Good morning, everyone. It’s a pleasure to be out at Ft. Belvoir again, and all the more so because of the importance of this event’s focus upon great power competition. I’d like to say a few words today about what the United States’ government is doing in response to the geopolitically revisionist competitive strategy of the People’s Republic of China.
The 2017 National Security Strategy and the 2018 National Defense Strategy give us a clear sense of policy direction that was previously lacking. Both of those documents call out China as a great power competitor with revisionist ambitions, and make clear that meeting the challenges China presents is a critical responsibility of U.S. foreign and national security policy,
Accordingly, I have myself spoken frequently about the China challenge. To raise awareness about that challenge and to catalyze effective responses, I typically stress such things as the kind of technology transfer issues that we deal with in the Bureau of International Security and Nonproliferation, how technology acquisition — by means both fair and foul — fits into Beijing’s grand strategy of national “return” to global primacy, and the dangerous and destabilizing implications of China’s geopolitical ambitiousness. Nevertheless, there is still little on the public record about what the U.S. government is actually doing about these problems.
Today, therefore, let me offer you at least a little insight into the breadth and scope of how the U.S. government is reorienting itself — bureaucratically and institutionally — to help meet the foreign and national security challenges that China’s destabilizing geopolitical revisionism presents.
To be sure, there is a fair amount that I won’t be able to describe, both for reasons of brevity and because there are aspects of our responses to the China challenge that must remain classified — and which we naturally don’t want our competitors in Beijing to know about. Nevertheless, I hope that it will be useful to outline at least some of the picture, since big bureaucracies are notoriously hard to redirect, and much of this tale of recalibrating China policy represents a real U.S. success story in institutional and policy adaptations.
I. Developing a Whole-of-Government Response
The first thing you should know is that this work really is being done on what increasingly amounts to a “whole of government” basis. Since my focus today is upon foreign and national security policy, I’ll leave others to explore the high-profile prioritization of China-related trade and other economic issues by other parts of the government. Even within the national security world, however, the Department of Defense has made China what Secretary Esper has described as its “number one priority,” and intelligence collection and analytical priorities are evolving and maturing to better support our collective missions in support of great power competition.
At the State Department, our building has been reorganizing itself in significant ways around a new, forward-leaning policy to help meet the challenges presented by China’s competitive strategy as it has targeted us and our friends and allies. All of the policy bureaus, for instance, have been told to build bureau strategic plans that pull together, organize, and prioritize ways to contribute to U.S. China strategy; these bureau strategies have been collected and coordinated by officials at the Under Secretary level, and are now being overseen on a building-wide level by a steering committee chaired by the Deputy Secretary. We are today focused upon and coordinated against China-related policy challenges as never before.
Some people liken government bureaucracies to supertankers at sea, using this simile to make the point that even small changes of direction are usually slow and laborious. Yet my impression of the U.S. government’s refocus upon China-related competitive strategy belies this. The ship of State, as it were, can apparently turn pretty quickly when it needs to, and as someone who has been ringing alarm bells about such challenges for many years, it is gratifying to see all this underway so quickly.
So let me walk you through responses to the China challenge as they appear from my little corner of the U.S. foreign affairs and national security apparatus dealing with issues of technology transfer.
II. Protecting the Defense Industrial Base
As called for in the National Defense Strategy, one key focus of our domestic efforts, as we shift gears towards great power competition in a way we haven’t done in decades, is the protection of the defense industrial base. This involves two principal lines of effort. First, we must ensure that the supply chains for U.S. military equipment are secure. Second, we must ensure that the technological capabilities that underlie our defense industrial base are secure against theft, illegal exploitation, or other forms of acquisition and diversion to support the security apparatus or military capabilities of great power rivals such as China.
A. Whole of Government Effort
These lines of effort bring together multiple aspects of U.S. public policymaking — from cyber security to export controls, and from research investments to nonproliferation visa screening — that have not previously been approached together in a highly coordinated way. We are working to break down traditional institutional stovepipes to confront Beijing’s whole-of-system strategy with a broad and coordinated response of our own.
