#WTH The loaded Chinese gun

It's pointed right at us

It’s less than two weeks to the election, and we are going to hear again and again, and possibly yet again, how our nation is divided, we agree on nothing, and how an enemy of the Republic will soon be in the White House. (You choose which.) But there is an issue on which most Republicans and Democrats actually agree: The Chinese Communist Party. And thanks to that bipartisanship, TikTok is on its way out, Huawei is being ripped out of U.S. telecom, and ditto ZTE. But there’s a lot more to do.

Marc hosted an event with the Chairman and Ranking Member of the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, aka the China Committee, and their revelations about the extent of Chinese infiltration of everything from communications, to military hardware, to critical infrastructure, to high tech, to genetics, and bioengineering will horrify you.

One of the most trenchant parts of the conversation is the reframing of the approach needed to face up to the Communist Chinese threat from Chairman John Moolenaar:

When you put it that way, American squeamishness in confronting China seems obvious. Why let Huawei install back doors in telecom all over the country, only to later be forced to squander billions in taxpayer cash in ripping it out? Why not bar Huawei in the first place? Well, duh. Why let elements of the Chinese military steal millions of personnel files from the Office of Personnel Management and do nothing in return? Why let Communist China interfere in our elections? Why let Xi Jinping threaten Taiwan? Build a communist pond in the South China Sea? Menace our allies throughout Southeast Asia and Oceania? Why indeed.

Part of the problem, as our readers will have already guessed, is that doing what it takes to confront the evils of Communist China is expensive; it requires sacrifice and innovation. It requires the federal government to be nimble in distinguishing between dangerous Chinese investments and shoes, toys, and everything you buy on Amazon. (Small side rant: It still makes me furious I can’t tell where things are made on Amazon. I don’t want to buy Chinese, but Jeff Bezos doesn’t want me to be able to find out easily.)

We need not simply exclude certain Chinese investments, we need to do what is necessary to prevent intellectual property theft, counter Chinese soft power, innovate in areas we have ignored because the Chinese are market dominant (solar panels, sigh), and do much more to build a virtuous trading circle that excludes our enemies. The China select committee has been critical in sounding the alarm, but the truth is that this problem has been growing for decades while we comfortably sat by and allowed Beijing to munch our lunch.

Another point: You’ve heard us say that in almost every China-US war game, the United States runs out of ammo in less than a week. And it’s not because the Ukrainians are taking it, or the Israelis. It’s because we have allowed our defense industrial base to atrophy to the point that our enemies will be tempted. They are already tempted.

Investing in defense is not about prepping for the next war (she says again); it’s about deterring our enemies. And now that our enemies are marching in lockstep — Iranian drones in Russia, Russian missiles in Yemen, North Korean troops in Ukraine, and Chinese materiel in Russia — we need to double down. Triple down. Check out the work of my AEI colleagues to learn scads more about this. They’re not defense hawks, they’re the ones who understand what it takes to keep the peace.

You’ll hear again and again that the world is a dangerous place. Al Qaeda is on the march; Iran is nearing a nuclear bomb; a loss in Ukraine will guarantee future Russian attacks on NATO; and China China China. This is an economic and political, a diplomatic and an ideological, a military and a strategic fight. It’s not that we’re not hitting on all cylinders; we’re basically hitting on no cylinders right now. Let’s not wait for the smoking gun. Let’s look at the one loaded and pointed at our heads.

HIGHLIGHTS

What action is the Select Committee taking to safeguard national security?

JM: For almost two years now, the Select Committee has taken bipartisan action to safeguard our national security against threats from companies spanning different industries that are closely linked to the Chinese Communist Party. From TikTok controlling the news, Americans consume and storing their personal data to biotech company, BGI, stealing America's genetic data to the surveillance risk posed by drone company DJI. This committee and many in the US government are finally recognizing that Chinese companies operating the US pose a tremendous risk to our national security. And just one statistic that I found interesting on this is just in the last few weeks we learned that 39% of adults under 30 regularly get their news from TikTok.

