China’s Global Supply Chain: How Chinese Communism Threatens American Interests
This white paper is an extension of a narrow campaign on encroaching Chinese influence that began in 2016. The goal of this campaign was to raise awareness of the Chinese Communist Party expanding its “soft power” by controlling American film production and distribution. The result was a revision of U.S. government oversight and approval of the foreign ownership of critical domestic assets. That revision was realized through the expanded authority of the Committee on Foreign Investment in the United States (CFIUS). Passed in 2018, this was the first major reform of CFIUS since 2007.
The expanded campaign comes at a time when it is critical to understand how Chinese influence has expanded in the United States, especially in light of the COVID-19 pandemic. It is not intended to serve as an extended critique of Chinese communism. Nor is it intended to criticize China for its foreign policy activities outside of the United States, such as the Chinese Communist Party’s support for North Korea or its weaponization of artificial islands in the South China Sea. Instead, our objective is to present a readable digest of information on how China, in many aspects, owns the United States.
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In today’s globalized world, China is the most serious geopolitical threat to the United States. This is according to President Trump, Chairman of the Joint Chiefs of Staff Mark Milley, and former National Security Advisor James Jones, among other experts.
As Defense Department policy chief John Rood explained, “China is challenging this international rules-based order, challenging the individual freedoms that we support, challenging the free movement of ideas, and people [and] trade.” Chinese aggression is driven by the Communist Party of China, which aims to expand its country’s power in East Asia and worldwide—even on American soil.
Given the aggressive intentions of a communist regime hostile to American values, is it wise for so many vital U.S. products to rely on supply chains dominated by China?
The recent outbreak of the Wuhan coronavirus serves as a reminder of the downsides of our overreliance on the Chinese Communist Party. The Chinese government covered up how many of its citizens were infected, lying in public statements and even blaming the U.S. military for spreading the disease. In January 2020, the Chinese Communist Party prohibited U.S.-based 3M and Honeywell from exporting masks from China to the United States to help slow the spread of the virus. Moreover, European countries later discovered Chinese-made masks and testing kits to be defective.
Consider the following sectors vital to America’s economic prosperity and national security:
Medicine: China produces 97 percent of U.S. antibiotics and about 80 percent of active pharmaceutical ingredients used in American drugs, giving the Chinese Communist Party a chokehold on potentially life-saving medicine. For example, Chinese pharmaceutical companies supply 70 percent of the world’s acetaminophen, commonly used in Tylenol.
Food: In 2017, the United States imported $4.6 billion in agricultural goods from China, which is also responsible for much of the global supply of soy and pea proteins that are found in nutritional supplements and synthetic meats. A Chinese firm has also purchased Smithfield, the world’s largest pork processor and hog producer.
Education: The Chinese government’s theft of intellectual property has been an open secret for decades. More recently, U.S. authorities have discovered China is funding American university researchers, who don’t always disclose those contributions. The Chinese Communist Party similarly funds “Confucius Institutes” at dozens of colleges and universities, providing it with another platform to spread propaganda.
Technology: The manufacturing of smartphones and other household items is heavily reliant on China, which controls most of the rare earth minerals that make those items work. Additionally, China is seeking to build 5G networks in the United States and other Western countries, which could potentially feed personal information and sensitive data to the Chinese Communist Party.
Media: Chinese firms have bought AMC Entertainment, Legendary Entertainment, and other media companies. Control of 8,000-plus American theater screens and other media platforms allows China to project “soft power” and block unflattering depictions of the Chinese government from being presented, both in terms of creative production and mass distribution.
Another illustration of China’s dominance is its recent slew of corporate takeovers. According to the Paulson Institute, Chinese firms and investors own a controlling majority in nearly 2,400 U.S. companies. Some of those companies are:
- AMC Entertainment (entertainment)
- Cirrus Wind Energy (energy)
- Complete Genomics (health care)
- First International Oil (energy)
- GE Appliances (technology)
- IBM—P.C. division (technology)
- Legendary Entertainment Group (entertainment)
- Motorola Mobility (technology)
- Nexteer Automotive (automotive)
- Riot Games (entertainment)
- Smithfield Foods (food)
- Teledyne Continental Motors and Mattituck Services (aerospace)
- Terex Corp. (machinery)
- Triple H Coal (mining)
- Zonare Medical Systems (health care)
While the United States grants China permission to buy its companies, China does not allow U.S. companies to operate the same way in China. The Chinese Communist Party prohibits foreign ownership of Chinese companies, requiring multinational companies to enter into forced technology-sharing if they wish to do business in China. At the same time, the Chinese government does not recognize the right to free speech or freedom of press (among other basic rights), arbitrarily disallowing traditional and social media companies from doing business in China. The Chinese “Great Firewall” of Internet censorship is infamous.
The COVID-19 pandemic, which originated in China and has been exacerbated by the Chinese Communist Party, is wreaking havoc globally—in terms of public health and economic activity. But the Chinese government’s threat predates the current crisis. In the Chinese language, the word “crisis” (weiji) consists of two characters: Danger and opportunity. Our dependence on China is the danger. The opportunity is for America to reclaim its sovereignty and crack down on China’s communist influence worldwide.
In recent months, the COVID-19 pandemic exposed just how ill-prepared many countries were in responding to an unprecedented crisis. The resulting shortage of Personal Protective Equipment (PPE) left medical workers on the frontline vulnerable to viral contraction, exacerbating the spread of the coronavirus.
