[House Hearing, 113 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 113-69]
2013 REPORT TO CONGRESS OF THE
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
__________
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 20, 2013
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COMMITTEE ON ARMED SERVICES
One Hundred Thirteenth Congress
HOWARD P. ``BUCK'' McKEON, California, Chairman
MAC THORNBERRY, Texas ADAM SMITH, Washington
WALTER B. JONES, North Carolina LORETTA SANCHEZ, California
J. RANDY FORBES, Virginia MIKE McINTYRE, North Carolina
JEFF MILLER, Florida ROBERT A. BRADY, Pennsylvania
JOE WILSON, South Carolina ROBERT E. ANDREWS, New Jersey
FRANK A. LoBIONDO, New Jersey SUSAN A. DAVIS, California
ROB BISHOP, Utah JAMES R. LANGEVIN, Rhode Island
MICHAEL R. TURNER, Ohio RICK LARSEN, Washington
JOHN KLINE, Minnesota JIM COOPER, Tennessee
MIKE ROGERS, Alabama MADELEINE Z. BORDALLO, Guam
TRENT FRANKS, Arizona JOE COURTNEY, Connecticut
BILL SHUSTER, Pennsylvania DAVID LOEBSACK, Iowa
K. MICHAEL CONAWAY, Texas NIKI TSONGAS, Massachusetts
DOUG LAMBORN, Colorado JOHN GARAMENDI, California
ROBERT J. WITTMAN, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
DUNCAN HUNTER, California Georgia
JOHN FLEMING, Louisiana COLLEEN W. HANABUSA, Hawaii
MIKE COFFMAN, Colorado JACKIE SPEIER, California
E. SCOTT RIGELL, Virginia RON BARBER, Arizona
CHRISTOPHER P. GIBSON, New York ANDRE CARSON, Indiana
VICKY HARTZLER, Missouri CAROL SHEA-PORTER, New Hampshire
JOSEPH J. HECK, Nevada DANIEL B. MAFFEI, New York
JON RUNYAN, New Jersey DEREK KILMER, Washington
AUSTIN SCOTT, Georgia JOAQUIN CASTRO, Texas
STEVEN M. PALAZZO, Mississippi TAMMY DUCKWORTH, Illinois
MARTHA ROBY, Alabama SCOTT H. PETERS, California
MO BROOKS, Alabama WILLIAM L. ENYART, Illinois
RICHARD B. NUGENT, Florida PETE P. GALLEGO, Texas
KRISTI L. NOEM, South Dakota MARC A. VEASEY, Texas
PAUL COOK, California
JIM BRIDENSTINE, Oklahoma
BRAD R. WENSTRUP, Ohio
JACKIE WALORSKI, Indiana
Robert L. Simmons II, Staff Director
Kimberly Shaw, Professional Staff Member
Spencer Johnson, Counsel
Aaron Falk, Clerk
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2013
Page
Hearing:
Wednesday, November 20, 2013, 2013 Report to Congress of the
U.S.-China Economic and Security Review Commission............. 1
Appendix:
Wednesday, November 20, 2013..................................... 41
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WEDNESDAY, NOVEMBER 20, 2013
2013 REPORT TO CONGRESS OF THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW
COMMISSION
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
McKeon, Hon. Howard P. ``Buck,'' a Representative from
California, Chairman, Committee on Armed Services.............. 1
Smith, Hon. Adam, a Representative from Washington, Ranking
Member, Committee on Armed Services............................ 2
WITNESSES
Bartholomew, Carolyn, Commissioner, U.S.-China Economic and
Security Review Commission..................................... 8
Reinsch, Hon. William A., Chairman, U.S.-China Economic and
Security Review Commission..................................... 3
Shea, Hon. Dennis C., Vice Chairman, U.S.-China Economic and
Security Review Commission..................................... 5
Wortzel, Dr. Larry M., Commissioner, U.S.-China Economic and
Security Review Commission..................................... 6
APPENDIX
Prepared Statements:
Bartholomew, Carolyn......................................... 111
McKeon, Hon. Howard P. ``Buck''.............................. 45
Reinsch, Hon. William A...................................... 48
Shea, Hon. Dennis C.......................................... 78
Smith, Hon. Adam............................................. 46
Wortzel, Dr. Larry M......................................... 89
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
[There were no Questions submitted post hearing.]
2013 REPORT TO CONGRESS OF THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW
COMMISSION
----------
House of Representatives,
Committee on Armed Services,
Washington, DC, Wednesday, November 20, 2013.
The committee met, pursuant to call, at 10:02 a.m., in room
2118, Rayburn House Office Building, Hon. Howard P. ``Buck''
McKeon (chairman of the committee) presiding.
OPENING STATEMENT OF HON. HOWARD P. ``BUCK'' MCKEON, A
REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED
SERVICES
The Chairman. The committee will come to order. I would
like to welcome everyone to today's hearing on the 2013 Report
to Congress of the U.S.-China Economic and Security Review
Commission. This hearing is part of a larger oversight effort
focus on the Asia-Pacific rebalance led by Mr. Forbes and Ms.
Hanabusa, who are providing strong bipartisan leadership on
this important topic. We have met with the U.S. Pacific Command
officials and last week heard from key ambassadors representing
allied and partner nations. However, we cannot consider the
rebalance without examining China.
The Commission has undertaken a comprehensive assessment of
Chinese military capabilities, economic developments, and
political and foreign policy objectives. Their annual report,
which was released earlier this morning, is a superb resource
for Congress and the public. While we continue to warn about
our military's readiness and the dangerous effects of budget
cuts and sequestration, China's military spending continues to
rise and its new leadership seeks to increase combat readiness.
Its current pace of military modernization shows that Beijing
is developing the ability to project power and influence
further abroad. I look forward to hearing the Commission's
assessment of the key military and foreign policy developments
made by China in the past year and the implications for our own
policies and posture in the region. China can play a
constructive role in the region and the world, but for those of
us focused on security issues, recent trends in their anti-
access and area denial capabilities and cyber espionage
campaigns in particular give us cause for concern.
The committee is pleased to welcome the Commission, which
is represented today by the Honorable William Reinsch--did I
get that close?
Mr. Reinsch. Well done, Mr. Chairman, yes.
The Chairman. Thank you. Chairman of the U.S. Economic and
Security Review Commission; the Honorable Dennis Shea, vice
chairman of the Commission; Ms. Carolyn Bartholomew,
commissioner; and Dr. Larry Wortzel, commissioner. I appreciate
all of the work that they and their staff have done, and I look
forward to hearing their testimony.
Mr. Smith.
[The prepared statement of Mr. McKeon can be found in the
Appendix on page 45.]
STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON,
RANKING MEMBER, COMMITTEE ON ARMED SERVICES
Mr. Smith. Thank you, Mr. Chairman. I, too, welcome the
report and appreciate the commissioners being here to present
it today. I think it is very important that we on this
committee keep up to date on developments in China, both in
terms of their foreign policy aims and also, most importantly,
their military buildup. I think it is something obviously we
need to be aware of, but I also agree with the chairman's
comments that there is no reason that we should have China as
an enemy. We should certainly look for ways to work together. I
think we have an increasing number of common interests in terms
of peace and stability certainly in Asia but globally. China
has become more and more involved economically throughout the
world, and I think the most important thing is they actually
step up and start assuming that role.
Most recently with the typhoon in the Philippines, we have
seen once again that they are not there yet. Right in their
backyard, second largest economy in the world, and they really
have done nothing to be helpful; whereas the U.S. from all the
way across the Pacific has in large numbers proven once again
that we are the one indispensable nation in terms of helping
people in times of crisis. I very much would like to have help
in that regard. I think the world would be better served if a
nation like China were to step up and begin to take those sorts
of greater responsibilities, and I think we need to look for
ways to build that partnership and that relationship, ways we
can work together. We already, we do some joint military
exercises, and I certainly think the world over the course of
the next five decades will be a much, much better place if
China and the U.S. found more places to be partners and avoided
any sort of conflict. And I think that is distinctly possible,
but we have to be aware of what is going on.
This report and the work that you all have done is part of
that effort, and I look forward to your presenting it and to
our questions as we grow in our understanding of China's role
in the world.
Thank you.
I yield back, Mr. Chairman.
[The prepared statement of Mr. Smith can be found in the
Appendix on page 46.]
The Chairman. Thank you.
Mr. Reinsch.
Mr. Reinsch. Thank you very much, Mr. Chairman.
The Chairman. Excuse me. All of your testimonies, without
objection, will be entered in the record in their entirety, and
now if you could go ahead.
STATEMENT OF HON. WILLIAM A. REINSCH, CHAIRMAN, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION
Mr. Reinsch. Thank you, Mr. Chairman, Mr. Smith, members of
the committee. As noted, I am Bill Reinsch, I am the chairman
during this year's hearing and report cycle. I am going to
provide an overview of our annual report, and Vice Chairman
Dennis Shea was going to address China's maritime disputes and
cross-strait military issues. Commissioner Larry Wortzel will
discuss China's military modernization, U.S.-China security
relations and China's cyber activities, and Commissioner
Carolyn Bartholomew will address China's foreign policy and
Middle East issues.
The most significant development over the past year in the
bilateral relationship has been the change in China's
leadership. Xi Jinping took over as president and party general
secretary and Li Keqiang as premier and party secretary of the
State Council. China's leadership change has raised
expectations that the government will implement the economic
reforms that Beijing has long acknowledged are necessary.
Many of those changes have been advocated as well by the
Commission, by the Congress, and by the administration. Most
recently the new leadership in Beijing provided unusual level
of detail of its intended reforms. Among them were promises to
raise taxes on state-owned companies, provide Chinese
depositors with insurance against loss of principal and to open
state-controlled sectors of the economy to competition.
China's economic growth has slowed to a pace of 7.66
percent so far this year. China's new leadership has pledged to
at least maintain that rate by shifting China's industrial
policy away from its dependence on exports and massive debt-
financed infrastructure projects to an economy more dependent
on domestic consumption. This would be a welcome change, one
that the United States has been urging for some time and one
that would greatly benefit Chinese citizens.
Developments in the national security sphere have not been
so benign. Under its new political leadership, China's actions
in the East and South China Seas continue to increase tensions
in the region. It is becoming clear that China does not intend
to resolve its maritime disputes through multilateral
negotiations or the application of international laws and
adjudicative processes but prefers to use its growing power in
support of coercive tactics to pressure its neighbors to
concede China's claims.
Meanwhile, China continued to develop and field advanced
military platforms and weapons systems. China's comprehensive
military modernization is altering the balance of power in
Asia, challenging decades of U.S. military preeminence in the
region. During China's leadership transition, President Xi also
was appointed Central Military Commission [CMC] chairman. The
commission, China's highest military decisionmaking body,
ensures Communist Party control of the PLA [People's Liberation
Army], sets military policy and strategy, interprets party
guidance for the military, and oversees the daily operations of
the massive PLA bureaucracy.
President Xi is the key link between the party and the
military and embodies civilian control of the PLA at the
highest level. Since his promotion to CMC chairman, President
Xi has moved quickly to highlight broad military policy themes.
These themes include the importance of a strong military to
fulfill Xi's China Dream goals, increasing China's combat
readiness, and reducing corruption in the PLA. Because of
historic ties to the PLA, President Xi is well positioned to
take on this wide-reaching and potentially contentious agenda
during his tenure and may be more active than his predecessor
in managing China's military policy. President Xi has recently
begun to enhance civilian control over the PLA by creating an
agency that in some respects will be analogous to our National
Security Council.
It is important to note that policy changes in China
sometimes require years of effort by the leadership to create a
consensus for action once the general policy has been agreed
to. Typically, central government pronouncements filter down to
agency levels and provincial and local bodies for
implementation, overseen by the ubiquitous party officials. The
recently concluded third plenum provides a window into that
process. For example, the new leadership apparently takes
seriously the goal of moderating the nation's growing
inequality between rich and poor, urban and rural, and coastal
and interior regions. One step in the right direction is the
proposed extension of land rights to China's farmers, who
currently face seizure of their collectively owned land by
local government authorities.
Now comes the hard part for China's leadership, which is
implementation of these proposed reforms. Reforming the economy
by empowering consumers is one necessary step in a process that
will require many changes. Some of those changes were topics of
the Commission's hearing. For example, China's state-owned
enterprises must be weaned from their long dependence on the
state-owned financial system. China's banks must be allowed to
compete for depositors by offering market rate interest
payments and reasonable credit terms to China's entrepreneurs
and consumers. China's government should also open its closed
financial services industry to foreign investors.
