Factors we accept that Economic Cost like in high value pharmaceuticals and the margins will bear out the cost of development but right now for the Industrial Products or products for the ag sector the same costs still exist today but the margins are not there for the products. So it creates an imbalance and were seeing more capital flowing towards medical products with high margins than some of these industrial applications. Dont get me wrong, the cost will come down as technologies increase but the funding cycle we are right now with the markets being like they are impact some other than others. I seem to remember and i could be corrected later but i think senators grassley and ernest had spoken out about amino acids and other Biotech Products produced in china, many of them Food Additives and i think vitamin k and others that are necessary for the strength of our livestock, our food supply. What visibility do you have in that from the commission and what are you doing, is that accurate and it seems we are putting ourselves and the potential for china to be able to relationshippize to weaponnize those products for what is a critical need here. I appreciate the question and i just described, biotech can help us creating more resilient supply chains but can be used to entrench the supply chains we have visavis the United States and china. By and large we dont have great visibility to biotech supply chains whether it be medical or agriculture and am feeling a sense of whats the word . Jealousy at my colleague talking about great detail the Battery Supply chain and different sectors and how well defined that is. But on the biotech side its not there in terms of what are the critical inputs, the Raw Materials, the reagents, the consumables, where those come from and where they exist, the visibility is not there and it becomes very difficult to make policy decisions. If youll allow me one extra detail here, the way our system classifies biotech with the way that we count biotech industry in what we call make codes does not apply to biotech because it can be used in industry and pharmaceutical we dont have ways of measuring our own economy with respect to biotech. It becomes very difficult to make policy decisions without understanding where we are and without understanding where china is. Were looking at ways to improve our own economic accounting if thats something the commission is interested were happy to chat further on that. Weve looked in the past about accounting and Data Acquisition and certainly looking at redefinition of the nix codes which is in the department of commerce and something within their jurisdiction and does does not require new Statutory Authority and something will take under advisement. Mr. Nadaner, i appreciate everything youre saying and is spot on and i wanted to go to a different component of the Battery Supply chain and not the commodities, the cobalt, etc. , but the technologies embedded in there. There was a recent report that the authorities, camp lejeune indicated to the local authorities they could not put load balancing batteries from source in china as part of the reserve power system. And there have been increasing questions about the security of these larger batteries, not that the same isnt true of an e. V. Or tesla auto. But with the drive towards green energy and load balancing batteries, whether at the Industrial Facility or on the grid itself are increasingly important and ive raised other issues today. It sounds like were allowing preplaced chinese emissions on the u. S. Homeland because these batteries are all remeetly remotely maintained, serviced, accessed. What been the technology sphere do you think we need to be doing about the battery supplies that we are not doing presently . These are remote vehicles for our destruction. Theyre embedded with electronics that be used for a variety of purposes. The battery in many ways are chemicals with wires and sensors and semi conductors included but the chemicals can be highly explosive. And that just takes a little bit of computer code to change. I think in terms of those kinds of electronics that get embedded in particularly larger, more complex batteries, thats something we can make but there still has no one is going to make it unless the batteries are also made here. It has to be something that goes in. Ok. Thank you. Commissioner cleveland . I want to thank you all for your testimony. Its extremely helpful. I have one question for dr. Rozo. You talk about the potential of withholding biofuel advancements from the u. S. Military. Can you talk more about that . Its in your written testimony. Page 9. My page 9. In talking about that there is an increasing consolidation in the ag biotech space and im curious what do you see is the threat or the risk there . Sure. I think broadly, the acquisition of singenta by kim china and the ongoing combining of assets with synokim is concerning because this supply chain and this agriculture biotech is winnowing. The number of companies which used to be much larger and represents a lot more countries is now much smaller and thats a concerning trend. We wanted to note, also, that the purchase of kim china was just to point to the differing views or view points what constitutes National Security concerns. We made