That's up from 9% in 2020. Yet even broader growing awareness of the threat when the select committee has raised concerns over malign PRC companies all too often, the first thing we hear is where is the smoking gun? Allies, policymakers and the public understandably want to see evidence of malign behavior before acting. Looking for a smoking gun though is the wrong way to think about the China related risk. After all, a smoking gun means a shot has already been fired. Demanding to see smoking guns before taking action puts policymakers into a reactive posture. When our country's leaders have failed to connect the dots and take action, there have been catastrophic consequences including Pearl Harbor and 9/11. Even when we have lucked into less dire consequences, as was the case with both Huawei and semiconductors, being late to the game is expensive with emergency legislative solutions such as the so-called rip and replace costing billions in taxpayer dollars. That is strategically unwise and financially ruinous.

Consequently, I would like to spend some time outlining why we need to be looking not so much for smoking guns, but instead loaded guns. Chinese companies that because of the technology they provide or the supply chains they impact pose an unacceptable risk to our country's security. Even Chinese companies that claim to be private may be called upon by the party to advance its interest at the expense of ours at any time for any reason through the CCP's national security law.

What are some examples of Chinese companies in the US that are “loaded guns” and threats to US national security?

JM: There is no more prominent example of a loaded gun than the Chinese National Champion digital communications conglomerate Huawei. It was Huawei's scale and scope that first caused the House Intelligence Committee to raise the red flag as far back as 2012 and retrospect over a decade later, the threat posed by Huawei should have been obvious.

However, the government was slow to respond. National security suffered and taxpayers have paid the price. To counter threats posed by Huawei and similar PRC telecommunications companies, Congress passed the Secure and Trusted Communications Networks Act in 2020, which among other things created a rip and replace program to remove Huawei and other Chinese gear from our nation's networks. Four and a half years later, rip and replace efforts are still ongoing and the taxpayer bill is close to $5 billion and counting. Even worse, we have failed to learn from the Huawei example. Our national security and our fiscal health demand we disarm these loaded guns before it's too late. Too many Chinese companies are deeply embedded in some of our most critical industries and some supply chains. Given the signal from the CCP in situations ranging from a diplomatic slight to a Taiwan invasion, these companies could use their supply chain leverage against us to a devastating effect.

Take for example, the BGI Group, formerly known as Beijing Genomics Institute. Today, BGI operates over 100 laboratories across the world and collects copious amounts of patient data, including genetic data. BGI operates the world's largest gene bank and through its subsidiary, MGI, it is rapidly becoming a global provider of genetic sequencers. Much like Huawei, BGI is a national champion that has used stolen intellectual property and market subsidization to rapidly become a global biotech powerhouse that threatens our supply chains and national security. BGI is a loaded gun. In the world of semiconductors, we have Semiconductor Manufacturing International Corporation or SMIC, which is currently one of the world's largest producers of legacy semiconductors with ambitions of becoming a world leader in cutting-edge semiconductor production by the end of this decade. As you all know, semiconductors are the lifeblood of our modern economy from computers to our cars, as well as nearly every defense system.

So the idea that we should allow a company like SMIC to grow and further infiltrate our market would be economic and national security suicide. SMIC is a loaded gun. Another Chinese firm, ZPMC is the world's largest producer of ship-to-shore cranes operating in ports across the globe. ZPMC has collaborated with the Chinese army and worked with entities sanctioned by the US government, yet unbelievably ZPMC accounts for nearly 80% of ship-to-shore cranes in operation at US ports. In a recently released joint investigation with the House Homeland Security, we uncovered unauthorized cellular modems installed on its cranes bound for US ports creating a significant backdoor security vulnerability. ZPMC could disrupt US maritime equipment and technology at the request of the Chinese government, including during a conflict over Taiwan. ZPMC is a loaded gun. Going forward, we need to be asking whether a given company through its technology or supply chain reach could provide the CCP with the ability to threaten our national or economic security interests.

How should we begin to tackle the threats posed by Chinese companies operating in the US?

JM: I would suggest three key steps. First, for the sake of our national security, we need to implement appropriate barriers to our market, particularly in strategic sectors to prevent maligned PRC companies from undermining US technology and undercutting American businesses. We must also leverage and build upon crucial existing authorities to ensure PRC tech products from LiDAR to genetic sequencers do not gain access to our sensitive data or critical infrastructure. This includes expanding CFIUS jurisdiction to include foreign companies entering critical US industries.