At the same time, China needs to meet Western standards of
auditing in order to list Chinese companies on U.S. stock
exchanges. The Commission also examined China's interest in
investing in the United States. While such investment is small
relative to America's other major trading partners, China's
acquisition of U.S. companies is growing exponentially. With
$3.66 trillion in foreign currency reserves, China has the
potential to become a major investor in U.S. companies and real
estate. This past year, China made its largest purchase to date
of an American company, Smithfield Foods, for $7.1 billion U.S.
dollars.
The Commission also considered the strong evidence that the
Chinese Government is directing and executing a large scale
cyber espionage campaign against the United States. China to
date has compromised a range of U.S. networks, including those
in the Department of Defense, defense contractors, and private
enterprises. These activities are designed to achieve a number
of China's broad security, political, and economic objectives,
such as gathering intelligence, providing Chinese firms with an
advantage over their competitors worldwide, advancing long-term
research and development objectives, and gaining information
that could enable future military operations. My colleagues
will discuss this issue in greater depth as well as China's
military modernization efforts, and China's activities in the
East and South China Seas. Thank you all for your interest in
our work. When my colleagues have concluded, we would be happy
to respond to your questions.
[The prepared statement of Mr. Reinsch can be found in the
Appendix on page 48.]
STATEMENT OF HON. DENNIS C. SHEA, VICE CHAIRMAN, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION
Mr. Shea. Mr. Chairman, Ranking Member Smith, distinguished
members of the committee, thank you for allowing me to testify
today. As Chairman Reinsch stated, I will be focusing on
China's maritime disputes and the cross-strait relationship. I
have submitted written testimony to the committee, and this is
a very abridged version of what that written testimony says.
This year, commissioners held public hearings and met with
the leaders of the Armed Forces and political bodies in Japan
and Taiwan to sharpen our understanding of the East China Sea
dispute and the current state of the cross-strait relationship.
Those conversations served as the basis of two sections in this
year's report, one on China's maritime disputes and one on
Taiwan. China's strategy in the East and South China Seas
involves delaying the resolution of its maritime disputes while
strengthening its maritime and air forces to better assert its
claims. By using its military and maritime law enforcement
forces to react to perceived challenges to its sovereignty,
China seeks to change the status quo of its maritime disputes
in its own favor. China applied this approach in the South
China Sea effectively and with some success in the East China
Sea in the past year. As Beijing has escalated rhetoric
surrounding the dispute, it also has sharply increased air and
maritime activity near the contested Senkaku Islands.
Our report also identifies popular nationalism, economic
development, and China's sense of sovereignty as key drivers
underlying China's maritime disputes, suggesting the complex
and intractable nature of these issues. These factors, combined
with China's inconsistent adherence to internationally accepted
norms of air and maritime operations, contribute to an
environment in the East and South China Seas that is both
politically and operationally tense.
Turning to Taiwan, China and Taiwan enjoyed generally
positive relations this year, characterized by growing economic
ties and relatively amicable political relations. Despite these
positive trends, China's cross-strait policy remains focused on
pursuing balance.
The Chairman. We don't know what that is. Until we find
out, please continue.
Mr. Shea. Okay. I apologize if I said anything offensive to
anyone.
Well, turning to Taiwan, China and Taiwan enjoyed generally
positive relations this year, characterized by growing economic
ties and relatively amicable political relations. Despite these
positive trends, China's cross-strait policy remains focused on
pursuing a balance of economic, political, and military power
that heavily favors China with the eventual goal of eventually
unifying with Taiwan. China is more prepared than in the past
to conduct several different military campaigns against Taiwan,
including a partial naval blockade and a limited air and
missile campaign. In my view, a strong U.S. military presence
in the western Pacific and the deterrent and stability effect
it provides is critical to preserving peace in the region.
At the top of the Commission's list of recommendations this
year is a recommendation that Congress fund the U.S. Navy
shipbuilding and operational efforts to increase its presence
in the Asia-Pacific to at least 60 ships and rebalance home
ports to 60 percent in the region by 2020. I think my
colleague, Commissioner Wortzel, will get into this, but China
is undergoing an incredible naval modernization effort, and by
2020, they may have the largest fleet of modern submarines and
surface combatants in the western Pacific.
Other recommendations focus on the need for the United
States to help our partners and allies improve maritime domain
awareness in the East and South China Seas and the need to
deepen strategic trust between the United States and China. In
environments as potentially explosive as the East and South
China Seas, strategic trust provides the foundation to reduce
the potential of miscalculation at sea. To further develop the
U.S.-Taiwan relationship, we recommend Congress urge Cabinet-
level officials to visit Taiwan in order to promote commercial,
technological, and people-to-people exchanges. We further
recommend Congress direct the administration to permit official
travel to Taiwan for senior Defense and State Department
officials.
Finally, I would like to highlight a recommendation to
Congress to direct the administration to transmit an
unclassified report on U.S. arms sales to Taiwan. Taiwan's
diminishing ability to maintain a credible deterrent capability
could incentivize China to pressure Taiwan toward political
talks or to use military force to achieve political objectives.
The report we recommend would not only provide accountability
on the progress of planned sales, it would also, I believe,
support U.S. strategic interests in the Taiwan Strait.
Again, members of the committee, Mr. Chairman, Ranking
Member Smith, thank you for this opportunity to testify.
[The prepared statement of Mr. Shea can be found in the
Appendix on page 78.]
STATEMENT OF DR. LARRY M. WORTZEL, COMMISSIONER, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION
Dr. Wortzel. Mr. Chairman, Ranking Member Smith, members of
the committee, I want to thank you for the opportunity to
testify today, and what I am going to do is present some of the
Commission's findings on China's military modernization, U.S.-
China security relations, and cyber activities from this 2013
report to Congress.
The extensive modernization of the People's Liberation Army
enables the PLA to conduct operations farther from China's
coast and makes the PLA more formidable in all of the
dimensions of war--air, space, land, sea, and the
electromagnetic spectrum, which includes cyber.
Major elements of PLA modernization are really designed to
restrict U.S. freedom of action throughout the western Pacific.
China already has 65 submarines that can employ
intercontinental ballistic missiles, torpedoes, mines, or anti-
ship cruise missiles. The PLA Navy's surface combatant force
has modernized, and its 77 major surface combatants are
networked and capable of conducting multiple missions, and they
are supported by a growing combat logistics force that can
sustain them at sea. The PLA Air Force is getting new bomber
aircraft that will carry long-range land-attack cruise
missiles, and China is also developing new stealth fighters.
While China's military is growing, our own is shrinking.
China's firing of a rocket into nearly geosynchronous Earth
orbit in 2013 probably tested the vehicle component of a new
high-altitude anti-satellite capability, and that would
threaten our GPS [Global Positioning System] satellites and our
SBIRS [Space-Based Infrared System] infrared missile launch
detection satellite.
Bilateral military-to-military relations deepened and
expanded in 2013 between China and the U.S. To date, there have
been eight rounds of Track 1.5 U.S.-China strategic dialogue
that address critical issues, like nuclear strategic stability.
I see this as one of the most productive dialogues that takes
place with China. Still, I think military contacts with China
require constant congressional oversight.
For China's military, cyberspace is an important component
in national power, and it is a critical element of its
strategic competition with the United States. The Chinese
Government is directing and executing a large-scale cyber
espionage campaign that poses a major threat to U.S. industry,
critical infrastructure, military operations, personnel,
equipment, and readiness.
Looking at some of the Commission's recommendations, it
looks like the Department of Defense is already taking some
action to make at least information technology in the supply
chain more secure. They just passed a new--they will pass a new
directive. On November 18th, they finally took some action, but
we need further work on supply chain security.
The Commission recommends a careful examination of the
Federal use of cloud computing platforms and services with
attention to where the data storage and computing services are
located. If they are located in the Third Department of the
People's Liberation Army, it may present a little bit of a
security risk. It is clear that naming the perpetrators in
China in an attempt to shame the Chinese Government will not
deter cyber espionage. Mitigating these problems will require a
well-coordinated approach across the government and with
industry.
The Commission recommends Congress clarify the actions that
U.S. companies may take regarding tracking intellectual
property and amend the Economic Espionage Act to permit a
private right of action when trade secrets are stolen.
My personal view is the President already has some powerful
authority to sanction Chinese people and companies through the
International Emergency Economic Powers Act. If the magnitude
of Chinese espionage is causing the amount of damage to the
U.S. economy that the NSA [National Security Agency] Director
tells us is the case, then the President ought to exercise that
authority.
In closing, I would like to address the U.S. rebalance to
Asia. The Navy aims to increase its presence in Asia to 60
ships and 60 percent of home ports by 2020. However, Chief of
Naval Operations, Admiral Greenert, has recently warned that
budget constraints would delay or prevent the Navy from
achieving those objectives in a rebalance. So you can have 60
percent of something out there, but by 2020, China's navy and
air force will outnumber and almost match the technical
capabilities of our own forces in the Asia and Pacific. A
shrunken military may be insufficient to deter China or to
reassure our friends and allies in the region. I thank you for
the opportunity to appear today, and I am happy to respond to
any questions you may have.
[The prepared statement of Dr. Wortzel can be found in the
Appendix on page 89.]
STATEMENT OF CAROLYN BARTHOLOMEW, COMMISSIONER, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION
Ms. Bartholomew. Thank you.
Mr. Chairman, Ranking Member Smith, members of the
committee, I join my colleagues in thanking you for the
opportunity to testify today. I would like to start by
expressing my condolences on the recent loss of former Chairman
Skelton. His leadership, like yours, has supported our troops
and protected our national interests in the great tradition of
this distinguished committee.
Like my colleagues, I have submitted my written statement
for the record. Today I will be discussing China's foreign
policy, particularly in regard to the Middle East and North
Africa, which I will refer to today collectively as MENA, and
also India and North Korea, all of which we examined in our
2013 annual report.
As China's global interests expand, Beijing is becoming
increasingly assertive and active in its foreign affairs. This
trend is apparent in MENA where China's ever-growing demand for
energy imports has driven Beijing to pursue greater political
and security engagement. Beijing's emergent influence in MENA
has at times competed with or challenged U.S. strategic
interests, particularly in Syria and Iran. As in other parts of
the world, it remains to be seen whether China's stated
interests in regional stability and peace will make a lasting
positive impact in MENA. Given the United States deep security
interests in the region, China's developing role there presents
geostrategic opportunities and challenges for U.S. diplomats,
policymakers, and Armed Forces.
In the past decade China's trade and economic ties with
MENA have grown substantially, driven primarily by China's
demand for energy. Over half of China's crude oil imports are
from MENA, and China's dependence on the region will only
continue to grow in the coming decades. Given this trend, the
Commission expects China will increasingly augment its already
robust economic ties in the region with stronger political and
security engagement in an effort to protect and enhance its
energy security interests.
Historically, China has avoided directly opposing U.S.
power in the region, content to free ride on the U.S. security
presence there. In recent years, however, Beijing appears
increasingly willing to take positions on important regional
issues that directly oppose or undermine U.S. interests and
objectives. This is clearly the case with Syria. Despite its
emphasis on neutrality and peaceful resolution in public
statements, China repeatedly has used its veto power to prevent
the U.N. from singling out, blaming, or imposing sanctions on
the Syrian Government.
In recent weeks, Beijing has slightly reoriented its policy
to appear less supportive of Assad and more supportive of
mainstream efforts to facilitate peace in Syria. For instance,
China has made occasional efforts to reach out to the Syrian
opposition, has called for talks between the regime and the
opposition in Geneva, and has supported efforts to eliminate
chemical weapons from the country. These recent efforts
notwithstanding, China's fundamental position on the conflict
does not seem to have changed.
Another problematic element of China's MENA engagement is
Beijing's continued ties with and support for Iran. As
elsewhere in the region, energy interests are a primary driver
of the Sino-Iranian relationship, although I would note that
there has been a relationship that has been a millennium going
between the two countries. China is Iran's top crude oil
customer and sources about 8 percent of its crude oil imports
from Iran. Although China seeks to prevent its ties with Iran
from becoming a flash point in U.S.-China relations, China has
not halted its energy trade with Iran, despite U.S. sanctions.
Instead, Beijing maximizes its economic leverage over Tehran to
secure advantageous oil trade deals, then seeks exemptions from
or exploits loopholes in the sanctions to ensure steady access
to energy.
Concerns persist about the role of China in proliferation
of weapons to Iran. In the past, China sold tactical ballistic
and anti-ship cruise missiles to Iran. China may continue to
provide support to Iran's advanced conventional weapons
programs. Since 2009, the U.S. has sanctioned six Chinese
entities for missile or weapons proliferation to Iran.
Moreover, while Beijing insists it has not provided assistance
to Iran's nuclear program since 1997, open source reporting
suggests that Chinese assistance and components have continued
to augment Iran's nuclear programs.
