2021
REPORT TO CONGRESSof theU.S.-CHINA ECONOMIC ANDSECURITY REVIEW COMMISSION
ONE HUNDRED SEVENTEENTH CONGRESSFIRST SESSIONNOVEMBER 2021

Printed for the use of the
U.S.-China Economic and Security Review Commission
Available online at: www.uscc.gov

2021REPORT TO CONGRESSof theU.S.-CHINA ECONOMIC ANDSECURITY REVIEW COMMISSION
ONE HUNDRED SEVENTEENTH CONGRESSFIRST SESSIONNOVEMBER 2021

Printed for the use of the
U.S.-China Economic and Security Review Commission
Available online at: www.uscc.gov

u.s. government publishing officewashington: 2021For sale by the Superintendent of Documents, U.S. Government Publishing OfficeInternet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800
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U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSIONCAROLYN BARTHOLOMEW, Chairman
ROBIN CLEVELAND, Vice Chairman

COMMISSIONERS
		
		
		
		
		

BOB BOROCHOFFJEFFREY FIEDLER
KIMBERLY T. GLAS
Hon. CARTE P. GOODWIN
ROY D. KAMPHAUSEN

DEREK SCISSORS
Hon. JAMES M. TALENTMICHAEL R. WESSELALEX WONG

Daniel W. Peck, Executive Director

The Commission was created on October 30, 2000 by the Floyd D. Spence
National Defense Authorization Act of 2001, Pub. L. No. 106–398 (codified
at 22 U.S.C. § 7002), as amended by: The Treasury and General Government Appropriations Act, 2002, Pub. L. No. 107–67 (Nov. 12, 2001) (regarding employment status of staff and changing annual report due date fromMarch to June); The Consolidated Appropriations Resolution, 2003, Pub. L.
No. 108–7 (Feb. 20, 2003) (regarding Commission name change, terms ofCommissioners, and responsibilities of the Commission); The Science, State,
Justice, Commerce, and Related Agencies Appropriations Act, 2006, Pub. L.
No. 109–108 (Nov. 22, 2005) (regarding responsibilities of the Commission
and applicability of FACA); The Consolidated Appropriations Act, 2008, Pub.
L. No. 110–161 (Dec. 26, 2007) (regarding submission of accounting reports;
printing and binding; compensation for the executive director; changing
annual report due date from June to December; and travel by membersof the Commission and its staff); The Carl Levin and Howard P. ‘‘Buck’’
McKeon National Defense Authorization Act for Fiscal Year 2015, Pub. L.
No. 113–291 (Dec. 19, 2014) (regarding responsibilities of the Commission).
The Commission’s full charter and statutory mandate are available online at:www.uscc.gov/charter.

(ii)

U.S.-China Economic and Security Review Commission
November 17, 2021
The Honorable Patrick Leahy
President Pro Tempore of the U.S. Senate, Washington, DC 20510
The Honorable Nancy Pelosi
Speaker of the U.S. House of Representatives, Washington, DC 20510
Dear Senator Leahy and Speaker Pelosi:
On behalf of the U.S.-China Economic and Security Review Commission, we are pleased to transmit the Commission’s 2021 Annual
Report to Congress. This Report responds to our mandate “to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between
the United States and the People’s Republic of China.” The Commission reached a broad and bipartisan consensus on the contents ofthis Report, with all 11 members (one appointment remains vacant)voting unanimously to approve and submit it to Congress.
In accordance with our mandate, this Report, which is current asof October 8, includes the results and recommendations of our hearings, research, and review of the areas identified by Congress in our
mandate, as defined in Public Law No. 106–398 (October 30, 2000)
and amended by Public Laws No. 107–67 (November 12, 2001), No.
108–7 (February 20, 2003), 109–108 (November 22, 2005), No. 110–161 (December 26, 2007), and No. 113–291 (December 19, 2014). The
Commission’s charter, which includes the 11 directed research areasof our mandate, is included as Appendix I of the Report.
The Commission conducted seven public hearings, taking testimony from 75 expert witnesses from government, the private sector, academia, think tanks, research institutions, and other backgrounds.
For each of these hearings, the Commission produced a transcript(posted on our website at www.uscc.gov). This year’s hearings included:• U.S.-China Relations at the Chinese Communist Party’s Centennial;• Deterring PRC Aggression toward Taiwan;• U.S. Investment in China’s Capital Markets and Military-Industrial Complex;• An Assessment of the CCP’s Economic Ambitions, Plans, andMetrics of Success;• China in Latin America and the Caribbean;• China’s Nuclear Forces; and• U.S.-China Relations in 2021: Emerging Risks.
The Commission received a number of briefings by executive
branch agencies and the intelligence community, including both unclassified and classified briefings on net assessments of U.S. andChinese military capabilities, the cross-Strait military balance, China’s nuclear forces, the effects of China’s termination of Hong Kong’s
autonomous status, U.S. responses to the growth of China’s miliiii

