global leader in all major segments of the
industry by 2030. Core to this effort are substantial
government subsidies. Altogether an estimated $90-$100 billion
in government financial support has been earmarked to support
the sweeping undertaking. Similarly, Chinese industrial
policies in sectors such as solar, wind, and LEDs have led to
major distortions in the marketplace and left lots of wreckage,
so we know what that picture show looks like.
To maintain U.S. leadership in the semiconductor industry,
the U.S. Government must develop a comprehensive and adequately
resourced competitiveness and innovation agenda. Other steps
need to be taken. First, let's eliminate tariffs, the recently
imposed tariffs on semiconductors. Slapping tariffs on our
products only hurts U.S. semiconductor companies, while failing
to address the real problems we're having with China. Chinese
semiconductor companies don't even send their products to the
U.S., so Chinese enterprises are not hurt by tariffs.
Second, strengthen multilateral actions with U.S. allies.
Multilateral pressure is one of the few tactics that has
historically prompted China to change course in a positive
direction.
Third, strengthen protection of IP. Press harder on China
to adopt policies and engage in stronger IP enforcement to
prohibit and penalize state or state-owned enterprises from
misappropriating trade secrets or proprietary technologies
generally and especially through activities related to the
hiring of overseas talent.
Finally, help the U.S. run faster with increased Federal
investment in research. While the U.S. has long been the leader
in semiconductor R&D, Federal investment in this area is simply
not keeping pace with nation-state competitors.
The United States is at a critical juncture. It's facing
intense global competition from China in multiple high-tech
sectors, including semiconductors. While our nation continues
to dominate leading technologies from semiconductors to
aerospace, we must not be complacent. There are real near-term
and long-term challenges that require closer collaboration
between industry and government to ensure we retain our
technological leadership in key technology arenas.
Thank you.
[Prepared statement of Mr. Neuffer follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Hurd. Thank you, sir.
Mr. Cheng, you are now recognized for your opening remarks.
STATEMENT OF DEAN CHENG
Mr. Cheng. Good morning, Chairman Hurd, Ranking Member
Kelly, members of the subcommittee and committee. My name is
Dean Cheng. I'm the senior research fellow for Chinese
political and security affairs at The Heritage Foundation. My
comments this morning are my own.
My comments this morning are intended to provide some
context for better understanding the Chinese approach to
information and information technology. Three key aspects
underlie the Chinese view of the world and in particular their
approach to information and communications technology:
comprehensive national power, the period of strategic
opportunity, and the impact of living in the information age.
Comprehensive national power is how the Chinese compare the
world's various nations, how do they rack-and-stack Bolivia,
Botswana, Brazil, the United States. It includes all aspects of
national power, military capability, economic capacity,
political unity, diplomatic respect, even cultural security.
Science and technology writ large, but especially
information technology, contributes to and affects all three
aspects--all of these aspects of comprehensive national power.
It improves the economy, enhances military effectiveness, and
can even elevate cultural security and strengthen political
unity. It's also important to recognize that in the Chinese
context, scientists and the scientific community often have an
outsized political impact, and I would point to the example of
the Chinese scientist Qian Xuesen, who was a combination of J.
Robert Oppenheimer, Albert Einstein, and Robert Goddard in the
Chinese context and had an enormous political influence.
The period of strategic opportunity is from the Chinese
perspective the first two decades of the 21st century. It is a
period marked by low probability of war and therefore an
important moment for China to focus on national development, to
elevate GDP, GDP per capita, level of national infrastructure,
and, again, level of science and technology capacity.
Exploiting the period of strategic opportunity is central
because it will allow China to catch up with the rest of the
world and will include both internal domestic efforts, as well
as exploiting ties to the outside world.
And here the fact that we live in the information age
becomes central because the rise of the information age
facilitates China's access to the rest of the world's R&D
capacity but also provides a focus for China's internal
development. The rise of the information age means that future
power is going to be measured not simply in an industrial
capacity, how many gigawatts of power do you produce, how many
millions of tons of bauxite do you refine, but in terms of the
ability to generate, to gather, to analyze, to exploit, and to
transmit information more rapidly and more accurately both
within China but around the world. And so within this context
information and communications technology, ICT, plays an
especially outsized role, given its impact as the basic metric
for future power.
It is--should therefore not be surprising then that China
is focused on developing information, not just ICT as we tend
to think of it, whether it's semiconductors or 5G, but
ancillary and related aspects, software, social media, even
space. Space is seen as a vital part of information technology
because it is a central means of both transmitting and
gathering information.
Again, it should not be a surprise that for the Chinese of
particular emphasis is so-called ABC: artificial intelligence,
big data, and cloud computing. In each of these areas the
Chinese are pushing their state champions. It should be noted
these are not necessarily state-owned enterprises, but all
Chinese companies at the end of the day are state-influenced,
and therefore, may not be directly working for China but are
certainly not going to say no the way Google has over Project
Maven.
The Chinese do see all of this information revolution as
fundamentally altering the state of play among nations, much
like HMS Dreadnought instantly made all warships around the
world obsolete. The Chinese believe that ICT is providing an
opportunity to in a sense reset the global balance of power.
In this context, however, I do want to emphasize to the
members of the committee that the Chinese are not simply
stealing. This is not of course to say that they don't steal
but that they have spent an enormous amount of effort and
energy to promote indigenous innovation, and therefore, it
would be a horrible mistake for us to believe that if we simply
could curtail theft, that China will inevitably fall behind.
You cannot look at the amount of sustained effort and
investment and believe that China is going to allow itself to
fall behind.
Let me conclude then with just a couple of quick thoughts
on solutions, one of which is that if the issue is about stolen
technology, then we should perhaps treat Chinese companies as
dealing in stolen goods. And we have an extensive legal array
of measures to deal with that. If it is about information,
however, then for China it is as much about information access
as it is about the information goodness itself.
Thank you very much.
[Prepared statement of Mr. Cheng follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Hurd. Ms. Cook, you are now recognized for your opening
remarks.
STATEMENT OF SARAH COOK
Ms. Cook. Chairman Hurd, Ranking Member Kelly, and members
of the subcommittee, thank you. It is an honor to testify.
Last fall, the Chinese Communist Party declared its
aspirations for China to become a, quote, ``cyber superpower.''
A September 2017 article in a top party journal lays out
China's strategy for achieving this status and is surprisingly
candid about the party's ambitions and motives, including, one,
increasing domestic Chinese internet controls to ensure
authoritarian longevity so that, quote, ``The party's ideas
always become the strongest voice in cyberspace,'' end quote;
two, using the technology sector as a foundation to secure
China's economic health, including by enhancing the global
influence of Chinese tech giants; and three, expanding
information controls beyond China's borders in order to, quote,
``push China's proposition of internet governance toward
becoming an international consensus,'' end quote.
Prioritization and effective implementation of such
strategies has emerged as a hallmark of Xi Jinping's leadership
of the Chinese Communist Party. Xi has a sophisticated
understanding of how the internet and social media applications
function, and he's proven himself adept at closing previously
existing loopholes in internet controls. Indeed, over the past
year alone China has taken new strides in technological
advancement, censorship, surveillance, and international
expansion.
The Communist Party's cyber ambitions directly and
negatively impact U.S. companies. China is home to over 800
million internet users, but many of the world's top technology
and social media firms are banned or extremely constrained in
their ability to provide services to them, including Facebook,
Twitter, and Google. A 2016 survey by the American Chamber of
Commerce found that 79 percent of U.S. companies reported that
Chinese Government internet's restrictions hurt their
businesses.
Chinese technology firms have been at the forefront of the
party's censorship and surveillance efforts, but American and
international firms are increasingly implicated. The Chinese
Government is adept at using the combination of its ability to
block online services and allure of its enormous domestic
market to extract concessions from foreign firms, including
assistance with its censorship and surveillance system. Under
China's new cybersecurity law, foreign companies operating in
China are also increasingly at risk of becoming complicit in
politicized arrests.
As Chinese and foreign companies take more steps to appease
the regime, the human toll will continue to mount. Censorship
and surveillance on sensitive topics like Taiwan, Tibet,
Xinjiang, and Falun Gong either whitewash or actually
exacerbate large-scale human rights violations, including mass
detentions, torture, and extrajudicial killings. Ironically,
the complicit companies are also victims of the government's
repression. They suffer from the arbitrary nature of Chinese
regulatory decisions, reduced profit margins, and distrust
abroad due to close Chinese Government ties.