To be sure, we do not seek to break down all of the stovepipes in our socio-political system as the Chinese themselves have been attempting with their “Military-Civil Fusion” (MCF) strategy — a concerted, system-wide effort to erase barriers between the military and civilian sectors of the Chinese economy to speed the transfer of technology to wherever it is felt able to contribute most to the augmentation of China’s power, and in support of the CCP regime’s revisionist geopolitics. We here in the U.S. government don’t have the authority to do that, and we don’t want it. Free societies should not have the ability to call upon all of the tools of domestic coercion and command that are available to an authoritarian police state such as China.
Nevertheless, within the limits of what is appropriate in our system, we have been working to protect what advantages we have and to leverage our own competitive strengths vis-à-vis Beijing’s destabilizing revanchism.
B. Coalition-Building Diplomacy and Outreach
Nor are we doing this alone, for we recognize that China presents a challenge not just to the United States but to the entire non-Chinese world. Coordinating multilateral answers in these areas is hardly easy, but we have friends and allies around the world who can be partners and collaborators in the great task of stabilizing the mid-21st century strategic environment by helping keep Beijing from being able to live out its dream of national “return” in destructively self-aggrandizing ways. And so we are working not merely to organize the U.S. government better to meet this challenge, but also to work with those friends and allies to build what I call “coalitions of caution” bringing more prudence and focus to our collective efforts.
To this end, for instance, my Bureau conducts bilateral dialogues with dozens of countries around the world every year. To be sure, China has been a point of emphasis in counterproliferation diplomacy for decades, because it has so long been the most significant source of supply of WMD-related technologies, materials, and equipment to some of the most problematic proliferation programs in the world.
More recently, however, diplomatic engagement with our partners about China has come also to focus upon how to mitigate Chinese efforts to steal technology, disregard peaceful-use assurances, and violate end user commitments to divert technology to military programs. Thankfully, there is a growing consensus internationally that the non-Chinese world needs to work together much more effectively to guard against such abuses, and we are now focusing intently upon this effort in our bilateral engagements with partners around the world.
We are also working with our U.S. interagency partners to engage more directly with both industry and academia about these risks. The Department of Commerce, for instance, has an extensive outreach program to companies both in the United States and overseas to sensitize them to such dangers.
The Department of State and the U.S. interagency, including the Federal Bureau of Investigation, have taken a proactive approach to reaching out to universities and research labs around the United States to raise awareness of the risks posed by Beijing’s efforts to use Chinese graduate students, exploiting our open academic system, to achieve its strategic objectives. The FBI has even published an that outlines the ways in which the Chinese system targets U.S. institutions of higher learning for technological exploitation, illustrating these points with case studies of successful Justice Department prosecutions.
My colleagues in the State Department’s Bureau of Oceans and International Environmental and Scientific Affairs are conducting outreach both domestically to American scientists, and internationally to allies and partners, to identify ways to address foreign interference by countries, such as China, that do not adhere to foundational principles and values of the U.S. and international research and development (R&D) enterprise. Through these efforts, we are working to build a collective understanding of R&D risks, encourage adoption of risk mitigation measures, and exchange best practices to protect the integrity of the R&D enterprise and preserve the rules-based R&D order.
Such outreach is crucial, especially as we seek to catalyze the sort of cultural change that will be necessary to meet the China challenge over the long term. This can be done by building more caution and prudence into the everyday habits of the broad array of government, commercial, academic, and scientific personnel in many countries around the world who are targeted for exploitation by the Chinese technology-acquisition machine. But let me give you a few examples of some of the innovations we have been pursuing within the U.S. bureaucracy.
III. Civil Nuclear Cooperation
One of the clearest examples of how we have adjusted to the new risk environment has been through making changes to our civil nuclear licensing policy. Announced last autumn in response to several years of experience with how China systematically takes advantage of civil-nuclear cooperation to steal technology from foreign suppliers, divert that technology to military purposes in China, and build global civil-nuclear relationships into tools of geopolitical manipulation, our new policy severely restricts U.S. civil nuclear trade with China to limit these hazards.