tary power, and developments in China’s biotechnology sector. The
Commission also received briefings by foreign diplomatic officials aswell as U.S. and foreign nongovernmental experts. The Commission
includes key insights gained through these briefings either in its
unclassified Annual Report or, as appropriate, in a classified annex
to that Report.
The Commission was unable to conduct official travel this year
due to the COVID-19 pandemic. We adapted and increased our virtual discussions with interlocutors to ensure the continued diversityof perspectives heard by the Commission. The Commission also relied substantially on the work of our excellent professional staff andsupported outside research (see Appendix IV) in accordance with
our mandate (see Appendix I).
The Report includes 32 recommendations for congressional consideration. The Commissioners agreed that ten of these recommendations, which appear on page 21, are the most important for
congressional action. The complete list of recommendations appears
on page 491 at the conclusion of the Report.
We offer this Report to Congress in the hope that it will be usefulfor assessing progress and challenges in U.S.-China relations. Thankyou for the opportunity to serve. We look forward to continuing towork with Members of Congress in the upcoming year to address
issues of concern in the U.S.-China relationship.
Yours truly,

Carolyn Bartholomew
Chairman

Robin Cleveland
Vice Chairman

iv

Commissioners Approving the 2021 Report

Carolyn Bartholomew, Chairman

Robin Cleveland, Vice Chairman

Bob Borochoff, Commissioner

Jeffrey Fiedler, Commissioner

Kimberly T. Glas, Commissioner

Carte P. Goodwin, Commissioner

Roy D. Kamphausen, Commissioner

Derek Scissors, Commissioner

James M. Talent, Commissioner

Michael R. Wessel, Commissioner

Alex Wong, Commissionerv

CONTENTS
Page

Transmittal Letter to the Congress ...................................................................
Commissioners Approving the Report ..................................................................
Executive Summary ..................................................................................................
Key Recommendations ......................................................................................
Introduction .............................................................................................................

iii
v
1
21
25

2021 Report to Congress of the
U.S.-China Economic and Security Review Commission
Chapter 1: U.S.-China Global Competition .................................................... 27
Section 1: The Chinese Communist Party’s Ambitions and Challenges at Its
Centennial ........................................................................................................... 27
Key Findings ....................................................................................................... 27
Recommendations ............................................................................................... 28
Introduction ......................................................................................................... 28
Centennial Drives a Triumphalist Narrative ................................................. 30
Challenges to the CCP’s Triumphalist Narrative .......................................... 34
Implications for the United States .................................................................. 55
Section 2: China’s Influence in Latin America and the Caribbean .................. 69
Key Findings ....................................................................................................... 69
Recommendations ............................................................................................... 70
Introduction ......................................................................................................... 71
China Pursues an Integrated Strategy ........................................................... 72
China’s Economic Strategy ................................................................................ 80
China’s Military and Security Engagement .................................................... 96
Implications for the United States .................................................................. 100
Chapter 2: U.S.-China Economic and Trade Relations ..............................
Section 1: Year in Review: Economics and Trade ...............................................
Key Findings .......................................................................................................
Introduction .........................................................................................................
China’s Domestic Recovery Slows as Economy Confronts Long-Term
Imbalances .......................................................................................................
China’s Government Strengthens Control over Technology and Data ........
China Expands Lawfare to Respond to Foreign Sanctions ...........................
U.S.-China Commercial Ties Deepen despite Continued Friction ................
Coercion in China’s Global Economic Relations .............................................
Section 2: The Chinese Communist Party’s Economic and TechnologicalAmbitions: Synthetic Biology, New Mobility, Cloud Computing, andDigital Currency .................................................................................................
Key Findings .......................................................................................................
Recommendations ...............................................................................................
Introduction .........................................................................................................
Plotting Economic Innovation to 2025 .............................................................
China’s Strategy for Emerging Industries ......................................................
China’s Promotion of a Sovereign Digital Currency ......................................
Implications for the United States ..................................................................
(VII)