China and the Communist Party's cyberspace policies and
strategies are complex and multilayered. They require an
equally sophisticated response. I would urge the committee to
consider the following recommendations: One, the United States
should be proactive in developing its own capabilities and
upholding international free speech and privacy standards. This
should include developing a comprehensive 5- to 10-year
national strategy on artificial intelligence.
Two, the United States Government should encourage the
business community to take a principled stance vis-?-vis
Chinese Government internet controls. This should include
reintroducing and passing the Global Online Freedom Act, which
would designate internet-restricting companies and impose
certain requirements on companies doing business in those
places.
And three, the United States should be proactive in
challenging the very clear authoritarian foundations of the
Communist Party's cyberspace strategy. A central pillar of this
effort should be increasing both the scale and effectiveness of
funding for countering censorship efforts specifically related
to China. The Chinese Government is spending billions of
dollars a year not only to keep Chinese people from freely
accessing the internet but also to keep U.S. companies from
offering services to the largest internet market in the world.
Some of the first websites Chinese users visits after jumping
the so-called Great Firewall are actually sites like Google,
Facebook, and Twitter. Supporting Chinese internet users'
ability to access these websites not only enhances internet
freedom but also U.S. economic competitiveness.
In this context, I urge the committee to investigate and
report on whether current U.S. Government funding for internet
freedom in China is being deployed in the most effective manner
to address today's challenges. This would involve seeking
information from the Broadcasting Board of Governors and the
State Department on questions such as how much internet freedom
funding has been allocated to China? How many users in China
have benefited? Does this appropriately match the needs and
demands of users, as well as U.S. interests in policy goals
vis-?-vis China?
Funding efforts to date have undoubtedly done much good,
but there is reason to believe that an even greater impact
could be achieved with a more efficient strategy, possibly
without the need to even increase funding. American and
international firms are caught between a rock and a hard place.
The Chinese Communist Party has laid out its own plans and
ambitions, and it shows every sign of implementing them to the
fullest. The question is whether the United States, other
democracies, and tech entrepreneurs will assert their own
principles, including freedom of expression, with equal
determination.
Thank you.
[Prepared statement of Ms. Cook follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Hurd. Mr. Atkinson, you are now recognized for five
minutes.
STATEMENT OF ROBERT ATKINSON
Mr. Atkinson. Thank you, Chairman Hurd and Ranking Member
Kelly, members of the subcommittee. It's a pleasure to be here
today.
ITIF is a technology policy thinktank. We've long focused
on the question of what we've termed innovation mercantilism
from China. I won't go into the details of what that is. I put
that in my written testimony. And let me say what should we be
doing.
Clearly, the avenue now is tariffs. I'm not going to say
whether they're overall good or bad, but I think if we're going
to use tariffs, we should use them strategically. Mr. Neuffer
alluded to the fact that tariffs on semiconductors only hurt
us, they don't help--they don't hurt the Chinese. We put
tariffs on certain types of products or inputs where the
American firm is competing against, say, a firm from Japan or a
firm from Indonesia. They come into the country tariff-free.
Our companies don't. If we're going to use tariffs, let's be
strategic about it. Let's put some thought behind it and not
just use it as a blunt instrument.
I think more importantly, though, we need to think about
how do we orient trade policy towards China in a results-
oriented way. This is something people argued about with regard
to Japan in the 1980s. One of the results we want from China--I
say that by the way because I don't think a process-oriented
process works with China. They're just too sophisticated, and
any time we say don't do a particular process, they will figure
out a new way to do it. I think we want a number of clear
easily measured results: one, an end to coerced and forced tech
transfer. We can measure that. We can say just no more.
Secondly, a vast reduction of industrial subsidies as,
again, Mr. Neuffer alluded to. They're not just in the
semiconductors. They're in a vast array of technology
industries way, way beyond what the OECD subsidy guidelines
would allow; a reduction in IP theft and cyber theft, and much
better U.S. market access.
So how do we do that? I think it's clear that our best
chance of doing that is a deep, deep coalition with our allies.
We had meetings with the Japanese, with the European officials,
with Korean officials. They all ask for one thing, for us to
take the lead, but they all want to be part of that. And I
think right now we're not doing that.
We've seen that that process works back in--I'm going to
guess 2012 or so. There was a Chinese policy called indigenous
innovation product catalogs, very onerous, restrictive process.
You couldn't sell to the Chinese if you were a European or
American firm unless you gave them your technology. That's
essentially it. And the Europeans, their Chamber of Commerce,
our Chamber of Commerce, our government, their government, all
banded together, and that pressure was enough to force the
Chinese Government to back off and eliminate the indigenous
innovation product catalog. So we've seen that that way of
organizing pressure works.
If we don't do that, though, what do we need to do? I think
a big part of this is going to basically be making their
ability to catch up more difficult. We're just going to have to
throw roadblocks in the way while at the same time speeding up
our catchup. And part of that has to be limiting their global
market share and expanding our global market share. Technology
industries is probably one of the most important things you can
do because global market share means more revenues to then
invest in R&D.
And in that regard I would say that having a company like
Google go into China is completely in the American interest
even if they comply with Chinese law. We want to take market
share away from Baidu. We want to give our companies more
market share.
What else can we do? I think we need a better and more
comprehensive ability to understand what's going on. That's why
we've supported the Senate Bill S. 2757, the National Economic
Security Strategy Act, which would call for an economic
strategy aligned with national security for the first time in
our history. We would encourage the House to adopt something
similar.
We certainly would encourage the administration to take a
hard line on Chinese investment. FIRRMA certainly helps on
that. But you see this now. For example, there are Chinese-
backed technology accelerators. There's one in University of
Maryland, for example. These aren't out of the goodness of the
heart of the Chinese Government. These are designed for one and
one--only one purpose, to support new firms, new high-tech
startup firms, and to take their technology across the ocean
back to China.
We need to have USTR bring a case before the WTO on subsidy
disclosure, which they have not done. This is in--actually an
area where the WTO might be able to actually act against
Chinese interests as opposed to some other areas where it's
much more difficult.
I would work hard to ban Chinese access to our final--
Chinese firm access to our banking system, our securities
system. They don't give us that.
We need to rethink antitrust. For example, right now, we
have a regulation that our Justice Department exempts mergers
at state-owned enterprises in China. There's no reason to do
that. We should be holding them accountable for antitrust the
way they have used their process against us.
And finally, even with all the efforts we need to be taking
to slow them down and put roadblocks in front of them for their
unfair actions, we need to take stronger actions at home,
increase R&D, EXIM Bank funding, better STEM talent, better R&D
tax credit, and the like. Thank you very much.
[Prepared statement of Mr. Atkinson follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Hurd. Thank you, sir.
I would now like to recognize the gentleman from
California, Mr. Issa, for his opening rounds of questions.
Mr. Issa. Thank you, Mr. Chairman.
And what wasn't said in this open hearing is much of what
you know directly about China's espionage and their successful
effort to gain huge amounts of technology by stealing it
systematically over the last probably four Presidents, so this
is a bipartisan problem.
I am going to start with Mr. Neuffer. You said something--
look, I come from your industry. We go back a long way. I
watched us systematically sell out to the Chinese. I watched us
systematically move our fabs to China. Now, I appreciate your
discussion of exports, but exports and imports, we could net
them and that statistic would probably disappear.
But I think the important question is isn't one of the
effects, positive effects of the tariff the fact that virtually
every one of your member companies, if they are exclusively in
China, are looking for a second location, either a U.S.
location if they don't already have one, but even if they do,
they are likely looking at the Philippines, South Korea, any
number of other places.
So I am not here to defend, and I would like a short answer
of the fact, isn't it true that the current activity is causing
your companies to second-guess having all or most of their fabs
at least for some product lines in China?
Mr. Neuffer. Great question. First of all, just as a
percentage of our global production around the world, the
amount of production we do in China is quite small.
Mr. Issa. How many fabs does ----
Mr. Neuffer. I don't know the ----
Mr. Issa.--Intel have in California by the way?