Following the same logic it currently uses to assess national security risk when it comes to transactions, CFIUS should be assessing whether allowing a Chinese entity to enter a sensitive sector of the US economy could pose a risk to our national security. Second, we need to cut off access to US technology and capital that fuels PRC national champions and critical sectors. By enacting outbound investment restrictions and stronger export controls, we can stop fueling our own demise. We cannot outrun the CCP if we're providing the wind at its back. Finally, while we lead, we must also coordinate with our allies and encourage them to mirror these steps and secure their own supply chains, technology and domestic markets. We will need relentless diplomacy and constant reinforcement to bring our allies aboard.

Why is the Select Committee so focused on the threat that Chinese companies pose? Why are they different than other companies?

RK: I just want to point out to you why a Chinese company is unlike any other entity that we have seen, at least in my experience 'competing', competing I put in air quotes, in the United States, in providing goods and services. There are two reasons. One is, under the 1993 company law in the people's Republic of China, every single company has a CCP cell embedded at the top management of the corporation to basically run the company, to inform the management of how to make sure that whatever it does complies with what the CCP wants.

The second aspect, which is more recent, is a series of laws that have come forth basically in the form of the national security law, for instance, and others where these companies must be the instrument of the CCP with regard to foreign intelligence collection. So, in the case of Huawei, for instance, because Huawei is a Chinese company, obviously it has a CCP cell embedded in the top management. And because it has reach around the world, it's embedded in various telecommunication systems, it is required to provide a back door into its products for the CCP and its intelligence services should they want to, for instance, eavesdrop or surveil, or gather information, or collect intelligence on their adversaries or anybody.

And this has been done. It may be a loaded gun for some, but it's been a smoking gun in other places.

How are CCP cells embedded within Chinese companies?

RK: A good example is BYD, for instance. BYD has CCP cells that are embedded in the company. Really, they meet even at the factory level, not just at the corporate level. And another example is I think Wuxi AppTec. They have, I think 1000 out of the 7,000 employees in China are members of the CCP, and many of those people are part of the CCP cell. And so it used to be at one time that these CCP cells, they kind of existed in name only, but they didn't necessarily exercise a lot of control over the companies. But in the Xi Jinping era that has changed. Xi Jinping has made sure that these companies CCP cells not just be present, but also help to exercise control and flex their muscles.

And how do those CCP cells influence the companies when they are operating in the US?

JM: So in my case, in my district, there is a battery plant, Gotion, that is trying to locate in Michigan in my district. And when you hear about something like that at first, you're very excited, oh, there's going to be new jobs. Well, then you find out, okay, the parent company that's based in China has right in, its articles of association basically, allegiance to the Chinese Communist Party. And it's very interesting because the spokesperson of Gotion in the United States well said there's no connection of that, that this is a separate entity.

But then you find out there's the leader of the Chinese company, the relative is the CEO of the US company, and he used the same example, it's like having a Republican and a Democrat, we don't talk politics. But you realize their national security laws require allegiance and doing the bidding of the Chinese Communist Party, not simply in China, but also here in the United States.

Are all Chinese companies operating in the US threats to national security?

RK: I don't see them all as threats. I think that, the way that I look at it is, if you're selling ramen noodles or you're selling diapers, you're selling consumer products or items that aren't of great strategic interest or vital interest to the country, I don't think we should spend a lot of time consumed by, okay, is this going to be a threat or not? Despite the fact that a CCP cell may be embedded in their corporation back in China. Okay, I get that. It's in these, especially those 10 strategic sectors that Xi Jinping has identified as ones where they need to occupy the commanding heights. That's where I see the biggest risks.

So for instance, aviation and drones, shipbuilding in telecommunications, in quantum computing, in so many areas that are crucial not only for our economic security, but our national security, if they were to, for instance, own the entire legacy semiconductor space, we know that they're already trying to own the advanced semiconductor chip space where we're trying to deny our technology to help fuel their modernization. But if they were to own the entire legacy, the old chip space, that would still hurt us, because a lot of those chips go into our ships, go into our airplanes, go into our missile systems, and so that's where we have to be super careful, and we have to make sure that Chinese companies are not so important to the defense supply chain, for instance, that were they to either deny us access to that technology or somehow embed malware in that technology that we would be harmed.