119
119
119
120
121
133
137
140
149
165
165
166
168
169
174
192
200

VIII
Page

Section 3: The Chinese Government’s Evolving Control of the Nonstate
Sector ...................................................................................................................
Key Findings .......................................................................................................
Recommendations ...............................................................................................
Introduction .........................................................................................................
China’s Government Has Numerous Channels for Intervention in
Corporate Decision-Making ............................................................................
Implications for the United States ..................................................................
Section 4: U.S.-China Financial Connectivity and Risks to U.S. National
Security ................................................................................................................
Key Findings .......................................................................................................
Recommendations ...............................................................................................
Introduction .........................................................................................................
Foreign Participation in China’s Capital Markets .........................................
Emerging Risks to U.S. National Security of Rising U.S.-China Financial
Connectivity .....................................................................................................
U.S. Responses to National Security Threats from Chinese Companies .....
Implications for the United States ..................................................................
Chapter 3: U.S.-China Security, Politics, and Foreign Affairs .................
Section 1: Year in Review: Security, Politics, and Foreign Affairs ....................
Key Findings .......................................................................................................
Introduction .........................................................................................................
Remaking the International Order ..................................................................
The Party’s Tightening Grip .............................................................................
Toward a Global People’s Liberation Army .....................................................
Escalation of “Wolf Warrior” Tactics ................................................................
Chinese Coercion Prompts Indo-Pacific Countries to Strengthen Ties with
the United States ...........................................................................................
An Increasingly Adversarial U.S.-China Relationship ...................................
Section 2: China’s Nuclear Forces: Moving beyond a Minimal Deterrent .......
Key Findings .......................................................................................................
Recommendations ...............................................................................................
Introduction .........................................................................................................
China’s Official Stance on Nuclear Weapons ..................................................
China Modernizes, Diversifies, and Expands the Nuclear Forces ................
China’s Modernized Nuclear Forces Enable Changes in Strategy andHeighten Nuclear Risks .................................................................................
China’s Proliferation Activities: An Added Nuclear Threat ..........................
Implications for the United States ..................................................................

214
214
214
215
216
230
240
240
241
243
245
254
263
269
287
287
287
288
289
293
295
299
310
320
340
340
341
342
343
347
359
367
371

Chapter 4: A Dangerous Period for Cross-Strait Deterrence: Chinese
Military Capabilities and Decision-Making for a War over Taiwan ...
Key Findings .......................................................................................................
Recommendations ...............................................................................................
Introduction .........................................................................................................
Deterrence in the Taiwan Strait ......................................................................
The Changing Cross-Strait Military Balance .................................................
Chinese Decision-Making for a War over Taiwan ..........................................
Implications for the United States ..................................................................

387
387
388
389
390
392
411
421

Chapter 5: Hong Kong’s Government Embraces Authoritarianism .......
Key Findings .......................................................................................................
Recommendations ...............................................................................................
Introduction .........................................................................................................
Emergence of a Police State .............................................................................
Judiciary Independent in Name Only .............................................................
Threats to Hong Kong’s Economic Future on the Rise .................................
Implications for the United States ..................................................................

439
439
440
441
442
458
461
475

Comprehensive List of the Commission’s Recommendations .................. 491
Additional Views of Commissioners ................................................................. 502

IX
Page

Appendices:
Appendix I:
Charter ............................................................................................
Appendix II:
Background of Commissioners .....................................................
Appendix III: Public Hearings of the Commission during 2021 ......................
Appendix IIIA: List of Witnesses Testifying Before the Commission
during 2021 	...........................................................................................................
Appendix IV:
List of Research Material .............................................................
Appendix V:
Conflict of Interest and Lobbying Disclosure Reporting ...........
Appendix VI:
Acronyms and Abbreviations ........................................................

507
515
523
527
531
533
535

2021 Commission Staff and Acknowledgements ........................................... 539

EXECUTIVE SUMMARY
Chapter 1: U.S.-China Global Competition
Section 1: The Chinese Communist Party’s Ambitions andChallenges at Its Centennial
For the Chinese Communist Party (CCP), 2021 has been a momentous year. As it celebrated the hundredth anniversary of its
founding, the CCP aimed to show the world that it has transformed
China into a prosperous and powerful country that is prepared toassume and is deserving of a greater leadership role in international affairs. Undeniable successes, such as the fact that hundreds ofmillions of people rose out of poverty over the past several decades,
have emboldened CCP leaders and contributed to their belief in China’s supposedly inexorable rise. The CCP’s triumphalism likely derives both from a genuine belief in its own superiority and from theneed to legitimize and sustain its one-party rule. This triumphalist
propaganda, however, hides the CCP’s rising concerns that failingto demonstrate the superiority of its model and address longer-term
challenges could jeopardize the Party’s domestic control and international influence.
While China’s leaders may have envisioned 2021 as a showcase
for China’s rejuvenation under the CCP, the year also made clear
the profound internal and external challenges facing the Party. The
ongoing economic shocks and international scrutiny of the CCP’shandling of the novel coronavirus (COVID-19) pandemic, alongwith growing international pushback against the CCP’s repressive
policies in Xinjiang, violation of its commitment to maintain Hong
Kong’s autonomy, and increasingly aggressive posture regarding
Taiwan, provide a stark contrast to the optimistic image promoted
by Beijing. China’s economy is also confronted with a range of structural challenges, including rising debt, an imbalanced growth model,
demographic decline, and environmental degradation. Politically, the
CCP faces internal disunity manifested not only among CCP members but also in the highest levels of the policymaking apparatus.
The CCP’s insistence on its superiority and inability to admit failure
limit its ability to effectively address these challenges.
Regardless of whether future developments cause the Chinese government to feel more or less secure, it will likely react by becoming
even more assertive. China’s leadership is increasingly uninterested
in compromise and willing to engage in destabilizing and aggressive actions in its efforts to insulate itself from perceived threatsor to press perceived advantages. As Beijing views itself facing amore adversarial international environment, its attempts to impede
political and economic coordination between the United States andother democracies will likely intensify. China’s increased emphasis
on self-sufficiency will also lead to continued difficulties, such as(1)