Mr. Neuffer. I don't know the ----
Mr. Issa. The answer is zero. So I appreciate ----
Mr. Neuffer. Well ----
Mr. Issa.--your talking about Silicon Valley ----
Mr. Neuffer. Well ----
Mr. Issa.--but your industry left California for the most
part because of unreliable sourcing of electricity and water.
Isn't one of the challenges that we have to be more business-
friendly in the U.S. for at least those two assets or we are
not going to bring those fab plants back here?
Mr. Neuffer. So, I agree that we need to be more business-
friendly, and this is something that we've talked about a lot.
Mr. Issa. Okay. Well, this administration is ----
Mr. Neuffer. And ----
Mr. Issa.--accomplishing that part, but could you just
answer the short one? Isn't it true that your members are, as a
result of the current situation with China, actively looking
and moving if possible assets that they have been producing a
China to at least have a second source outside of China?
Mr. Neuffer. I'm not going to second-guess what's happening
in the boardrooms ----
Mr. Issa. Okay. Then if you are not ----
Mr. Neuffer.--of my members, but my answer is ----
Mr. Issa. But wait. No, I was talking about action. I just
came back from Beijing.
Mr. Neuffer. My answer is ----
Mr. Issa. I was there for four days ----
Mr. Neuffer. My answer is ----
Mr. Issa.--and yes, they are.
Mr. Neuffer. I don't think so.
Mr. Issa. Okay. Well ----
Mr. Neuffer. Yes.
Mr. Issa.--unfortunately, your counterparts in China made
it very clear to me that that is what is happening on the
ground.
You know, I am hearing that systematic tariffs don't work.
I am going to ask a question. And I will go over to the other
end and ask this question. You said in your opening comments or
remarks that Google should go into China. I will paraphrase
Ronald Reagan's quote when he was talking about people who gave
him money, somebody questioned whether the contribution that
Ronald Reagan got from some group tainted him. And he said
people who give me money, I don't sign onto their values, they
sign onto mine. Isn't it true that if Google goes into China,
complies with Chinese regulations, effectively, they become a
Chinese company? So is there really a net gain if you have to
play by Chinese rules?
And I will just give you the example. If I go into Africa
and I ignore the Foreign Corruption Practices Act, don't I
become an African company and essentially lose my U.S.
identity?
Mr. Atkinson. So, to be clear, what I intended to say if I
didn't say it was I think we should support or not criticize
Google if they want to go into China. If they want to go into
China for ----
Mr. Issa. But you said they should comply with--Ms. Cook--
he said ----
Mr. Atkinson. Yes.
Mr. Issa.--specifically they should comply with the Chinese
rules. In other words, they should change to fit an unfair
trade partner. Ms. Cook, you seem to have a comment on that.
Ms. Cook. I think in those ----
Mr. Issa. Or Ms. Code, I am sorry. I am ----
Ms. Cook. Oh, sorry.
Mr. Issa. Or Cook. No, it is.
Ms. Cook. Cook, yes.
Mr. Issa. You can tell my glasses need to be put on.
Ms. Cook. I think the question that--the issue Mr. Atkinson
raised related to market share--and I think it--we're
cheating--we're deceiving ourselves if we think that the
Chinese Government, with its indigenous innovation policies,
promoting global giants like Baidu is really going to let
Google get any kind of serious ----
Mr. Issa. Well, and let me ----
Ms. Cook.--market share ----
Mr. Issa.--ask a closing question ----
Ms. Cook.--so you're compromising your values. Sorry.
Mr. Issa. The Chinese premier at the World Economic Forum
made a speech that any Republican would be proud of, talking
about lowering the burden, tax cuts, and so on, but he also
said that, in fact, his tax cuts were going to have to replace
subsidizing, that he could not subsidize his economy back into
working. Does anyone here really believe that they are going to
stop the subsidies that are absolutely pushed toward their
indigenous companies and even away from our companies if they
are operating in China? Hopefully, this is an easy one, Mr.
Atkinson.
Mr. Atkinson. Their subsidies, I would argue, are WTO
illegal, many of them. And if we brought a case ----
Mr. Issa. We do have cases in the WTO and have for some
time, along with the Europeans ----
Mr. Atkinson. Not on--excuse me. Not on overall catalog
subsidy disclosures. Under the WTO session agreement, they were
supposed to do that every six months. They haven't done it.
Mr. Issa. Okay. The chairman is going to take back the time
because he should. I'm going to close just by saying that what
I like about the WTO process is that it gives plenty of time
for people to think about it because it is slow as can be.
Thank you.
Mr. Hurd. Thank you, Darrell.
I would now like to recognize Ms. Kelly for her first round
of questions.
Ms. Kelly. Thank you, Mr. Chair.
Mr. Atkinson, your organization released a report in March
2018 on the impact of tariffs on United States economy. In your
report you wrote ITIF estimates that a 10-percent tariff levied
on Chinese information and communication technology imports
would slow the growth of U.S. output by $163 billion over the
next 10 years, and a 25 percent tariff would slow output by
$332 billion. You argue that, and I quote, ``Applying tariffs
would needlessly harm the U.S. economy.'' And then just last
week the administration imposed tariffs on $280 billion of
Chinese imports. How will last week's tariffs affect the U.S.
economy?
Mr. Atkinson. The--we haven't done a thorough analysis of
all the tariff lines in that $250 billion, but clearly--I think
it's important to differentiate between what are called
producer goods and consumer goods. So if you put a tariff on
shoes, let's say, the impact is someone has to pay more for
shoes. If you put an impact on a machine or a piece of software
or a device that a company or an organization uses or the
Federal Government uses to become more innovative and more
productive, we're going to slow down innovation and
productivity. So there are a number of--there are a number of
products in that new regime of the $250 billion that would do
that, and the result would be slower productivity and
innovation in the U.S. because of that.
Ms. Kelly. Okay. And then you said that you weren't going
to say--I am paraphrasing quotes--are good or bad but if used,
they just need to be used strategically. And I am just back to
the WTO. I have steel industry in my community, and they go to
the WTO often to settle dumping or low prices and things like
that. And I don't know; it seems like, in listening to them, I
don't know. Maybe it is effective, but as someone said, it is
so slow. But they are extremely frustrated. And what do you
think in this field how, you know--do you think it would really
be effective and efficient or--I don't get that impression from
some of my steel people.
Mr. Atkinson. Sure. This is why I argue we need to treat
China differently with regard to trade policy. So must other
countries we have a process-oriented trade policy. If they
violate something, there's a judicial process called the WTO.
There's negotiations. We go through that. Yes, it's a little
bit slow. It generally works, and it deals with the fact that
many countries, including the U.S., have some protection.
There's policies for other reasons.
China's different, and that's why really fundamentally I
don't buy the notion that the WTO alone could solve this
problem. I use that as one example of something we should do,
but it's got to be part of a much broader arsenal if you will
because the Chinese know how to play--they know how to play the
WTO to their advantage. One of the key advantages they have is
they don't have written rules and laws. So to go to the WTO and
win, we point to a law in Argentina that says X, and we can win
that case, but there's no law in China on tech transfers, and
therefore, they deny it. It doesn't mean it doesn't happen. It
happens through administrative guidance and forcing in a
meeting that you had to do this, so harder to prosecute those
in the WTO.
Ms. Kelly. Okay. So we need a lot of tools in the toolbox.
Mr. Neuffer, when President Trump announced tariffs last
month, he included the semiconductors from China as one of the
products, and you stated at that time, and I quote, that the
semiconductors imported, like you said today, from China were
hurting American chipmakers, not China's, and will do nothing
to stop China's problematic and discriminatory trade practices.
How do tariffs on imports from China hurt American chipmakers?
Mr. Neuffer. Thanks for that question. I just want to set
the record straight from a question from Representative Issa.
Ms. Kelly. Yes.
Mr. Neuffer. I just want to underscore that 50 percent of
our production is still here in the U.S., and while most of the
manufacturing in the U.S. started in California over the years,
it's spread out through the country, like I said, in 19 States.
Intel, for example has massive fabs in Oregon and Arizona ----
Mr. Hurd. And Texas.
Mr. Neuffer.--and New York and in Texas, exactly. So it was
just a natural maturing of the industry.
