CIPHER BRIEF REPORTING — As a response to concerns about U.S. involvement in Chinese high-tech industries, President Biden this month signed an executive order that aims to preclude American companies from aiding Beijing’s development in a number of spheres – from semiconductor technology to artificial intelligence to quantum mechanics – in addition to implementing a new slate of constraints regarding U.S. private investment.
Despite the CCP’s threat of retaliation and lament of “economic coercion and tech bullying,” critics and some industry experts worry that the measures don’t go far enough and are suggesting U.S. taxpayers are inadvertently funding China’s rapid military expansion and development.
“Critical technologies, for example, in energy, biology, and propulsion, are not included in the executive order,” noted Anders Corr, a principal at political risk analysis firm Corr Analytics. “China can get much of what it needs through exceedingly bright undergraduate and graduate students who have access to top U.S., European, British, Australian, Japanese, and other experts and scientists in the fields of computer science, not to mention Chinese nationals hired into our scientific ecosystem, universities, national labs, and even military.”
Daniel Markey, a Senior Advisor at the United States Institute of Peace (USIP), contends that the administration is moving in the right direction when it comes to trying to ascertain and narrow down the areas of most concern regarding China, including artificial intelligence and high-end technologies, but says more work needs to be done.
“Those are the spaces where we really need to be in the business of trying to outcompete China but also making it less likely that the crown jewels of our technologies and those of our partners and allies are a little harder to steal than they have been historically,” he said.
Critics are concerned that Biden’s order did not focus on the role of Wall Street index funds propping up Chinese defense-related companies that counter American interests.
According to a recent Washington Post editorial, a bipartisan endeavor on Capitol Hill is underway to prevent major investment firms from using U.S. investor monies to bankroll – and provide expertise – to companies connected to the armed forces or to state-instituted human rights abuses, including many already on Washington’s ban list.
The report illuminates that companies such as the Aviation Industry Corp. of China (AVIC), which constructs high-powered fighter jets for the Chinese air force, navy warship producer China State Shipbuilding Corp. and CGN Power Co., which the U.S. Department of Justice indicted in 2016 on charges of providing nuclear technology to Beijing in what prosecutors called a “conspiracy against the United States,” all still have a place – directly or via subsidiaries – on rosters for BlackRock and MSCI Inc. Thus, while Americans are legally prohibited from making direct investments, there is a question over whether conglomerates collect finances discursively from American backers.
Todd Rosenblum, a former senior defense and intelligence official, stresses that the administration has been “pretty clear in the guidelines it has put out and in continuing to put out, that any responsible company is going to know and be aware of,” highlighting that any misgivings are “not a flaw in policy.” He also cautioned that Wall Street firms with questionable companies still on their rosters likely come down to administration errors and out-of-date records than unwitting wrongdoing.
“Export control work is a painful process to have to stay on top of these regulations when they have to apply for export control licenses, and when items are deemed to be dual use etc.,” Rosenblum explained. “And all the major companies have shops designed to ensure they remain compliant.”
BlackRock and MSCI did not respond to a request for comment.
However, this may be the tip of the iceberg regarding the multitude of ways Americans have unwittingly financed the growth of China’s armed forces.
According to a strategic risk and intelligence firm, more than 160 Chinese-born scientists tasked with military research between 1987 and 2021 inside the U.S. Department of Energy’s Los Alamos National Laboratory returned to their homeland, where at least some have assisted their government in developing weapons.
The report, released at the end of last year by Strider Technologies, claimed that “of the 162 returnees, at least 59 scientists were selectees of the People’s Republic of China’s (PRC) flagship talent recruitment program – the Thousand Talents Plan (TTP) and its youth branch, the Youth Thousand Talents Plan (YTTP).” Further, fifteen of those who went back to China were found to have worked as permanent staff members at the storied New Mexico facility, and of those, thirteen “were recruited into PRC government talent programs.”
It's not just for the President anymore. Are you getting your daily national security briefing? Subscriber+Members have exclusive access to the Open Source Collection Daily Brief, keeping you up to date on global events impacting national security. It pays to be a Subscriber+Member.
The investigation found that the scientists received U.S. government funds for their “sensitive research,” and “at least one former staff member held a Department of Energy (DoE) ‘Q Clearance’ allowing access to Top Secret Restricted Data and National Security Information.”