China's growing assertiveness was on display in its
relationship with India this year as well. Sino-Indian tensions
flared in April when New Delhi claimed that 30 to 50 Chinese
soldiers crossed the China-India border about 12 miles beyond
the line of actual control, the effective border between the
two countries, and stayed there for 3 weeks. While Beijing and
New Delhi resolved the border impasse in May after a series of
talks, the potential for periodic low-level confrontations
between border patrols to escalate likely will persist.
Turning finally to China's relations with North Korea,
Beijing for decades has provided Pyongyang with economic and
political support, shielding its neighbor from harsh punishment
by the international community for its destabilizing rhetoric
and activities. While Beijing appeared increasingly
dissatisfied with Pyongyang after a series of North Korean
provocations in the past year, the Commission assesses Beijing
is not likely to significantly alter its support for the
country.
In conclusion, the impact of China gradually taking on a
more assertive global role will be significant. Beijing may
become more willing to use its increasing political and
economic clout to wield its influence. This trend has
significant implications for the U.S., particularly if China's
foreign policies undermine or challenge America's.
Thank you for the opportunity to testify. Like my
colleagues, I look forward to your questions.
[The prepared statement of Ms. Bartholomew can be found in
the Appendix on page 111.]
Mr. Forbes [presiding]. Thank you all for your testimony.
We appreciate you volunteering to do this effort. You do a
wonderful job and produce a good report. It is my understanding
that you also have with you several members of your staff who
contribute so much on this today.
And Mr. Chairman, I wonder if you would just ask them to
stand up, any members that are here, so we can thank them for
the good work that they do if you have anybody with you today.
Mr. Reinsch. Go ahead, everybody.
[Applause.]
Mr. Forbes. Well, we want to thank you all for the good
work that you guys do on that.
And I just have a quick question for you. As we look at the
capabilities, your report makes clear the enormous increase in
capabilities that China is having. This weekend I was with a
former member of the current administration who had been with
the Pentagon and made an interesting observation that it didn't
matter what the intentions of China might be, the capabilities
are what we had to plan for, but having given that assumption,
you guys are looking at this in a very careful way. Could you
give us just your assessment of what you think the Chinese
intentions are? We see these capabilities, and there is a huge
dispute as to what their intentions are, but as we see this
beginning to take shape more and more, I would just ask you to
look in your crystal ball and give us your best assessment of
what you think the intentions of all this military buildup is,
and I will let you decide who wants to respond.
Mr. Reinsch. You may find we don't all agree on that.
Mr. Forbes. No, no that is what this is about. So we
appreciate that.
Mr. Reinsch. Dennis, go ahead.
Mr. Shea. I will just very briefly--there are probably
multiple, multiple intentions, but one of the intentions that
particularly concerns me is they are trying to deny access to
the western Pacific by U.S. forces and to extend military power
out to the second island chain, which is about 1,800 nautical
miles from the Chinese coast, and be able to operate freely in
that area and basically remove the United States as the
predominant military force in that region of the world.
Mr. Forbes. Any other thoughts?
Mr. Reinsch. Larry or Carolyn?
Ms. Bartholomew. Larry, you can go.
Dr. Wortzel. I think their goals are at two levels. I think
in the western Pacific, that 1,800-mile range to prevent the
United States from intervening in any contingencies is a very
serious range, and it is a range that is roughly equal to the
combat radius of carrier aircraft and the range of a Tomahawk
cruise missile. They want to keep us far enough out that we
can't get near their coast or their interior.
But the greater charge that the previous Communist Party
Chairman gave--Hu Jintao gave to the Chinese military, which Xi
Jinping reinforced, is the ability to go out beyond that
western Pacific and have a military capable of defending
China's interests, global interests. Now, they look at about
2050 before that comes about, but they are worried about sea
lines of communication into the Indian Ocean. They are worried
about their oil supplies. And they recognize that, yes, they
have been free riders, as Ms. Bartholomew said, but they are
not comfortable with that.
Mr. Reinsch. My background is in trade and economics, so I
defer to Larry and the others on particularly the short-term
military issues.
I guess I would say that I think in the medium term, their
policy goal is to expand the range of influence in the region,
particularly over that part of Asia to the south of them that
has over thousands of years of history that they have
historically tried to influence, and I think they want to, you
know, recapture the historic relationship they have had with
those parties. I don't think they intend to do that in a
military way particularly. I think it is a combination of
exercising a variety of means of influence, but that includes
some fairly aggressive tactics in the South China Sea, as we
have seen.
I think one of the dilemmas they face, and Larry alluded to
it, is whether they can successfully or whether they even want
to make a transition from a regional power to a global power.
They have been very tentative in looking outside their region.
I thought their participation--and their participation is
limited but still helpful--in the Somali anti-piracy effort,
for example, is a very important step, it was a very important
step for them. Their contribution to U.N. peacekeeping forces
has been, I think, a significant contribution. Their efforts to
reach out beyond their comfort zone, if you will, so far have
been careful, cautious, and largely constructive. We do have
situations obviously where their policies, Middle East being
one that Carolyn talked about, have bumped up against ours in
part because we have different interests, and those are areas
where we are simply going to, I think, continue to have
different interests for the long term.
Ms. Bartholomew. All right.
Mr. Shea. Clean up.
Ms. Bartholomew. Yeah, I will do clean-up. You will see, we
have 12 of us on this Commission, and we have a wide range of
views, and you guys know what it is like marking something up.
When we go through our report, it ends up for the most part
being a consensus document, which means sitting in the room,
hammering it out paragraph by paragraph, line by line, and
sometimes word by word. So thank you for the opportunity. I
think you will see that there are probably some differences in
some of our views.
I think just from sort of a bigger picture that I think
that China is ultimately interested in retaking what it sees as
a historic position in the world. I do think that it is
necessarily going to be taking on a bigger global role, partly
because of its search for resources, which it needs in order to
build its economy the way that it wants to. I think that that
will potentially and frankly inevitably end up challenging U.S.
power in a lot of ways, sometimes intentionally, but sometimes
it is just we will be playing in the same space.
I know people like to give the Chinese Government credit
for their work on counter-piracy. I guess I always need to say
that they are there protecting their own interests, and we see
the world fundamentally differently, which is that the U.S.
sees that it has a global responsibility and it isn't just our
interests that we are advancing.
And the final thing that I really would like to note is
that I am particularly concerned about what I see as China
exporting a model of economic growth with authoritarian
government, and we see that is certainly of interest in Africa,
both in North Africa and in the rest of Africa and other
places; people who have a tendency toward authoritarian
orientation and see opportunities for doing economic growth in
trade deals with China, I think is going to be a real challenge
for us.
Mr. Forbes. Well, thank you all, and the chairman and the
ranking member both had commitments that they had to step out
for, but we are ably represented by Congressman Davis, and I
would like to recognize her for any questions that she might
have.
Mrs. Davis. Thank you, Mr. Forbes.
I might just follow up on your question. Just if you could
maybe characterize in some ways the differences on the
committee and perhaps kind of the range of where people were
coming in and what you think that was based on because we
really appreciate the fact that you are here and the fact that
there certainly are some differences. There are differences, of
course, as you know, on this committee, and if you could give
us a little more depth about that, that would be helpful.
Ms. Bartholomew. We probably all have different views on
that, too.
Mr. Reinsch. Well, let me begin on that one. I think one of
the advantages of the Commission is that the members bring to
it different background and expertise. I said mine is primarily
in international economic policy and trade, although I served
in the Clinton administration as Under Secretary of Commerce
for Export Administration and dealt with export controls and
technology transfer.
Others bring different experience. Larry is known to many
of you, his long experience in the military. That has meant in
effect the Commission approaches the issues differently based
largely on the differences of background.
A number of members of the Commission over the years, and I
have served on it from its inception, have been primarily
concerned with the military challenge that China poses for us
in multiple areas, and our work there has shifted over time
from, you know, nuclear power to naval power, satellites,
cybersecurity, whatever.
I think a number of the other commissioners, many of them
on the Democratic side, frankly, have focused more on China's
economic challenge and the challenge it presents to our
industrial base, not only our defense industrial base but our
manufacturing base, and our overall trade relationship to
China.
The mandate that Congress gave us when we began was to
study both, and we have tried very hard each year to, you know,
balance our hearings and activities so that we focus on both. I
think it is fair to say that all of us, and you can all
disagree with me if you want, but I think all of us see that
China poses a lot of challenges for us. I use the word
advisedly. In our first year, in our first report, the biggest
debate we had was over whether to use the word ``threat'' or
not, and I was one of those that preferred not to use the word
``threat,'' but I think ``challenge'' is an appropriate word.
China presents challenges all over the map, largely because of
its size, and as Carolyn said, there are areas where we are
going to bump up against each other or not deliberately but
because we are both large powers that share space. So I think
we try to navigate our way through that and try to identify
hopefully in advance those areas where we would recommend
Congress take a closer look at.
Mr. Shea. Yeah, I think we are divided into two teams,
security and economics, and my assessment is that there is
general close to unanimity on the security side, and there is
less unanimity on the economic side.
One issue that the Commission has sort of advanced is
examining the investment by Chinese state-owned enterprises
into the United States, which at this point is relatively
modest. I think most of us think there should be a heightened
level of examination and concern about this. There are a
minority of commissioners who will say, well, it is just like
Japanese investment in the 1980s, but I think some of us,
including myself, say, well, these state-owned enterprises are
organs of the Chinese Communist Party. The leaders are
appointed by the Organization Department of the Chinese
Communist Party, the large ones. They, China is engaged in a
massive economic espionage campaign against the United States.
That didn't happen in the 1980s, I don't believe, by Japan. And
China is building up a military that is designed to restrict
U.S. access to the western Pacific. So--and it is all part of
the larger Chinese enterprise. So we are called the Economic
and Security Review Commission for a reason, because the two
areas are closely linked.
Ms. Bartholomew. Yes, it is a good and interesting
question, and for those of you who don't know of us, I mean, as
I said, there are 12 of us, 3 each appointed by the House and
Senate Democratic and Republican leadership, so we come with
different orientations and with different levels of expertise.
I think in the 10 years that I have served on the
Commission, I see that a number of people have sort of a strong
economic orientation and some sense that economic strength is
critically important to our national security and our national
strength, and others have had a more what I would call
traditional military and security orientation. But I do think
that over the 10 years that I have served on the Commission,
that we are seeing more alignment in places, and that was in
some ways what we were established to do.
I would say out of fondness with my colleague Dr. Wortzel,
the first time I saw him really interested and then concerned
about the economic issues is when we--manufacturing, when we
looked at the defense industrial base and what was the ability
of our manufacturing sector to be able to create components for
the warfighter if we needed it, as things were being outsourced
more and more, and what was the future of our tool and die
industry, so there are places that we have really crossed over
in terms of looking at the issues and bringing our own
orientations but recognizing that there are a lot of challenges
that we can all work together on.
Dr. Wortzel. I came on to this Commission with a very
strong orientation toward espionage, military developments, and
looking very hard at Chinese long-term intentions, as their
military literature defined it, and probably for the first year
resisted almost attending a hearing that had anything to do
with economics. But I was educated.
And I have to say that if I had to pick out a single area
where you might find tension and debate, it is over the
orientation of the United States as a free trade and open
trading nation and the challenge that is posed by dealing with
an authoritarian state composed almost entirely of state-owned
industries, populated with people who have to follow the
dictates of a long-term plan by the Communist Party and how
you--our tensions tend to be over how you maintain a free and
open trading system with proper national security controls for
exports and still meet the challenge of this controlled economy
that has so many substitutes.
Mrs. Davis. Thank you.
Thank you, Mr. Chairman.
Mr. Forbes. Thank you, Ms. Davis.
Mr. Conaway is recognized for 5 minutes.
Mr. Conaway. Well, thank you, Mr. Chairman.
And ladies and gentlemen of the Commission, thank you for
your work on this issue. The--just a quick brief look at your
report shows at first blush a particularly juggernaut of China
across all these spectrums. Could you also talk to us or did
your Commission look at where is China's Achilles heels to be
able to fulfill all of these grand schemes? You know, they have
got a particular, almost visceral fear of internal unrest. They
have got demographic issues, a one child policy. They have got
a tremendous imbalance in marriage age females versus males and
an economy that has got to grow faster than ours in order to
soak up all the new interests. Could your Commission talk to us
a little about those aspects of can China actually deliver on
all of their grand schemes?
Mr. Reinsch. Yes, I think that you have provided a very
good list, and these are issues that we have looked at over the
years. They have an enormous number of problems. They have a
demographic problem, as you noticed, as you noted. In past
years, we have spent a lot of time on their environmental
problems, which actually is one area where cooperation between
us and them can be useful, both in terms of technology sharing
and because of the environmental benefits. If they clean up
their air and water, that is good for everybody, beginning with
their people, but it is also good for our people, because their
air blows over in this direction, and people who represent the
West Coast are familiar with that problem.