And I also want to state for the record that if you look at
American companies' global fab production are--quite a small
portion of that is done in China. Most of it is done in the
U.S. and other parts of the world.
As for your question--thank you. The reality is the tariffs
on semiconductors only hit U.S. semiconductor makers and makers
of our allies like Japan, Taiwan, and Korea. The
semiconductors--most of our semiconductors we make that go to
China, they go there for some backend low-value assembly test
and packaging. Basically, you take these wafers, you chop them
up, you test them, you put them in these little things with
leads. That's low-value stuff that adds about 10 percent of the
value.
Some of those chips come back here. Some of them go to
other parts of the world. It's the ones come back here that get
hit with the tariff. Chinese semiconductor manufacturers sell
almost all of their chips in China and none or almost no chips
to the U.S. So while we applaud the administration's effort to
try to shut down the forced tech transfer and shutdown the
illegal theft of IP that we're having with China, this is just
a very blunt tool, and the semiconductor industry has gotten
caught in the dragnet. And it's us getting hurt by this, and
there's--it's not building leverage on the Chinese to
potentially draw them to the negotiating table to get other
outcomes.
Ms. Kelly. Are they aware of this, that it hurts? It
doesn't help ----
Mr. Neuffer. The administration ----
Ms. Kelly.--in your particular ----
Mr. Neuffer. I believe so.
Ms. Kelly. Okay. One common stipulation for American
companies doing business in China, as has been talked about, is
forcing them to engage in joint ventures or technology sharing.
What are the dangers of a Chinese company with connections to
the Communist Party appropriating American technology through
joint ventures or other business deals? And is there real
concern that American technology could be reverse engineered
for military use?
Mr. Neuffer. Yes, so these are all real concerns for sure.
Joint ventures, we do them all over the world. We do them here
and we do them in China. And the thing to keep in mind is, you
know, we have regimes in place through export control that
ensure that sensitive technologies do not seep out into regimes
like China. And our companies are very careful about adhering
to those export control regimes.
The other piece of this is IP has been the lifeblood.
Intellectual property, process technology has been the
lifeblood of the semiconductor industry. The leaders of these
companies are obsessive with trying to ensure that IP stays in
their companies because if it ends up outside of their
companies, their business disappears. Thank you.
Ms. Kelly. We all agree China must be held accountable for
IP theft and other unfair trade practices, but it is very
concerning that this trade war is escalating and causing real
harm to Americans. Can the members of the panel describe what
the effects of full-blown trade war would be for the technology
industry in the United States? And whoever wants to start is
fine.
Mr. Atkinson. Sure. So I think there's only two things that
can happen out of this. One is eventually the Chinese will
give. They'll cry uncle and they'll come to the negotiating
table. I am still--I don't want to say I am optimistic but I'm
open-minded to that. I really think that's a possibility, so we
don't know what's going to happen.
The other possibility is they just dig their heels in and
they say forget it, we're never going to do this. And then the
question for the U.S. becomes do we really want to have a
really bifurcated global trading system almost going back to
the Cold War era where you had a communist block that traded
with itself and a non-communist block. And I think the cost of
that would be quite significant for the U.S. It would be in two
kinds of costs. One would be transition costs, so companies
would have to move their facilities out of China. And we should
be realistic; the vast majority of them are not coming to the
U.S. They went there for a reason, oftentimes cost, so they
would go to places like Vietnam or, as Mr. Issa said, the
Philippines or maybe India or places like that. So I don't
think we're getting--it's not like we're going to get much
back.
The other thing would be companies are there for a reason,
and so if they have to go somewhere else, the costs will go up,
and that would end up, again, hurting our ability to be global
leaders because some of those products we sell in third
markets. And so there's very good research on this that shows
that when U.S. technology companies sell overseas, even when
they don't produce that, a lot of those benefits come back to
the United States in the form of high-wage jobs of designers,
of R&D folks, of marketing, of sales, and all of that. So we
depend a lot in our economy on jobs that--where the
manufacturing isn't here, and so if we lose some of that
because we have to have higher prices over, let's say, the
Japanese or the Germans or something, it could hurt U.S. jobs.
Ms. Kelly. Thank you.
Ms. Cook. Tariffs are a little bit outside of my usual area
of expertise, but I think I would just mention that, you know,
if we're looking at the cost of the Chinese Government's
internet censorship, especially the Great Firewall imposes on
the Chinese--on U.S. companies, they already actually--it's a
huge act of protectionism essentially that costs billions and
billions of dollars. I mean, the reason companies like Google
consider sacrificing their values is because they think they're
going to be able to get access to 800 million internet users.
That's more--almost triple the population of the entire United
States.
So I think, you know, again, not trade wars and tariffs are
necessarily the answer, but I think it is worth keeping in mind
that the starting point right now in this sector of online
services is that the Chinese Government has imposed an enormous
and very costly restriction that has huge economic
implications, not just human rights implications, on U.S.
companies.
So I think anything the U.S. could do--again, I'm not sure
tariffs are necessarily the answer to counter that--is a good--
including, you know, funding the scaling up of circumvention
tools to allow more Chinese people to access the services
without having to get the approval of the Chinese Communist
Party gives leverage in other areas of negotiation as well and
is--would--could be a very important investment of taxpayer
money ----
Ms. Kelly. Thank you.
Ms. Cook.--so a little bit of a different perspective.
Mr. Cheng. Like Ms. Cook, I am not a trade specialist, so--
but I would suggest that there are several questions that need
to be answered in order to address the Representative's
question. For example, I think that when it turned out that
banning sales of all U.S. inputs to ZTE would effectively kill
that company, that came almost certainly as a surprise to
Chinese decision-makers, probably to even some American
decision-makers. It highlights the lack of clarity regarding
actual vulnerabilities in Chinese companies.
Now, let me emphasize this is not an argument for tariffs
whatsoever. What it is an argument for is a desperate need for
us to better understand how supply chains work in both
directions. What are actual Chinese vulnerabilities whether in
the IT realm or perhaps in the petrochemical realm, in land
reclamation, which has applications for the South China Sea?
Because it may well be that there are more Chinese
vulnerabilities in less-identified key subsectors than is
generally widely recognized.
The other question that remains also unclear is the Made in
China 2025 program, which is to say what happens if China
actually succeeds? We are here concerned about the potential
impact of American tariffs on the global trade system, and
that's a very reasonable question. But do we think that if
China succeeds in in truly becoming self-sufficient in key IT
areas, that China will all of a sudden then say but we support
a global trading system, or will they now be insulated like
their information ecology and environment behind in an
industrial equivalent of a Great Firewall to basically say now
that we're safe, bye. Thank you very much.
Ms. Kelly. Thank you.
Mr. Neuffer. Can I take a shot at that ----
Ms. Kelly. Sure.
Mr. Neuffer.--that question? Thank you. So just, again, for
us, tariffs on us is puzzling because Chinese company
enterprise don't send semiconductors to the U.S., so there's no
leverage built. The other thing I'd like to say is 80 percent
of our sales are overseas, China and other markets. Our
customers are overseas, like most American companies,
multinational companies, so anything that depresses trade is a
risk for us financially, commercially.
We do hope that these tariffs draw the Chinese to the
negotiating table so we can get some beneficial outcomes, but
until we get to that point, we are all at risk of hurting our
economies. And after that, we hope--if they come to the
negotiating table, they get strong outcomes, you know, all
great, but if they don't come to the negotiating table and we
don't get strong outcomes, where do we go from here? So a lot
of questions about this.
One thing we have been looking at in particular is what
these tariffs do to IT spend, so tech products become more
expensive, so IT spend becomes more expensive. And if IT spend
is depressed, given that tech products--what you call them,
Rob? Super technology ----
Mr. Atkinson. Super capital.
Mr. Neuffer. Super capital. Tech products are super capital
that drive growth throughout the entire economy. If the IT
spend starts dropping, that has an exponential multiplier
effect throughout the entire economy, and this is something
we're worried about. Thank you.
Ms. Kelly. Thank you. And I am done.