The Chinese Communist Party is anything but blameless. Many essential medical items, such as face masks, are produced in China. A New York Times report found that China hoarded face masks, preventing them from being exported to the United States and other Western countries. Moreover, those countries that were able to obtain Chinese-made items discovered sub-standard and even defective face masks.
The Chinese Monopoly
Face masks represent only the tip of the iceberg. The COVID-19 pandemic is also forcing the federal government to reevaluate its overreliance on China for medicine. The U.S.-China Economic and Security Review Commission’s 2019 report to Congress, titled “Growing U.S. Reliance on China’s Biotech and Pharmaceutical Products,” sounded the alarm bell that Americans are no longer capable of manufacturing vital drugs. In the report’s words: “The U.S. generic drug industry can no longer produce certain critical medicines such as penicillin and doxycycline, and the APIs [active pharmaceutical ingredients] needed to make these antibiotics are sourced from China.” Even switching to a country like India would not eliminate the Chinese monopoly since Indian drug makers are similarly reliant on China for the vast majority of APIs.
Indeed, a recent study from the Council on Foreign Relations shows that Chinese pharmaceutical companies supply 97 percent of U.S. antibiotics. Eighty percent of the APIs used to make drugs in the United States come from China or countries that rely on Chinese production.
Medical equipment is also manufactured in China—and increasingly so. In 2019, Chinese medical device exports doubled to nearly $30 billion, compared to a decade ago. This means the United States has become more reliant on Chinese-made medical devices—leaving medical workers susceptible to faulty products. In January 2020, Cardinal Health was forced to recall almost three million surgical gowns that had been made in China, at a cost of roughly $100 million. More recently, the United Kingdom ditched an entire order of 250 Chinese ventilators that were designed to help COVID-19 victims, after doctors found the breathing kits were so poorly made, they threatened patients’ lives.
China’s stranglehold on the medical industry leaves it susceptible to disruptions in supply. The Chinese Communist Party could feasibly weaponize its medical monopoly to cripple the U.S. healthcare system.
According to Rosemary Gibson, author of China Rx, “If China shut the door on exports of medicines and their key ingredients and raw material, U.S. hospitals and military hospitals and clinics would cease to function within months, if not days.” In her words: “They can sell us medicines without any medicine in them. They can sell medicines that have lethal contaminants in it.” Gibson noted that the last U.S. penicillin plant closed in 2004, leaving Americans reliant on Chinese producers for those antibiotics.
Gibson’s fears are not unfounded. Speaking at the National People’s Conference in 2019, Tsinghua University professor Li Daokui (a member of the Chinese Communist Party) claimed, “We are at the mercy of others when it comes to computer chips, but we are the world’s largest exporter of raw materials for vitamins and antibiotics.” He added: “Should we reduce the exports, the medical systems of some Western countries will not run well.”
In March 2020, the Chinese state news agency Xinhua similarly argued that other countries would not blame China for spreading the coronavirus, since they are dependent on Chinese drug exporters. Without Chinese drugs, Xinhua claimed, the United States would “sink into the hell of a novel coronavirus epidemic.”
Concerns over Chinese medical weaponization have already triggered a 2019 congressional hearing. At the hearing, Gibson again sounded the alarm, claiming medicine “can be used as a weapon of war against the United States.” In a letter to health officials, Senate Finance Chairman Chuck Grassley (R-IA) similarly cited China’s medical monopoly as a major threat.
And it is a growing one. Between 2016 and 2018, the number of Food and Drug Administration import alerts—which can lead to a complete blocking of flagged products from entering U.S. ports—regarding Chinese companies rose from 19 to 28. Whether the Communist Party of China chooses to weaponize its medical supply or not, the United States is running a major risk by relying heavily on Chinese imports.
The Wuhan coronavirus has brought much-needed attention to global supply chain issues, especially America’s overreliance on China for food—not just from an availability perspective, but also from a safety standpoint. In addition, a Chinese firm owns Smithfield Foods, the world’s largest pork processor and hog producer.
Food Imports from China
In 2017, the United States imported nearly $5 billion in agricultural products from China. This translates to about four billion pounds of agricultural products, including fruits and vegetables (fresh and processed), tea, and spices. Fruit and vegetable imports account for the most significant piece of agricultural imports from China (36 percent), followed by snack food.
While Canada and Mexico remain the two largest suppliers of U.S. agricultural imports, China is still one of America’s most important suppliers and its largest in Asia. U.S. food supplies would be severely disrupted without Chinese products. This includes America’s “essential” food supply—fruits and vegetables that Americans consume on a regular basis.
China’s History of Safety Issues
America’s dependence on the Chinese food supply leaves U.S. consumers dangerously vulnerable to food safety violations. A 2015 report by Asia Inspection found that nearly half of all Chinese food processing plants fail international standards for food safety. According to the report, abnormal levels of antibiotics, bacteria, pesticides, and heavy metals are found in food processed by China. It is also not uncommon to find Chinese food plagued by abnormal coloring, strange odors, and mislabeled packaging.
In 2016, Chinese government officials reported 500,000 food safety violations in a nine-month period, including “rice contaminated with heavy metals [and] the use of recycled ‘gutter oil’ in restaurants.” (Chinese government figures are notoriously misleading, so the actual number of violations is likely much higher.)