2
discriminatory treatment of U.S. firms hoping to participate in China’s market. The CCP will likely continue escalating its combative
approach absent coordinated action from the United States and its
allies and partners.
Key Findings• The CCP views the 2021 centennial of its founding as a time
for both great confidence and great caution as it seeks to consolidate domestic and international support ahead of key political goals in 2035 and 2049. Through a widespread propaganda
campaign, it has promoted a triumphalist narrative while omitting any mention of the CCP’s serious shortcomings and heavily
censoring dissenting opinions. The CCP’s triumphalism derives
both from a genuine belief in its own superiority and from theneed to sustain its authoritarian system.
• CCP leaders publicly express confidence that China will prevailin an ideological and civilizational clash with the United Statesand other democracies they refer to as “the West.” Chinese leaders portray the United States as a waning superpower on apath toward inevitable decline and believe China will be able tocontinue expanding its power and influence globally.
• China confronts a range of challenges that undermine the CCP’s
triumphalist narrative. Economically, China faces a set of structural problems, including growing debt, income inequality, demographic decline, and technological dependence on the UnitedStates and other advanced democracies that policymakers havebeen only partly willing or able to address. Politically, the CCP
is concerned about internal disunity, corruption, and a lack ofideological conviction within its ranks.
• The CCP also perceives the international environment as becoming increasingly hostile to the Party’s aims. This view has
sharpened as the United States and other countries have more
firmly pushed back against China’s actions, including its policies in Xinjiang and Hong Kong, its handling of the COVID-19
pandemic, economic coercion, and Chinese diplomats’ aggressive
approach to foreign policy. External pressure has increased CCP
paranoia about the potential for external forces to amplify internal dissent and threaten its regime.
• Both the CCP’s confidence and its insecurity have contributed
to an uncompromising approach domestically and to the outside
world. Regardless of how China’s internal and external environments develop, the CCP’s aggressive posture will likely harden
further as Chinese leaders confront the tensions between theirrhetoric and their challenges. The CCP is now likely to react inan aggressive manner either in order to defend itself against
perceived threats or to press perceived advantages.
Section 2: China’s Influence in Latin America and the
Caribbean
China’s role in Latin America and the Caribbean has become lessconstrained and increasingly visible over the past decade. Economic
interests drive China’s engagement in the region as it seeks com-3
modities and raw materials to fuel its economy while building foreign markets for its companies and technologies. China has becomea critical trading partner, investor, and bilateral financier for many
Latin American and Caribbean countries. As it has become more
economically embedded within the region, China has also devoted
increasing attention to promoting its political interests, such as isolating Taiwan, expanding the Belt and Road Initiative, and defending itself from criticism of its human rights abuses.
In pursuit of its goals in the region, China has cultivated relationships in Latin American and Caribbean countries at all levelsof government, across the political spectrum, and with nongovernmental actors. China leverages centralized control over its own
economy and political apparatus to enhance its negotiating power
across seemingly unrelated issue areas, such as by attempting touse provision of vaccines to pressure countries to terminate diplomatic relations with Taiwan. China has previously leveraged its economic and political influence to establish a space tracking station in
Argentina under the control of the People’s Liberation Army (PLA),
and it continues to deepen its involvement both in the financing anddevelopment of potential dual-use infrastructure and in the region’s
emerging space sector.
While China’s economic engagement in the region has supported growth, its trade and investment relations risk stunting Latin
American and Caribbean countries’ development by increasing theireconomic dependence on commodity exports to China. To solidify its
access to regional commodities like lithium, China couples tradewith strategic investments and financing that increase its control
over entire supply chains. Cementing its central position in somecountries’ economies, China plays a major role in providing financing for the region’s much-needed infrastructure. This economic engagement often contributes to worsening environmental, social, andgovernance conditions in the region, as many governments compromise their own laws and regulatory regimes to attract Chinese investment.
China’s deepening engagement with Latin American and Caribbean countries reinforces trends that run counter to U.S. values andinterests. Through trade, loans, and political backing, China has provided an economic lifeline to authoritarians like the Maduro regime
in Venezuela while supporting democratic backsliding elsewhere in
the region. China’s expanding control over entire supply chains in
the region may also harm U.S. competitiveness and threaten U.S.
access to critical inputs for emerging technologies. Finally, by expanding its economic, political, and security relationships in the region and building dependencies in select countries, China is laying
the groundwork for deepening influence and presence in a region ofparticular strategic significance for the United States.
Key Findings• China has expanded and diversified its relationships with Latin American and Caribbean countries over the past decade. Although economic interests are the main driver for its activities
in the region, China is devoting increasing attention to pursuing political and to some degree security objectives, including

