Chinese Technology Transfer Challenges to U.S. Export Control Policy
Assistant Secretary, Bureau of International Security and Nonproliferation
Good afternoon everyone, and thank you, Nancy Jo and Rebecca, for the kind introduction.
It is always nice to find an excuse to get out of Washington in July – and it is a special pleasure to have the chance both to visit beautiful northern New Mexico and to have the chance to engage with bright folks like yourselves, many of whom will be part of the next generation of leadership in U.S. nuclear policy.
I’d like to speak today on the topic of Chinese approaches to technology transfer. This is an issue that I haven’t previously addressed publicly in my role as Assistant Secretary of State for International Security and Nonproliferation, but it is one that is important for U.S. national security planners. It is important not just for all the obvious reasons you would expect – related to what China does with lawfully and unlawfully acquired U.S. technology – but also because China presents a fascinating challenge to some of the basic concepts that lie behind so much of how we traditionally approach the reduction of national security risks in the nonproliferation arena.
In this renewed era of great power competition that has been sparked by the ambitions of Russia and China to revise the international system in their favor – and by the ambition of regional players such as Iran and North Korea to do similar things in their own neighborhoods – we need to acknowledge and study the challenge that the Chinese case presents for our approach to export controls, technology safeguards, and other such questions.
But first, let me give you a little background. In the arena of national security technology controls, the United States spends a great deal of time and money working to improve how it is that the international community establishes and maintains what I’ll call “barriers.” I don’t necessarily mean physical barriers, for the barriers and boundaries to which I refer aren’t usually material ones as much as they are figurative ones: legal, institutional, procedural, and bureaucratic obstacles to how and when potentially dangerous technologies are able to move from one set of hands to the next.
As part of our mission to protect and improve U.S. national security and international peace and security, we at the State Department work on technology control “barriers” both between and within countries around the world. Let me give you a few examples, because it’s a broad and dynamic area.
- We work, for instance, to shore up the institutions, mechanisms, and technologies that help provide assurances that dangerous technologies of various types do not flow across national boundaries without control and accountability.
- We help international partners train and equip border security personnel and law enforcement officials in such things as how to detect and prevent nuclear smuggling, how to ensure that their seaports and airports aren’t used as transshipment points for proliferation-facilitating transfers of technology or materiel, and how better to enforce U.N. Security Council sanctions designed to pressure and punish rogue regimes for trying to develop weapons of mass destruction (WMD).
- We help establish and shape international standards and rules for export controls of proliferation-sensitive technology and material, such as through the Nuclear Suppliers Group.
- We support international partners’ work to improve their export control systems and fine-tune the regulatory frameworks with which they ensure that technologies and materiel that could be used for WMD, related delivery systems, or advanced conventional weapons are subject to appropriate transfer and accountability restrictions.
- We also support partners’ work, within their own borders, to ensure that potentially dangerous technologies and materials are handled with appropriate attention to safety and security, to keep them from being lost, stolen, or misused.
- We help promote agreement upon and implementation of end-user verification procedures to provide reassurance that technologies that are transferred remain, as anticipated, in peaceful uses.
- We support partners’ efforts to improve compliance with their various international obligations to enforce U.N. sanctions, to maintain effective domestic controls preventing terrorist acquisition of WMD, to implement effective safeguards on nuclear materials and technology, and so forth.
- We conduct and support outreach around the world to help U.S. and foreign companies and institutions better understand the importance of proper technology controls and how to improve them.
- And when we learn, through various means, that problematic transfers of dangerous items may be contemplated, may be underway, or already have occurred, we engage with countries diplomatically to encourage them to stop and to ensure accountability for such activity.
- We contribute to these important tasks even within the United States, reviewing certain categories of proposed exports for their national security implications and preparing assessments of the nonproliferation implications of certain international agreements and arrangements.
As you can see, all of this work is – in various ways – about the creation and maintenance of literal and metaphorical “barriers” that keep potentially dangerous things from being misused.
Such work is done in a number of different parts of the U.S. government, but my own bureau at the State Department does quite a bit of it, being engaged on a daily basis in all of the ten areas I have just described. Our various capacity-building efforts with foreign partners, in fact, manage some $250 million in annual programming funds, and we engage with scores of partners around the world. Every year, we review more than 100,000 export control licenses and visa applications for their nonproliferation implications. So this is a major focus of our activity – and an important way in which we contribute to U.S. national security and international peace and security.
