April 16, 2021

China Looks to Seize the 21st Century


KEY TAKEAWAYS

  • China is challenging the United States militarily, geopolitically, and economically to supplant an open and democratic system in favor of one that advances the interests of the Chinese Communist Party.
  • China’s economic aggression includes IP theft, state support for key industries, forced technology transfers, and wide use of cyber operations to conduct economic espionage.

China and the U.S. are locked in a competition that in some ways is already beginning to define the 21st century. The Chinese Communist Party sees liberal democracy and the fundamental values of freedom, free enterprise, and the rule of law espoused by democratic nations as a threat to its ascent. China is focused on competing with the U.S. militarily, geopolitically, and economically. Its Belt and Road Initiative aims to expand China’s influence, to make the global economy more dependent on China, and to make it easier to exert military power beyond its borders. 

China is also dismantling Hong Kong’s democratic system, spreading authoritarian surveillance equipment, and engaging in widespread human rights abuses, including through a genocide against Uyghur Muslims and the persecution of Tibetans and Christians.

Military expansion

President Xi Jinping has said that his vision is a modernized People’s Liberation Army that can exert power far from Chinese shores. The country is exploring options to put military bases around the world, enlarging its nuclear force, and developing advanced weapon systems that can deny other countries access to international waters and airspace. It plans to continue this modernization program by focusing on key military technologies such as space and hypersonic weapons. Some experts have expressed concern that China already outmatches U.S. forces in parts of the Indo-Pacific, risking U.S. ability to defend our allies in the region from Chinese aggression.

China aggressively uses its military to control access to territory in the South and East China Seas and to threaten its neighbors, such as Taiwan, Japan, the Philippines, and Vietnam. Its increased activity in the Taiwan Strait risks escalating into a military conflict and potentially the invasion of Taiwan. China is also using militia forces and fishing fleets around the region to threaten the territorial waters of neighboring nations like the Philippines and Vietnam.

“The U.S. military could suffer unacceptably high casualties and loss of major capital assets in its next conflict. It might struggle to win, or perhaps lose, a war against China or Russia.” – National Defense Strategy Commission

President Biden’s budget request for $715 billion is expected actually to be a cut when considering inflation. It is far from the 3-5% real year-over-year growth the National Defense Strategy Commission recommended as necessary to appropriately fund the military. Senate Republicans, like ranking member of the Senate Armed Services Committee Jim Inhofe, have voiced concern that a cut to defense funding sends the wrong signal to China. In contrast, some congressional Democrats seem to believe national security is not a priority and have called for much larger cuts to the overall defense budget.

geopolitical competition

China unveiled its signature foreign policy initiative, the Belt and Road Initiative, in 2013 to advance an economic system centered on the country. It would increase the economic influence of Chinese firms in global markets and enhancing China’s political leverage with governments around the world. 

140 Countries Have Signed on to China’s Belt & Road Initiative

China

The strategy is for the Chinese government to invest in infrastructure and other projects in countries that agree to participate in the initiative. These form linked economic corridors to produce and distribute goods across Asian, African, South American, Caribbean, and European land and sea routes. So far, 140 countries have signed on as participants in the BRI to varying degrees. By investing in poorer economies, China can use its wealth to trap those countries in coercive debt agreements. The BRI is expanding China’s military footprint by requiring many of these projects to be built in ways that could later accommodate Chinese military uses.

The Chinese government also is entering strategic agreements with countries such as Iran and is building institutions like the Asian Infrastructure Investment Bank to challenge existing global financial institutions. The country is capitalizing on the coronavirus pandemic by using its vaccine and medical industrial base to increase other nations’ dependence on Chinese supply chains.

economic competition

A key component of China’s plan to become a global superpower is economic aggression. Its tactics include stealing trade secrets and other intellectual property; massive state subsidies for industries like 5G technology and electric batteries; predatory pricing; and forced technology transfers. China employs cyber operations throughout its economic efforts despite a “common understanding” announced by President Barack Obama and President Xi in 2015 that the two countries would not knowingly support the hacking of corporate secrets or business information. China is focusing research and investment on seven “frontier technologies” as it competes for economic superiority with the United States, including artificial intelligence, quantum computing, semiconductors, and space exploration. U.S. investment supports much of China’s industry, which in turn supports the Chinese government’s malign activities. 