In addition to the new civil nuclear licensing policy, we also recently added one of China’s largest nuclear state-owned enterprises, China General Nuclear Power Corporation (CGN), to the Department of Commerce Entity List. CGN was indicted in April 2016 for conspiring to steal nuclear technology – highlighting the type of activity with which we are so concerned. CGN’s co-conspirator, Alan Ho, pled guilty in federal court and served a prison sentence, but CGN continues to refuse to answer the indictment. Adding CGN to the Entity List was the next logical step in our efforts to arrest the risks posed by CGN.
One of the most important features of our new licensing policy is to restrict technology transfers related to small modular reactors (SMRs) and advanced reactors that are currently in research and development phases. The United States is currently a leader in these areas, which in many ways represent the future of nuclear power as humanity moves increasingly toward reactor concepts that are more economical and better sized to many power grid applications, are safer from a nonproliferation perspective, and are more environmentally responsible and financially affordable than today’s technological norm.
But this is also a technology area that China is explicitly targeting for technology transfer — both through open engagement and through theft — and to divert foreign know-how to military programs such as submarine propulsion, future aircraft carrier power plants, and the development of floating nuclear power plants (FNPPs) to provide electricity for military bases and advanced weapons systems as China continues its campaign of coercion and expansion in the South and East China Seas. As we discovered to our dismay in the wake of the Obama Administration’s new U.S.-China civil nuclear cooperation agreement (a.k.a. “123 Agreement”) in 2015, FNPPs present a classic case study of Chinese MCF.
The Chinese FNPP design is based upon a submarine reactor; it was transferred to an ostensibly civilian entity, which in turn sought to develop international partners so that foreign SMR technology could be used to support the effort — thus not just helping (literally!) to power Chinese imperialism in the East Asian littoral, but also feeding back into efforts to provide next-generation power plants for the Chinese Navy. Though Chinese interlocutors pretend that all such international cooperation efforts are purely “civilian,” careful observers now know that thanks to MCF, there is no such thing as a purely “civilian” technology end use in China if that technology has military utility. And indeed Chinese documents talk extensively about the utility of FNPPs in “wartime,” making the problem all the more clear.
Naturally, we don’t think any foreign nuclear supplier should support efforts to augment China’s military buildup and territorial expansion, and we acted last year to keep U.S. companies from participating in this dangerous game. We imposed new licensing rules to end U.S. cooperation with China on such reactors, and are we are working to raise awareness of these threats among partners around the world to prevent them from also being exploited in this way.
IV. Multilateral Action on Sensitive Technologies
In addition to restricting our own technology transfers to China in the civil nuclear space, we are working to build “coalitions of caution” in other areas of technology transfer through outreach to and coordination with other advanced industrial economies that are the targets of Chinese technology acquisition. In this vein, we are focused on improving understanding of the risks posed by China’s strategies, and are working to ensure appropriate and effective measures are in place in four key areas: export controls; investment screening; visa screening for proliferation concerns; and mitigating risks associated with international scientific and technical collaboration.
These four lines of effort are the loci of important innovation in the United States’ approach to technology-transfer issues, but we are also approaching this on a multilateral basis — including through the Multilateral Action on Sensitive Technologies (MAST) process, a group of 15 advanced industrial nations that come together to compare notes on such technology-transfer threats and help develop more effective collective responses. Participants come from across the spectrum of government agencies because it is essential that we work these cross-cutting issues across all agencies. The second annual MAST plenary meeting, in fact, is occurring just this week here in Washington.
In terms of U.S. responses to these challenges that we hope will prove something of a model for others — and which we are also working to improve on the basis of what we learn from MAST partners and other relevant players from their own work — let me describe a bit of what we have been doing.
A. Export Controls
One of the effects of China’s MCF strategy is that by breaking down internal barriers between the civilian and military sectors anywhere within the Chinese system, MCF makes it impossible to treat China as a “normal” country for purposes of the sort of export control end-user certificates and peaceful-use assurances that have been the industrialized world’s standard for trade in advanced technologies for a long time. Simply put, in the context of MCF, it is impossible to rely upon any Chinese promise of purely peaceful or civilian end use if the technology in question has value to China’s security services or its military.