Chinese adulterated-food incidents include but are not limited to:
- “Lean meat powder”: Over the years, Chinese farmers have been found using a group of black-market additives, such as clenbuterol (asthma medication) and ractopamine, to make their meat products leaner.
- Metal in rice: In 2017, Chinese officials reported that 10 percent of China’s rice supply (over 12 million tons of grain) was contaminated with excess cadmium, a heavy metal known to cause cancer.
- Banned antibiotics in seafood: In 2016, Chinese fish and shrimp cultivated in certain regions were found to contain banned antibiotics, which can be harmful to humans.
- Aluminum in dumplings: In 2014, certain Chinese pastas and noodles, including the crusts used for dumplings, were found to contain high levels of aluminum.
- Melamine in baby formula: In 2008, melamine in baby formula led to the deaths of six Chinese babies, and the hospitalization of 50,000 people.
- Melamine in pet food: In 2007, China saw an outbreak of cat and dog deaths and illnesses associated with pet food manufactured with vegetable proteins contaminated by melamine. Even worse, as many as three million Americans were found to have consumed chickens and hogs that had eaten contaminated Chinese feed.
And safety issues transcend agriculture or food. Between 2004 and 2007, an estimated 100,000 U.S. homes were made with toxic Chinese drywall. In 2016, Chinese-made flooring sold by Lumber Liquidators was found to have contained cancerous compounds. In 2019, Chinese-made blood pressure medication was found to be tainted. The common denominator is the Chinese Communist Party’s reckless disregard for safety protocols, which can threaten consumers in the United States and around the world.
Contaminated Plant Protein Powders
Given the rising popularity of plant-based protein powder, Chinese production of the powder has come under intense scrutiny. It is possible for contaminants to penetrate plant protein powders, either through plant growth in contaminated soil or the industrial processing of those plants.
In 2018, the nonprofit Clean Label Project (CLP) released test results for 134 protein powders (primarily used for muscle-building), screening for heavy metals. CLP found that at least 70 percent of the protein powders tested positive for lead and cadmium. The worst-performing product was “Vega Sport Plant-Based Vanilla Performance Protein,” which comes from pea protein powder sourced in China, among other countries. The fourth-worst product, “Nature’s Best ISOPURE,” can be purchased directly from a Chinese manufacturer.
Synthetic Meat Relies on China
Plant protein isn’t only used for nutritional supplements. Meat imitations, such as the Beyond Burger, are increasingly popular in the United States. Also known as “fake meat,” these products generally use one of two proteins: Soy protein or pea protein. The production of both is heavily reliant on China.
The Good Food Institute (GFI), a trade association for fake meat products, reports that “China is such a dominant supplier of soy and pea protein to the world” that Chinese companies “typically export 50 to 100 percent of processed soy or pea to Europe, North America, and other countries in Asia.” According to GFI, “70 percent of the world’s supply of soy isolate, a primary ingredient in many plant-based foods, is processed in one region in China: Shandong Province.”
Meanwhile, yellow peas are typically harvested outside China (in North America) and then sent to China for industrial processing. The Chinese firm Jianyuan, one of the largest pea protein producers in China, uses a North American distributor called Farbest Brands that markets the powder for plant-based foods.
According to Time, pea protein from China is also being used by U.S. companies producing fake milk:
“Peas are easily broken down into building blocks of function: Starch, fiber, and protein. In China, home to many of the manufacturing plants that do this work, called fractionation, pea-protein isolate is widely thought of as the byproduct of the process. Pea starch is used to make noodles, and the leftover protein is shipped over to the U.S. McConnell’s Fine Ice Creams makes five non-dairy flavors starring micronized pea protein; Ripple Foods has sold seven million gallons of its non-dairy milk made with Ripptein, a proprietary protein made from yellow peas; and Annie’s, one of the scant few utilizing organic peas, stashes it in its mac and cheese.”
In February 2020, Beyond Meat purchased 285 tons of pea protein from the Chinese firm Shuangta Foods, indicating that China will remain a dominant producer of processed plant protein. Indeed, Chinese manufacturers are expected to increase their processing capacity from 67,000 tons annually to 146,000 tons this year. Fake meat has been and will continue to be synonymous with Chinese influence.
The Smithfield Sale
Another direct threat to American food is the country’s ownership of Smithfield Foods, the world’s largest pork processor and hog producer. In 2013, the Chinese firm Shuanghui International Holdings—now known as WH Group and owned by Chinese billionaire Wan Long—bought Smithfield for $7.1 billion, gaining oversight of nearly 50 meat processing facilities and 40,000 employees in the United States.
China also gained access to about one million sows, which feed tens of millions of Americans. In any given year, Smithfield’s sales exceed $15 billion, with the company selling more than 10 billion pounds of fresh pork and packaged meats per year. According to Sen. Debbie Stabenow (D-MI), “Food security is national security. And I can’t imagine that the American people will feel comfortable if they wake up someday and find that half of our food processors are owned by China.”
Contributing to national security concerns, Chinese ownership can be traced directly to China’s communist government. Smithfield’s parent company, WH Group, began as a state-owned enterprise. Wan Long transformed a government-owned slaughterhouse into China’s largest meat company, leveraging political connections to grow his business. The billionaire owner of WH Group is connected to China’s top communist officials, and he remains a member of the National People’s Congress.