Mr. Hurd. I just finished 38 town halls in five days, and I
am in Cotulla, Texas, which is part of south Texas. Most people
know Cotulla as part of the energy boom. And the first question
I got was actually on China. And a young woman asked me--and I
know this question is slightly outside of our talk today. I
know we are talking about IT, but I promised this constituent
that I was going to be with a bunch of smart people and I would
ask this question. How did China become the manufacture of
millions of drugs that Americans take every day, right? And did
they use predatory practices similar to those that we are
seeing in the IT space? I would just welcome does anybody have
a quick answer to that? Mr. Cheng, go ahead.
Mr. Cheng. I am even less of a drug person than I am a ----
Mr. Hurd. Tariff person?
Mr. Cheng. Yes, sir. But my understanding--and this is
without the benefit of having stayed at a Holiday Inn Express--
is that China does produce a great deal of fentanyl. Fentanyl
is a key component for opioids. Whether that was predatory or
not is much less clear. My very, very limited understanding is
that, as with these other technology areas, that it's a complex
mix of domestic demand due to everything from changing views of
what should be prescribed under what circumstances, legal
coverage, all those things, to, you know, the Chinese taking
advantage of a market that appeared without necessarily
indulging in predatory practices.
Mr. Hurd. Good copy. Ms. Cook, do you have any opinions?
Well, the constituent of the 23rd thanks you for that
question, Mr. Cheng.
Project Maven, DOD contract to work with commercial
companies to do artificial intelligence along moving video,
recently, Google made a fairly large statement about not
participating in this project because, ultimately, the
information that they were going to potentially identify could
lead to a terrorist being identified and eventually the U.S.
Government doing with terrorists what we generally do, kinetic
strike. The area that I haven't seen enough conversation on--
now, you juxtapose that with Google's potential decision of
getting involved in a search engine in China that violates, you
know, freedom of expression, right, another value issue.
The beneficiary of both of those decisions is China. You
have an important American company involved on the pointy end
of the spear when it comes to artificial intelligence breaking
from Department of Defense, which arguably has the most data
available to train algorithms. That is a strategic win for the
Chinese. Have we seen--and we know that Chinese spy agencies do
everything from stealing information and trying to influence.
So my question is are we concerned or have we experienced
or have we, you know, seen what I would call Chinese active
measures when we talk about active measures using
disinformation, influence operations? We talk a lot about how
the Russians are doing this; why shouldn't China do this in our
elections? But we don't talk enough about Chinese use of active
measures when it comes to achieving a strategic goal like
separate--driving a wedge between American companies and the
U.S. Government. Opinions, thoughts, suggestions? I open it up.
Mr. Atkinson, would you like to start us off?
Mr. Atkinson. Yes, just a couple things to clarify. I
actually believe that it is not in the Chinese interest to have
Google come in. They're going to do whatever they want to do
with information, blocking--doesn't make any difference whether
there's a foreign company there or not, so I think that's in
our interest, as I said before.
There's a new book by a colleague of mine Darren Tromblay,
who is now at GW who used to be in the FBI for many, many years
in commercial counterintelligence. And this book is a--it just
came out maybe four months ago, and it's a very good history of
how foreign governments have used active measures against us,
Russia, and China. And in that book there are many, many, many
examples of how China is doing that. I can't say whether
they've been doing that in the Google case that you alluded to
with Project Maven, but they do that. And they use, you know,
active measures, passive--and they use all sorts of measures to
try to get our--to influence us and our companies to make
decisions that aren't in our interest.
Mr. Hurd. Ms. Cook, any opinion?
Ms. Cook. I'm not privy to I think the kind of information
that would address whether that happened in the Google case,
but to echo Mr. Atkinson's comment, in general, the Chinese
Communist Party uses a variety of measures to influence the
United States, through media, through pressures to create
censorship here in the United States, through various ways of
recruitment and gaining access to information.
And I think I would just comment that if you flip it on its
head and you look at the area of artificial intelligence, it's
one of the areas where Chinese companies are emerging at the
forefront using very questionably ethical methods. A lot of the
AI Chinese companies are heavily invested and have lots of
government contracts in Xinjiang that's being--and their
information is essentially being used to catch Muslims to send
them to reeducation camps.
They're able to use the massive amount of data they have
access to to gain a more competitive edge internationally as
well in the sense of both issues related to racial bias and
artificial intelligence. They now have a contract with the
Zimbabwean Government that will actually turn Zimbabwean
citizens' data over to a Chinese company that will allow them
to further improve their algorithms so they have access to
Uighurs who ethnically look, say, Middle Eastern or central
Asian, Chinese who look East Asian, and now Africans who--South
sub-Saharan Africans that gives really potentially a
competitive edge in an industry. They're anticipated to take a
44-percent market share by 2023.
One point is that one of those companies, a major investor
is actually U.S. chipmaker QUALCOMM. So you have a situation
where U.S. investors in general tend to reward problematic
behavior like that because it can be very profitable but also
where you have U.S. companies, potentially rather than
investing in U.S. artificial intelligence firms to gain a
competitive edge, are investing in a Chinese firm with very
questionable, you know, practices.
So I think some of the recommendations related to
developing a comprehensive artificial intelligence strategy, as
well as something like the Global Online Freedom Act that would
hold companies to certain ethical standards, could be a way of
pushing back both against other restrictions but also
potentially, you know, suspicions and other ways in which the
Chinese Government tries to gain influence in the U.S. tech
environment.
Mr. Hurd. And then, Ms. Cook, I would agree with you that
we do need a national artificial intelligence strategy. Robin
and I and our teams just put out a report this week
highlighting, you know, some of the things that we have learned
in our various hearings on artificial intelligence. I think you
and I have done half of the hearings in Congress on artificial
intelligence, and I believe that is important, as well as the
need for a national strategy on quantum. I would say artificial
intelligence right now is dumb, but the way it is going to get
smart is once we achieve quantum. And I think these two things
are connected, even though the science behind both are very
different. So I agree.
And this is why we do these things. The suggestion of the
Global Online Freedom Act, hearing about this, getting this
feedback on other initiatives that are out there is something
that we are able to continue to sink our teeth and to go.
And, Mr. Cheng, the previous question on, you know, Chinese
active-- and I would even welcome the comments on--are U.S.
companies prepared to defend against state-sponsored actors? I
think I know the answer, having been in the private sector to
help some companies do this, but are we seeing a recognition of
all these, you know, issues that-- and Mr. Atkinson eluded to
and probably that are mentioned in this book that was quoted.
Mr. Cheng?
Mr. Cheng. Sure. Three issues: one, the broader issue of
Chinese influence operations ties into the Chinese view of
political warfare. This is part of their doctrine. This is part
of the specific missions assigned to the Chinese military. It
includes a--so-called three warfares, public opinion warfare,
which is a constant ongoing activity which is going on right
now. It is not necessarily tied to a specific armed conflict,
psychological warfare and legal warfare, manipulating both
Chinese and foreign laws, regulations, treaties in order to
achieve given political ends.
One can imagine in the context of both public opinion and
psychological warfare that the Chinese may well be inquiring of
any foreign company, do you really think we will allow you into
our markets if you are participating in a potential adversary's
defense contracts? Whether or not that has occurred is not open
to public, you know, open-source information. I would obviously
defer to those who have access to far better data on that. But
I simply throw out there the Chinese doctrine, which is
publicly available, talks about the importance of employing the
three warfares constantly against all potential adversaries.
With the--on the issue of Google in China, I'm afraid I
need to disagree with my fellow panelists. In the first place,
the presence of Google in China would be a de facto endorsement
of the Chinese information environment, that a company that
specifically left after Chinese attack would then reenter would
be spun in the context, again, of that public opinion warfare
as proof of one of two things: Either China's market is so
important that you will put up with almost anything we do to
you; or two, that China's environment has improved to the point
where you would voluntarily come back.
As for the issue of market share, the Chinese in other
areas have been very, very clear. There is a market share that
they will allow you, and if you should pass that, then in that
case, per Darth Vader in Empire Strikes Back, ``I am changing
the terms of the deal. Pray I do not change them further.''
And the way the Chinese go about this in terms of the issue
of defending against attack too often takes pathways that we
are--some take pathways that we are familiar with, direct cyber
intrusion, et cetera, but particularly in the context of joint
ventures and the things, they often involve, for example,
staffing the H.R. department. If I decide who the joint venture
hires, then in that case that creates a very different set of
potential vulnerabilities.
