By Robert Pittenger*
After all of the ballots are counted and certified, it will be time for America’s leaders to get back to work. One policy issue that broke through during this unprecedented election cycle is that Americans can continue to expect a hard-line position on China when it comes to economic and trade issues.
For years, the Chinese government has been hard at work to steal U.S. technologies, often in plain sight. Motivated by its ambitions of global dominance, the People’s Republic of China increasingly has skirted America’s export controls to pirate sensitive dual-purpose technology from commercial goods and apply those to its military capabilities. This open-air theft poses a glaring threat to the United States’ national security and could upend our country’s military and economic superiority.
Chinese General Secretary Xi Jinping’s military-civil fusion has eliminated the line between the country’s civilian and military sectors. This initiative uses state-owned enterprises to acquire technology, which is then passed to the People’s Liberation Army (PLA). Recently, the target has become semiconductors—tiny, sophisticated chips that power modern technology. Common appliances, like smartphones, rely on semiconductors to function. So do defense systems.
Last month, Bloomberg reported that the Chinese government’s “Made in China 2025” plan calls for $120 billion to expand its semiconductor manufacturing capabilities. This month Chinese officials will present a strategy to expand production of “third-generation” semiconductors.
To execute this plan, China is known to steal intellectual property. They also purchase semiconductor manufacturing equipment from companies in the United States, Japan and the Netherlands. The sale of these tools, while creating short-term revenue, will empower China to undercut semiconductor makers until only Chinese companies control these technology building blocks.
Recognizing the threat, the Trump Administration took bold action to stop the flow of technology, including semiconductors, to the PLA. Over the past year and a half, the Department of Commerce has placed 153 Chinese state-owned enterprises on the “Entity List,” effectively barring trade to those bad actors. The designation requires U.S. companies and their foreign counterparts to obtain a hard-to-get license to sell products to Chinese businesses that share advanced technologies with the PLA.
Despite the Trump Administration’s crackdown, holes in the Commerce Department’s Bureau of Industry and Security review process have left open doors that the Chinese and many American companies continue to exploit. In 2017, I (Pittenger) introduced the Foreign Investment Risk Review Modernization Act (FIRRMA) to close those loopholes. Unfortunately, some colleagues deferred to business leaders who, as one would expect, put corporate interests above national security. The outcome was a bill that failed to shut down China’s corporate espionage.
Thankfully, House Republicans have returned to many of FIRRMA’s ideas. The China Task Force’s report late last month uses no uncertain terms to call the Chinese Communist Party the “greatest generational challenge” the United States faces. Democrats also understand the danger; House Intelligence Chairman Adam Schiff wrote recently that the “U.S. intelligence community is not prepared for the China threat.”
In October, the Trump Administration put restrictions on China’s largest chipmaker, Semiconductor Manufacturing International Company (SMIC), because of the company’s ties to the PLA. The restrictions require U.S. companies to obtain a license to sell to SMIC but stop short of adding the state-owned enterprise to the Entity List.
The measure is a necessary step, but it also demonstrates the holes in the United States’ export controls systems. The current approach is slow-moving and relies on bureaucrats to identify companies working with the PLA. It buys time for those state-owned businesses to game the system. Meanwhile, Chinese companies, like Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT)—which, like SMIC, are known to supply the PLA—continue to enjoy access to U.S.-born technology.
The U.S. government needs to add all three companies, and others known to be supporting the PLA, to the Entity List. That is the best way to cut off China’s military from sensitive technology. And, in fact, the Wassenaar Arrangement demands it. The Netherlands, for example, is already restricting trade with these military-linked firms.
In conjunction, the incoming Congress must implement the China Task Force’s recommendations to shore up shortcomings in our export control policies. Furthermore, the Bureau of Industry and Security must finalize rules to create an effective approach for restricting semiconductor manufacturing equipment sales to fabricators with ties to the PLA.
For too long, U.S. policymakers have failed to adequately control the flow of sensitive technology to the People’s Republic of China. It won’t be enough for the U.S. to rely on our current approach; it should immediately add the offenders we know to the Entity List and develop a complete approach to stop backdoor sales in the long run. Otherwise, U.S. companies may be making technology that will be used against us on the battlefield.
*Former Congressman Robert Pittenger (NC) served as Chairman of the Congressional Task Force on Terrorism and Unconventional Warfare. Dr. Roslyn Layton is co-founder of ChinaTechThreat.comand an international technology policy researcher at Aalborg University.