4
gaining international support for its diplomatic initiatives, pressuring countries to sever relations with Taiwan, and deepening
military relationships.
• China employs a whole-of-government approach in its relationships with Latin American and Caribbean countries, often bypassing national governments to advance its interests at the local level. Beijing’s strategy coordinates efforts by China’s official
government representatives, such as embassies and politicalinfluence entities, state and nonstate companies, and quasi-governmental entities, to influence decisions across unrelated issue
areas. China adapts its approach to individual countries’ political and social structures, cultivating relationships with national
governments, subnational governments, and nongovernmentalorganizations.
• China’s economic importance and targeted political influence
encourage Latin American and Caribbean governments to makedomestic and foreign policy decisions that favor China while
undermining democracies and free and open markets. China’s
position as a top trading partner and bilateral lender for many
countries gives it economic and political leverage. Substantial
foreign direct investment from China is a tool of influence, as
accumulation of assets affords Chinese companies the power to
impact local and domestic prices in key sectors, such as minerals and energy.
• China has closely collaborated with authoritarian regimes in
the region, such as the Maduro regime in Venezuela, and enabled democratic backsliding in other countries, such as Ecuador and Bolivia. By selling digital and surveillance technologies
to regimes in the region, China has enabled them to surveil andrepress their populations, critics, and opponents. China has also
provided significant financial support to these governments,
thereby extending them an economic lifeline when they were
cut off from international financial markets.
• Although China’s demand for commodities has boosted regional
economic growth, it has also encouraged its trading partners’
overreliance on natural resource extraction at the expense ofhigher-value-added activities. Many countries voluntarily compromise their own environmental, social, and governance regulations to attract Chinese investment. Due to the region’s weak
institutions, China’s expanding influence may also facilitate corruption and increase risks to countries’ resource security andnational interests.
• China aspires to deepen its military engagement in Latin America
and the Caribbean, although its current security activities in theregion are limited in scope. Beijing has previously leveraged its
economic and political influence in Argentina to establish a spacetracking station operated by the PLA. Influence gained by financing and constructing potential dual-use infrastructure such as
ports and supporting space programs throughout the region positions China to further increase its military presence in the future.

5
Chapter 2: U.S.-China Economic and Trade Relations
Section 1: Year in Review: Economics and Trade
In 2021, China’s economy continued to confront immediate disruption caused by the COVID-19 pandemic as well as long-term challenges to economic dynamism and financial stability predating theoutbreak. Consumed with shoring up short-term growth and projecting an image of strength on the eve of the CCP’s centennial, China’s
leadership resorted to a familiar playbook of government support forindustry. The resulting rebound deepened already acute financial
risks, and China’s significant debt buildup became a renewed focus
for Chinese policymakers. In particular, the Chinese government’s
attempts to rein in debt-fueled expansion of the property sector led
to a sharp contraction in one of the country’s main economic drivers
and prompted a series of corporate defaults.
China’s government initiated numerous regulatory actions against
data-intensive industries throughout 2021, particularly in fintech,ecommerce, and online education. The unprecedented regulatory
tightening reflected the CCP’s desire to reassert control over nonstate tech behemoths, such as Alibaba. The effects were felt in international financial markets, underscoring the distinct political risks
to U.S. investors posed by U.S.-listed Chinese companies. Chinese
regulators’ scrutiny of Chinese companies, including ride-sharing
app Didi Chuxing immediately following its July 2021 initial public
offering on the New York Stock Exchange, led to hundreds of billions
in lost market capitalization on U.S. exchanges.
Despite continued tense rhetoric between Washington and Beijing
during 2021, bilateral trade is returning to pre-tariff levels and U.S.
capital flows to China are on the rise. As commercial and financial
flows weave the economies closer together, the Biden Administrationis consolidating a complex mix of the Trump Administration’s policy
initiatives with its own to defend against China’s unfair economic
policies and threats to U.S. national security. The Biden Administration has signaled that its priorities are to secure U.S. supply chains,
boost U.S. competitiveness, and coordinate with U.S. allies and partners. Many U.S. multinational corporations, meanwhile, continue toview China as a priority market despite rising concerns about China’s protectionist business environment.
In 2021, China focused on using its economic heft for both economic gain and geopolitical leverage. The Chinese government significantly expanded its use of economic coercion to punish critics
and compel behavior it desires from foreign countries and firms. Inlate 2020 and 2021, the Chinese government also moved quickly
in developing a legal and regulatory framework to counter foreign
restrictions on Chinese companies and individuals. A central objective in China’s expanding legal arsenal is to impose costs on foreigncompanies complying with U.S. laws that limit technology transfer
to China.
Key Findings• Though China was the first among major economies to recover following the fallout from the COVID-19 pandemic, topline
growth figures mask an unbalanced and potentially unsustain-

