The seventh hearing of the u. S. China economic and secure review commissions 2023 annual report cycle. I want to first thank staff, many of whom worked on several other hearings. And so, i appreciate the heroic effort that was involved in getting this hearing set up. So, thank you, jonathan and daniel, in particular, charles, i dont see. Many of us that have watched china for years appreciate that the magnitude of the economic challenges china must address now are not new rather, they have been worsening for years and were amplified by covid and the poor policy choices made during that time. Notwithstanding the ccps push for chinese households and non state businesses to drive recovery. Household consumption has been cautious. Government lending practices continue to favor unproductive state owned enterprises, higher performing non state sector at the expense of higher performing non state sectors. In most cities, property prices have plunged and Business Confidence has eroded as deflation sets in two years ago, we reported on the rise, rising concerns related to debt and demographics. Those challenges are only intensifying. Over the past decade, chinas Banking Sector has grown from nine trillion to a staggering 56 trillion in assets. Those assets are somewhat questionable. By the end of 2022, chinas debt to gdp ratio exceeded 297 , more than double what it was in 2008. This unprecedented expansion in credit largely flowed into a building boom that contributed roughly 30 of gdp, more troubling in terms of the human dimension of the problem. In terms of economic instability and political confidence in the ccp, roughly 70 of Household Wealth is tied up in the real estate sector, which experienced across the board significant declines in sales, starts and land purchases for building. China simply cannot sustain the policy approach of credit expansion, nor will it be able to continue to shield unproductive entities from default. After 20 years of relying on debt fueled stimulus, china confronts twin challenges of lacking viable Infrastructure Projects sufficient to stimulate growth, and developers and local governments overburdened with debt. Whether local governments and the opaque funding vehicles they create to raise money are stable and sustainable is very much in doubt. A recent report indicated 43 lgfbs failed to redeem maturing commercial paper. Was this due to a lack of Investor Confidence . Adding to the significant challenges by mid 23, chinas official youth Unemployment Rate had soared above 21 . At which point, the party of state abruptly stopped releasing data. Although transparency into chinas Economic Data is vanishing, the countrys economic weakness is now far too pronounced for the ccp to hide. For years, we talked about shadow lending as a challenge. Now, the problem is shadow data. International investors cannot have confidence in buying stock on u. S. Exchanges or directly investing in china. If data are inadequate, misleading, overstated, censored or withheld. Our fabulous Witnesses Today have deep and diverse expertise, researching chinas domestic economy and supply chain policies. Im pleased that four or five have not previously testified before the commission and bring forward new perspectives on key elements and outcomes of chinas economic model. Ill now hand it over to my cochair for the hearing. Commissioner glass. Who will introduce the panels and make some compelling remarks. Thank you, commissioner cleveland, and good morning, everyone. Todays hearing will call into question the health of chinas economy and the overall implications for the ccps influence over Technology Supply chains. The partys state dual circulation strategy aims to eradicate its own external vulnerabilities while increasing the worlds dependence on chinese technology. Today, u. S. Policymakers are moving to address some of the risks stemming from supply chains that are overly dependent on china. However, much more remains to be done. In may of this year, the Biden Administration announced that the United States aims to de risk its relationship with china, focusing u. S. Policy on fortifying areas core to u. S. National and security interests, congressional action through the Inflation Reduction Act and chips and science act took major steps towards diversifying us supply chains in semiconductors and Clean Energy Technologies if implemented properly. Nonetheless, these efforts are still early and further action is needed to reduce u. S. Other vulnerabilities to chinese control over critical supply nodes, from pharmaceuticals to green energy. The recent spike in chinese electric Vehicle Production and exports exemplifies the party states ongoing efforts to expand control over crucial segments of global production. U. S. Businesses are discussing options to derisk their own operations, but china is simultaneously moving to ensure u. S. Companies and investors remain intertwined with Chinese Markets. While a 19 drop in trade with china and a nearly 90 drop in Foreign Investment in china in the previous quarter may be seen as a signal of decreasing reliance on Chinese Markets, overseas investments by Chinese Companies simultaneously surged. Chinese companies are looking to offshore production to other countries in Southeast Asia and even mexico, evading tariffs by locating production in other jurisdictions. They are also continuing to export through other secondary markets to avoid tariffs and also customs scrutiny under the uighur forced labor prevention act as a result. Even where trade data shows a decrease in direct us dependency on china, the true value of chinese content in us supply chains is much higher. U. S. Supply chains is much higher. This hearing provides an opportunity to consider the kinds of guard rails that businesses can follow to address these increasingly complex supply chain risks. Before we begin, id like to remind you all that the testimonies and transcripts from todays hearing will be posted on our website. Id also like to thank the Senate Committee on health education, labor and pensions for securing this room for our use today and the Senate Recording Studio for theiristance in Live Streaming this event. Well now begin todays hearing with our first panel. Ive had the honor to introduce our first panel. Our first panel will provide an overview of the economic and financial challenges confronting china. We will also explore how these issues impact the Global Economy and how Investor Sentiment toward the country is changing. Well start with dr. Logan wright, who is a partner at Rhodium Group and leads the firms China Market Research work. His testimony will provide an overview of chinas economic and financial challenges. Next, well hear from mr. Nicholas bost, who is appearing virtually, mr. Bose is Vice President and director of China Research at sea fair Capital Partners and he will discuss chinas fiscal challenges and Investor Sentiment. Finally, dr. Lu will provide her testimony, and please correct me, doctor liu is the maurice r greenberg, fellow for china studies at the council on Foreign Relations and she will address the role of state owned capital, particularly chinas sovereign wealth funds in financing the countrys domestic and overseas ambitions. Thank you all so much for your testimony. And appearing before the commission today. We all look forward to hearing your remarks. I ask all the witnesses to please keep the remarks to seven minutes. Dr. Wright, well begin with you. Thank you, commissioner cleveland, commissioner glass, all the commissioners and staff for your kind invitation to testify at this important hearing today. My testimony focuses on three principal