recommendations around increasing the visibility of National Security at the usda as part of ongoing work related to the farm bill. In looking at the agency and the ability of individuals to participate in security conversations is not of course what it is in other National Security agencies. And how it could impact our military and our sector. But its clear that syngenta has the best information on seeds grown here in the United States and that potential information could be used against us. Its a point of taking into account not only the basic Biotech Sector but also all the economic sectors which it applies to. I want to raise with you a number of obvious objections and see how you would respond. First would be the question of the impact of this tariff that you advocate on u. S. Consumers and producers who are incorporating currently incorporating products that are made with these important components. Thats one. The second related question is the impact of stiffer tariffs and tax credits that you propose on our relations with our allies. Weve been through this with the i. R. A. And this sounds like it could be the same thing. How would you respond based on those concerns . I think as a country you cannot have passthroughs from friends. Its not a very friendly act. And they have a similar problem to us. We can solve the problem together but we certainly cant suffer the problem alone. We cant be just a great sponge. So i think, i believe if we put the tariffs in the right place and have the right diplomacy and the right diplomacy that dr. Kissinger and dr. Schultz did years ago, its very intense and laborious, but to put in place the right kinds of agreements, you could have a joint tariff. Among allies. Then we would all benefit. In terms of consumer costs, i think currently the situation right now is a very bad deal for average americans if not in the upper class. We dont have these industries anymore or middle class jobs. We have communities that are bereft of manufacturing to an unhealthy extent, so i believe that if we had a revival of industry that would be far better than getting a cheaper battery but not having a job and not having a community. Can we solve this by ourselves on our own or will this necessarily require a high level of cooperation from our allies . I believe it would be extraordinarily difficult for us to do this alone. With allies its imminently possible because as weve seen, korea, japan have extraordinary technologies and we benefit when they come here. And germany has great chemical ability and france is doing some very nice things on batteries. So to do this together will be much more easier than to do it alone. Someone has to take the first step. Right now the easy situation is for u. S. To be the great absorbent. Thank you. Can i add one point if thats ok. I did spend time looking at the chinese e. V. Industry and it seems to me that they not only are exporting to the u. S. But they also mostly exporting to europe. So a potential tariff on chinese to the United States might leave it behind in the competition sphere. Thats just one point. And also half of teslas e. V. s manufactured in china in its factory is also going to europe. That could be convoluted in the export data thats reported publicly. Thank you. Commissioner glass . I will pass. Cochair albert . No further questions. Well, im going to come back to me then it sounds like. Which is fine. Dr. Rozo, you mentioned the kim china. I was going back to the b. G. I. That was complete genomics in 2012. Do you think that the those that serve on the committee now have a better appreciation for some of the risks in this area . I think the work you did at the n. S. C. And the creation of this commission is partially a sign of that. Are you in your discussions at the commission aware of greater sensitivity . Yeah, thank for you the question. I think by and large when were looking at the government and we have a suite of work around biolit asy and how we improve the understanding of biology in the federal government, we need more individuals out of all agencies who have more familiarity with biotechnology. Being one of those individuals for some time before i stepped out of government, kid say there are great, really intelligent scientists working in the government but theres not many of them. And theyre not at high enough roles within the government. And so whether its sifius and without specific individuals in the room that understand biotech and understand the complexities with this technology, it becomes difficult to inform these discussions. So were looking at ways to improve what were calling another question is when one looks at biotechnology and we did a hearing and commissioner cleveland and i did it four years ago with your cochair and others, we talked about fermentation capacity and Building Blocks to be able to convert the ideas to industrylevel production. Whats the state of the industry, china certainly claimed our clock when they took over everything from penicillin to other fer mentation approaches. It is something i am concerned but when we look at the medical sector we have a lot more information, the facilities have to be approved by bioregulatory bodies and products have to be approved. And the majority highlight the products exist in the