They know it is a problem, and they are under significant
domestic internal pressure to deal with it. It is visible every
day, and if you go there, you will experience that.
My own interest has been in their enormous economic
problems. Right now, in the wake of the financial crisis, you
know, virtually every country has economic problems. I,
frankly, would much rather be us than them under the current
circumstances. Their steps to--they are moving in the right
direction economically, but they have, I think, a long way to
go. They are taking baby steps, and they have the central
dilemma of, how do you liberalize economically without opening
the door to pressures for political liberalization, which is
the central conundrum of how they are trying to operate?
This regime--I am sorry, this administration if, I mean,
President Xi and Premier Li, if anything, have given early
indications of being tougher politically even than their
predecessors and more resistant to political change and trying
to address demands for political reform by fighting corruption.
Unfortunately, in my view, corruption is kind of an integral
part of the way the regime operates. They can't effectively
deal with corruption without undermining the party's control,
and that is their central dilemma. And they have to face the
problem of trying to deal with that in that context. They have
to deal with the fact that anything they do to liberalize the
economy is inevitably going to create political pressures that
are going to complicate their life. That, to me, is the biggest
problem they have got.
Mr. Shea. I think, Congressman, you and Chairman Reinsch
have put together a nice list of the problems that China faces.
The one additional vulnerability or two additional
vulnerabilities I would see are the debt. We don't know how
much debt is in the system. They had a huge stimulus program.
They rely on local governments to finance infrastructure
projects, so there is a huge amount of debt floating around in
the system, and it is very opaque. We just don't have a good
handle on how much outstanding debt there is.
There is also, they don't have a strong culture of
breakthrough innovation. They are very good at incremental
innovation. We had a hearing last year on this subject, and
they are very good at going on the manufacturing floor and
trying stuff out in the marketplace, bringing it back, fixing
it, but very much incremental. They don't necessarily have a
culture yet of people challenging conventional wisdom,
breakthrough thinking.
Dr. Wortzel. I would like to address some of the things
that we have had in previous annual reports that I think meet
your question. Among them, the inability to master the
metallurgy for jet turbine fan engines and marine engines,
naval engines. They just can't do it.
The attempts with difficulties in addressing air and water
pollution that we have looked at in China, you know, there are
real ways we could help them there.
Dennis mentioned the problems in innovation, and then,
finally, the weaknesses in their military and developing a
cadre of personnel that are able to maintain a networked, I
think I can use the acronym in this committee, C4ISR [command,
control, communications, computers, intelligence, surveillance
and reconnaissance] system that they know they need.
Mr. Forbes. The gentleman's time has expired.
And the ranking member has been a strong leader in this
area, and he has returned, so the chair would recognize him for
any questions he may have.
Mr. Smith. Thank you, Mr. Chairman.
I think you mentioned in your opening remarks a lot of the
different areas where China has, you know, conflicts over the
islands and, you know, differences with, you know, border
disputes. What do you think are the most likely to cause
problems in those areas? What is the greatest challenge, the
country they are most likely to come into conflict with, and
how might we go about trying to resolve some of those border
disputes? What role should we play? What role should others
play? Because that seems to be the area that, you know, is most
causing China to be more belligerent as they, you know, advance
territorial claims, you know, basically because they want the
mineral rights, and they think they are the biggest kid on the
block so they can go ahead and force their way in. What is the
best way to defuse that?
Mr. Shea. I think the best way is to have a strong U.S.
military presence there. If Japan weren't operating under a
security umbrella with the United States, I wonder what would
be happening now. So I think the best way to preserve peace in
the area is to have a strong, strong naval, U.S. naval
presence.
One thing that is very concerning is the possibility of
something happening, an incident happening at sea that is
unintentional. You probably, the committee has probably heard
about the incident earlier this year, the two incidents
involving the PLA Navy locking target, radar targeting on a
Japanese vessel, naval vessel, and a Japanese helicopter. The
Japanese showed tremendous restraint in not reacting to that.
It seems as if--my impression is that that was more of a
tactical decision made by the local PLA, the commander of the
PLA Navy vessel, as opposed to some sort of great strategic
decision. I think the PLA Navy is getting a little more
sophisticated and aware of norms, maritime norms, but something
like that could really--is really a problem.
I have asked some Japanese interlocutors, do you have a
phone where you call, can someone in the Japanese military call
someone in the Chinese military directly and say, we have this
situation at sea? We don't want this thing to blow out of
control, and there is no mechanism for that type of
consultation or communication. So I believe transparency,
communication, strong U.S. military presence.
Ms. Bartholomew. Yeah, I would join in that. I think
internally one of the biggest flash points they have is
Xinjiang and how that is handled and what ultimately happens,
but as I look at China and the region, I am concerned about I
guess what I would call incremental expansionism, which is that
their moves in the South and East China Seas to sort of, they
have these historic claims, but it is sort of they keep moving
forward a little bit and not ever coming back quite as far as
they had done before.
And it is affecting the Philippines, as you mentioned, Mr.
Smith, you know, the terrible tragedy that happened in the
Philippines and what kind of role, but it is affecting Vietnam
and Indonesia and Japan, and I think I certainly agree with my
colleague that having a U.S., a strong U.S. presence in the
region I think to rebalance both militarily and economically
and diplomatically, it is going to be really important to try
to defuse some of these things.
Mr. Smith. One other question along these lines if I could,
and China, the neighbors around China, one of the concerns is
that as we, you know, go through some of the budget struggles
that we have had and speculation about sequestration and all
that, you know, the neighbors, they are going to recalculate
basically that, you know, well, China is the only person, but
it just seems to me that it is unlikely because the
relationship with China is difficult, but how do you see that
playing out? What are Vietnam, Philippines, how are they going
to deal with the fact that we may not have as big a presence as
we would like? I mean, I think we are going to have a presence,
but how do you see that rebalancing?
And I am sorry, Dr. Wortzel, you were going to dive in
there, so I will let you.
Dr. Wortzel. That is all right. I will start with that,
sir. It seems to me that part of it depends on whether the
surrounding nations are traditional U.S. alliance partners, so
that extended deterrence and the confidence in U.S. extended
deterrence is extremely important in the region. I think that
Secretary Clinton and Panetta and Gates' remarks on the
importance of resolving maritime disputes peacefully and that
U.S. does have an interest there are extremely important, and
the explanation and the situation with the Senkakus in Japan is
very different than the situation with the Philippines and
Scarborough Shoal, but your question on what is the most
explosive, potentially explosive problem, in my view, is not
the land borders, that could, you could have scuffles; the most
potentially explosive or volatile problem is the positions that
China takes on the range of activities that can be conducted in
the South China Sea, East China Sea, and its own exclusive
economic zone because that is where you get things like the EP-
3 incident. That is where you get the painting of Japanese
ships with fire control radar. That is where you get the
Invincible and Bowditch incidents, and those things can really
spiral out of control.
Mr. Reinsch. If I could add, I think that in terms of how
others are going to respond, in the short run, Chinese
behavior, which I would characterize as aggressive in the
region, if anything, is driving them closer to us, and you have
seen that.
Mr. Smith. That would have been my logical conclusion as
well, yeah.
Mr. Reinsch. I think that eventually the Chinese are going
to figure that out and will probably respond with more
sophisticated tactics, but in the short run, it has helped us.
There is at the same time and always has been in the region
this lingering fear that the Americans are going to leave, and
it is one of these things that no matter how many times every
administration of the last six or seven has said we are not
leaving, there is always still this undercurrent of fear that
we might. I think it is incumbent on every administration,
regardless of party, to continue to reassert our interests in
the region and continue to take concrete steps to demonstrate
our interest in the region.
Frankly, from my point of view, the most useful thing the
United States can do in the short run is to conclude the TPP
[Trans-Pacific Partnership] negotiations, and Congress can
approve the TPP.
Mr. Smith. Right.
Mr. Reinsch. A little lobbying here, and we can demonstrate
to the region that we have an ongoing long-term trade and
investment, which is important, and as well as military
commitment to the region.
Beyond that, I think you are going to see different
countries reacting in different ways. The Vietnamese, who
historically have had an adversarial relationship with China,
haven't changed, and I think are focusing first on a search for
more friends anywhere they can find them, including us, and
will be looking at their own military buildup. The Philippines,
for obvious reasons, which is having a terrible crisis they
have to deal with in the extreme short run, I think is going to
be doing the same thing.
The countries farther south I think are--it is a little bit
more complicated. Indonesia is facing an election and probably
a change of administration. It is hard to predict what is going
to happen there. But the picture will be different in each
case.
Mr. Smith. Okay. I think that pretty thoroughly answers my
question. I will yield back, give some others a chance. Thank
you, Mr. Chairman.
Mr. Forbes. Thank you, Mr. Smith. The Chair now recognizes
the chairman of the Readiness Subcommittee, Mr. Wittman, for 5
minutes.
Mr. Wittman. Thank you, Mr. Chairman. Chairman, members of
the Commission, thank you so much for joining us today. I want
to begin with Dr. Wortzel, and ask you a question about the
readiness posture both of China and of the United States. As
you know, President Xi has said that he is emphasizing the
readiness of Chinese military forces. I want to know, in that
perspective, how does China view the current situation in the
United States with sequestration, the current military
readiness challenges that we have? And where does that put
China from the standpoint of their strategic thinking about the
United States, not just in the Asia-Pacific, but how they are
interacting across the globe?
Dr. Wortzel. Well, they see us, their military thinkers and
writers and political leaders, see us in a slow decline, and
struggling to meet the obligations that we have cut out for
ourselves. And they look at, you know, some things that might
be effective operational tactics like air-sea battle and think
that we may not be quite capable of doing those things with the
proper number of forces.
At the same time, I think they recognize that we really do
have probably the best, most used, and most practiced military
at operations in the world, and they don't have that. They have
a lot of great operational doctrine, in part, modeled on ours.
They have exercised it several times in what we would call
unified commands, supported across the Armed Forces in an
integrated way, but they have never really used it. And they
are not practiced at using it. And I think that is going to
take them quite some time.
Mr. Wittman. Very good. I want to pose a question to the
entire panel. Looking at the recent natural disaster there in
the Philippines, looking at the U.S. response, which I think we
are all very proud of, and we understand what we can do in that
region of the world, and then looking at the Chinese response,
what does that do for our relationships in the region, not just
with the Philippines, but how other nations look at us? And
what does it say about the Chinese limited response? And what
does it say about Chinese capacity? Is it an issue of a lack of
will to do this? Is it an issue of a lack of capacity? Where
does that stand? And again, how is that viewed within that
particular region?
Ms. Bartholomew. Yeah. Well, I think, as you said, Mr.
Wittman, that we can all be really proud of the way that our
Armed Forces respond, both in the Philippines, I would say
going back to the tsunami in Indonesia, and also the Tohoku
earthquake in Japan. I think that that buys us an enormous
amount of good will. It is not the reason that we do it, but it
is one of the benefits that we do it. And I found it
particularly interesting, as Mr. Smith mentioned, that China's
first response on the Philippines was really pathetic. I mean,
it is the only way to describe it. And I think that there was
enough international concern and outcry that they have stepped
up some. But, you know, people remember who is there and
helping them. It is like constituent service in some ways,
people remember who has helped them.
So, you know, I know that one of the sort of shared
military exercises is disaster response that is happening. I
don't think that it is simply going to be the mechanics and the
logistics of disaster response. I think that the Chinese are
going to need to change their entire orientation in terms of
what is their responsibility in the region when it comes to
crises. But I am, like you, very proud of our armed services
and the way that they always respond to these things.
Mr. Reinsch. If I could add to that, I was struck on the
financial relief side that a single American company, Philip
Morris International, has contributed more to the Philippines
than the Chinese, all of China has, which I think says
something. One of the things, when I used to teach this issue
years ago, one of the texts I used talked about the key element
of hegemonic leadership globally is the willingness essentially
to take one for the team, to take on, to bear costs in the
interests of maintaining the system and helping everybody else.
It is what the United States did after World War II, for
example, to rebuild the system. And the costs were not that
great at the time, but the rewards--not the direct rewards, but
the rewards for the people of Europe were enormous.
The Chinese continue to demonstrate over and over and over
again that they haven't learned that lesson. Their responses
tend to be tactical. They are mad at the Philippines for
reasons that we all know. So their response is to demonstrate
their irritation. Unless they grow beyond that, their capacity
for leadership, either regionally or globally, is going to be
limited.
Mr. Wittman. Okay. Thank you, Mr. Chairman. I yield back.