Where the Chinese Communist Party also possesses substantial oversight is in the realm of intellectual property, particularly on college campuses. Many American colleges and universities have partnerships with their Chinese counterparts, forcing U.S. officials to closely examine those relationships over concerns about academic dishonesty and intellectual property theft.
In 2008, the Chinese government created the “Thousand Talents Program,” now known as the “National High-End Foreign Experts Recruitment Plan.” “Thousand Talents” was a recruiting program set up by the Chinese government to obtain researchers and scientists from Western countries and bring their talents (and trade secrets) back to China. China provided significant funding for those researchers and scientists to relocate to East Asia, so that they could continue their work on Chinese soil—specifically in high-tech industries. China’s communist government was primarily interested in new discoveries at the forefront of scientific research, which could advance the Chinese agenda.
While the “Thousand Talents Program” is the most prominent, the Chinese Communist Party maintains over 200 state-sponsored foreign talent acquisition programs. Many are operated by the People’s Republic of China Central Government, while their agendas are largely unknown to foreign intelligence officials.
It is widely believed by federal officials that China’s recruitment plans encourage the theft of intellectual property and economic espionage. In 2019, a former Monsanto engineer was indicted by federal prosecutors for stealing “software used by farmers to monitor the content levels of their soil in order to make fertilizer applications more efficient.” Prosecutors alleged that he stole the software in exchange for a job at the Institute of Soil Science, Chinese Academy of Sciences in Nanjing.
Similarly, China’s Northwestern Polytechnical University (NPU) was charged by U.S. prosecutors for allegedly participating in a plan to steal anti-submarine warfare technology and send it back to China. NPU is one of China’s “Seven Sons of National Defense,” a group of leading universities with ties to the Chinese military-industrial complex. The “Seven Sons” stand “at the forefront of national defense in China,” contributing to military projects from an educational perspective. As such, they are deemed “very high risk” by the Australian Strategic Policy Institute, which is funded by the U.S. State Department to track Chinese research collaborations.
The Chinese Communist Party has made it a mission to fund research on American soil, without admitting it. Last year, the Department of Justice (DOJ) reached a $5.5 million settlement with the Michigan-based Van Andel Research Institute over allegations that it failed to disclose two of its researchers were funded by the Chinese government. DOJ investigators accused the Institute of failing to divulge to the National Institutes of Health (NIH) that its scientists also received foreign research funding to work with the NIH. In the DOJ’s words: The Institute made “factual representations to NIH with deliberate ignorance or reckless disregard for the truth regarding the Chinese grants.”
One of the best-known cases of Chinese interference is that of Charles Lieber, chairman of Harvard University’s chemistry department. In January 2020, Lieber was arrested for concealing more than $2 million in Chinese funding. Lieber purportedly signed a contract with the Chinese government stating that he would be paid $50,000 a month, with an additional $150,000 per year to cover personal expenses. He also received $1.5 million to establish a research lab at the Wuhan University of Technology, focusing on the “research and development of nanowire-based lithium ion batteries with high performance for electric vehicles.” The Chinese Communist Party’s goal, presumably, was to use Lieber’s expertise to advance its electric automobile industry—at the expense of its American competitors.
The Education Department Steps In
The Chinese government’s interference is so rampant that it has even triggered a Department of Education investigation. In February 2020, the Education Department announced an inquiry into foreign contribution reporting at Ivy League universities. Its investigation not only followed the Lieber arrest, but also came after Harvard University and Yale University failed to report hundreds of millions of dollars in foreign gifts and contracts, many of them involving China. Yale failed to disclose at least $375 million in recent years.
As Education Secretary Betsy DeVos explained, “This is about transparency. If colleges and universities are accepting foreign money and gifts, their students, donors, and taxpayers deserve to know how much and from whom. Moreover, it’s what the law requires.” The Education Department’s investigation also follows a 2019 Senate report, which concluded the following:
- From January 2012 to June 2018, 15 U.S. colleges and universities reported receiving more than $15 million directly from Hanban, a propaganda arm of the Chinese Communist Party. Furthermore, the Senate Permanent Subcommittee on Investigations requested financial records from about 100 U.S. academic institutions, finding that China directly contributed over $113 million to them—more than seven times the amount those schools originally reported.
- Nearly 70 percent of the U.S. academic institutions that received more than $250,000 from Hanban failed to properly report that information to the Education Department.
- On average, fewer than 300 of the approximately 6,000 American colleges and universities report receiving foreign money each year.
Nevertheless, the Chinese government continues to interfere with the U.S. education system. The Chinese Communist Party has pledged to spend about $2 trillion in an effort to obtain and eventually dominate technologies from the developed world.
And the Chinese government’s threat is heightened by academia’s failure to report Chinese contributions. According to the Clarion project, an estimated $1 billion that flowed from foreign sources like China to colleges and universities from foreign sources between 2013 and 2018 was undisclosed. Those disclosure failures come in spite of federal law, which requires schools to disclose foreign funding. Not only is the Chinese Communist Party interfering with our education system, but the full extent of that interference is largely unknown.