In effect, by announcing its MCF strategy — about which the regime makes no bones whatsoever, for open-source Chinese documents describe and even brag about its contours in some detail — Beijing has announced that no one else in the world can henceforth fully trust any of the end-use or end-user promises made by Chinese trade counterparties. This has obliged us to begin readjusting our own approaches to export control policy vis-à-vis China.
As we have made clear, we do not think that present circumstances warrant trying to impose some kind of draconian high-technology “embargo” on China. That would not be good for global innovation, competition, or US economic security and foreign policy interests. Instead, U.S. strategy vis-à-vis Beijing needs to be a mix of both competitive and cooperative elements, and we should not shut off all high-technology trade with China. But having learned much about Beijing’s methods and strategic intentions, and understanding the role that technology-transfer restrictions can have in supporting U.S. competitive strategy, we are working to become much more cautious and prudent in our dealings — and urging other technology holders targeted by China to follow suit.
In export licensing, for instance, we have not abandoned end-use and end-user vetting. However, we are making it more vigorous and wide-ranging — focusing not merely upon the specific end-users or intermediaries who are listed on an export license, but also upon everything we can figure out about the relationships and associations that these entities have with other parts of the Chinese system. In particular, we look for connections to military research and development, including with the many Chinese universities that support military research and development, or with China’s defense conglomerates or the People’s Liberation Army (PLA) itself. It is these relationships that provide China with the most direct connective tissue between peaceful and non-peaceful end uses, and we are today doing much more to prevent sensitive U.S. technologies from being injected into this system. Intermediaries are also being given much more attention than before, since under China’s MCF system, technology diversion can occur at any stage of the process even if the end user is, by happenstance, entirely benign.
The U.S. interagency is also in the midst of an even more significant revision of our approach to export controls under a new legislative framework, the Export Control Reform Act (ECRA), which became law in August 2018. Pursuant to this statute, the Department of Commerce’s Bureau of Industry and Security is leading a broad interagency process — in which we at State are pleased to be participating — to identify “emerging” and “foundational” technologies that are “essential to the national security of the United States,” and to add such technologies to the system of U.S. controls under the (EAR).
This effort is especially important because many of the most advanced and important emerging and foundational technologies are not yet, in fact, controlled by any international regimes. Our effort seeks to identify technologies that are in need of control, to bring them within the scope of U.S. regulations, to work with international partners to add them to multilateral regime control lists, and to build mechanisms for reassessing such questions on an ongoing basis so that we can keep the control architecture as up to date as possible.
The national security implications of these questions vis-à-vis China are both obvious and dramatic. The primacy purpose of the MCF approach taken by the Chinese government, and in particular the Xi regime, has to do not so much with gaining military advantage from existing technology — though that, of course, is greatly desired — as it does with identifying and bringing into the Chinese government’s hands the technologies that are imagined to underlie the coming “Revolution in Military Affairs” (RMA). These technologies are what officials in Beijing expect will give the keys to military dominance in the next generation.
Such RMA ambitions make our ECRA-based efforts to expand the aperture of U.S. export control thinking all the more important. At present, interagency “Sprint Groups” chaired by various State, Defense, and other officials are beginning to work through control proposals in 14 different areas of advanced or foundational technology, with the aim of developing appropriate proposals for both our own EAR system and for multilateral export control regimes such as the Wassenaar Arrangement. It is important that these steps are not taken just by us in the United States, but also by our partners and allies. This process still has some ways to go, but it is gratifying to see it so solidly underway.
B. Investment Review
Another important new effort with a statutory foundation is the work the U.S. interagency is doing on investment screening under the Foreign Investment Risk Review Modernization Act (FIRRMA). Many of you will be familiar with the Committee on Foreign Investment in the United States (CFIUS), which — as its name suggests — provides a mechanism for vetting proposed foreign investment into the United States on national security grounds.