Mr. Forbes. Ms. Bordallo, the ranking member of the
Readiness Subcommittee, is now recognized for 5 minutes.
Ms. Bordallo. Thank you very much, Mr. Chairman. And I
thank all of our witnesses for being here today to give us
further information. My first question is in regards to how
China views our selective hardening and dispersal plans. As
your report has discussed over the past year, China has
enhanced its anti-access/area denial [A2/AD] capabilities with
certain stand-off weapons systems. So part of countering that
A2/AD threat is selective hardening and dispersal of Air Force
facilities in the Pacific Command area of responsibility. How
important would you say are these actions to countering the A2/
AD threat? And what message does this send China? How does this
change their calculations?
Dr. Wortzel. I think that we absolutely need to harden and
disperse. And it is critical to the survival of our military
assets. But I think what it will do is force the Chinese to
improve their ability to mass weapons on a target, to use
intelligence, surveillance, and reconnaissance to identify
hardened targets, and to improve their ability for precision
strikes on those targets. So hardening is one part of what we
need to do. It seems to me that the second part are ballistic
missile and cruise missile defenses. That the real answer, in
my opinion, to massed warheads, whether they are coming from
ballistic missiles or cruise missiles, is you really have to
move forward on directed energy, whether it is ship-based or
land-based or air-based laser and things like that. So we
really don't have adequate--in my opinion, adequate responses
to what they can mass in terms of cruise missile and artillery
fires.
Ms. Bordallo. Thank you. I have another question. It is
also for any of the witnesses. There has been a lot of
discussion about the outcomes from the third plenum session of
the 18th Congress in Beijing. There has been a lot of focus on
the development of the national security council-like entity,
although we wait for the details of how this organization is
going to be structured, as well as the announcement that China
was easing its one child policy and closing their detention
centers.
Now, I know it is only a few days since the session
concluded, but I am wondering what all these actions in total
paint. Tell us. Can you comment on their actions? Is it serious
concern among the political elites about growing internal
instability in China? And is there a way of trying to more
effectively coordinate government, but also defuse political
hot button items?
Mr. Reinsch. Let me begin, if I may, Ms. Bordallo.
Ms. Bordallo. Yes.
Mr. Reinsch. First, just to note, these events all happened
after our report, so obviously, they are not covered in the
report. We did produce a detailed memorandum on the plenum
document and the document that appeared last Friday as well. We
have circulated it to members of the committee, I believe. If
we haven't, we are going to. And it is also on our Web site. So
I would encourage you to have your staff to take a look at that
for greater detail. The initial document was disappointing,
partly because it was at 40,000 feet, and managed to say
several different things in different directions
simultaneously.
I think that we would probably say--and we haven't had a
chance to discuss it collectively--but I think that our view
would be that the document they provided on Friday has a number
of promising elements to it. The biggest question always, as I
mentioned in my opening statement, is whether they will
actually be able to implement these things. You know, the old
slogan that mountains are high and the emperor is far away is
as true now as it was 5,000 years ago. These things often don't
happen at the local level.
And in terms of, you know, public unrest, as you mentioned,
some things that will be very popular, like expanding land use
rights for farmers, for example, to prevent arbitrary seizures,
and dealing with the hukou system, the urban and residential
permit system in some modest ways, whether those are
implemented or not really is going to be up to local
authorities, and not the national authority. And we simply have
to wait and see what happens.
The sign from the document is entirely a positive one. In
some larger areas, I think their steps forward are modest. Even
assuming they are implemented, they will be modest. I think the
debate amongst economists is going to be whether they are
heading for a hard landing or a soft landing. That the course
they have embarked upon is untenable for the long term
economically. But whether they are going to be able to sort of
skate through it or suffer a more serious setback is I think an
issue that economists are going to be debating. I think I will
stop there.
Mr. Shea. Ms. Bordallo, you asked about the creation of a
national security committee. One thing of interest in that is
it also covers domestic security. And you asked the question
are they concerned about internal instability? And the clear
answer is yes. Now, we also have a memo on this, which we can
share, share with you as well, prepared by our very crack
staff. But some have speculated that the positioning of
internal security as a responsibility of this national security
committee is an effort to reduce the power of something called
the politics and law leading small group--they do everything by
small groups in the Politburo--which has overseen the police,
judicial system, and civilian intelligence operations within
China.
And there is an individual, Zhou Yongkang, who used to run
that, a former member of the standing committee of the
Politburo, whose colleagues are being investigated in
PetroChina and other areas.
Ms. Bordallo. Well, thank you very much. My time is up. And
the chairman is nodding at me. I would like to hear more.
Mr. Forbes. Thank you. And as you guys know, you work very
closely with Congressman Bordallo, so I am sure that you can
give her that additional information. Dr. Heck is recognized
for 5 minutes.
Dr. Heck. Thank you, Mr. Chairman. Thank you all for being
here. Recognizing that we are in the Armed Services Committee,
I am going to take advantage, I want to take advantage of
having you before me and go on a topic that is not related to
the military. And that has do with the importance of gaming to
Macau. As you may guess, I represent southern Nevada.
Mr. Reinsch. That is not unexpected.
Dr. Heck. So with 87.5 percent of total government revenue
coming from gaming from Macau, allowing them to accumulate the
third largest budget surplus as a percentage of GDP [gross
domestic product], and surpassing Las Vegas as the world's
largest gambling market, I wonder what you think the greatest
implications are for Macau on the U.S. gaming industry.
Mr. Reinsch. This is an issue that we have studied for the
first time in the Commission's history. We had not addressed
Macau for the previous 12 cycles. So this was new for us. And
as you know from the statistics you cited, it is impossible to
study Macau without studying gaming, since it is such a
significant part of what goes on there. We had testimony from
your regulators, from Federal Treasury authorities and
regulatory authorities, and also from experts. We also ended up
meeting with representatives of two of the American casinos
that operate in Macau at great length. And they provided us
with a lot of information about the procedures that they follow
in the Macau casinos to insulate themselves, in an attempt to
insulate themselves from some of the problems that our report
identifies. I think the report speaks for itself on this. We
felt that the way that Macau is regulated, the way it is
structured, and the way it works, it interacts with Chinese law
in both the prohibitions on gambling in the rest of China,
except for lotteries, but at the same time, the prohibition on
collecting gambling debts in the rest of China, promotes a
culture that contributes to organized crime and money
laundering because of capital controls on moving money from the
mainland to, well, anywhere, but in this case, Macau.
There is an extended record on this subject dating back to
congressional investigations 20 years ago before the Senate
Permanent Subcommittee on Investigations that looked at various
aspects of this issue that has suggested that money laundering
and organized crime are significant problems. There was, on the
international front, the issue, the case a few years ago of
Banco Delta Asia, which had ties to North Korea, and there were
questions then about flow of funds into and out of North Korea
that would enable them to do some of the things that our
government has been objecting to for a long time.
We concluded that this was an issue that needed more work.
And the essence of our investigation--I am sorry, the essence
of our recommendations to the Congress is that this is
something that needs to be looked into in more detail by the
authorities that have basically more expertise and more assets
than we do.
Dr. Heck. Were you able to come to any conclusions or ideas
of what this would mean? What Macau's success would potentially
mean to the U.S. gaming industry?
Mr. Reinsch. I wouldn't say that--we did not come to a
conclusion with respect to the--specifically with respect to
the activities of the American casinos there. We didn't
encounter any evidence that suggested that they were complicit
in illegal activities. We concluded, and they, I think, would
acknowledge, that it is a very difficult situation doing
business there because of everything I just described. I think
that beyond that, I think we were not in a position to go
farther. But Carolyn may want to say something more about it.
Ms. Bartholomew. Yeah. It was--I think we come into this
with a lot of different viewpoints on this Commission. And I
think, Dr. Heck, that, you know, when you look at the
percentage of revenues that the three U.S. companies who are
involved in gaming in Macau are getting from Macau, it does
raise some questions. We did not deal with those questions
specifically. But you know, what, 60 percent or 70 percent of
the revenues of some of these companies is now coming from
Macau gaming. I came away from the hearing that we had and the
additional information concerned about the ability of
regulators to get access to the kind of information that they
need to ensure that the U.S. gaming companies that are working
in Macau are not being adversely affected by the organized
crime that we know permeates the industry generally. But I
think Nevada needs to be thinking about this and looking at
this effort.
Dr. Heck. Thank you. Thank you very much, Mr. Chair. I
yield back.
Mr. Wilson [presiding]. Thank you very much, Dr. Heck. We
proceed now to Congressman Austin Scott of Georgia.
Mr. Scott. Thank you, Mr. Chairman. Ma'am, gentlemen, thank
you for being here today. And I was glad to hear you speak of
our friend Taiwan, and making sure that they know that we are
going to continue to be their friend. I had the opportunity to
visit there a year or so ago with some of my staff and discuss
different issues with regard to trade relations for agriculture
as well as military-related issues. My question gets back to
kind of that whole region with regard to China. They have a lot
of borders with other countries, countries that we have been
involved in, countries that we are involved in because of
terrorism. Those terrorists don't seem to want any type of
trade with any outside country. So my question gets back to, if
we look at Afghanistan, and Al Qaeda, the other terrorist
groups that operate in that region, China essentially stayed
out of those conflicts that we were engaged in. But now, as
they try to expand trade into those other countries, are they
starting to become more aware of--that might not be the right
term. What approach are they taking to terrorism? And are they
starting to see increases in threats from Al Qaeda and others
to them?
Mr. Reinsch. We have looked at this in the past. We didn't
spend a lot of time on it this year, Mr. Scott. Let me defer to
Carolyn in a minute. I think what I would say is that they are
acutely aware of it, because they have a problem in Xinjiang in
western China, a problem primarily with the Uighurs, which are
of the Muslim culture. So the Chinese are very sensitive to it.
And again, as always with China, for reasons of self-interest,
not a larger interest. And their concern about terrorism
elsewhere is spillover primarily, and people either moving into
China, moving into Xinjiang and causing the same troubles that
they are causing somewhere else, or providing some aid and
comfort flowing back and forth across borders. That has let
them in some limited circumstances to be cooperative and share
some of our concerns with fighting these efforts in other parts
of the world, again, because they see a direct relationship to
them.
They have also begun to, at least in one notable case, move
into Afghanistan with a significant investment, economic
investment, a mine that they are building. I don't have a lot
of current information on how that is going, and whether it has
been subject to terrorist attack, or whether it has become a
volatile political issue. Somebody else might want to comment
on that. So, you know, they are sensitive, but they are
sensitive, again, for very specific internal reasons.
Mr. Shea. I will just make two observations. China is the
largest foreign investor in Iraq's oil fields today. I don't
know if the committee knows that.
Mr. Scott. Say that again.
Mr. Shea. China is the largest foreign investor in Iraq's
oil fields. This is outlined on page 301. We have some
information about that. Secondly, China, this is an issue we
looked at a couple of years ago, owns--Chinese entities, state-
owned enterprise owns the largest copper mine in Afghanistan.
And it is called the Aynak mine. I have not kept up to date as
to whether it is up and running or--I think it is the single
largest investment in natural resources in Afghanistan's
history.
Mr. Scott. And if I may, before he answers, and that is one
of the issues that I have a hard time with as a member of the
Armed Services Committee, just before you answer please, ma'am,
because we are sending our men and women over there to provide
security when it is China that is receiving the economic
benefits and the industrial relations in that country. Quite
honestly, they should be paying the cost, not the United States
taxpayer and the U.S. soldier. Ma'am.
Ms. Bartholomew. Mr. Scott, I think that is a very
important point that you made, which is that our young men and
women died in Afghanistan and in Iraq.
Mr. Scott. Still are.
Ms. Bartholomew. And the Chinese are getting economic
benefit out of both of those. So I think that is an important
issue, an issue of concern. I just wanted to go back and
revisit on the issue of terrorism, I think it is important to
recognize that in China, where the people of China are so
repressed, the Chinese Government has a tendency to indicate--
to characterize any uprising or any attempt to try to challenge
them, they sometimes call it terrorism. And so it becomes
complicated in terms of understanding and looking at it.
And then also, and I don't know, Larry, whether this was
actually ever really documented, but particularly in the 1990s,
there was some sense that the Chinese might have been providing
missile technology and some nuclear technology and things to
Pakistan in this kind of a, we will help you, but you make sure
that you keep your problems outside of Xinjiang Province. This
kind of, I doubt it was ever actually stated that way, but some
sense of some of their dealings in parts of the world where
some of these problems are kind of a, almost a quid pro quo. I
don't know that there was actually any ever documentation of
that, but I think that there was some concern among analysts.
Mr. Scott. I am out of time, so if you speak, be very
brief.