IP Theft

The scope and scale of China’s theft of intellectual property over the past two decades constitutes one of the largest transfers of wealth in human history. According to a 2017 report, Chinese IP theft costs the United States as much as $600 billion per year. The pandemic has not slowed or dampened China’s efforts to steal its way up the economic ladder.

“The greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality, is the counterintelligence and economic espionage threat from China.” -- FBI Director Christopher Wray

China targets a wide variety of entities and technologies for theft. In one recent case in Ohio, a woman admitted to stealing trade secrets related to research from a children’s hospital. In another case, a Chinese energy company, a U.S. based oil and gas company, and a Chinese national living in Houston conspired to steal trade secrets and technology from another oil and gas company. The Trump administration ordered China’s consulate in Houston closed last year because of trade theft and espionage.

State Support

China has the world’s most extensive subsidy regime for state-owned businesses. It subsidizes firms and industries through sub-market-rate loans, loan forgiveness, and free research and development. In 2005, the government designated steel to be a “pillar industry” for the Chinese economy. Until then, China had been a net importer of steel, but in less than a year it became the world’s largest exporter by volume. Rather than use traditional methods of competing in a marketplace, such as through innovation, economies of scale, or lower labor costs, China spent billions of dollars subsidizing the industry. China has run this play over and over again, subsidizing strategic sectors such as information technology, aerospace equipment, electric batteries, and medical industries.

Forced Technology Transfers

China also has distorted global markets and competition by forcing U.S. technology companies to share technology, trade secrets, and other intellectual property as a condition of gaining access to China’s market. The most common method is to require U.S. companies to form a “joint-venture” with a local Chinese business that is either state owned or controlled. U.S. companies often find themselves competing against these Chinese companies a few years later, after the Chinese have gained the expertise to operate independently.

China uses other, more subtle, techniques to gain access to valuable technologies, including requiring that a certain percentage of a product’s value be made in China, or extensive reviews of technologies and sensitive software code as part of required “security” reviews.

senate republicans offer solutions

Senate Republicans have offered a number of solutions to counter challenges posed by China and ensure that the next century is led by the United States and our allies. Congress and the Trump administration gave the U.S. tools to better compete with the BRI and protect U.S. influence abroad through development financing with the enactment of the BUILD Act.

Congress also passed the Pacific Deterrence Initiative in the fiscal year 2021 National Defense Authorization Act. The law directs military spending to efforts to counter China and protect U.S. interests in the Indo-Pacific region and U.S. territory like Guam, which is under threat from Chinese missiles. Congress has passed laws to make Chinese companies listed on U.S. stock exchanges more transparent. The Holding Foreign Companies Accountable Act prohibits securities of a company from being listed on U.S. exchanges if it has failed to comply with required public accounting audits for three years in a row.

Republican senators continue to prioritize countering China. Recently introduced legislation includes the Strengthening Trade, Regional Alliances, Technology, and Economic and Geopolitical Initiatives Concerning China Act, introduced by Senator James Risch. It would target China’s unfair distortion of global markets through practices like IP theft and mass government subsidization and sponsorship of Chinese companies. The bill would increase collaboration between the U.S. and our allies on advanced technology development, to lessen global dependence on China. It would also strengthen our defense relationships in the Indo-Pacific to deter Chinese military aggression. 

The Senate Foreign Relations Committee is set to consider a bill that includes many provisions of the STRATEGIC Act. The Strategic Competition Act would take steps to counter China’s bad behavior globally, including predatory economic practices and IP theft; to work with allies and partners in areas such as technology, infrastructure, and security; and to highlight and counter emerging challenges in the U.S.-China relationship, like the potential overseas expansion of Chinese military installations and China’s growing nuclear arsenal.

The Fair Trade with China Enforcement Act, introduced by Senators Marco Rubio and Josh Hawley, would prohibit the sale of national-security sensitive technology and IP to China and would increase taxes on multinational corporations’ income earned in China at a rate similar to the lost value of stolen IP and technology.

On April 14, the Committee on Commerce, Science, and Transportation held a hearing focused on the concepts included in the Endless Frontier Act, legislation introduced in the 116th Congress by Senators Chuck Schumer and Todd Young. Witnesses discussed potential improvements to the legislation, the need for federal investment in research and development, potential structural changes to the National Science Foundation, and ways to ensure the U.S. remains the global leader in science and technology.