Prior to the enactment of FIRRMA last year, it had become clear that the traditional scope of CFIUS reviews was no longer enough to address national security challenges in emerging sectors – not least because of possible gaps in coverage. Some foreign investors, including some firms aligned with Beijing’s industrial policy were deliberately structuring transactions to exploit gaps and loopholes in CFIUS’s jurisdiction. FIRRMA broadens the purview of CFIUS by adding new types of covered transactions. In so doing, it helps address growing national security concerns over foreign exploitation of certain investment structures that traditionally have fallen outside of CFIUS jurisdiction, and it modernizes the CFIUS process to better enable timely and effective reviews of covered transactions.
The context of Chinese outbound investment is important in putting this issue in perspective. Chinese companies have been shifting their investments “upstream” into research and development activities and production processes to gain access to technology long before the point of potential export. Fractional ownership and joint venture efforts that involve technology-access rights have also become much more common. In fact, under its MCF strategy, China has set up more than a dozen investment funds specifically to support MCF work; as of July 2019, more than RMB 70 billion was available for such purposes. While CFIUS addresses national security risk in a non-discriminatory manner – regardless of country of origin – FIRRMA provides CFIUS with additional tools to meet certain national security challenges posed by China’s aggressive and systematic acquisition of technology and of sensitive and proprietary information for industrial policy purposes via foreign investment in the United States, as well as threats from Russia and other nations.
C. Visa Screening
A final area of note is that of visa screening. The United States has the largest and finest system of higher education in the world, which has long been a powerful magnet for bright and ambitious students from around the globe who come here to study and do research. Such students powerfully enrich our society and contribute to both U.S. and global prosperity. Yet some such students — a small minority, but an important one nonetheless — are unfortunately here for entirely the wrong reasons.
The CCP regime in Beijing has described higher education as the “front line” of MCF, and its strategic documents make clear that it is a key Chinese objective to build and maintain a world-class talent pool in order to undertake militarily-useful research and development, and support weapons production, under the MCF strategy. The Chinese government has undertaken an effort to certify universities across China with the proper security credentials to undertake classified research, development, and weapons production on campus in research labs, in MCF R&D parks around the country, and in MCF “industrial alliances” that focus on key technologies.
Sending students and researchers abroad in order to contribute to these MCF efforts is a critical part of the plan. State-owned enterprises in the Chinese defense sector run scholarship programs that pay for the education and living costs of undergraduates, Masters and PhD students, and post-doctoral students, and that include a service requirement to the company at the end of their studies — making these students de facto employees of (or mobilizable reservists for) China’s defense industry. Not surprisingly, government guidance urges students, faculty, research laboratories, and universities alike to partner with foreign universities in order to advance Chinese science and technology goals.
Accordingly, it is one of the challenges of modern U.S. policy — as it should be for many countries around the world — to improve how we scrutinize the flow of students and researchers coming from China in order to weed out the occasional “bad apples” who travel abroad to acquire technology for Beijing’s military machine and repressive domestic security apparatus. We are working with partner governments, for instance through the MAST process, other multilateral nonproliferation fora, and bilateral engagements to better understand how the Chinese university system works to exploit the open educational systems of the West and to learn from each other’s experiences about how to meet this challenge while preserving the benefits of our open and vibrant university system.
Our responses to the China challenge are complex and varied, but that is because the threat is complex and varied. It would certainly be easier — and far preferable — if such responses were unnecessary. Since China has developed a pervasive and systematic national-level approach to technology acquisition in the service of Beijing’s geopolitical revisionism, however, it is vital that we do what we can to meet this challenge.
We will not necessarily get all of these answers right, and even if we do we will have to keep working carefully on these matters because the Chinese system will attempt to adapt, as it has before, in order to vitiate our precautions. But I can assure you that we in the U.S. national security bureaucracy are keenly focused upon the task, working hard along a number of lines of effort essential to success, and making important progress.
All of which makes me especially pleased to be able to speak about these changes here today. We are all partners in this effort, and I look forward to continuing to work with you.