u. S. And e. U. , lowvalue products. On the industrial sector, the understanding is much less, but i will say and certainly in response to imbalancees that exist in industrial manufacturing capacity, the administration has just put out yesterday r. F. P. For increasing industrial biomanufacturing capacity in the United States. That is in the early stages but for industry that is a welcomed development a support in supporting biomanufacturing capacity. A its an area we dont have good analytic data. But there is support on the industrial side and they have Large Public Companies that arent using these engineering techniques but fer mentation is an old manufacturing science. And they will have an advantage over ours. Companies are facing difficult decisions between financing their own facilities or paying high fees to contract out that capacity. We had a Funding Program yesterday which we advocated for and we are in support of increasing that capacity in the United States. Question for you, on page four of your testimony, you refer to Venture Capital firms having received 224 billion. Is that within the Chinese Market or include understanding that there is the screening mechanism that is still in development but not yet fully applicable was that just domestic chinese or global . All encompassing. Any percentage of what might be global, what percentage might be u. S. . Ill be happy to check back for you. I believe that is for the companies that are receiving money from Venture Capitalists. If you could that would be helpful . Any other questions from my colleagues. If not, in closing, thank if not, in closing, thank you all, to all of our witnesses throughout the day for your excellent testimonies. The public can find those testimonies as well as a recording of the hearing on our website. I would like to note that the commissions nextgen will take place friday march 1. That hearing is titled Chinese Consumer products, safety, regulations and supply chains. With that, we are adjourned. Thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] good morning and welcome to the first hearing of the u. S. China economic and Security Review Commission 2024 report cycle. I would like to thank everyone for joining us and think the witnesses for the time and effort they put into their testimonies. Thank you to thewir staff for e time the touchup prepare todays hearing, at thank you to commissioner wessel. Its an honor to cochair the sharing with you today. While this Commission Deal with a variety of issues in u. S. China relationship, todays hearing focuses on a topic that is rightfully emerge at the forefront of the policy debate in both chambers of congress in recent months. That topic is technology. While much remains uncertain about the 2020 through 2030s, recent events have made an unmistakably clear that technology will be the indispensable precondition for american prosperity, security, and National Sovereignty in the ahead. President eisenhower once observed, there is only one thing i i can tell you about r and almost one only, and it is this. No were ever shows the characteristics that were expected. It is alwaysried different. It has now been 79 years since the world last experienced a war between great powers. Thats the same amount of time that elapsed between the American Civil War and world war ii. Just think of how different the world of the American Civil War was compared to the world on the eve of world war ii. Similarly, the world today bears little resemblance to the world of 79 years ago. If a great power war broke out tomorrow we cant know exactly what shape it would take, but we do know as president eisenhower wisely suggested that it would bear little in common with the last great power war of the 1940s. It is therefore essential for the future of American Security and deterrents to fully understand the implications of recent breakthroughs in commercial and military technology. America cannot remain capable of winning great power wars beyond anyy reasonable doubt if it does not remain superior technologically and conversely, america cannot deter greaton por wars from happening if the world doubts americas capacity to win them. Since the days of david and goliath with a trojan horse of troy, the books of history are full of stories of smarter adversaries at maneuvering larger foes. The greatest risk f to americans that we underestimate the importance that intelligence will play in reconfiguring military power in the decade ahead. We can think of ai as a factor for intelligence, a system that can solve any puzzle, finding cyber export, predict the next chessmen, locate tanks and the satellite image, to space and adversaries response option, and so forth. I look forward to discussing at greater length the Critical Role of ai in the future of the u. S. China rivalry and diving deeper into chinas adoption of ai into its Global Military strategy. Second, technology will be the sine qua non for used remains the worlds preeminent economic power. In u. S. China t rivalry, the nation with the most advanced technology will also be the nation with the larger economy. Look no further than the difference between israel and nigeria today. Nigeria has more than 21 times the population of israel, and s 37 billion barrels in oil reserve. Yet come