But the creation and maintenance of means to prevent technology and material from bleeding over from appropriate, peaceful uses into problematic ones still requires a degree of good faith. Where countries simply lack the capacity to do the right thing in controlling potentially dangerous technologies – such as keeping them out of the hands of terrorists or proliferators – we can do a great deal to help improve things. Where the problem is less of capacity than of will, however, there is often less that can be done. Diplomatic demarches encouraging or demanding better behavior can sometimes help, but this only gets one so far. Where the problem is one of a country’s actual policy choice to facilitate transfers to problematic third parties – or to subvert or ignore the internal mechanisms, commitments, or even legal obligations that one’s international partners rely upon to feel comfortable that transferred technologies aren’t being misused – this system of “barriers” can break down.
And that’s where we come to the problem of China. Much has been said, over the years, about Beijing’s willingness to condone – or perhaps even to promote – dangerous transfers to proliferators. During my first tour at the State Department beginning in 2003, for instance, we worried a great deal about the alarming propensity of Chinese entities, with or without government connivance, to transfer proliferation-facilitating items to countries such as Iran and Pakistan. More recently, much attention has been paid to the degree to which China has been willing to join international efforts to impose crippling sanctions on North Korea in response to its development of WMD and missile capabilities that have gravely destabilized the Asia-Pacific region.
I’d like to talk today about a slightly different variation on the challenge: China’s approach to the control of militarily useful technologies within the territories under its control. This is important, of course, because – unlike the “bad old days” of the U.S.-Soviet Cold War, when our economic engagement with the USSR was relatively insignificant – the United States and its friends and allies have deep and extensive economic ties to China in this era of high-technology international commerce.
In a great many ways, of course, these ties of economic and technological mutual engagement and interpenetration have been of great benefit to both sides. But these entanglements also exist in a context in which China aims to seize for itself a geopolitical role that has helped catalyze a new era of great-power competition that has worrying and problematic implications for the future. In this context, how we approach the issue of China’s acquisition and management of sensitive U.S. and other foreign technologies is extraordinarily important.
So how does China approach the issue of internal technology controls? What credence can one give, in China, to the kind of institutional firewalls and end-use commitments that are so important, in many other countries, to reassuring suppliers of advanced goods that any given technology transferred there will not be diverted to military or other national security purposes? Unfortunately for those who have grown accustomed to extensive engagement with China’s outward-facing economic and scientific development in recent decades, the answer is simple: very little credence can be given to China’s commitments. China’s internal technology “barriers” are extraordinarily permeable, and they are becoming steadily more so. What’s more, there is absolutely nothing haphazard or inadvertent about this, for it is a matter of deliberate and explicit Chinese national policy and high-level prioritization.
China has set forth an ambitious national strategy, which Communist Party General Secretary Xi Jinping personally oversees. Chairman Xi sits on a central level steering committee overseeing China’s national plan to break down all barriers between the civilian and military technological spheres by “fusing” the defense and civilian industrial bases through what the Chinese call “military-civil fusion.” The goal of this strategy, as Chinese officials themselves describe it, is to ensure that China develops a “strong army” – which is one of the country’s two strategic goals, along with the more well-known “China Dream,” for the 100th anniversary of the Chinese Communist Party’s seizure of power in 2049, as China seeks to achieve near-peer status with the U.S. and to challenge American influence in East Asia and globally.
The Chinese system is thus working to eliminate all barriers between its civilian and defense industrial sectors to promote the free flow of technology, intellectual property, talent, and expertise between civilian and defense entities. Under this strategy, civilian and defense industries are pooling financial resources to enhance research and development opportunities and officials there are working systematically to employ all aspects of the Chinese economy to advance military programs, while simultaneously developing a high technology innovation base. This “military-civil fusion” approach is not nearly as well understood in the West as it should be, though Chinese officials are hardly shy about admitting its existence, and a great deal about it can be found in open-source Chinese publications.
As you might imagine, the fusion policy poses significant challenges for U.S. and other Western industry engagement with China in high-technology industries. It also poses significant weapons technology proliferation and export control challenges for those of us in government. As I noted, China’s “military-civil fusion” policy is personally overseen by Xi Jinping, and it is enshrined in national law and strategy at a level which cannot be overridden by such mundane things as end-user commitments on export licenses, promises made to foreign officials about how technologies are to be controlled, or contractual commitments made to foreign governments or companies. If any given technology is in any way accessible to China, in other words, and officials there believe it can be of any use to the country’s military and national security complex as Beijing prepares itself to challenge the United States for global leadership, one can be quite sure that the technology will be made available for those purposes – pretty much no matter what.