The other aspect here is whether or not companies
themselves recognize--I think IT companies, ICT companies,
semiconductor companies may well be aware of the
vulnerabilities that are entailed. Banking companies are very
much aware of the need to protect information. But it's the
midsize company that feels it has to go into China that often
has a small IT department to begin with that is far more likely
to therefore say, well, but we do mid-level chemicals, we do
paints, we do agricultural seedlings. Why would the Chinese
attack us? I mean, obviously, you know, if we are a major
defense contractor, of course they'll go after them, but why
would they go after the makers of new headlamps? That--the
Chinese have this voracious maw for all types of IPs, sometimes
not recognized within the broader American corporate ----
Mr. Hurd. Mr. Cheng, you have mentioned earlier about
trying to understand real actual vulnerabilities of Chinese
companies, and you used the ZTE example. And I agree with you.
I think we should have gone forward and not allowed the U.S.
components to be used in ZTE, and that would have sent a clear
message to the Chinese that we are being serious. Do you have
any examples--I know you said one of the things we need to do
is actually understand that, and I am going to take that back
to some of my friends to help ensure that we have a better
understanding. But do you know of and can you ID a couple of
current vulnerabilities in some of these Chinese companies that
may be some items that this committee can take up or even other
legislators take on and move with?
Mr. Cheng. I don't know if this is within the purview of
this committee, but let me give a different example. CCCC
Dredging, CCCC is a Chinese state-owned enterprise. The
Chinese, as they're doing South China Sea land reclamation,
which of course has also been in the news, as they're building
these new islands, it is not the Chinese military that's going
out there, it's not the Chinese Ministry of Interior. They go
to their own state-owned enterprises and say you, go and dredge
up all the coral--it doesn't matter what the environmental
impact is, dredge up thousands of tons of coral and build this
new island. Many of those companies are using specialized
dredging equipment that has not been manufactured in China, so
therefore, they are going to European, American, foreign
companies buying specialized equipment, dredger hoppers,
equipment like that to basically destroy the environment of the
South China Sea and build strategically important islands.
Operating in a maritime environment, as any maritime
engineer will tell you--also, I should note here I am not one
of those either--is a very harsh environment. Things break.
That means spare parts have to be purchased from abroad, which
means CCCC Dredging is basically employing imported equipment
to alter the situation in the South China Sea. Why we would
allow that to continue given the strategic importance of that
region is problematic in my opinion.
A third area is basically speaking--and this goes directly
to monetary issues--why do the Chinese list on foreign stock
exchanges? They list on foreign stock exchanges for two
reasons: one, obviously access to capital; but two, because it
is a de facto, again, endorsement of the company. The Chinese
play up the idea that if they are allowed to list on the New
York Stock Exchange, then they have fulfilled U.S. SEC
requirements. The bizarre part is that sometimes these
companies are partly state-owned enterprises, which have an
opacity to them. But again, they are nonetheless at times
allowed to list on our stock exchanges.
Mr. Hurd. Mr. Neuffer, we are going to get back to in round
two, but I'm going to defer now and recognize Robin Kelly for a
second round of questions.
Ms. Kelly. Thank you. Something that has always been a
concern to me--and part of it is when I go back to my district
and I visit my companies. They always talk about the lack of a
qualified workforce. And can you guys talk about this in that
arena, that because of immigration or because of lack of
investment in education or training and those kind of things,
how--I know we feel it now, but it seems like we are going to
feel it even more in the future. I don't mean to look at you
but you ----
Mr. Neuffer. Can I start? Thank you.
Ms. Kelly. Yes.
Mr. Neuffer. So a couple of things. First of all,
electrical engineers drive the semiconductor industry. These
are the guys--electrical and chemical engineers, these are the
guys who make semiconductors. A lot of these young kids coming
into this profession like to go off and make the coolest app
and work for big internet companies, so there's a bit of a
problem there. But a bigger problem is that we don't--our
government does not have big enough emphasis on promoting STEM
education and our immigration policy is broken so that we can't
get the numbers of STEM employees from overseas that we need.
And if you go to any semiconductor company, there are
dozens if not hundreds of job openings for STEM applicants. So
there needs to be a remedy. These are huge, systemic problems
and riven with controversy, but until we get to the bottom of
this, our industry, the semiconductor industry is at risk
because you've got to have the talent to build these incredibly
innovative semiconductors and stay at the tip of the technology
spear. Thank you. Yes.
Ms. Kelly. I am on the board of trustees of the college I
graduated from, and then I am on an advisory from the other
college I graduated from, and it is amazing. When I was at the
graduation for one of the colleges, the lack of international
students in engineering. I mean, it was unbelievable the change
in both colleges. We talked about how they just haven't been
getting the applications.
Mr. Neuffer. Interesting.
Mr. Cheng. When it comes to foreign students, one source
that you probably do not have a shortage of is Chinese. China
represents probably one-third of the current foreign student
population of the United States, many of which are in STEM. The
problem is that many of these students, the question becomes
what is that they are coming here to study? They are studying
STEM obviously, but are they staying ----
Ms. Kelly. Right.
Mr. Cheng.--or are they here particularly focused on
programs which will have dual use and military benefit and then
going home?
We have seen a generational shift within the context of
Chinese students. In the past, many of them tended to stay
here. This is also true abroad, that is to say in Europe and
elsewhere, but more and more of those students seem to be going
home. Whether that's due to economic opportunities at home or
due to pressure is much less clear.
I certainly would not disagree that this country needs more
engineers and more STEM students in general, but I would
highlight that simply because you are getting an education in
the STEM field does not any longer mean that you are in fact
getting STEM education. There are professors who apparently are
teaching math courses whose focus is on the fundamental
underlying racism and sexism of math. Now, how that will help
produce better electrical and aerospace engineers is beyond me,
but I do think that if we are going to focus on STEM, that we
need to be focused on actually producing people who can produce
5 nanometer circuit wafers, who can produce better rocket
engines for Blue Origin or ULA, who can produce, you know,
better systems engineering and quantum computing and not
necessarily engaged in whether or not, you know, a focus on
math is somehow giving way to some of our worst historical
habits.
Ms. Kelly. Thank you.
Mr. Atkinson. Thank you. I just also would be remiss if I
didn't use this opportunity to thank you both for this
excellent report that you both released I guess yesterday on
AI. We at ITIF really applaud it and think it's exactly in the
right direction, so thank you.
Ms. Kelly. Thank you.
Mr. Atkinson. I just want to quickly come back to the prior
comment from Congressman Hurd. I think one of the challenges
with this--and I--one of the challenges with this issue is we--
our--I don't want to say complete but pretty serious lack of
knowledge in the U.S. Government, we don't know the answer to
your question, and we should know that. And it's partly because
we simply don't have an institutional home for that level of
global supply chain analysis, and I think we have to have that.
Congresswoman, with regard to your question, I actually
think this is a much easier solution than people think. It
tends to be framed as how do we convince a bunch of fourth-
graders to somehow like STEM. We've done a lot of research on
this. We've come up with a fairly comprehensive strategy. There
are lots of kids who like it. We don't give them enough of the
right opportunities.
So one of the things that we've proposed and supported,
more specialty math in high schools, particularly in
disadvantaged communities. They play an incredibly effective
role in getting kids who might not otherwise be into that. They
go to college--a good example of that is the San Antonio Math
and Science High School--sorry, the Dallas Math and Science
High School, 90 to 95 percent Hispanic and black students,
almost 100--in fact, I think their rate of getting AP exams--5s
on the AP exams exceeds most high schools in the country right
now.
Secondly, at college level, we know that one of the big
problems is colleges could take more and have more students go
through that, but they intentionally limit the slots in
commuter science and engineering. They force people to leave
the discipline who want to stay and are good students, and
that's a budget issue and an incentive issue. And I think the
Federal Government can provide more incentives to get
universities to focus on--University of Washington, a good
example, the C.S. department head I talked to, I asked him how
many slots they could add without reducing ability-- without
quality? He said we could double the number of Washington State
students in our C.S. department, but we aren't given the budget
to do it.
Ms. Kelly. We actually started a STEM academy in my
district just with my office exposing sixth, seventh, and
eighth graders to different things that they could do with a
STEM career, but of course it is hard to keep up because we are
just a little office, but I know we piqued the interest and
just trying to give opportunity and broaden their horizons, so
thank you. Thank you.