This one prominent researcher, Zhao Yusheng, is believed to have garnered around $20 million in taxpayer-financed grants from the DoE over eighteen years. Furthermore, the Los Alamos cohort is proclaimed to have aided the PRC in “hypersonics, deep-earth penetrating warheads, unmanned autonomous vehicles (UAVs), jet engines, and submarine noise reduction.”
“We should assume that the loss of technology at our national labs continues despite the Los Alamos revelations,” Corr surmised. “Because nothing structural has been done about the problem.”
In particular, Washington’s struggle to keep cutting-edge software products – products developed from years of research, innovation and millions of dollars’ worth of Pentagon grants – out of China’s hands remains a cause for concern. The U.S. export control laws prohibit the sale of American products to China or their resale within China if they are known to be used to develop missiles or destined for restricted entities.
The Washington Post last year documented more than three hundred sales between 2019 and 2022 of “advanced software products from nearly 50 U.S. firms to research groups involved in China’s missile development program,” highlighting that the recipients are routinely “military research groups at the leading edge of China’s hypersonic and missile programs,” including those on the U.S. export blacklist.
It is impossible to ascertain precisely how much in taxpayer funds has been sent to Beijing and for exactly what purpose. A report released by the Government Accountability Office (GAO) in April noted that “U.S. agencies reported providing at least $48 million in obligations for various purposes to entities located in China from fiscal years 2017 through 2021” but was not able to provide a definitive number as Washington has not kept meticulous monitoring on the subject.
“It is, of course, impossible to prove a direct causal relationship. Americans are frequent consumers of Chinese products, just like the citizens of many other countries around the world,” observed James Forest, a Professor and Director of Security Studies at the University of Massachusetts Lowell. “And whatever revenues China generates from foreign consumers of their products will no doubt be spent on whatever China’s leaders want to spend it on, including their military advancement efforts.”
From his purview, it isn’t that American military researchers are “giving” or sending their research to China. Instead, it is “widely known that China has supported, for many years, a vast espionage effort to access and steal many kinds of advanced scientific, technical, and military research,” of which federal authorities are diligently trying to educate the American public.
“Chinese espionage efforts, especially in the private defense contracting sector, should be seen as a U.S. national security problem,” Forest continued. “And defending against Chinese espionage efforts of all kinds should be the responsibility of every American.”
And one cannot ignore Washington’s escalating debt to the tune of more than $32 trillion. Over the last several decades, China has amassed U.S. Treasury securities – bonds disseminated by the federal government – amounting to more than $970 billion and is the second largest foreign holder of U.S. debt, coming in just behind Japan.
By some political predictions, in 2024, “the U.S. will send over $60 million in taxpayer money every day to China that it will then use to build its military and economy.” Moreover, given the trade inequality between the U.S. and China, Beijing acquires an excess in American dollars, as China exports more to the United States than it imports.
“This is really problematic, and it is not even so much so because they (China) are receiving the interest payments as much as it is a source of leverage for the PRC,” Rosenblum said. “It doesn’t take all that much to spook markets. Any language coming from China about those no longer willing to hold U.S. debt would have a huge impact on markets here. This is a major vulnerability for us and one that is under-discussed in defense circles.”
So where could policy move from here?
“What is really needed to economically defeat Beijing’s illiberal ambitions, including global hegemony, is a full-throated condemnation of all of the Chinese Communist Party’s abuses and a systemic approach in coordination with other G7 countries to containing China’s entire economy and all technological advances until it democratizes,” Corr emphasized. “This is a tall order, but the only way to ensure that the Chinese Communist Party does not again mislead us through Deng Xiaoping's successful strategy of ‘hiding strength and biding time.’”
Moreover, Markey emphasized that China not only poses a threat to U.S. interests in the defense sector but that it is the defining geopolitical competition of the century.
“The critical concern is that they (China) have been making military strides in asymmetrical ways with clear, specific areas of focus, especially Taiwan and the South China Sea. That poses some problems for us that are new and different from what we faced ten or fifteen years ago, and we’re hustling to catch up and to deal with those problems,” he added. “But I think that the geopolitical competition is much broader than just a straight-up ‘will they attack Taiwan' story or 'what are they building militarily?’ Because China has the heft, the size, the scale, the wealth and the capacity to challenge the United States, no other country on earth does. And that will be true for decades.”
Read more expert-driven national security insights, perspective and analysis in The Cipher Brief because National Security is Everyone’s Business.