How do you asses the risk of different Chinese companies operating in the US?

JM: It's interesting when you look at our dependency on Chinese drones, for instance, I think 80% of the drones that we're using, even in law enforcement, other areas, we're dependent on China. So that's a concern. When you look at the cranes that I mentioned earlier, they installed a cellular modem on these cranes that is communicating information, it also has the ability to do other things, to monitor what's coming in and out and potentially to shut down operations. So I think we always have to be mindful of that. Just to follow up on... I think it's degrees of risk.

So when you look at like SHEIN and Temu, you say, "Okay, they're advertising on the Super Bowl, what's the risk there?" Well, then you start looking at their supply chains connected to Xinjiang and forced labor. So to what degree do we want to be complicit in that in this country?

But then you also look at our policies where we maybe don't inspect certain packages that come in and they aren't really... And then you realize there's fentanyl coming into our country, and our committee did a report that showed that not only is China simply negligent in allowing fentanyl precursors to be manufactured in China, they're actually subsidizing it through their tax policy for the creation of these chemical precursors for fentanyl that's killing 200 Americans a day.

And they would say at the same time, Xi Jinping is meeting with President Biden saying, "We'll cooperate with you on your drug problem." They're subsidizing it and encouraging it, so we have to recognize that...

To me, that was shocking. Bill Barr, when he testified in our committee, he said, "We always suspected that, but this is the first hard evidence that we've seen of that." So in that case, there was a smoking gun.

Israel was recently able to infiltrate the supply chain of Hezbollah communications and used it to launch a wide-scale attack on them, are we at risk of similar attacks from Chinese technology in the US?

RK: Look, I don't know if they're going to be exploding any pagers or cell phones, but I think that... Well, we know Operation Volt Typhoon is well-documented at this point. It was publicized.

For those of you who missed it, Operation Volt Typhoon was an effort or is an effort by the CCP to basically implant malware and critical pieces of infrastructure throughout the United States. We're talking about power grids, we're talking about utilities, we're talking about water systems, we're talking about ports.

And essentially, it's not meant in that case to collect intelligence. That was the interesting thing that General Nakasone had made clear at our hearing. It's to disrupt those pieces of infrastructure should a conflict arise. It's kind of the exploding pager on steroids turning off the power to Fort Hood because there's malware implanted in some power grids near certain bases in Texas, for instance.

And so we have to assume, I personally think, you have to assume the worst, hope for the best, and plan for the worst.

How was Operation Volt Typhoon able to infiltrate US networks?

RK: In Operation Volt Typhoon, one of the most fascinating things is they were using ordinary routers that people, businesses, buy all the time, utilities buy, things that you can buy off the shelf. And these routers had a vulnerability which they could then use to implant the malware into the networks of those utilities.

So we're talking about very sophisticated operations, and that's why we are trying to unravel it, say, "Okay, let's stop buying TSP routers," for instance. "Let's get smart about this. Let's cooperate at the federal state and local levels along with private corporations," because everybody has to be...

It has to be a team effort.

What is the overt military threat that China poses to the US?

RK: I don't see them invading California, but I do see a scenario where they could miscalculate and preemptively attack a place like Guam. I think this is the concern that we have with regard to Xi Jinping or the PLA, which is that somehow they don't... they miscalculate in a situation and then they preemptively take actions that could lead to a catastrophic series of events.

And so we need to up our deterrence game as much as possible and make it clear exactly what's going to happen, as well as be prepared along with our friends, partners, and allies to discourage conflict.

How should we prioritize replacing Chinese infrastructure and how much would that cost?

JM: You'd like to see this manufacturing here in the United States, and that should be the first priority. However, we also need to partner with our allies and recognize that we can't do this alone, and it's going to require leadership to build those alliances.

And by the way, it's a great opportunity for us as a country, in a bipartisan way, to reach out to other nations who have actually felt neglected by the United States because so much was going to China.

And we have an opportunity to realign with other nations that are more like-minded, and at the same time counter what China's doing through their Belt and Road Initiative is trying to co-opt other countries, create debt, and then leverage that for dual-use purposes. So I think there is a challenge there, but there's also a great opportunity.