Mr. Hurd. Picking up on the issue of education, roughly 40
percent of the people that are actually in STEM education, in
master's and Ph.D. programs in the United States, are Chinese.
And so my question is the United States has benefited from the
brain drain of every other country for the last couple decades.
Let's continue that. When you are at 3.8 percent unemployment,
that means every industry needs people, whether it is
agriculture or artificial intelligence.
When you are at multiple quarters of 4 percent growth, of
rising wages, you know, rising average income, the thing that
can stall the economy is not having the proper workforce to
take advantage of these opportunities. Two ways to do that,
grow our own, we have talked about that, something that we have
got to continue to do, but it is also through immigration. And
you have people that are coming here and getting Ph.D.'s,
master's, and they are having difficulty in getting the right
visa in order to stay here and continue to work for U.S.
companies.
And so my question is, is the opportunity of having a smart
person from somewhere else stay here and start a company here
and be involved here, does that outweigh potential
counterintelligence concerns about this being something
directed by the Chinese Government? Who would like to start
that out? Mr. Atkinson, let's go ahead and go with you.
Mr. Atkinson. I don't think we know the answer to that
honestly. You're right on both sides of that. The Chinese
students who come here, get a STEM graduate degree, and then
stay are of value to the U.S. economy and to our innovation
system.
I think one thing we could do and should do more is I think
our universities tend to have a blind eye towards threats.
There's a famous case at Duke University where they--Chinese
students came, enrolled in the Ph.D. program, and essentially
took the cloaking--this was Defense Department--the cloaking
technology, they took it. And this was a few years ago, and so
the--Duke wasn't aware of it and they hadn't thought about it.
We need to make sure--through the FBI counterintelligence
efforts, we need to make sure that every university has
procedures and processes in place to at least limit that so
they're aware of it.
Mr. Hurd. So going on that, Mr. Atkinson, I am going to ask
a broader question. Look, when you look at the amount of
venture capital that has been deployed in Chinese companies,
the amount of Chinese capital being deployed in let's call it
broader Silicon Valley, do those companies recognize the
national security threat of the investments that is coming from
potential Chinese investors?
Mr. Atkinson. No.
Mr. Hurd. There it is.
Mr. Atkinson. The lion's share have no concern or interest.
They--you know, they just want the money.
Mr. Hurd. Ms. Cook? I know there are two questions there --
--
Ms. Cook. Yes, I ----
Mr. Hurd.--answer them both, one, either.
Ms. Cook. I would just go back to Mr. Cheng's previous
point about the way the Chinese Government looks at foreign
political influence. It doesn't always necessarily separate the
kind of military counterintelligence or things that we would
look at as being more aggressive with softer forms of
influence. And I think from that perspective a lot of the
Chinese students here are victims themselves in many ways of
pressures, of consular officials sitting in on meetings of the
Chinese student associations at U.S. universities. If you look
especially at the ----
Mr. Hurd. You are saying Chinese ----
Ms. Cook. Consular officials well ----
Mr. Hurd.--officials in the United States at a U.S. student
group ----
Ms. Cook. At a meeting, so--yes, for ----
Mr. Hurd.--with Chinese students at a U.S. university?
Ms. Cook. Yes. So it ----
Mr. Hurd. Okay.
Ms. Cook.--might not be the full meeting. It might be
just--certainly--well, one specific anecdote that I heard from
a Chinese student, this was a number of years ago. This is
getting a little more attention now related to elections within
a university and one of the women who was trying to stand for
election at this Chinese student's scholar associations happen
to practice Falun Gong. And the consular officials basically
went around the table of the specific officers or students and
applied other pressures basically to pressure the students in
that association not to elect her.
And other ways in which--there's been a series of articles
and investigations recently, especially in foreign policy I
think, about the way the diplomatic--the Chinese diplomats
influence Chinese student associations in the United States.
Some of it's with funding. Some of it is with actual like
reporting requirements and things like that. And again, these
students--this is not without force behind it. I mean, I think
we have to--again, it's very tricky because a lot of times the
students are themselves--they have family in China, and the
Chinese Government is very adept at pressuring family to get
people abroad to do things. And so I think that's a threat to
the safety and well-being of the Chinese students in American
universities that our American universities aren't dealing
with.
But also it comes back to this bigger question of the way
in which the Chinese diplomats and Chinese officials exert
pressure on individuals here in the United States and potential
actions that the U.S. Government could do because the same
diplomats will also go and pressure an advertiser who they see
advertising in the local dissident Chinese newspaper in New
York City or will go and threaten the--a journalist who has
family back in China who's working for Radio Free Asia or
things like that. And the U.S. Government has been--in some
cases there's real evidence about this and there isn't a strong
response. There isn't a demarche. There isn't--I mean, these
are violations of diplomatic conventions.
So, I mean, I think that--again, this question of the way
in which the Chinese embassies and consular officials are able
to have communication, exert pressure on Chinese students
ultimately can have very important counterintelligence
ramifications because it's not necessarily that Chinese
students are coming here ahead of time deciding to try to steal
technologies. They can--the Chinese Government has the avenues
and the power to put them and their families under tremendous
pressure.
Mr. Hurd. Sure.
Ms. Cook. So being able to find a way in the United States
to actually enforce our laws and stop that type of behavior has
both national security implications and student welfare
implications for the Chinese students as well.
Mr. Hurd. Ms. Cook, you and many of your panelists have
commented on something that I have seen. The U.S. intelligence
community views intelligence differently than the Chinese view
intelligence. And I would say using our vernacular, the
intelligence bar for China is significantly lower than what it
is for us, and therefore, even though the Chinese believe they
are involved in intelligence operations, people on the U.S. I
do not believe it is intelligence operations because that is
not how we see or view that. And that is a disconnect from
being able to have the information and collection on some of
these behaviors of Chinese diplomats in our country, and so
highlighting this is important.
Mr. Cheng?
Mr. Cheng. So, several points, sir. With regards to the
very different view of what intelligence constitutes, we have
interesting examples of ship visits to China where a series of
fourth-graders each went up to American sailors and asked
interesting questions, not like what's it like to be an
American sailor, but what is the sonar frequency of your
dipping sonar, a fourth grader, who would then promptly go back
to the schoolteacher who led them and say, oh, the sailor said
it was this. And after about four questions along these lines,
the American sailors are finally told you should stop answering
their questions, that these are not just innocent questions
from fourth-graders.
I do want to emphasize here that there is a danger of
course in viewing every Chinese student as a potential agent --
--
Mr. Hurd. Sure.
Mr. Cheng.--that we do not want to go to a point where we
are simply concluding based on ethnicity or ----
Mr. Hurd. Sure.
Mr. Cheng.--national origin that people are ----
Mr. Hurd. And thank you for making that point, and I would
add--and correct me if I am wrong--not all Chinese investment
is necessarily a, you know, indication that this is going to
lead to some draconian issue in the motherland.
Mr. Cheng. No, I would agree with that as well because
there is absolutely a profit motive also at work. Chinese
entrepreneurs, like entrepreneurs everywhere, want to make
money, want return on investment. That being said, of course,
the government is more than happy nonetheless--and it has a
vast array of tools--to pressure students, entrepreneurs,
venture capitalists to pony up information, whether it's on
projects that a professor--you know, an advisor's working on or
whether it's new technologies that you're investing in.
This goes to a broader CFIUS-related issue. CFIUS of course
is vital, but CFIUS is a gatekeeper. It is our guard at the
perimeter. And the problem, whether it's Confucius Institutes,
whether it is students working for professors on advanced
projects at universities, whether it is venture capital in
Silicon Valley, the Route 128 corridor in Massachusetts, or
outside Austin, all has the same issue, which is if you've made
it past that, there is much less internal policing if you will.
It's not that CFIUS is bad or is not enough--it's that CFIUS is
not enough but it--we should not be adding to CFIUS' burden. We
probably need a new approach to thinking about what happens --
--
Mr. Hurd. So do you think FIRRMA was adding more burden to
CFIUS or was that a move in the right direction? This is the
legislation we recently passed in order to give CFIUS deals
over transfer of critical technology--of potential investments
in critical technology.