6able recovery. China’s short-term rebound relied on governmenttransfers to boost local spending and support firms, exacerbating the country’s substantial debt load. The government’s approach failed to revive household consumption.
• China’s economic rebound in 2020 into 2021 does not represent a fundamental departure from a decade-long slowdown
trend. The 14th Five-Year Plan (FYP) acknowledges underlying
structural problems, such as declining investment returns, thatprevent the economy from transitioning to a more sustainablemodel. China’s leaders believe they can address these challenges through more state-led technology development and bystrengthening, rather than loosening, the government’s control
over the economy.
• Escalating defaults by Chinese property developers show thechallenge regulators face in reining in the highly indebted sector. Cash-strapped developer Evergrande’s debt troubles havethe potential to trigger broader financial instability given Evergrande’s significant footprint within China’s economy, including
its connections to Chinese households, contractors and suppliersin the property sector, banks, and local government finance vehicles.
• Chinese policymakers seek a self-sufficient technology sector
that not only is under the CCP’s control but also plays a criticalinternational role. In 2021, the Chinese government expanded
the breadth of its efforts to foster local technology champions,but it also initiated a range of enforcement actions against major nonstate Chinese tech firms. This crackdown is partly motivated by a desire for greater control of nonstate firms’ collection
and storage of data, which the government views as a strategic
resource and national security priority.
• U.S.-China economic integration is strengthening in some areas
but weakening in others. Bilateral trade flows and U.S. portfolio
investment into China are increasing. Bilateral foreign direct
investment flows are down, but there is an increase in venture
capital, private equity, and other investments, and the types ofacquisition targets are changing. Despite ongoing political frictions and concerns about discriminatory treatment, many U.S.
companies remain committed to the Chinese market.
• The Biden Administration is building on the Trump Administration’s assertive approach to addressing China’s unfair economic
practices, threats to U.S. national security, and denial of humanrights by engaging U.S. allies and international institutions in
confronting Beijing. Despite tense rhetoric, China’s government
seeks to prevent commercial tensions with the United Statesfrom escalating in order to maintain economic stability, even as
both countries seek to strengthen supply chain security.
• China’s government is formalizing a legal and regulatory framework to counter foreign trade restrictions and sanctions, aimed
especially at U.S. export controls on Chinese companies and financial sanctions on Chinese individuals. The most sweeping ofthese new measures is the June 2021 Anti-Foreign Sanctions