RK: I think that I'd start with the defense industry; number one. We actually had an interesting talk by some experts with regard to the defense supply chains and making sure that our defense architecture is sound, and then I think that you go from there.

In terms of the cost, I don't know. But at the same time, we, the federal government, it turns out we spend money. Some people say we spend too much, but anyway, in any case, we spend money and through our procurement itself, we can help to incentivize kind of a supply chain from trusted partners.

That's why the BIOSECURE Act, in my opinion, is so important because instead of buying genomic sequencing machines from BGI or goods and services from WuXi AppTec, both of those companies, in my opinion, are untrusted partners. We are basically saying, "Look, we're not going to do that anymore with taxpayer dollars. We're going to use it on other companies that are not foreign adversary controlled." And so that will help to stand up a biotech supply chain over time, not instantly, but over time that we can trust and hopefully that can compete well on its own around the world.

You mentioned the BIOSECURE Act, what is the danger of China owning so much genomic data of Americans?

RK: Basically, what they're trying to do is two things, at least, that we know of. One is that they are trying to refine their own genetic models to be able to identify, for instance, certain minorities that they can persecute in China, for instance, the Uyghurs. They're trying to identify exactly what strands of DNA are associated with Uyghurs, be able to segregate them, and then persecute them. The other thing, which is even more scary, but there's been evidence of this, is they're using it for military purposes. One, they're trying to create super soldiers in China, which means they're trying to mitigate the things that they may not like in their soldiers, like for instance wanting to sleep, being able to operate at high altitudes and so forth. They're actually doing experiments with DNA to try to refine that and mitigate against it. And then the other thing which is even scarier is trying to identify weaknesses in certain ethnicities or peoples using their DNA.

MT: For bioweapons or for-

RK: Yes. And then maybe weaponizing that weakness. And that's a much scarier proposition, but unfortunately we can't put it past the CCP this moment.

Why is China investing so much in US agriculture and shale gas production?

RK: Interestingly, China has a lot of vulnerabilities. One is food. They just can't grow enough. They can't grow enough food domestically to feed their population, and that's why they steal intellectual property associated with food, for instance. We had a hearing on that in Iowa of all places to talk about this with Ashley, in Ashley Hinson's district. On the shale gas, the other vulnerability they have is they have to import their energy. They are dramatically dependent on foreign sources of energy. We know this. Obviously, they import tremendous amounts of crude from Russia as well as the Middle East, and they want to be able to develop their own sources of energy abroad, but they also want to get access to that technology to develop that crude or the natural gas, exploit that abroad.

Now, the flip side of that is, again, we just always have to be thinking about worst-case scenario, which is if they were to embed themselves in a energy supply chain, what could they do at that point? And so you just have to be thinking about that. I'm sure CFIUS has to think about that as well. Should they invest in shale gas here in the U.S.?

The US has the capacity to be energy-independent when it comes to fossil fuel use. Are eclectic vehicle mandates making us more dependant on China for rare-earths and EV batteries?

RK: I think that the EV market is exploding around the world at this point. And so for us to be a part of the EV market around the world, we need to have the best technology. It turns out we don't have the best technology right now in the EV space. I think it's going to be a transition. Right now China has the best EV technology, and then I think over time, I think we're going to learn and then innovate, and then we will have the best EV technology in the world, and then we will out-compete everyone in the EV space globally. But it's a transition.

At the same time, I think with regard to what you talked about in the mandates and stuff, look, I think this is an ongoing challenge. I happen to have a Ford Escape hybrid, and so I'm got one foot in each space at this point. 230,000 miles and going. And so I'm going to keep one foot in each space for a little while here.

But will the EV mandates have a negative short-term effect on our national security?

JM: I really believe that forcing our automakers' hand on this has been a huge mistake, and I believe that right now our energy policy is really benefiting China and hurting America. And to me, I love innovation. I have confidence in American ingenuity. But when they are forced to rely on critical minerals where China has the dominant supply chain, when they have battery technology and they're not able to just spend the time and develop the best technology, but to comply with an artificial mandate for government, I think is putting our competitive advantage seriously at risk.

How are other sectors, like academia, benefiting the Chinese Communist Party?