This may require us to re-examine how we approach our national security export controls, at least vis-à-vis China. Not all technologies have special significance in this way, of course, nor are all sensitive technologies uniquely held by U.S. suppliers. But as they relate to Chinese engagements, our traditional approaches may place much more faith in the integrity of end-use promises and internal institutional firewalls than we now know such protections really deserve.
The Trump Administration has, quite properly, recognized the return of great power competition from China and Russia, and has drawn attention to the challenges and threats posed to the United States’ National Defense Industrial Base by continued Chinese theft and diversion of high technology items – as outlined, for instance, in the U.S. National Defense Strategy released in early 2018. Even while we continue to engage with China, sometimes very constructively, this Administration has started recalibrating U.S.-China policy in recognition of China’s revisionist approaches to regional and global order, and of the need to meet such advances with a more expressly competitive strategy on our own part.
Exactly where these reviews of U.S. policy end up is still not precisely known. But rest assured that we are keenly aware that China has become increasingly assertive, and we are acutely aware of the challenges the United States faces. As an example, the United States has fairly extensive cooperation with China in civil nuclear programs. And it is easy to see why, for the Chinese market is clearly enticing, being the largest nuclear energy market in the world right now – and one that is expanding rapidly, with an anticipated 73 percent increase in electricity generation through nuclear power by the year 2020. Not surprisingly, a range of foreign suppliers, including American ones, have a strong interest in supporting this expansion.
However, even when there is an established path for cooperation, China continues to seek advantage over foreign partners with little regard for bilateral agreements or other nations’ laws. This was well demonstrated by the indictment in April 2016 in federal court of China General Nuclear Power Corp. (CGN), one of China’s largest state-owned enterprises building nuclear power plants, and Alan Ho, an American citizen who later pled guilty. CGN was engaged in a conspiracy to participate in the development and production of special nuclear material in China, with the intent to secure an advantage to China in violation of U.S. law. The programs this conspiracy sought to advance include CGN’s small modular reactor program, its advanced fuel assembly program, as well as other programs that – ironically – might have been eligible for cooperation under the existing U.S. “123 Agreement” with China, had CGN actually sought to strike agreements with U.S. firms and go through proper licensing procedures rather than simply trying to steal the information.
And this is where things become difficult, because there are economic incentives to seek civil nuclear cooperation with China to the degree that it is possible to do so without damaging our national security. The U.S. share of the international nuclear energy market, after all, has declined to 20 percent from 90 percent in the last 30 years. It is on a trajectory to slip further, but many believe that participation in the Chinese market is key to our industry’s future viability.
Given the important linkages between the U.S. civil nuclear sector and U.S. nuclear defense capabilities and industrial base, it is in U.S. government national security interests for our nuclear export industry to be strong. It is through nuclear trade that the United States gains much of its ability to set and maintain high nuclear safety, security, and nonproliferation standards – global standards we have championed for more than 60 years. If we are not part of the game, we don’t set the rules for the game. And with more than 30 countries expressing new interest in nuclear power to meet their clean energy needs, a U.S. industry unable to compete for reactor sales could severely impair U.S. strategic influence abroad as others get these sales and set the rules of the future.
The hard question, of course, is: To what extent can we pursue such cooperation without providing China with technological tools that will help it achieve its goal of seizing a geopolitical role for itself that displaces U.S. influence? We certainly cannot pretend that civil-nuclear cooperation constitutes any kind of an exception in Chinese policy. Indeed, Chinese literature on military-civilian fusion explicitly identifies nuclear technology transfer as an arena of special emphasis in the Communist Party’s strategic effort to build up China’s military power. In effect, this means that Chinese officials have announced, in advance, that if they acquire anything through civil nuclear cooperation that would be useful to any military aspect of China’s use of nuclear technology, they will indeed use it for this purpose.
How we balance the potential benefits from civil nuclear engagement with China against the considerable national security risks that now clearly exist from that very same engagement will require careful thought – for the U.S. government and for U.S. industry, as well as for China’s other foreign partners. To this end, we hope to develop clear-eyed approaches that take into account both the cooperative and the competitive aspects of the complex Sino-American relationship. It seems clear to me, however, that in aspects of this relationship related to technology transfer, some recalibration is necessary.
I thank you for your interest, and the invitation to be here today. I would be happy to take your questions.