7
Law, which prohibits companies operating in China from complying with foreign sanctions the Chinese government determines are “discriminatory.”
Section 2: The Chinese Communist Party’s Economic andTechnological Ambitions: Synthetic Biology, New Mobility,
Cloud Computing, and Digital Currency
The Chinese government sees itself as competing directly with
the United States for global economic leadership, a rivalry in which
technological prowess will play a central role. The 14th FYP, China’s economic policy blueprint issued in March 2021, emphasizes
innovation and development not only for economic growth but more
importantly for technological self-sufficiency, national security, andinternational influence. Chinese policymakers have diminished thepotential role of the market and have strengthened the hand of thestate to direct innovation in emerging technologies. Even where China is not able to succeed in its ambitious goals, its implementationof a grand strategy can still have significant consequences for U.S.
national security, competitiveness, and jobs.
The 14th FYP builds on a strategy seen in the CCP’s Made in
China 2025 plan, augmenting state support for emerging technologies. Not only does innovation in these fields have great commercial
potential, but Chinese policymakers also see it as instrumental inresolving key issues currently facing China’s economy and society,from an aging population to environmental degradation. Such technologies include the following:• Synthetic biology has the potential to transform nearly every
sector of China’s economy while addressing important quality-of-life issues the CCP views as underpinning its own legitimacy. The CCP has prioritized the collection of genomic data
both domestically and internationally to gain global leadershipand commercial advantages.
• New mobility, which captures everything from ride-hailing services to autonomous vehicles, is a strategic imperative for the
CCP as it seeks both to lower China’s carbon emissions and to
improve domestic transportation. Heavy subsidization of newenergy vehicle production and autonomous vehicle development
challenges U.S. leadership in these sectors and undercuts global
competition.
• Cloud computing is both a critical channel of information flows
and an essential component of advancing all other digital services in the economy as it facilitates data collection, transfer,and storage. Chinese cloud companies have succeeded in a protected domestic market and are encroaching on U.S. leadershipin developing economies.
The CCP has also prioritized the development of a central bankdigital currency to increase its control over and improve transaction
efficiency within China’s financial system. Through the introductionof a digital renminbi (RMB), the CCP hopes to reassert the government’s role in digital payments and reduce the influence of nonstate
payment platforms Alipay and WeChat Pay while preempting po-8tential challenges from cryptocurrencies, such as Bitcoin. A digital
RMB will also increase the CCP’s ability to monitor financial transactions, including any transactions involving non-Chinese users ofthe digital RMB. While the CCP’s immediate motivations are primarily domestic, it views the digital RMB as a potential geopolitical
tool that can help China reduce reliance on current international
financial systems, evade U.S. financial sanctions, and increase its influence over international standards-setting for digital technologies.
Key Findings• The CCP views achieving technological self-sufficiency as essential for both economic growth and political survival. China’s
leaders believe they can rely on the domestic development ofemerging technologies not only to address long-term structural challenges, such as falling productivity growth, demographic
decline, and environmental degradation, but also to strengthen
Party control and stability while reducing dependency on foreign technology and products.
• Under General Secretary of the CCP Xi Jinping, the Party has
increased its control over China’s economy in ways that havefurther enhanced the links between China’s state and nonstate
sectors. The CCP believes state control rather than economic
liberalization is essential to achieving economic growth while
maintaining political stability.
• To achieve dominance in emerging technologies like cloud computing, synthetic biology, and new mobility, Chinese policymakers are relying on extensive subsidization and other tactics
similar to those previously used for industries such as shipping, telecommunications, and conventional vehicles. With few
internationally accepted standards or rules, Chinese companies
and other entities are actively shaping standards in collecting,protecting, and governing data. Chinese efforts to build technological capacity could have lasting negative consequences forthe future of U.S. technological leadership.
• The CCP is working to establish China as a global leader insynthetic biology, motivated by the prospective economic benefits and also the potential for synthetic biology to mitigate
structural problems such as deficiencies in China’s healthcare
system and scarce natural resources. The United States leads
in most applications of synthetic biology, but Chinese synthetic
biology firms receive generous state subsidies and have begun
supplementing domestic genomic data collection with international collection efforts.
• With its advancements in new mobility, China is positioned tocontest U.S. leadership in various technologies. The Chinese
government has prioritized development of new energy vehicle
technology through extensive subsidies and protectionist policies while capturing every stage of the supply chain for newenergy vehicle batteries. In autonomous and connected vehicles,
global competition is increasing as Chinese companies are engaged in pursuit of international markets.