To expand its influence in the United States, the Chinese government also relies on so-called “Confucius Institutes,” which are housed at U.S. academic institutions and promote the Chinese worldview. Funded by the Chinese Communist Party, Confucius Institutes generally offer Mandarin classes for students, coupled to cultural outreach to local communities and nearby K-12 schools. The first Confucius Institute was established in 2004 at the University of Maryland. Since then, close to 100 similar programs have been opened across the United States.
Confucius Institutes are supplemented by the People’s Liberation Army (PLA) of China, which is expanding its research collaboration with foreign colleges and universities. Since 2007, the PLA has sponsored more than 2,500 military scientists and engineers to study abroad, developing relationships with academic institutions in the United States and other Western countries.
This elevates the risk of Chinese censorship within American borders. According to a 2014 report from the American Association of University Professors, Confucius Institutes jeopardize academic freedom through their inaccurate portrayals of China. In the report’s words: “Most agreements establishing Confucius Institutes feature non-disclosure clauses and unacceptable concessions to the political aims and practices of the government of China. Specifically, North American universities permit Confucius Institutes to advance a state agenda in the recruitment and control of academic staff, in the choice of curriculum, and in the restriction of debate.”
That same year, a Confucius Institute in Portugal was accused of censoring materials for a conference on Chinese studies. According to a Confucius Institute Headquarters official, several of the materials initially prepared for the conference “were contrary to Chinese regulations,” and therefore scrapped.
Four years later, Sen. Marco Rubio (R-FL) accused three Florida academic institutions with Confucius Institutes—Miami Dade College, the University of North Florida, and the University of South Florida—of refusing to discuss sensitive topics, such as Taiwan, Tibet, and the Tiananmen Square Massacre. As Sen. Rubio explained, “Sensitive topics like Tiananmen, Tibet and Taiwan are off limits at Confucius Institutes or, if discussed, hew to the Chinese Government and Communist Party line.” The Florida senator cited a 2017 report by the National Association of Scholars, asking Confucius Institute officials what they would say if asked about Tiananmen Square. Several respondents admitted that they would mention “the Square’s historic architecture,” and not the Chinese government’s suppression of pro-democracy protesters in 1989.
Faced with mounting criticism, several academic institutions—including Texas A&M University system and the University of West Florida—have begun shuttering Confucius Institutes. This follows bipartisan congressional pressure and interest from the Federal Bureau of Investigation (FBI). FBI Director Christopher Wray has publicly voiced his own “concerns,” describing Confucius Institutes as “just one of many tools” that the Chinese Communist Party uses to spread its influence abroad.
But dozens of Confucius Institutes remain active across the country, spreading pro-China propaganda while silencing dissent. These programs have direct access to American students, which the Chinese government sees as valuable targets for its one-sided messaging.
America’s “Brain Drain”
It’s impossible to understand China’s influence on education without analyzing the flow of students—namely, America’s “brain drain.” Chinese students are increasingly taking the knowledge they acquire from American colleges and universities back to China, where they can use it on behalf of the Chinese Communist Party. In 2000, only 10 percent of Chinese students studying abroad returned to China. In 2017, that number increased to 80 percent. It is now the norm for Chinese talent to return to East Asia, once their schooling is complete.
Chinese graduates often return to China in pursuit of high-paying jobs, many of them in finance and technology. In 2017, more than $65 billion worth of venture capital investments were made in China—a 35 percent increase year on year. This has produced a robust labor market for Chinese talent to consider, even when compared to the United States. But that talent is taking advantage of the U.S. education system to contribute to China’s economy—not America’s.
The return of Chinese talent is also an opportunity for Chinese government officials to recruit highly educated individuals into public-sector roles. The same goes for valuable research positions funded by the Chinese Communist Party. According to a 2018 Bloomberg report, “U.S.-trained, Chinese-born talent is becoming a key force in driving Chinese companies’ global expansion and the country’s efforts to dominate next-generation technologies like artificial intelligence and machine learning. Where college graduates once coveted a prestigious overseas job and foreign citizenship, many today gravitate toward career opportunities at home, where venture capital is now plentiful and the government dangles financial incentives for cutting-edge research.”
Those “financial incentives” are worth monitoring. Wherever Chinese talent ends up in China’s economy, it poses the risk of undermining the United States—which groomed that talent in the first place.
Building on its “brain gain,” the Chinese Communist Party leverages a wide range of unfair trade practices to gain an upper hand economically. This is especially evident in the realm of technology and, by extension, data collection. The Chinese government sees itself in a race against the United States for global tech supremacy, and the end seems to justify the Chinese Communist Party’s means.
For example, the Chinese government engages in a policy known as “forced technology transfer” with foreign companies seeking to do business on Chinese soil. This means that American businesses must surrender major technological information to Chinese firms or government entities in order to conduct business in China. More often than not, American companies “transfer” their technology by forming a joint venture with a Chinese company, which gains access to American partner’s trade secrets.
This is driven by China’s reliance on foreign technology—a gap that the Chinese Communist Party hopes to bridge. More than half of the suppliers to China’s tech-using sectors are foreign-based, providing China with intermediate goods that Chinese manufacturers find difficult to produce. China’s largest goods import by value is semi-conductors—about 12 percent of total imports. What the Chinese government does to bridge the gap is force foreign suppliers to operate through joint ventures with domestic “partners” where the foreign partner cannot hold a controlling stake. Many are then forced to hand over sensitive information, which can then be used by Chinese firms to gain market share.