Dr. Wortzel. Their concern is pan-Turkic and Uighur
separatism. And they will permit literally anything to go on
inside a country, regardless of who else it threatens, and
assist any country with weapons, as long as they think they are
getting a quid pro quo in controlling what they see as pan-
Turkic and Uighur separatism.
Mr. Scott. Thank you for those answers. Thank you for the
work you are doing and for being here.
Mr. Wilson. Thank you, Mr. Scott. We now proceed to
Congresswoman Tammy Duckworth of Illinois.
Ms. Duckworth. Thank you, Mr. Chairman. My question, I am
not sure which of you would be the right person to answer, has
to do with China's cybersecurity, their cyber attacks and how--
I would like a greater discussion on the Chinese Government's
role in cyber theft and espionage using Chinese companies or on
behalf of Chinese companies.
Ms. Bartholomew. I was just going to say we are lucky we
have one of the country's experts on that issue sitting right
here at the table, Dr. Wortzel.
Dr. Wortzel. I think the three things that have really
helped document that this, for the most part, is a centrally
directed effort, are the two reports by the Northrop Grumman
Corporation for our Commission, and the Mandiant report that
went as far as to identify an organization of the Third
Department of the People's Liberation Army that does this.
So it is an extensive effort. It involves the electronic
warfare and countermeasures department of People's Liberation
Army that cracks into computer systems, takes control of them,
documents important nodes, and then they turn it over to the
Third Department, the equivalent of our National Security
Agency, which extracts information and can replace information,
so that a large part of it is government directed.
Ms. Duckworth. And is that information then turned over to
their corporate entities? Cybertheft?
Dr. Wortzel. Absolutely. It goes right to corporate
entities. It is used to short-step research and development, it
is used to supplement research and development, particularly in
areas that they are unable to do themselves. And it supports
directly their own comprehensive strategic industries that they
want to develop.
Ms. Duckworth. What about the opposite flow of information?
That is, I have Huawei in my district. One of their North
American locations is actually in my district. I have real
concerns, especially with them and ZTE and the reports that
have been generated about how they are actually turning over
information from their work with U.S. entities as
telecommunications corporate networks back to the Chinese
Government. Do you still that that is still existing, that the
information is actually flowing from their corporate entities
back to----
Dr. Wortzel. When the Director of National Intelligence
sees that as a problem, the commander of the U.S. Cyber Command
sees that as a huge problem, our Commission sees that as a
problem, and despite all the denials, that the genesis of some
of these companies out of the People's Liberation Army says to
me that there is very close cooperation.
Ms. Duckworth. I know the DOD [Department of Defense] is
still putting into place rules concerning country of origin for
some of the components that are being used, not just in U.S.
munitions purchases, but also for telecommunications and the
like. Is there anything else that we here on this side on the
dais should be thinking about that would help further protect
our national security in terms of, you know, I am thinking
about procurements. Because this is not just us dealing with
the Chinese Government, this is actually with their corporate
entities that are providing services and goods to U.S.
companies.
Dr. Wortzel. Well, first of all, given the structure of
power in China and the penetration of the Chinese Communist
Party into literally all industries, I don't think you can
separate any industry in China from the government. I think the
Department of Defense is beginning to recognize that there are
problems, particularly in information technology supply chains.
And they are really fighting internally over the Federal
Acquisition Regulations on what they can do to provide
security. The State Department had the same problem. So I think
the National Defense Authorization Act of 2011 in what was it,
section 806?
Ms. Duckworth. 806.
Dr. Wortzel. 806. They are just beginning to act on that.
So I don't think you can let them off the hook on that.
Ms. Duckworth. Are there other departments? I am sorry, Mr.
Shea.
Mr. Shea. I was just going to recommend a book to you----
Ms. Duckworth. Okay.
Mr. Shea [continuing]. By James Mulvenon, and Anna Puglisi,
and William Hannas called Chinese Industrial Espionage:
Technology Acquisition and Military Modernization. And it is a
comprehensive examination. It is footnote 15 in one of our
chapters. But it is a comprehensive examination of how the
Chinese use technology theft and transfer it, they have
mechanisms and organizations and structures to transfer that
information to their commercial enterprises.
Mr. Reinsch. And you ask what you guys could do about it.
We have a recommendation simply that you encourage the Pentagon
to move faster on the 806 issue. What is happening is
directionally correct, but it is very slow.
Ms. Duckworth. Thank you. I am out of time. Thank you, Mr.
Chairman.
Mr. Wilson. Thank you, Congresswoman Duckworth. And we now
proceed to Congressman Rich Nugent of Florida.
Mr. Nugent. I thank you, Mr. Chairman. And I do appreciate
the candor of this panel. While I heard, you know, the
terminology challenges versus threat, but when you look at the
spectrum of what is going on with China, particularly as it
relates to our allies in the China Sea area, what we have done
in Afghanistan and Iraq and how the Chinese have moved in
behind us, even though it was our sons' and daughters' blood
and our treasure that went there to pacify or correct issues
going on, I wonder, I mean--and then you hear about the cyber
threat that we face from China. And it is not just--I mean.
And I think you have articulated very well that the
government and its industries are one and the same. But it goes
even further than that in regards to the cyber threat as it
relates to our national security, particularly as it relates to
our military. And I would really like to hear about the
relationship between China's cyber attack capability and their
military advancements over the years, particularly as it seems
to be that what they are developing specifically counters some
of our abilities. And I think it has become more of a threat
than it is necessarily a challenge. And I appreciate the
wordsmansmith of it. But if any of you would like to talk to
that issue.
Dr. Wortzel. Well, first of all, I think you have to look
at the way they think about us. When they analyze their
security environment and the general trends, which is what they
call it, they see us as the main threat. That is their writing.
And Russia and India and Japan are secondary threats. So they
have got to deal with the main threat. And they see us as
heavily dependent on space and cyber over really extended
distances of lines of communication.
Now, for us, we tend to put these things into little cones.
You know, we have got a Cyber Command and a Space Command.
Hopefully, they are working together at STRATCOM [U.S.
Strategic Command]. But the Chinese have adopted an approach
that was very close to what the Soviets used in radio
electronic combat.
So across all the military services, and across all the
domains of war they have integrated the use of counterspace,
their own space systems, cyber penetration, and precision
fires. They practice it several times a year. And they are
still struggling with making it more effective. But it is a
comprehensive approach that is designed to attack what they see
as our greatest weaknesses and our dependence on all of these
command and control and surveillance systems.
Mr. Nugent. And it would seem that Mr. Scott hit on an
issue that is near and dear to my heart, having had sons both
in Iraq and Afghanistan. It seems that, you know, we could
force an effort--and the Chinese, you have to give them credit,
they are pretty sharp actors to come in behind us, and then on
an economic viewpoint, and I think it has been well discussed
by this committee, is that they do things, obviously, that are
in the best interests of China and could care less about
anything else. So how do we counteract that? I mean, how do we
counteract the ability, when we go in, let's say, just in
Afghanistan while we are still there, what do we do?
Dr. Wortzel. I think, first of all, they were there before
us. They didn't care about the Taliban.
Mr. Nugent. Right. And I think they can operate, obviously.
Dr. Wortzel. They are happy to operate in these
environments. And they won't take a necessary security
interest--I mean, the one thing you could do that would get
them involved is stop protecting their areas. They start losing
people, they start losing equipment, they have people captured,
and what they are developing already as a force insertion
capacity for hostage rescue, they will have to put into effect.
And then they will have their own little problem.
Ms. Bartholomew. I would just add that I think that our
diplomacy needs to be perhaps more, I will use the word
``vigorous'' in ensuring that American companies have access to
some of these opportunities too.
Mr. Nugent. Well, I am out of time. And I want to thank
this panel and the committee for holding this briefing. It is
very important to all of us to hear what you have to say. Thank
you very much. I yield back.
Mr. Wilson. Thank you, Sheriff Nugent. And we now proceed
to Congressman Joaquin Castro of Texas.
Mr. Castro. Thank you, Chairman. And thank each of you for
coming and joining us this morning, and for your testimony.
Sometimes when you are this low in seniority, a lot of the
great questions have already been asked. Plus, I was late to
the hearing. So if you have already been asked this question, I
apologize. But I am reading through the executive summary on
this report, and on page 10, it describes the U.S.--I am sorry,
on page 4 first, it describes the U.S.-China trade deficit over
the years. And as you can tell, it went up markedly in the 13
years, or actually the 12 years between 2000 and 2012, from
about, it looks like about $90 billion to over $300 billion.
And during that time our economy has been up and down, we have
had a Republican and a Democratic President, and actually a
Democrat and then a Republican and then a Democrat. So how do
you all account for that incredible growth?
Mr. Reinsch. Well, I think in the first instance, the
single event--well, there were two events, I suppose you could
say, that triggered it. First was the decision by the Chinese
some years earlier to embark on their own program domestically
of economic liberalization and growth. This was the 1978
decision by Deng Xiaoping and others to essentially change
policy and to abandon a lot of the Maoist policies, and to put
China on a different course.
It took a long time for that to evolve and develop and turn
them into an economic unit that was capable of exporting to the
extent they are now. But that is where that began. The other
seminal event, if you will, was when they joined the WTO [World
Trade Organization] in 2001. That created a network of, first
of all, lower tariffs of our exports going there, but also, you
know, their exports coming here were reduced.
Mr. Castro. And I would point out what is a little bit
confounding is that on page 10 it shows, for example, that our
agricultural exports have actually increased at the same time.
So it seems as though we have been sending more stuff over
there, and yet that trade deficit just keeps getting bigger.
Mr. Reinsch. Yes. And actually, they are, I think--we
export more to them now I think than anybody else, except maybe
Canada. But their imports to the United States have been
growing faster than our exports to China. So the deficit
continues to get worse. There are two bright spots. The main
one, our agriculture, although if you look at the rest of our
report, we have--we think we could be doing a lot better in
agriculture. They focus their purchases largely on soybeans,
commodity animal feeds, and not in some other areas. They
continue to create market access barriers for our meat, for
example, beef, pork, and poultry. There are significant issues
there. We also do fairly well in services, but also encounter
significant obstacles at their end to the use of U.S. services.
Ms. Bartholomew. Mr. Castro, this is one of the issues on
which I think some of the members of this Commission might not
necessarily agree on sort of causes and effects. From my
perspective, the Chinese Government certainly did not open
their markets the way that those who in the U.S. Government
promoted China's accession to the WTO was supposed to happen.
And so when you look at the numbers, and if you go back to 1989
we had a minuscule trade deficit with China, and it grew over
the course of the 1990s, but it took off exponentially after
China's accession to the WTO. And so there was this promise
that was made that this was supposed to be opening up new
opportunities for American goods and services, and it just
hasn't turned out that way. And it is a huge problem for our
economy.
Mr. Reinsch. And as she said, we don't all agree with that
analysis.
Mr. Castro. Sure. And then I would ask you this as a
general question because it is one that I have been thinking
about. China's economy is still markedly smaller than ours,
right? You have a lot of folks there that live in poverty. You
don't have the same middle class that we have. But in your best
estimation, in about 45 seconds, what--if they stay on the same
course, how long would it take China to catch up with the
United States?
Mr. Shea. I will just say that they can't stay on the same
course. This investment-led, export-led economy, I think, is
ultimately unsustainable. And the challenge for China is to
move their economy more towards a consumer-oriented one.
Mr. Reinsch. If they do everything right, which is what
Dennis just said, I agree with him, how long will it take until
they reached the level of per capita income--and I say per
capita, because that is the important distinguishing feature
here--where we are now, I would say probably 20, 25 years. But
then we will have gone beyond that by that time.
Mr. Castro. Sure. Thank you all.
Ms. Bartholomew. Just note that a growing problem they have
with inequity. So per capita income is important, but who is
getting the benefit out of the growth is going to be really
important, too.
Mr. Castro. Thank you all very much.
Mr. Wilson. Thank you, Congressman Castro. And following
the roster, I now recognize myself. And I want to thank each of
you for your extraordinary work on the Commission report. It is
of particular interest to me. I grew up with a great
appreciation of the Chinese people. My dad served in the Flying
Tigers during World War II. And so all my life, I heard how
industrious and how hardworking the people of China are. And
then I appreciate, I have been to Taipei to see the remarkable
recognition of the Flying Tigers, and appreciation by the
Chinese people of the service of the American military.
I had the opportunity to serve on a delegation with
Congressman Curt Weldon to Beijing. We were at the presidential
compound with President Jiang Zemin, where as I was introduced,
he yawned when I was introduced as a Member of Congress, but he
stopped the meeting when it was announced Joe is a son of a
Flying Tiger. And so then he announced the American military is
revered in China, which was then front page of China Daily the
next day.