israel has a larger economy and the stronger military. The reason is technology. Contrary to popular belief, america can, in fact, stay ahead of china economically, but to do so must also stay had technologically. With four times our population, is chinan, simply manages to converge with us technologically and to get to a parity on productivity, it could have four times our gdpur and maybe four times our military, making it the dominant power. And so parity means the west is losing. Parity cannot be the byproduct of American Technology policy. Technology dominance should be our north starr and i will be y focus today. Third, technology is challenging the conceptions of National Sovereignty. As chinas cyber influence increases, the single Free Internet as a sort of american officials want to envision is giving way to ideologically opposed the fact of techno blocks. The Global Internet is already divided in two between the decentralized democratic internet the mood to americans, as a centrally controlled internet authoritarian internet built by china. The latter is spreading rapidly in the developing world where countries in South East Asia to latin america have opted to rely on chinese technologyol for 5g g networks and other critical digital infrastructure. The influence of the authoritariannf internet is also expanding into advanced democracies as company susceptible to ccp influence become more central to our online lives. It chinas efforts to export the systems abroad are left unchecked, the ccp may soon enjoy the to envelop dozens of countries behind its great firewall, and reconstitute 20th century style spheres of influence through 20th, through 21stcentury technologies. Popular chinese platforms like tiktok make a mockery out of free speech and are internationalizing chinese surveillance everywhere, including in the United States. Tiktok is a scored attacking our children and our social fabric, a threat or national. Likely the most extensive intelligence operation a foreign power has ever conducted against the United States. Senators blackburn and blumenthal are right, tiktok misled congress. It should be held to account. Americans deserve to know if the ceo of this country largest new source committed perjury on his relationship with a foreign adversary. Morere important, American Security should be protected, and that means the app should be fully devasting from its Chinese Parent Company or be banned entirely. The tiktok is far from an isolated case. Americans america is dua comprehensive rethink of this Technology Trading relationship with china. I look for to discussing actual ways congress can mitigate the urgency could risk posed by chinese hardware and Software Technologies in the United States. I also look for to hearing from expert witnesses and im now turn the floor to my coach or commissioner wessel for his. Thank you, commissioner helberg, and thank you for the engagement of process weve gone in preparing for this hearing. Commissioner helberg has deep knowledge and insights on Technology Issues which he has brought tos the commission and which we all appreciate. I would also like to thank everyone for joining us, and thank our witnesses for the time and effort they put into the testimonies in preparation. Todays hearing will assess the chinese governments ambitions and progress toward Global Leadership in several key emerging technology sectors. The commercial applications of these technologies are profound. Their adoption and diffusion throughout the economy over the coming years holds the potential both to disrupt industries and to create new wealth and opportunity. At the same time the Widespread Adoption of these technologies and chinas Competitive Position and approachess could undermine u. S. Economic and National Security i creating new dependenciesep or vectors of attack that china mayhi seek to exploit as it is already shown it is going to do so in certain areas. These Disruptive Technologies are already shapingog our economies and our security interests. Chinas efforts to gain a decisive edge in emerging technologies are clear, systemic, and underpinned by mrap the Government Policies and investments. Thesee efforts present the significant challenge to u. S. Interests across various industries. Chinese manufactured equipment embedded in informationnt Technology Networks poses a threat to our critical infrastructure. Chinas strides in biotechnology have solidified the role of chinese drug manufacturers in Global Supply chains for lifesaving medications, and could make china less dependent on u. S. Agricultural production inon the long run, with the u. S. Potentially becoming dependent on china for certain agricultural inputs such as amino acids, vitamins and other products used in animal feed. Chinas rapid progress in Battery Technology and manufacturing is also help to dominate critical nodes in the supply chain for new Energy Systems and potentially is creating unacceptable security risks. We have identified both capital and technology as key facilitating areas where western support often unwittingly has advanced the goals of the Chinese Communist party. This has been a longterm effort of this commission, and we are very proud of the work we have done. The focus on technology is intense, but in my view