Mr. Cheng. I think the idea behind it is vital and
essential, sir. I have to admit that I'm not sure whether or
not making CFIUS the party responsible is the best approach,
not without expanding its staffing ----
Mr. Hurd. Sure.
Mr. Cheng.--and purview, but that--you--I think that that
effort identified a key shortcoming, not in CFIUS per se but in
our broader technology defense if you will.
The last aspect here is simply to note that the issue of
active interference within universities, we have seen this by
Confucius Institutes, we've seen this by Chinese agents. You
know, the previous administration admonished the Chinese about
the improper activity of various officials. That was at best
tepid but it was at least a first step. We do need, in terms of
reciprocity, making very clear to the Chinese that their
actions will have serious consequences, not just an
admonishment, but whether it means PNG to officials, whether it
means curtailing their activities and where they can travel,
much like we have the--still imposed on Russian officials and
counterparts.
But again, going to the broader information-related issues,
not just IT, why is it that the Chinese can limit the presence
of VOA and other reporters to one or two--to cover an entire
country the size of the United States, but there can be a good
dozen Xinhua bureaus with freedom of travel across the United
States?
Mr. Hurd. Mr. Neuffer, staff is getting uncomfortable,
which always means we have been going on too long, so let me
end. And this is a question for all of our panelists. You got
one more?
Ms. Kelly. Just one.
Mr. Hurd. I am going to yield to my friend, Ms. Kelly.
Ms. Kelly. It just takes a one-word answer from each of
you. I know we are talking about China, but what country is
behind China? With the concerns we have about China, what other
country would you say we need to be concerned about? If there
are two, that is fine, but ----
Mr. Atkinson. India.
Mr. Hurd. Ms. Cook?
Ms. Cook. I think still probably Russia for the issues that
we're looking at, Russia and Iran.
Ms. Kelly. Okay.
Mr. Cheng. I'd agree with Ms. Cook, Russia and Iran.
Ms. Kelly. Okay.
Mr. Neuffer. And I'll say Russia and India to mix it up.
Ms. Kelly. Okay. Thank you. I am just curious. Thank you.
Mr. Hurd. So, Mr. Neuffer, and we will start with you and
we will end. Mr. Atkinson, you can have the last word, so make
it good. One statement on something else we can be doing other
than tariffs, Mr. Cheng has given us several. Don't allow
Chinese companies on the New York Stock Exchange. We have Ms.
Cook's comments about reintroducing and passing the Global
Online Freedom Act. What is something that I can turn to our
teams and say, hey, can we get this done? What do we need to do
to make this happen? That is what I am looking for, something
short, something tight. All of our staffs' pencils are
sharpened and ready. Mr. Neuffer?
Mr. Neuffer. Excellent. One, as Rob said, it's not the only
solution but we should be driving more of our problems into the
WTO. It takes time, but we usually win in in that fora, and the
Chinese respect and are desperate to keep the WTO alive these
days.
Two, let's get more regional trade agreements. The TPP was
very important for our industry. We were sad it didn't go
forward, and it plays a very important role of setting a model
for how China and others should behave in the trade arena.
Three, we need to be embracing our allies much more often
and much more deeply, as Mr. Atkinson says.
I've been involved in a number of very contentious issues
with China, and we worked with our allies very closely and were
able to push China back.
Mr. Hurd. Okay.
Mr. Atkinson. China does not like to be isolated. And
three, we have to have a very, very strong affirmative agenda,
and that affirmative agenda for us needs to focus on peddling
faster, and to pedal faster, we need this U.S. Government
investing more heavily in basic research, in tech and our
sector.
Mr. Hurd. Good copy. Mr. Cheng, you are now--and you don't
have to repeat the ones you have already said because I have
gotten those down.
Mr. Cheng. Okay. On the issue of stolen technologies, we
should be treating stolen technology like stolen technology,
which is to say you are trafficking in stolen goods; we will
therefore punish you for doing so. That opens the door then to
RICO, to basically criminal conspiracies, which then places the
onus on American subsidiaries and their executives to
demonstrate that they are not engaging in the trafficking of
stolen goods, which puts them then on our side. I want these
people to be doing good business. There's nothing wrong with
competition. But if you are trafficking in stolen goods, then
it's not just, you know, your company that will be punished.
You're going to lose that nice house, the three cars, and the
horse.
Mr. Hurd. And we know a few people that are pretty good at
handling RICO cases.
Mr. Cheng. Yes, sir. The other thing is just an area of
importance, the Internet of Things. If you're worried about
artificial intelligence, if you're worried about that that is a
giant data swamp, and the IT security associated with IOT at
this point is beyond primitive, I mean, pretty much
nonexistent. We need to be thinking about setting standards. We
need to be thinking about also limiting the amount of data flow
from IOT, your coffeemaker, your refrigerator, back to China.
Mr. Hurd. Great. Thank you. Ms. Cook?
Ms. Cook. I think we need to and I think we actually can
punch quite a big hole in the Great Firewall. We work with
circumvention-tool developers to get some of our content on
censorship that we translate into Chinese to Chinese users, and
we see--we get from the data millions of people every--in a
week's span, and that's just one tool accessing it.
Another tool that's on actual mobile phones which are
becoming more--which is the main way Chinese people work, also
they get to a landing page and content related from Freedom
House, content from Radio Free Asia, Voice of America, but also
of course Google, Google ads, Facebook, those are the first
places people go.
And the U.S. Government has invested tens of millions of
dollars in internet freedom projects around the world, and if
you look generally, you know, working on circumvention tools
isn't necessarily the answer in every country because the
tactics are different, and even in China it goes through waves,
but right now, there is a real demand after VPNs have been
taken off of Apple's iPhone store, the--I spoke to before this
hearing a number of circumvention-tool developers who have
received U.S. funding in the past but for various reasons it
seemed to indicate a level of--a certain degree of
mismanagement, to use their words. They're not being used as
effectively.
There is emphasis in some cases on developing new tools as
opposed to scaling up tools that are being effective and could
be scaled up more widely, and so what we--that's why I would
urge the committee--and I can connect the staffers to relevant
people--to take a look, to speak to people at the BBG, people
at the State Department specifically regarding the China
portion because for other countries that don't have a firewall,
you need other solutions.
But in China, I think there's a real question how this
funding has been disbursed, whether it could be--should be
increased but could be managed and get to people more
effectively because if--you know, one of the developers was
saying that these Chinese companies are spending billions of--
like the amount of money per user on censoring people, if he
had even the fraction of that, he can actually provide, again,
access to so many more people.
And so think about what alternative future would be if you
have innovation in that area. And one of the ideas he said was
don't just have separate circumvention apps. Have
circumventions programmed into existing apps. Then you've got
Chinese users going and visit--Google doesn't have to
compromise its values because you've got a least a certain
market share of Chinese users jumping the firewall. And again,
this is--you know, I think there are reasons to believe why
this could be possible from a technological perspective without
an enormous expense necessarily on taxpayers. So that--I think
that's what we would urge to really look at.
Mr. Hurd. That's good copy and very helpful. Mr. Atkinson,
you have the final word. Make it tight, make it good.
Mr. Atkinson. I can make it tight; I don't know about the--
making it good. We issued a report last year where we laid out
a very comprehensive nontariff agenda. There's a whole lot of
ideas in there. Let me address three quickly.
One, enact a regime where Chinese entities who seek
technology licenses in the U.S. have to essentially get that
license on the same terms that they force our companies to
license in China, so reciprocity around technology licensing. I
would just limit and end most U.S.-China S&T cooperation. I
don't see any reason why we have any cooperative agreements
with the Chinese when it comes to science and technology.
And third, I would build a--I would spend more money on
customs enforcement. There's a lot of Chinese counterfeit goods
that still get in this country, and that's a good way to make
them suffer pain. They go to make--produce the product, they
send it all the way over there, and then we burn it or throw it
in the ocean, and that sends them a very clear message so ----
Mr. Hurd. That was very good. Thank you.
And I want to thank all the witnesses for appearing before
us today. The hearing record is going to remain open for two
more weeks for any member to submit an opening statement or
questions for the record.
And if there is no further business, without objection, the
subcommittee stands adjourned.
[Whereupon, at 11:43 a.m., the subcommittee was adjourned.]
[all]