And then I have seen as recently as last month I was at the
Chinese embassy for the recognition of the new museum which is
being built at the site of the Flying Tigers operations cave in
China. Again, recognition of affection and appreciation. So I
am really hopeful long term indeed that we can have a positive
relationship.
With that in mind, too, I have also had the opportunity,
with Congressman Jeff Miller of Florida, to visit Pyongyang. We
saw the enigma of this country, the bizarre circumstance. What
is the relationship, each of you, to North Korea at this time
of the People's Republic?
Dr. Wortzel. Well, to start, they do have a peace and
friendship treaty that, at least People's Liberation Army
officers have said still contains a secret protocol to provide
for security support. So it is very close. And as frustrated as
they may be with some of the behaviors there, they are still
doing what they can to prop up North Korea with fuel and food.
Although the government says it won't sell weapons, they tend
to treat their government-owned industries, state-owned
enterprises that may be engaged in weapons trade as separate
entities that they can't control. So I think it is a frustrated
relationship. It is certainly not one where they can control
what North Korea does. But they won't let it collapse.
Mr. Shea. I would say, as Larry, Dr. Wortzel mentioned,
their key objective is stability. They won't let the regime
collapse. Why do they want stability? They want it because they
don't want a refugee problem around the border. They don't want
thousands of North Koreans coming into the country through the
border. They don't want a U.S. ally, potential U.S. ally on
their border. That could be the case if the current regime
fell. And I think there is some business interests that--
resource development in North Korea, particularly at the
provincial level in the provinces near North Korea, they have
significant business interests in North Korea that affect--
those interests may affect Chinese policymaking.
Mr. Wilson. And as we go to another country, it just struck
me that the relationship China has developed with South Korea
has been so mutually beneficial. I can't even think of trying
to compare how South Korean investments, the jobs created, the
economic opportunity, and then the bottomless pit that they are
in in North Korea. I also had the opportunity last year, with
Congresswoman Bordallo, to visit Vietnam. It is extraordinary
to see the relationship of the people of Vietnam to the people
of the United States. And a great concern about China. So what
is the relationship between China and Vietnam?
Mr. Reinsch. We were there in 2009, I guess, and I was
struck that 2 weeks before we got there, they had, after 30
years of negotiation, settled the land border with China. They
had fought a war with the Chinese in 1979 over that question.
It took them 30 years to settle the border. There is a long,
multi-thousand-year adversarial relationship between the two
parties, and a great deal of suspicion in Hanoi about Chinese
intentions. And I don't see that changing any time soon.
Ms. Bartholomew. Yeah. We haven't talked at all today about
some of the challenges certainly that Vietnam is facing because
of China. Things like water. The Mekong River serves as a rice
basket. And as the Chinese dams upriver, it is having an impact
on all of the countries downstream. So there is that. There is
the issues in the maritime arena that the Vietnamese are
dealing with. We had, as my chairman said, you know, we had a
very interesting visit when we were there. I think that the
Vietnamese were particularly pleased to see people from the
United States coming over and talking to them about these
issues. And I remember asking one of the generals there, you
know, I understand that you want diplomacy to solve these
problems. But what are you going to happen if diplomacy fails?
And he looked and he smiled very politely and he said to me,
well, as you well know, we know how to fight and win. I took
that away as something.
I mean, I think we would all hope that there aren't any
conflicts that take place on this. But that is going to really
require the Chinese Government, too, to make some concessions
and be concerned about what its neighbors downstream are
thinking.
Mr. Wilson. Well, thank you all. And again, who would ever
imagine a positive relationship between the people of Vietnam
and the United States. Really, I saw a deep friendship in my
role to work with MIA-POW [Missing in Action-Prisoner of War]
issues. We now proceed to Congressman Mark Veasey of Texas.
Mr. Veasey. Thank you, Mr. Chairman. I wanted to ask you
about just the Chinese culture overall as it relates to
cyberspace and some of the things in the past that they are
known for, like imitation and what have you. Has the culture in
China changed enough to where they know that a lot of the more
serious cyberspace issues are very serious? The reason why I
ask that question is that I recall a story that I read many,
many years ago about an American executive from Detroit that
happened to be in China, and they saw a car that looked just
like, I believe it was a Jeep Cherokee. And he said, hey,
that--at first the guy was like, hey, that looks like our car.
He was excited. Then when he got closer, he noticed that the
emblem was slightly different. And the guy explained to him who
was on the tour with him that, no, that he should see that as--
you know, imitation is the highest form of flattery, that he
should be impressed by that.
I mean, do the Chinese seriously understand that a lot of
the hacking and the cyberspace issues that have been going on,
that is really like serious business?
Ms. Bartholomew. You know, there are some people who
believe that Chinese intellectual property protection will
happen as the Chinese become more inventive and have things to
protect, though there is this whole thing that is going on
about patent filing. I think you have to look at the economics
of this. And I just wanted to go back to something that Ms.
Duckworth asked. The IP [intellectual property] Commission
report assesses that the damage to the U.S. economy annually
from intellectual property theft is $300 billion a year. Now,
that is from all places. But they also assess that about 50 to
80 percent of that is coming from China. That is a loss to us
of $150 to $200 billion a year. And it has been the way that--
one of the ways that the Chinese Government has built their
economy.
I wish I could say that things are getting better. But they
have been able to bypass all sorts of R&D [research and
development] costs. So why would they stop doing this when they
get this economic benefit, which is a huge cost to our own
companies? We might have some differences here.
Mr. Reinsch. Well, no, I would put myself in the category
of this is a situation that is get getting better, but it is
getting better very, very slowly and unacceptably slowly. One
large American company at one point reported that--they were in
the software business--the rate of piracy of their product had
fallen from 94 percent to 88 percent. Now, I don't construe
that as a victory. On the other hand, it is directionally
correct. I think the more interesting piece of data, and I
think that it is not--I think it is more than what some people
believe, I think it is really axiomatic that countries get
interested in protecting IP when they have some of their own to
protect, because then they have constituencies within their own
country demanding that their own government take steps.
One of the interesting things that has happened there is
that there has been a kind of an explosion of intellectual
property litigation in China. I think 95 percent of the cases
are between Chinese parties suing each other, or one suing
another for exactly the thing you are talking about. But it is
all about Chinese IP, it is not--you know, it is not Ford
suing--I mean, there is some of those, too. But to me, this is
a good sign, because it has forced the Chinese Government, one,
to improve their court system and to develop. It is still not
an independent rule of law system, but at least they are
developing now an infrastructure that is able to take these
cases and decide them in decent periods of time. And they are
developing an infrastructure, and they are developing--they are
responding to a demand that is domestic for better practices
here. It is going to take a long time.
Two years ago we did a road trip from Nanjing to Shanghai
and stopped along the way at Suzhou and Changzhou and met with
American companies there, and asked every single one of them do
you have an IP problem? And everyone but one said yes. The one
that said no said, well, of course we don't. You know, we are
number four in the marketplace. They are all stealing from
number one, which was a German company. What intrigued me about
that, though, was a couple of them said we have solved our
problems simply by getting our lawyers to send cease and desist
letters to the offending Chinese party. I thought that was
extraordinary. That was only a couple of cases. But, you know,
baby steps is something I said earlier. This is moving in the
right direction. It is going to take 20 years, you know, before
it reaches an acceptable level.
Ms. Bartholomew. I want to add one thing, though, which is
that, again, my chairman is talking about big companies that
might be able to take this 85 percent hit on intellectual
property. But our innovative, small and medium enterprises in
this country whose IP is being stolen can't survive that kind
of theft. They can't afford the lawyers who can do this. They
can't survive it. So it is huge opportunity costs for our
economy that this kind of theft continues. And the slowness
might work for some companies, but I am afraid that we are
going to have a lot of companies that will go belly up because
they can't deal with the slowness in terms of the protections.
Mr. Veasey. Mr. Chairman, could I ask one more question?
Mr. Bridenstine [presiding]. Without objection.
Mr. Veasey. There was a recent acquisition of a large
American pork producer by a Chinese company. And of course
whenever a Chinese company acquires something, obviously, they
are in business with the Chinese Government in some sort or
fashion. What sort of concerns, you know, looking long term at
deals like this, and obviously in order to keep the economy
going strong worldwide, you know, we need to be able to do
business with the Chinese and other countries that may not
necessarily share all of our same business, I guess, morays as
it relates to, you know, cybersecurity and what have you. But,
you know, when you talk about an American pork producer and you
are talking about a company that is going to have to be
interacting with the USDA [United States Department of
Agriculture] and other Federal agencies, you know, what sort of
security concerns, you know, might that sort of a deal, you
know, have for the American public?
Ms. Bartholomew. I think that this is another issue where
we are going to have some differences on here. But I would just
note, Congressman, that our colleague, Congressman Slane, who
is sitting in the audience, testified on the Senate side
expressing concerns about what this acquisition might be. Of
course, it has since gone through. But we will ask our staff to
get you a copy of his testimony. We have food security
concerns, food safety concerns. And I have been interested to
see that since that acquisition has happened, that particular
company is doing a lot of advertising on TV, that I don't
recall seeing, all about their good products. But we have a
number--some of us have a number of concerns about it.
Mr. Reinsch. I would just say this is probably an issue
that has divided the Commission more than most issues. There
were different views on that specific transaction, which I
think Carolyn has addressed, and I won't say anything more
about that. And Dan has addressed it in his own testimony,
which we can get you. I think there is also a debate amongst
commissioners on the larger issue of how to deal with this
issue.
It happens to be the same debate that Congress has had on
several previous occasions. And that is what are the authority
to prohibit an acquisition? Should we base solely on national
security, or whether it should also be based on what might be
called economic security, or cost-benefit, or whatever the
Canadians, for example, use what they refer to as a net
economic benefit test in going to a similar process to ours.
Congress has considered that question twice in 1987 and
then again in 2007 and, on both occasions, decided not to go
down that road, and so we have a statute that is a national
security statute only and permits the President to block a
transaction based on national security.
In this particular case, CFIUS [Committee on Foreign
Investment in the United States], the group that oversees this,
which is an interagency committee, concluded that there was not
a national security issue with respect to pork. People don't--
not everybody agrees with that, but that was the conclusion
they came to. It wouldn't surprise me if at some future point
Congress takes this issue up again and debates it again.
I would just say the politics of it are complicated because
at one level these acquisitions do raise all the issues that
you mentioned. Another issue with these acquisitions
particularly, or a green field investment particularly, creates
jobs and brings new economic activity, so you often find that
whereas, you know, military officials and national security
officials in Washington have one view, you know, the Governor
of Alabama or the Governor of Texas may have a very different
view about the economic advantage that an acquisition might
bring.
Mr. Shea. Just to add to that, there is another issue that,
frankly, we are divided on the Commission is the issue that is
raised by the Smithfield purchases. It is the issue of
reciprocity. It is unlikely that an American company could turn
around and buy a pork-producing company in China.
Mr. Veasey. That is correct.
Mr. Shea. And there are multiple markets, multiple sectors
in the Chinese economy that are essentially off limit for
foreign investment, including U.S. investment, so the
Smithfield purchase also raises the issue of reciprocity.
Mr. Veasey. Thank you.
Thank you, Mr. Chairman.
Mr. Bridenstine. The gentleman's time has expired.
The Chair now recognizes the gentleman from Arizona, Mr.
Franks.
Mr. Franks. Thank you, Mr. Chairman.
First, thank all of you for being here, and I wanted to
kind of direct this question, if I could, Mr. Reinsch, to you.
Obviously, a lot of us concerned about China building such
a robust naval offensive capability at a time when we are
facing a readiness crisis in our own country and to respond,
and of course, they are, I think, probably looking at our
rapidly downgrading force capabilities across the spectrum of
our military. Can you talk a little bit about the JL-2 as well
as the first anti-ship ballistic missile, the Dong-Feng or the
DF-21, and how the Commission assesses our missile defense
apparatus as postured to respond to these missiles in the
defense of our homeland and our allies abroad?
Mr. Reinsch. I really can't, Mr. Franks, but Mr. Shea can
and Mr. Wortzel can.
Mr. Franks. All right. Well, we will talk to----
Mr. Reinsch. I would prefer to have them speak for us.
Mr. Franks. Okay.
Dr. Wortzel. It has been a painful program for them, Mr.
Franks. They have spent decades blowing out the bottom of test
submarines trying to perfect a submarine-launched ballistic
missile that they couldn't get to pop out of the water, and
although they have worked at it for a very long time, it looks
like finally they may be nearing operational capability in one
ballistic missile submarine, and if that becomes operational,
then I would expect two or three more. That will allow them to
target the United States with some 16 more ICBMs
[intercontinental ballistic missiles], but it also complicates
our problem of locating a submarine.