we still are only scratching the surface. I hope todays hearing and our efforts in this report cycle will advance the analysis and provide potential recommendations for consideration by congress. Iothe challenges are immense. Export controls on best investment with that you have some of beijings to acquire cuttingedge technology, but he continues to capitalize on gaps in these regimes and the relative openness of u. S. Academia. An important problem remains in defining whatem constitutes a merging and foundational technologies, and linking that definition to export control and investment screening actions. As a critical issue we need to understand how ai is altering advancing chinas military capabilities. In the past we us as chinese asymmetric warfare approach with its focus on space and the electronic domaincu as avenues o challenge u. S. Military capabilities. We now need to better understand how china is using ai to challenge our capabilities and alter the balance of power. My cochair identified many questions that must be addressed regarding the competition that exists between our two great nations. Technology is the ability to address some of the great, our greatest problems in areas ranging from medicine to the environment to agriculture education, and many others. In assessing chinas approaches and their efforts to control and dominate so many of o these technologies, we must carefully evaluate and respond to the threats, but we must also seek ways to find seek to find ways to ensure that technology itself does not become a battlefield that limits the ability to address critical human needs. So far the ccps approach undermines that possibility. Before we introduce our first band i would like to remind our audience that witness testimonies and the hearing transcript is available on our website uncc. Gov. Our next during examining chinas exports and product safety in chinese manufacturing consumer goods will take place on march 1. I now turn the gavel over, the microphone over to my cochair. Thank you, commissioner wessel. Our first panel will assess the National Security risks created by chinese manufactured Information Technology hardware and software sold in the United States as the legal tools to mitigate this risk. Well start by welcoming back the honorable nazak nikakhtar, partner at wiley rein laufer who cochairs the National Security practice. Ms. Nikakhtar previously served as the department of commerce assistant secretary for industry and analysis at the International Trade administration, and also serve as the undersecretary for industry and security at Commerce Bureau of industry and security in the top administration. Her test me will address the risk for chinese i equipment used in commercial and government networks. The next will hear from mr. Ivan does sco of security and Data ProtectionIntelligence Software company. His company has a poorly extensively on the tools used to track user activity online. He will discuss Chinese Software products and the riskswa they pe to users david and privacy. This is the first time testifying before the commission. Third, well hear from mr. Jack corrigan, a Senior Research analyst at George Downes center for security andgy emerging technology known as c set. Prior to joining the he worked at the journalist covering federal technology and subsidy policy. He will discuss existing policy framework for regulating chinese i. T. Product sold in the United States. Thats according is a new voice for the commission. Thank you all very much for your testimony. The commission is looking forward to your remarks and ask that all of our witnesses to please keep the remarks to seven minutes. Ms. Nikakhtar, we will begin with you. Okay, thank you very much, cochair commissioner wessel, cochair commercial helberg and all listing commissioners and staff. Thank you for holding this hearing first and foremost, very important topic and thank you for inviting me to testify. Imnt an attorney and an economt and i been working on the frontlines of the u. S. And china technologicalch battle for over0 years. I do need to state that the views and opinions expressed in his testimony are my only do not represent the views of why the rhine in of the firms clients. Step back for a second. 20 years ago, just over 20 is comingng china joined the wto entire world was excited about taking advantage of chinas lowcost nonmarket economy structure, and we moved Production Capacity there. And when thehe production capacy and the we moved to technology. Folks didnt really think about it much at first because i thought its the commodity sector. Commodity sector funds, right, the revenue, crates of the revenue stream for the nextgen technology. The world didnt say very much, and all of a sudden china starts working up the value chain. And now we find ourselves just 20 years later having some of the most critical hightech goods dependent on the chinese supply chain, dependent on technology. When youou look at all of the items that are critical to u. S. National security, from Raw Materials to some of finished goods, et cetera, a list of 700 plus items, much of the items are vital to technology and manufacturing. Much of those items are concentrated exclusively or the majority of the production in china. One of the things, one