According to the European Union Chamber of Commerce in China, European companies that are competing in high-value, cutting-edge industries are forced to transfer technology at higher-than-average rates. Chemicals and petroleum, medical device, pharmaceutical, and automotive companies are the most vulnerable. Indeed, the South China Morning Post reports that “44 percent of aerospace and 41 percent of chemical companies face ‘notable’ pressure to transfer technology.”
There are many examples. Kawasaki Heavy Industries, the maker of Japan’s Shinkansen bullet train, set up a joint venture with Chinese manufacturers in 2004. Seven years later, the Chinese government filed for international patents on high-speed trains, with Kawaski officials claiming that Chinese competitors used their technology transfer to gain a competitive advantage.
Similarly, U.S.-based DuPont Co. spent more than a year in arbitration with its one-time Chinese partner, accusing the company of stealing valuable chemical technology. Huntsman Corp., another American manufacturer, claims to have found its Chinese competitors using the same kind of technology in their own products, such as black dye used in textiles.
China’s Industrial Targets
When forced technology transfers occur, the Chinese Communist Party stands to benefit. Chinese partners that enter into joint ventures are often state-owned companies, and all are closely linked to Communist Party officials.
Dan Prud’homme, a U.S.-China trade expert quoted by the South China Morning Post, detailed a variety of ways in which the Chinese government influences technology transfers, including the “excessive disclosure of trade secrets to government authorities required in industries such as chemicals and pharmaceutical industries in exchange for licensing and other regulatory approvals.” Prud’homme also noted the “unfair court rulings in civil intellectual property litigation [that] will result in unexpected losses of technological knowledge.” When a Chinese firm steals valuable information, the Chinese government inevitably gains access to that “knowledge.”
This is all part of the Chinese Communist Party’s long-term goal of replacing multinational companies with Chinese firms. Part of a new program known as “Made in China 2025,” the Chinese government has identified 10 domestic sectors in which it hopes to expand manufacturing capacity:
- New information technology
- High-end numerically controlled machine tools and robots
- Aerospace equipment
- Ocean engineering equipment and high-end vessels
- High-end rail transportation equipment
- Energy-saving cars and new energy cars
- Electrical equipment
- Farming machines
- New materials, such as polymers
- Bio-medicine and high-end medical equipment
In identifying what are essentially its weakest sectors, the Chinese Communist Party is issuing a warning to foreign competitors in those industries, including American companies. Those who choose to do business in China do so at their own peril.
Rare Earth Dominance
One sector that does not project Chinese weakness is the cultivation of rare earth minerals. Whereas the Chinese government sees domestic industries like information technology as lagging behind, China has monopolized rare earth metals that are integral to the production of many high-tech products.
In 2017, the United States produced zero rare earth metals, such as scandium and yttrium. China, on the other hand, accounted for more than 80 percent of the world’s supply. With a processing capacity of 222,000 tons, China boasts five times the combined capacity of the rest of the world, serving as the primary supplier of rare earth minerals to the United States and other Western countries.
And demand is rising. In 2018, the United States imported $160 million worth of rare earth compounds in metals—up 17 percent from the year before. The rare earth elements market boasts an annual growth rate of 7.5 percent, making China’s monopoly all the more significant.
That significance lies in the versatility of rare earth compounds, which make much of consumerism possible. Neodymium is used to make magnets for computer hard drives, hybrid cars, and wind turbines. Lanthanum, another rare earth element, is needed for camera and telescope lenses, in addition to studio lighting and cinema projection. Cerium, meanwhile, is used in the catalytic converters in cars, enabling them to run at high temperatures. The element is also used to refine crude oil. From smartphones to television sets, rare earth is contained in countless consumer products.
In addition to manufacturing, the projection of “soft power” is a significant component of the Chinese Communist Party’s pursuit of global influence. In a 2014 address to China’s ruling Politburo, General Secretary Xi Jinping claimed “[m]ass media, groups, and individuals should play their roles in displaying [Chinese] charm to the world.” In Xi’s words, the country’s goal is to “raise China’s overall cultural strength and competitiveness.”
His predecessor, Hu Jintao, first identified soft power as a key feature of Chinese foreign policy in 2007, when he called for “promoting [the] vigorous development and prosperity of socialist culture” to “hold high the great banner of socialism” in a speech to state officials.
And the United States is China’s primary target. America’s free-market system allows Chinese companies to turn commerce into “soft power” by capitalizing on the Chinese government’s extensive financial resources. Through acquisitions and mergers, Chinese companies supported by government money can influence public opinion with exclusively Chinese interests in mind. Dean Cheng of the Heritage Foundation calls it the “exploitation of economic ties to further other interests”—or “employ[ing] soft power in hard ways.”
Takeover of U.S. Cinema
China—in particular, the Chinese firm Dalian Wanda—has had its sights set on the American film industry for years. In 2012, Dalian Wanda bought AMC Entertainment—the second largest movie theater chain in the country—for about $2.6 billion. AMC, in turn, reached a purchase agreement with Carmike Cinemas in 2016 for a deal now worth $1.1 billion. This asset deal formed the country’s largest chain with 8,000-plus screens in more than 600 theaters. Dalian Wanda also agreed to purchase Legendary Entertainment, the film production company behind the “Dark Knight” Batman trilogy (among others), for about $3.5 billion in 2016.