JM: One report we just put out was looking at university research collaboration, and Department of Defense dollars going to fund over 9,000 joint papers between Chinese and American researchers in some of these critical technologies that have defense applications. And then also looking at these joint institutes where we're funding this with our own taxpayer dollars for military purposes where the other entity is actually partnering with the People's Liberation Army. So fortunately, two universities have stepped up and said basically they're going to discontinue that. We hope more will follow that course, but we're very intertwined and we need to strategically address that.

Read the transcript here.

SHOWNOTES

Biden proposes banning Chinese vehicles, 'connected car' technology from US roads (Reuters, September 23, 2024)

Why China hawks care so much about cranes (Sam Sabin, Axios, Sept 17, 2024)

Chinese Cargo Cranes at U.S. Ports Pose Espionage Risk, Probe Finds (Dustin Volz, WSJ, Sept 12, 2024)

US House votes to bar new DJI drones as 'China week' gets underway (David Shepardson and Michael Martina, Reuters, September 9, 2024)

How China extended its repression into an American city (Washington Post, September 3, 2024)

A Chinese Firm Is America’s Favorite Drone Maker. Except in Washington. (Kate Kelly, NYT, April 25, 2024)

US states are cutting off Chinese citizens and companies from land ownership (Phelim Kine, Politico, April 3, 2024)

US warns hackers are carrying out attacks on water systems (Reuters, March 20, 2024)

China owns 380,000 acres of land in the U.S. Here's where (Ximena Bustillo, Connie Hanzhang Jin, NPR, June 26, 2023)

CHINA WEEK RECAP: Congress Passes 25 Bills to Combat Chinese Communist Party Threats (SCCCP, September 12, 2024)

Investigation by Select Committee on the CCP, House Homeland Finds Potential Threats to U.S. Port Infrastructure Security from China (SCCCP, September 12, 2024)

INVESTIGATION INTO THE REEDLEY BIOLAB (SCCCP, NOV 15, 2023)

Gallagher, Krishnamoorthi Probe Sequoia's PRC High-Tech Investments, Examine Implications of Announced Split (SCCCP, Oct 18, 2023)

Select Committee Issues Subpoena on Clandestine Chinese Lab (SCCCP, Sept 14, 2023)

Reset, Prevent, Build: A Strategy to Win America's Economic Competition with the Chinese Communist Party (SCCCP, Dec 12, 2023)

Gallagher Statement on Ford Pausing CATL Deal (SCCCP, Sept 25, 2023)

Moolenaar: Gotion proposal is wrong for Michigan (John Moolenaar, The Detroit News, March 31, 2023)

China's dealings in US concerning: Rep. John Moolenaar (John Moolenaar, NewsNation Prime, Aug 3, 2024)

Rep. Raja Krishnamoorthi on 'China Week' on Capitol Hill: A big missed opportunity (Raja Krishnamoorthi, CNBC, Sept 13, 2024)

Thwarting cyberattacks from China is DHS’s top infrastructure security priority (Gaby Del Valle, The Verge, June 24, 2024)

Chinese Government Poses 'Broad and Unrelenting' Threat to U.S. Critical Infrastructure, FBI Director Says (FBI, April 18, 2024)

China Could Threaten Critical Infrastructure in a Conflict, N.S.A. Chief Says (Julian E Branes, NYT, April 17, 2024)

China is top cyber threat to US utilities, other critical infrastructure: CISA (David Jones, Utility Dive, Oct 9, 2023)

Exploding Pagers and the Tech Race With China (Mike Gallagher, Wall Street Journal, September 22, 2024)

China’s Global Activity: Building Grabs the Spotlight from Owning (Derek Scissors, AEI, July 22, 2024).

Chinese investment in shale-gas technology is a threat to US innovation (The Hill, Usha Haley, April 4, 2024)

Better but Not Well: China’s Global Investment Needs More Fuel (Derek Scissors AEI, January 18, 2024)

Will Biden Also Accept Chinese IP Theft? (Derek Scissors, AEI, September 27, 2021)

DJI isn’t the only Chinese drone threat to US security. Meet Autel. (Eric Sayers and Klon Kitchen, Defense News, September 15, 2023)

China’s Global Investment Surges, Finally (Derek Scissors, AEI, July 24, 2023)

Ban TikTok Now (Klon Kitchen, The Current, July 7, 2022)