Unclassified Open Hearing on China’s Economic and Security Strategy

Unclassified Open Hearing on China’s Economic and Security Strategy and China's (Hostile) Acquisition of American Research, Innovation, and Intellectual Property

On July 19, 2018, the House Permanent Select Committee on Intelligence (HPSCI) held an open hearing on “China's Threat to American Government and Private Sector Research and Innovation Leadership”.

The Committee welcomed four leading experts:

• Michael Pillsbury, Director of the Center on Chinese Strategy, Hudson Institute 
• Michael Brown, Former CEO of Symantec Corporation and co-author of a Pentagon study on China’s Technology Transfer Strategy 
• James Phillips, Chairman and CEO of NanoMech, Inc.
• Elsa Kania, Adjunct Fellow at Center for a New American Security

Here are a few small excerpts from each of their statements:

Michael Pillsbury, Director of the Center on Chinese Strategy, Hudson Institute (Statement for the Record)

Three years ago, I wrote a book warning that China was well on the way to replacing us. It was based on Chinese documents, defectors and interviews. It became an international best seller called The Hundred-Year Marathon: China's Secret Strategy to Replace America as the Global Superpower. I opposed the common view that China was about to collapse.

[...]

One Chinese defector who I named Ms. Lee provided detailed examples gleaned from her access to secret meetings, documenting how China had made false claims from 1995 to 2000 to persuade Congress to grant China permanent normal trade relations and pave its way into the WTO.

Ms. Lee revealed that China’s leaders’ strategy was to leave nothing to chance by aiding those who favored the vote, and suppressing information about their mercantilist economic strategy.They reasoned that if Congress knew that a free market was off the table for the foreseeable future—if not forever—the vote would not pass. They launched a program of propaganda and espionage that was more sophisticated than anyone in the U.S. intelligence community suspected. She explained in detail how China had studied American political fault lines to exploit divisions within the U.S. foreign policy community, using as a guide an old essay by Mao Zedong from the 1930s about how to analyze political differences.

Michael Brown, Former CEO of Symantec Corporation and co-author of a Pentagon study on China’s Technology Transfer Strategy (Statement for the Record)

I’m pleased to be with you today to share findings of work I’ve led for the Defense Department in understanding the role that Chinese investments in early-stage technology firms have in China’s systematic plan to transfer technology. 

I came to this work as a former CEO of two Silicon Valley companies: Quantum, a computer storage provider where I worked for 20 years and Symantec, the cybersecurity firm where I was CEO through the fall of 2016. In the fall of 2016, I began serving as a Presidential Innovation Fellow working with the Defense Innovation Unit Experimental (DIUx) in Silicon Valley. However, I’m here today in my personal capacity as a Presidential Innovation Fellow and not as a spokesperson for the Defense Department.

[...]

Actions to Take: Four Remedies
As a result, given the multiple means of technology transfer China employs today and the well-funded systematic approach the Chinese government oversees, the U.S. has not faced such a formidable strategic competitor with an expected trajectory to overtake our economy in size in our entire history. The U.S. needs a sense of urgency in developing four remedies: 

1. Better defensive tools such as the CFIUS reforms included in the Foreign Risk Review Modernization Act (FIRRMA) of 2017 and expanded and updated export control reforms.
2. More aggressive enforcement of IP theft with the sanctions on Chinese firms that steal such as with ZTE, and changing our laws so that Chinese firms can be successfully sued in U.S. courts along with the ability to attach assets if they are found guilty
3. Increased investment in FBI Counterintelligence resources with a change of objectives to preventing IP theft rather than prosecuting cases
4. A long-term game plan to be successful in the technology race we now find ourselves in with China.

James Phillips, Chairman and CEO of NanoMech, Inc. (Statement for the Record)

I now serve as Chairman and CEO of NanoMech industries, a leading nano-manufacturing firm and research company with hundreds of advanced material science products used by many of the largest iconic customers in the world especially in oil and gas, military, trucking, automotive, aerospace, marine, and retail.

 [...] 

Not long ago the FBI showed up in force at NanoMech Industries headquarters to report to us they had observed we were the 2nd most hit firewall by the Chinese cyber-militia in the Southern U.S. while I suppose we could take this as a compliment to our superior science and technology, we moved fast to squash this attempt before it had a chance to succeed. The FBI were at NanoMech to help proactively under the directive of the National Nanotechnology Initiative signed into law by President George W. Bush to protect and promote the interests of American nanoscience. The FBI brought in an expert within the FBI on China to assist in how to confront these serious attempts at cyber-hacking we were experiencing. We involved at significant cost, our IT firm and as fast as possible took many new precautions in addition to the double firewalls we had in place, and since have added many more software and physical security provisions and fortresses. We are told that the only way to be totally sure you are safe from hacking by the Chinese and others, is to go off the grid with your most secret proprietary property, in the form of log books using a certain method under advanced lock and code. We have done so in certain cases to protect our most secret inventions and research

Elsa Kania, Adjunct Fellow at Center for a New American Security (Statement for the Record)

China’s attempts to advance indigenous innovation (自主创新) have often leveraged and been accelerated by tech transfer that is undertaken through both licit and illicit means. This history and these techniques of industrial espionage have been extensively documented, and cases abound.1 Some of the more notorious examples include the theft of data on the F-352 and recent Chinese targeting of the semiconductor industry, which has involved targeted poaching of engineers and the theft of intellectual property,3,4 as well as attempted and successful acquisitions.13

[...] 

U.S. policymakers should consider a range of policy responses, which might include, but not be limited to, the following recommendations: 

 Targeted Countermeasures:
• Explore updates and revisions to national export controls, defense trade controls and investment review mechanisms that take into account the unique challenges of dual-use commercial technologies.t, 136
 > Share lessons learned and pursue coordination with allies and partners to account for the global scope and scale of these dynamics.
• Engage in outreach to companies and universities in order to highlight the potential for risk or unintended externalities in joint ventures and partnerships, including through developing and presenting a series of case studies based on past incidents.
 > Consider reestablishing the now-disbanded FBI National Security Higher Education Advisory Board to facilitate and institutionalize such engagements.u, 137, 138
• Enhance and enforce cyber security standards and requirements for contractors and laboratories engaged in sensitive academic research.
• Review recent and existing research and commercial partnerships on strategic technologies that involve support and funding from foreign militaries, governments or state-owned/supported enterprises, evaluating the dual-use risks and potential externalities in each case.
 > Ensure that these appropriate safeguards are applied to sensitive datasets associated with AI development, including data used for training purposes
(More…)

Here is a list of additional hearings, etc. on China and US-China Relations:

Senate Foreign Relations Subcommittee Hearing: The China Challenge, Part 1: Economic Coercion as Statecraft

Wikipedia: China–United States relations