of the reasons why i mention some of the reasons why this happened. One of the other reasons is that america has just become consumed with this notion of software. Weve become coders, App Developers and we forgot how to make the nuts and bolts goods. That gives china an enormous technological advantage. We look at telecommunications hardware, right, we dont have those discussions that we talk about open brand. We talk about software development. In terms of innovations across the board, semiconductor designs, et cetera, but we transferred the hardware to china. That gives china an enormous advantage because it couples its hard work with it software to gainva advantages over us. And if we dont produce a hardware, we have a huge vulnerability and thats what im going to concentrate my testimony on. I do need to carry everywhere, where theres our chinese hardware is embedded in our system. And through the hardware capability creates vulnerabilities through software infiltration. We have in our Defense System its problem. Some might say wait a second, we have the deity trusted microelectronics program. That is a fraction of the dod systems they use Electronic Components fromse china. Drones, right . We should talk aboutut this because drone is sort of emblematic of that only the problem but the fact that we refuse to do anything about the problem. Weve got okay, so we got chinese drones, dgi flying around the country. Look at the american drone securities act with just a limited threeyear period of time, three years, 1252028 is preventing 2028 is preventing the use off federal dollars to buy drones from Foreign Countries of concern for u. S. Use. A number of federal agencies have been exempt from this requirement and waivers are eligible. Even if we take care of the government side, on the commercial side we have these drones roaming around the country collecting massive surveillance across the United States. We have ample legal authorities to address it. We have four dgi for example, the u. S. Government for dgi on the into give us because by the governments own findings, dgi was involved in forced labor. Yet through the weaker enforcement prevention act we refuse to ban importation dji drones into the United States. The weaker force labor prevention act amends the human rights policy to allow for sanctions. Not sanctioning dgi. So emblematic of the fact we really good at talking about the problem but terrified of exercising the walls i have using the law so we have addressed the problem and by virtue of doing that we are stifling innovation in the country. There are a number of american drone developers, and producers who want to get into this market but to get because of the chinese lowcost structure and were doing nothing to help them by perpetuating this. Weve got issues, the telecommunication infrastructure, chinese components in the telecommunications towers. Even when we think about, you know, the China Commission that the House Select Committee on the ccp has flagged some of these modules, these modems in the telecommunication towers that are not just across the United States because china is not the only producer, is across the entire world, right . This is chinas dominance. Yet we are terrified of, you know, ripping and replacing. Were struggling with the money to fund the rip and replace, and even if we ripped and replaced, part of the solution back up principally because if it tiktok on our phones and even other apps, the Software Still infiltrates the telecommunication towers and spreads the cancer spreads the, the maligned software into other devices. Im going to rattle off some legal solutions. We have the treasury departments investment balances Chinese Military industry complex legal hauthority. We have the entity list. We have 1268 of the ndaa. We have expert controlled military and use lisko military intelligence and users section 889, 889, section 5949, yet all of those, for to all of those products that the companies are listed in these authorities, we do nothing to prevent their hard wares from getting into our system and creating enormous vulnerabilities. Finally, i just wanted to spend a few seconds on the solution, and the reason admits a few seconds is because the solutions are not complicated. You have companies over and over telling over and over again while, ion dont know what to my supply chain, my third, fourth, fifth your supply chain secretive passes laws but i cant complain nobody knows thats wrong. I used to bee a former auditor for the u. S. Government for number of years. Every single company, if they are mandated, u. S. Government can auditor supply chains. You start with the bills of materials. You only focus night items that can be tampered with, so not the wires, but the chemicals, not the plastic but the true hardware that can be tampered with, and through several layers of audit traces you can find the company can find whats in their system so they can rip and replace it. So the legalho authority exists. The capability exists, but across the board from industry to covet the will does not exist. Thank you. Thank you very much. We will now move to our next witness. Mr. Tsarynny. Thank you very much, cochairs, commissioner wessel and commissioner helberg comfort by me to the hearing today. Im the ceo