Dalian Wanda is not a typical private company. The firm’s founder and chairman, Wang Jianlin, served in the People’s Liberation Army between 1970 and 1986, at which time he was appointed Office Director of the Xigang District Government in Dalian, China. (Wang’s father was a communist military hero who fought alongside Mao Zedong, Chinese communism’s founding father.) Wang also served as a deputy to the 17th National Congress of the Communist Party, revealing a direct link to the Chinese government.
Dalian Wanda received at least $1.1 billion in Chinese government subsidies between the start of 2011 and mid-2014. It has also sold stakes in the company to various family members of elected officials. For example, Qi Qiaoqiao, the elder sister of General Secretary Xi Jinping, bought an early stake in the firm. And it is Dalian Wanda that controls a significant piece of Hollywood.
China’s Impact on the Film Industry
The Chinese Communist Party’s influence on American movies is multidimensional. While the country does not have a movie-rating system, it relies on the State Council to force U.S. filmmakers to adjust their screenplays if they wish to penetrate China’s lucrative market of moviegoers. The country only allows 34 non-Chinese films into its market every year—all of which are heavily edited—but its 1.3 billion people have China projected to become the largest movie market in the world in 2020. This means that the State Council is a force to be reckoned with for American filmmakers promoting their movies in China.
To reach the Chinese market, filmmakers are often forced to make creative changes to their content. For example, the 2014 film Transformers: Age of Extinction portrayed the U.S. government as “either ridiculous or diabolical, [while] China’s is assured and effective.” Similarly, the 2012 remake of the Cold War action movie Red Dawn originally featured Chinese soldiers invading an American town, but moviemakers changed the attacking army into North Koreans. As film producer Peter Shiao explained, “[Chinese diplomats] were not interested in their country being perceived as a violent military threat to the lives of the average American.”
Japan and Taiwan are particularly sensitive subjects for Chinese censors. The remake of Top Gun, slated for release in 2020, featured a noticeable change to the bomber jacket worn by Tom Cruise’s character: The original film featured Japanese and Taiwanese flags, but the remake had them replaced. Not surprisingly, the Chinese firm Tencent Holdings is funding production of the remake.
The Chinese Communist Party’s goal is to promote its own interests through film production and distribution. According to Ying Zhu, professor of media culture at the College of Staten Island at the City University of New York, “The Chinese censors can act as world film police on how China can be depicted, how China’s government can be depicted, in Hollywood films.” Film producer Rob Cain echoed her sentiment in a 2016 Financial Times interview: “China is going to be the arbiter of what can get made and will get made.”
Takeover of U.S. Radio
Hollywood isn’t the Chinese government’s only target. China Radio International (CRI), its state-owned radio broadcaster, has indirectly obtained control of numerous American radio stations and their airtime. While the Federal Communications Commission (FCC) prohibits foreign governments or their representatives from holding a radio license for a U.S. broadcast station, CRI has exploited a loophole allowing its subsidiary companies to hold ownership stakes in U.S. stations. The subsidiary in question is the California-based G&E Studio, which is 60 percent owned by a Beijing-based group called Guoguang Century Media Consultancy. Guoguang, in turn, is wholly owned by a subsidiary of CRI.
In the Washington, D.C. area, G&E Studio approached Loudon County radio station WCRW-AM 1190 in 2009 to lease almost all of the station’s airtime. The company did so through a process called “time-brokering,” paying tens of thousands of dollars a month to gain control of the station’s airwaves. G&E Studio has paid WCRW more than $720,000 a year to secure virtually all of its airtime. (This is an alternative to purchasing a studio outright.) The company also built three 195-foot towers carrying a 50,000 watt signal to encompass all of Washington, D.C. and outlying suburbs, extending the station’s signal past the U.S. Capitol.
As a subsidiary firm, G&E Studio is directly connected to “China’s only state-level radio and television media organization specializing in international communications.” According to Reuters, CRI “sticks close to the Chinese government line.” Wang Gengnian, CRI’s International Director General, has been a Communist Party member since 2004.
Overall, there are now about 30 stations broadcasting pro-China propaganda in the United States. As of May 2020, EDI Media (the owner of G&E Studio) lists stations in cities including Boston, Houston, and Los Angeles.
China’s Impact on the Radio Industry
Content at WCRW and other Chinese-owned stations is produced either by CRI from Beijing or G&E Studio from California. And it is decidedly pro-China, “delivering a China-focused digest with its own slant,” according to a 2015 Fox News report.
One November 2015 segment highlighted a story explaining the Chinese Communist Party’s concern about then-Defense Secretary Ash Carter’s visit to the Asia-Pacific region. An October 2015 broadcast on the Washington-based WCRW featured Chinese and American naval commanders preparing to hold talks after a U.S. Navy ship passed close by one of China’s new artificial islands in the South China Sea. The American military, which sees the island-building program as a “hard power” ploy to seize control of strategic waterways, ordered the Navy sail-by to confirm that assessment, yet WCRW omitted that side of the story. The Chinese-owned station claimed the talks were being held “amid the tension the U.S. created this week.”
In both of those cases, Chinese-controlled broadcasts cast U.S. foreign policy objectives in a less favorable light, while portraying the Chinese Communist Party’s actions in the South China Sea as defensive or retaliatory. The script was flipped.