arguments related to developments in chinas economy and Financial System and their implications for the United States. First, the severity of chinas ongoing economic weakness is still widely under appreciated and the United States no longer faces a growth challenge from china. Beijing is no longer an economic pacing threat or likely to overtake the United States in any significant measure of economic power in the next two decades. Assuming us Growth Continues at roughly current rates, beijing will never be able to make a credible claim to Global Economic primacy. The challenges the United States faces in strategic competition with china are highly significant but they will not be impacted by marginal changes in chinas Economic Performance in the years ahead. Chinas current economic slowdown is structural in nature. Simply put, most of the factors that contributed to chinas rapid growth over the last two decades cannot be repeated in the next decade. These include an expanding labor force, unprecedented credit and investment growth, a booming property sector, a one time build up of infrastructure and a constructive external environment. Most analysts agree that growth in china will not recover to its previous rates. But theres still considerable disagreement about how severe the slowdown will become and the implications of those changes for the United States. One of the least understood aspects of chinas economic record over the past decade has been the linkage between the rapid growth of chinas Financial System and its Economic Performance. Chinas current economic slowdown is structural primarily because the credit and investment expansion that took place from 2008 to 2016 was also unprecedented. This was the largest single Country Credit expansion relative to global gdp in over a century. Credit growth of this magnitude not only powered significant volumes of local Government Investment and Property Construction, but most importantly, it provided a shock absorber insulating chinas economy from bankruptcies, defaults, and unemployment. And that credit expansion has ended. Chinas economy is measured through gdp in 2022 is around two thirds the size of the u. S. Economy in dollar terms, 65 at Current Exchange rates even based on chinas suspect official data. Given chinas long Term Economic challenges, there is no realistic scenario in which chinas economy becomes 150 or 200 of u. S. Gdp in the future. Surpassing the United States by a wide margin. The United States will continue to be challenged by chinas military build up related to taiwan and the South China Sea. Chinas outsized and politicized influence within specific next Generation Industries and manufacturing supply chains, economic policies, artificially boosting chinese firms competitiveness and behavior to influence Democratic Political system around the world. Those problems are exactly where u. S. Policy and legislative efforts should focus. But none of these military, diplomatic, or ideological areas of strategic competition with china will be changed by marginal adjustments in chinas economy from current levels. Even if china were to improbably reach the level of u. S. Gdp. And chinas slow pace of Economic Growth is more likely to weaken beijings capacity to confront the United States and its allies in these areas rather than rapid Economic Growth, boosting chinas capabilities over time. Second, beijing is attempting to downplay public recognition of chinas economic slowdown, both inside china and internationally. The most important propaganda message for chinas leaders related to the economy is that the argument that chinas economic rise is inevitable and that this will reinforce chinas rise in great power status. Chinese leaders believe they can influence the narratives about the economy through conventional domestic propaganda, but also by restricting the availability of Economic Data and stories they dislike. Chinas Economic Data, meaning the data points likely to generate Media Coverage such as gdp growth, should be understood as critical elements of chinas internal and external narrative management concerning the economy. Tighter controls over data and censorship of discussion of chinas economy should also be understood as reactive responses to real uncertainty among economic actors in china about beijings policy making. The narrative about china and its economy is important to the United States. The success or failure of beijings policy making in an estate driven economic model determines not just the relative performance of these two competitors, but the attraction and hence the global soft power of the chinese system and its ability to displace commitment to traditional liberal democratic and market economic norms. Third, the property and local Government Debt crises in china are intrinsically linked as credit growth slows investment growth will follow. And significant proportions of that credit and investment have been channeled into Property Construction and infrastructure over the past decade. Property developers delayed a long anticipated slowdown in the industry by relying upon increasingly risky forms of financing, such as the proceeds of housing sales before actual construction took place. This introduced a ponzi type element into the financing of chinas property sector. As sales suddenly declined, a trend that was exacerbated by lockdowns in major cities in 2022, Property Developers not only struggled to complete construction of homes they had already sold and promised to deliver, but also stopped buying new land from local governments. Local governments fiscal revenues are heavily dependent upon these land sales and the sudden loss of revenues has made it far more difficult for localities to service debt accrued during the last decade, as this investment was not funded directly by fiscal spending. The property sectors adjustment has been severe. New Housing Starts are down over 50 , 60 from their peak. And theres no easy solution for the local debt problem without changing chinas entire growth model to make it less dependent upon investment. The structural slowdown in china means that the United States can be more narrowly concerned about the National Security implications of specific economic transactions rather than whether or not a particular action will help or hurt the chinese economy as a whole. There is a Significant National there is a significant National Security concerns related to the transfer of advanced technologies with military or dual use applications. But there is little at stake for the United States and u. S. Or ireland investors buying stocks u. S. Or allied investors buying stocks in Chinese Consumer focused companies or Chinese Government bonds. Most trade and investment activity between the United States and china is mutually economically beneficial and poses no National Security concerns. U. S. Commitments to free market principles are a valuable asset that facilitates greater alignment among our allies and partners, many of whom will be far more reluctant to impose trade and investment restrictions upon beijing. Given the challenges that chinese behavior and economic statecraft poses, derisking from chinas economy is widely supported and necessary. But in a decade in which china will slow significantly independently of any action by the United States, we can more confidently keep the limits around u. S. And allied Economic Engagement with china narrow. Thank you. Yes, could you hear me. Thank you so much. I would like to start by thanking the commissioners for the opportunity to participate in todays hearing. I will relay my observations from reviewing chinas recent Economic Data and visits to