Now, we think they will operate it in bastion as the
Soviets did and the Russians do, and that is perhaps not as
great a problem because if it operates in bastion, it is still
launching over an area that we are protecting with ballistic
missile defenses; but they don't have to operate it in bastion.
If they move it into the deep South Pacific, which they
explored with hydrographic ships and undersea mapping ships in
the late 1970s and 1980s, it complicates our ability to find
it, and it literally flanks any ballistic missile defenses and
radar systems that we have. So if you are worried about a
couple of launches out of northeast China or North Korea across
kind of a polar route to the United States, we are probably in
good shape. If they have three of them out there, you are in
real trouble.
Mr. Franks. I understand, and I assume blowing out the
bottom of the submarines they classify as a negative result
most of the time.
Dr. Wortzel. Only reselling.
Mr. Franks. Quickly, I am going to try to get two other
quick questions in if I can. Can you just elaborate in general
on what progress China has made in developing and testing EMP
[electromagnetic pulse] weapons or enhanced nuclear weapons for
purposes of EMP?
Dr. Wortzel. They have worked on it. They have also worked
on tactical neutron enhanced radiation warheads. We know that
they have worked on electrical generating EMP as well.
Mr. Franks. EMI [electromagnetic interference].
Dr. Wortzel. Right. I think they are aware of what the
footprint of an EMP blast inside their own second island chain
would probably do to cripple themselves, so it is something
they have looked at, and they are capable of doing it.
Mr. Franks. Well, I hope we keep an eye on that.
Last question. The Burmese Government and military has, you
know, obviously a very ingrained relationship with China, and
we also know that democratic civil society within Burma is sort
of upset about that with how much support that China has given
to the Burmese Government's oppressive military. What do you
think the future of the Chinese-Burmese bilateral relationship
is? How do you think that the Chinese will deal with their
setback in influence in Burma, and how do they adjust to that,
and what is our role?
Ms. Bartholomew. Well, that is a big question, and it is
actually not a topic that we have looked at in the past couple
years and certainly since the change has happened. I think
some--I guess I would say about Burma that the question about a
distinction between what the people of Burma are thinking and
what the Government of Burma is thinking and doing remains to
be--it is unfolding, shall we say it that way? And I think
another interesting dynamic I am just going to throw into the
mix on Burma is the India-Burma relationship, and how does
India-Burma-China end up working out? I don't really have any
observations to make yet, but it is something that perhaps we
should look at over the course of the year.
Mr. Franks. I hope you will because I can tell you the
Burmese people and the Burmese military have a widely disparate
view.
Ms. Bartholomew. Yes.
Mr. Franks. Thank you.
Ms. Bartholomew. Thank you.
Mr. Bridenstine. The gentleman's time has expired.
You know, if you are a freshman and you sit in these
committee hearings long enough, sometimes they give you the
gavel, and so I have the gavel, and I have a question I would
like to follow up on.
Mr. Joaquin Castro asked a very insightful question, and he
and I are on opposite sides of the aisle. Our political
philosophies are very different, but he does have some very
good insights. And he asked about the trade deficit. And from
my perspective, when you see a trade deficit the size that we
have, usually what would happen, as long as we have, you know,
floating currencies, their currency should strengthen as we are
demanding more and more of their goods. That means their
currency would strengthen relative to ours, and that would
enable our exports to increase while their exports decreased.
And what we have seen is that while their exports have
increased and increased and increased, we haven't seen their
currency strengthen the way we would expect relative to ours. I
was wondering if the panel could share with me their thoughts
on why that has occurred.
Mr. Reinsch. This has also been a subject of some debate in
the Commission. We addressed this in our report. We have
addressed it in our report I think the last 5 years, and I
apologize, Mr. Chairman, my statement actually had a sentence
or two on it which I skipped in the interest of time, but if
you go back to the full statement, it references the Chinese
currency manipulation.
The RMB [renminbi] does not float freely, and so its rate
is effectively set by the Chinese Government. I think most
economists out there have concluded that over a long period of
time, the Chinese have set the rate at levels that allow them
to achieve the results that you have described as far as trade
is concerned. Over the last 5 or 6 years, they have allowed the
RMB to appreciate; it has appreciated significantly. I think
there has always been a debate amongst economies over the
extent to which it has been undervalued. Five years ago, the
argument was between people who said zero and people who said
upwards of 40 percent. I think now the argument is more
between--there is always some people who say zero--but the
argument is more between 10 and 20 percent, so there clearly
has been progress made. And I think it is shown in the extent
to which our exports have increased. At the same time, their
exports to us have increased faster, so this does not show up
in the bilateral trade data.
This is an issue that the last two administrations, meaning
the Bush administration and the Obama administration, have
pressed the Chinese on very, very hard, never with as much
success as we would like. They continue to press. As you well
know, it is an issue that Members of Congress have raised on
both sides of the aisle frequently via letter and occasionally
via amendment and bill. I have no doubt it is not going to go
away.
Ms. Bartholomew. Yeah, I will just add, and this is
interesting since the chairman and I come from the same party,
but we have some disagreements on this issue, among other
economic issues that, you know, I think that to call what this
administration and the previous administration and the
administration before that have accomplished as progress is
really just not acceptable.
And, you know, I think that it would be, this is my views,
it would be an important step for the U.S. Treasury to actually
acknowledge that the Chinese Government is manipulating its
currency rather than giving it the pass that it has
consistently done, including most recently in September.
Mr. Bridenstine. To follow up on that, when you talk about
the manipulation of the Chinese yuan, what capacity would they
have to manipulate the U.S. dollar based on how many Treasury
securities they own of ours and how many dollars they own of
ours? Do they have a capacity there at all?
Mr. Reinsch. Well, it is--yes, I mean, if they dump them,
but they would be the biggest loser if they did that.
Mr. Bridenstine. So if they were to dump U.S. dollars, then
they would lose exports, or they wouldn't have the strength of
the dollar for their own export economy.
Mr. Reinsch. The value of their holding, their dollar-
denominated holdings would go down dramatically.
Mr. Shea. We had a hearing, sir, a couple of years ago I
believe, where we brought in some experts who shared their
views as to whether, you know, China was America's banker and
they had us over a barrel, and I think the most, the
overwhelming majority of the experts said no, as Bill
explained, that, you know, it is sort of--China would hurt
itself if it took a drastic action dumping its dollar-based
reserves. My understanding is China owns about 10 percent, I
may be wrong, but about 10 percent of U.S. Treasurys. The staff
will correct me if I am wrong.
Dr. Wortzel. Some years ago, we actually had a hearing and
went up to the financial industry in New York and asked some of
these questions, and I can't remember the percentages, but my
colleagues have given you the arguments on why it really
doesn't pay to dump your U.S. securities, but the other
assessment by the financial industry is if it did, it might
cause an increase of a couple of percent in interest rates in
the U.S., but the whole market is so big, the whole securities
market is so big that it is really not a fatal problem.
And I guess the other thought I would leave you with is
that you have many people that say you can't go to war against
your banker. Well, we are their banker. They are not our
banker. And if you go to war, all your assets are immediately
seized.
Mr. Bridenstine. So when we experienced--I don't know if
you would call it dumping, but they had a massive sale of U.S.
Treasury securities I think back in 2007 or 2008, can you guys
share what--how that reflected on our currency and on our
markets?
Dr. Wortzel. I don't think you could then because we had
our own financial crisis at about the same time and the banking
crisis, so I think it would be--I think what they did was a
reaction to that, and it would be very difficult to separate
their action from the bigger domestic banking crisis, and that
is from a guy that don't know much about it.
Ms. Bartholomew. Right, exactly. He is doing an excellent
job talking about economics in this hearing. But another point
I just want to make is they have us over a barrel if we think
that they have us over a barrel, and again, I have been
concerned over the years that there might be people within the
U.S. Government who are afraid to take certain actions on
perhaps other issues in the U.S.-China relationship because
they are concerned about the impact of, you know, dot, dot,
dot, and so it becomes a negotiation tactic rather than
necessarily the reality. And I always find myself even saying
in a context like this what--if they dumped it, where are they
going to put their money? I don't think they are going to be
buying euros. I mean, it is----
Mr. Bridenstine. I have one final follow-up on this, and
that is when you think about the risk of China selling U.S.
Treasury bonds or making an effort to potentially weaken the
U.S. dollar, when you think about this risk, the follow-up is
usually, they would never do that because it would hurt their
own export market, and their export market is the backbone of
their economy. But what we have seen in the last probably 7 or
8 years, and I would like to hear if you guys agree with this,
they have really diversified their exports across the world
such that they don't rely so much on us for their export
economy anymore. Can you follow up on that?
Mr. Shea. Well, I think their biggest market is the
European Union, and I think we come in second place, so we are
still a very substantial market for Chinese exports.
Ms. Bartholomew. The power of the American consumer still,
I mean, I think that 2008, the financial crisis of 2008 really
demonstrated both to the United States and to China how
intertwined our economies are and that it has always been
ironic to me that as the Chinese have built their economy on
exports, they have been having an adverse impact on the very
sector of our economies where the workers would be consuming
Chinese goods, but it doesn't seem that that has had as much of
a difference.
But they are, indeed, diversifying their exports all over
the world. In Africa, for example, you know, they are
displacing African markets and African workers, and there is
some growing concern in countries in Africa about what is
happening to their own indigenous businesses as cheap Chinese
goods are flying into--going into Africa.
Mr. Bridenstine. One final line of questioning, and this is
regarding--I am a Navy pilot. I flew combat in Iraq and
Afghanistan, spent a lot of time in the Persian Gulf. Given the
position that we are in with the sequester right now, our
presence in the Gulf and around the world is lacking, and that
is unfortunate. My concern is that if we are not securing
shipping lanes in the Persian Gulf or in other market sectors
around the world, there is a void, and of course, the Middle
Eastern countries that export oil and rely on that for their
economies, they are going to find a replacement for our
security. And in order to hedge their bets, they will export
oil to whoever wants to provide that security. Is there a risk
that because we are not there and we have left a void, that
China might fill that void, and might that explain why China is
now investing so heavily in the Middle East and why the Middle
Eastern countries are now exporting oil so heavily to China?
Ms. Bartholomew. Well, first, I think that lots of
countries around the world are hedging in their own ways.
Certainly for the Middle Eastern countries, especially also as
the United States talks about energy independence, they need to
be thinking, they are thinking about where are there going to
be reliable purchasers of oil who are also not going to be
pressuring them on things like democratic reforms and human
rights, so it is that issue that I mentioned earlier about
economic growth with authoritarian government that goes hand in
hand, but there are complications and there are risks for China
involved in this, so Saudi Arabia has far greater oil
production than Iran, and yet China has a really close
relationship with Iran, and how it manages that balance of
maintaining relationships or expanding relationships with
countries that have their own challenges, their own problems,
their own battles I will use the word, is going to be a really
interesting dynamic. I mean, it is a Middle Eastern quagmire so
that as the countries themselves are interested in engaging
more with China and selling more to China, the Chinese
Government very well might get pulled more into some of the
difficult dynamics that we are trying to deal with in the
Middle East.
Mr. Reinsch. This is a new--if I could just add, getting
pulled into this has been a new and kind of unsettling
experience for them. They have encountered occasional
difficulties in Africa. I think what really set them back was
the need to conduct a massive evacuation from Libya during the
revolution. They suddenly had 35,000 people that they needed to
get out of the country, and they weren't--we are prepared for
that kind of situation. We know what to do, we have a Navy. We
have capabilities of dealing with it. They weren't. They
ultimately did it, but I think it was a wake-up call for them
that if you are going to be involved in this region in any
capacity, you need to have a whole level of commitment and
activity beyond anything that they have experienced and beyond
anything that is comfortable for them. This is going to be a
difficult transition for them to do the kinds of things you are
talking about.
Dr. Wortzel. The scenario you suggest that the United
States couldn't or wouldn't creates a lot of other
competitions, that suddenly Japan has to rethink, which has a
very capable navy, has to rethink how far it lets it go out to
protect sea lines of communication. They would probably be a
natural--India is developing a navy that, you know, it hopes
can do those kind of things. Japan and India and Vietnam and
India look to each other for that sort of stuff. So--and there
is no love between the Indians, the Japanese, and the Chinese,
so it does create the potential for competitions, but none of
those nations, except possibly Japan if it chose politically to
do so, is capable of undertaking those missions at this time or
for a good 5 to 10 years.
Mr. Bridenstine. Any other thoughts before we adjourn?
Is there anybody else that would like to ask a question?
No?
All right.
Well, I would like to thank the witnesses so much for your
testimony, and this hearing is adjourned.
[Whereupon, at 12:14 p.m., the committee was adjourned.]
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