At the same time, the China Global Television Network (CGTN), formerly known as CCTV, now reaches an estimated 75 million Americans. In 2018, the U.S. government ordered the network to register under the Foreign Agents Registration Act, first passed in 1938. But its influence is still felt nonetheless.
In May 2020, the PBS affiliates KOCE and KCET—which receive millions of dollars in federal funding—aired a documentary produced in conjunction with CGTN, touting General Secretary Xi Jinping’s poverty alleviation program. The film’s producer, Robert Lawrence Kuhn, maintains ties to Chinese officials and the government’s State Council Information Office, which specializes in foreign propaganda.
Beyond television, China’s newest battleground is 5G infrastructure, which will secure a new global wireless standard that TV streaming and other services depend on. The Chinese firm Huawei Technologies is working to build a 5G network in the United Kingdom, New Zealand, and other countries. While the Trump administration has prevented Huawei from doing the same in the United States until at least 2021, the Chinese firm still strives to reach millions of Americans.
This raises concerns that Huawei will create backdoors allowing for surveillance and data collection by the Chinese Communist Party, including the addition of spying technologies to smartphones. In February 2020, Huawei and its subsidiaries were indicted by the Justice Department for racketeering conspiracy and the conspiracy to steal trade secrets, updating a previous indictment secured in 2019. The Justice Department accused Huawei and those subsidiaries of stealing the intellectual property of U.S. businesses over two decades.
The Huawei scandal has exposed deeper fears of Chinese espionage—beyond 5G expansion. In 2019, the Interior Department suspended its use of Chinese-made drones used to fight wildfires, due to concern that they were secretly reporting data to Beijing. Similarly, U.S. authorities have warned that TikTok, one of the world’s most downloaded apps, is owned by a Chinese company that could turn user data over to the Chinese government. The Committee on Foreign Investment in the United States has placed TikTok under federal review, citing evidence of the app sending data to China.
The list goes on. In April 2020, the federal government moved to strip China Telecom’s permits to provide services in the United States. According to the Justice Department, the reasons for its drastic actions include “the nature of China Telecom’s U.S. operations, which provide opportunities for PRC state-actors to engage in malicious cyber activity enabling economic espionage and disruption and misrouting of U.S. communications.” Across the media landscape, Chinese espionage threatens consumers and American interests writ large.
The Mainstream Media
The Chinese Communist Party is also striving to promote itself by buying “advertorials” in mainstream news outlets. For instance, both the New York Times and the Washington Post have published propaganda from China Daily, a “news” organization serving as an arm of the Chinese government. The Post has published its “China Watch” section for over 30 years, spreading pro-China messages to millions of American readers in that time. In 2019, one “China Watch” feature became a special, eight-page segment in the Post.
While such features contain disclaimers, they can easily be mistaken for legitimate news at first glance. According to a Washington Free Beacon analysis, the Chinese government had paid for nearly 400 pages of advertising in the Washington Post and more than 100 pages in the Wall Street Journal, along with lesser amounts in the New York Times and Financial Times, between 2011 and 2019. The Chinese Communist Party also paid for hundreds of online ads at the NYTimes.com and WSJ.com websites, exposing millions more readers to Chinese propaganda. One lawyer who spoke to the Free Beacon claimed the newspapers’ failure to report such media placements to the federal government may constitute a violation of the Foreign Agents Registration Act.
Journalists are also under immense pressure to portray China favorably, or risk losing access to the Chinese mainland. In February 2020, China’s Ministry of Foreign Affairs expelled three Wall Street Journal reporters from the country after their newspaper published an essay with the headline “China Is the Real Sick Man of Asia.” Chinese officials demanded that the Journal “recognize the seriousness of the error, openly and formally apologize, and investigate and punish those responsible, while retaining the need to take further measures against the newspaper.” This incentivizes reporters and editors to self-censor content to avoid the repercussions of overtly criticizing China.
There are other media-related conflicts of interest of note. Disney, which owns ABC News, also owns a theme park in Shanghai and film studios hoping to distribute movies in China, where they must pass government censors. This begs the question: How willing is ABC News to criticize the Chinese government? Or praise America’s foreign policy in East Asia?
From medicine to the media, China is a powerful adversary to Western democracies—especially the United States. Not only does the Chinese Communist Party pose a “global threat to human rights”—according to Human Rights Watch—but China’s economic boom comes at the expense of vital U.S. interests.
As the COVID-19 pandemic has made all too clear, China’s stranglehold on the global supply chain leaves countries like the United States over reliant on Chinese products to fill essential voids. Consider this: The Chinese government recently imposed restrictions on research into the origins of the Wuhan coronavirus, requiring research to be formally approved by Beijing before it is published. Again, the Chinese Communist Party censored any content that could be perceived as critical of China.
Looking ahead, can the United States survive as a global superpower while simultaneously relying on a country that undermines America’s self interests?
America must tread carefully as the Chinese government deploys its own “Made in China 2025” program. America’s public and private sectors should take a page out of the Chinese playbook—and bring the supply chain back home. Now is the time to focus on our own “Made in the USA” programs.
At the very least, American leaders must reconsider the U.S. relationship with the Chinese Communist Party—during a pandemic and beyond. Only then can they truly protect American lives from the Chinese government’s threat and maintain America’s influence on the global stage.