9• U.S. global dominance in cloud computing may be challenged
by Chinese competitors in developing markets. Chinese cloudcomputing companies have thrived in a protected home market and with few exceptions can operate freely in the UnitedStates, while U.S. companies face barriers in China. Protecting
its cloud computing sector to control information and data flows
is a national security priority for China as well as a strategic
imperative to support other key emerging technologies, such as
new mobility, artificial intelligence, biotechnology, smart cities,
and big data applications.
• China leads among major economies in the development of acentral bank digital currency. The CCP’s promotion of a digital
RMB is motivated by several factors, including a desire to increase control and surveillance of financial transactions by stateand nonstate companies, foreign firms operating in China, andindividuals. China’s digital RMB does not present an immediate challenge to the U.S.-led global financial system, but in thelong term it could undermine the status of the U.S. dollar andefficacy of U.S. financial sanctions.
Section 3: The Chinese Government’s Evolving Control of the
Corporate Sector
Maintaining strict control over commercial activity is an increasingly urgent priority for the CCP. While the Chinese government
has long managed the allocation of resources and shaped market
outcomes in the Chinese economy, this capability is under growing
strain. In 2021, CCP leaders grappled with the market power of thecountry’s nonstate technology sector and credit events that threatened financial stability and renewed concerns about China’s debt
sustainability. As the CCP comes to grips with the scale of these
problems, it seeks to assert unassailable authority over all mannerof companies and fortify supervision of an increasingly complex Chinese economy.
The Chinese government exercises control through various
channels to guide corporate decision-making in service of policy
priorities. Chinese law already affords the state privileged status
in the governance of any corporation for which it is a shareholder. This makes any state-invested enterprise subject to Beijing’s
influence and control, no matter how small its investment. The
Chinese government’s recent acquisition of a 1 percent stake insocial media giant and TikTok parent company ByteDance, forexample, affords it a board seat in one of the firm’s subsidiaries. Under General Secretary Xi, the Chinese government has expanded such investment in the nonstate sector to bring broader
swathes of commercial activity under the state’s control. China’s
government also deploys policy incentives, including subsidies,
grants, and tax breaks, to ensure corporate activity aligns with
the CCP’s policy interests.
In contrast to the Chinese government’s de jure mechanisms
for intervention and influence, the CCP is not bound by legal constraints. Within state-owned, nonstate, and foreign enterprises alike,
CCP committees exert growing influence over corporate governanceby overseeing personnel appointments and monitoring employee be-10havior. Within capital markets, the CCP is also superseding the roleof regulators in enforcement.
The Chinese government’s evolving control over China’s corporate
sector blurs the relationship between commercial actors and thestate, ultimately making distinctions between “state” and “nonstate”
companies less meaningful. Instead, China’s economy today is one
in which the government maintains a ready and rapidly expanding ability to intervene in any company’s operations. This ability isfundamentally reshaping government-corporate relations in China
and underscores that the state-directed operation of the Chinese
economy is wholly distinct from what is observed in market-oriented economies elsewhere. As the CCP further cultivates and bolsters
this ability, U.S. businesses and investors must recognize that their
participation in the Chinese economy is conditioned by the CCP’s
policy priorities and subject to its control.
Key Findings• China’s government has developed numerous avenues throughwhich to monitor corporate affairs and direct nonstate firms andresources toward advancing CCP priorities. Within this expanded framework of government control, traditional definitions ofstate control in an entity no longer apply because any entity
may be compelled to act on behalf of the Chinese government’s
interest, regardless of the state’s formal ownership.
• Control of Chinese firms is blurred, contrary to the precise division between state and nonstate firms implied in corporate
ownership registration. Historically, nonstate firms have soughtstate investment to overcome political and regulatory barriers. China’s government is also now increasing investments
in nonstate firms to advance its technology development goals
and policy objectives, further obscuring the distinction between
state and nonstate.
• Under General Secretary Xi, the Party has systematically expanded its representation in corporate governance. Whereas
traditional regulatory intervention in corporate affairs occurs
through Chinese bureaucratic mechanisms prescribed by law,
there are no such constraints on the CCP. Consequently, it canbe impossible to identify the extent of the exercise of CCP influence.
• The CCP is also supplanting the role of Chinese government
agencies in market monitoring and regulatory enforcement.
While this may create the appearance of better regulated markets, replacing routine bureaucratic functions with CCP intervention both acknowledges the inherent weakness of Chinesestate institutions and further undermines their effectiveness.
• Chinese corporate law affords the state unique and substantial
governance rights as an investor and imposes a legal obligation to serve state development goals on all firms. By contrast,
nonstate minority shareholders of publicly traded companies,
including U.S. investors in China’s domestic equities market,
are afforded minimal protections.

11
Section 4: U.S.-China Financial Connectivity and Risks to
U.S. National Security
The Chinese government is engineering capital markets to buttress state-led efforts to advance national development objectives.
China’s strategic use of capital markets seeks to facilitate a morediversified funding of state priorities, leveraging nonstate and foreign capital to bolster technology development and contribute to
military modernization. This reflects a shift in how Chinese leaders
see financial markets. Whereas stock markets were first developed
largely as a means to bail out China’s heavily indebted state sector,
Chinese policymakers today see the Shanghai and Shenzhen Stock
Exchanges as pivotal vehicles to ensure capital flows to where thestate needs capital most.
Since 2014, the Chinese government has taken an array of steps
to gradually expand foreign access to China’s financial markets,and since 2018 it has encouraged foreign financial services firms
to establish a presence in the Chinese market. The Chinese government’s strategic financial opening has resulted in increased U.S.
and foreign investor participation in China’s financial markets,with major investment indices adding Chinese securities to theirbenchmarks. These inclusions are automating U.S. asset allocations
toward the Chinese market and redefining Chinese securities asstandard features of a well-diversified investment portfolio. The expanded presence of prominent U.S. asset managers in the Chinese
market further facilitates perceptions of China’s financial markets
as sophisticated and stable, amplifying U.S. investor interest in Chinese securities.
China’s tightened integration with global financial markets poses
distinct economic risks to U.S. investors and national security risks
to the United States. Increased U.S. and foreign investor participation in China’s capital markets coincides with Beijing’s tightened
control over China’s corporate sector. Beijing also uses a host ofinvestment vehicles, such as government guidance funds and military-themed investment products, to steer capital toward companies
contributing to China’s military industrial complex. These various
investment vehicles contribute to a capital market whose basic function prioritizes development objectives that may run counter to U.S.
interests.
The convergence of tightened U.S.-China financial connectivity
with the Chinese government’s strategic use of financial markets
presents novel challenges to U.S. policymakers. U.S. capital andexpertise may unwittingly contribute to improvements in China’s
military capabilities or support a Chinese startup whose underdeveloped technology today may be used to abuse human rights tomorrow. This risk becomes more acute as Beijing’s control over China’scommercial ecosystem blurs the lines between civilian and defense
activities of Chinese companies. Chinese firms’ potential government
and military ties challenge traditional U.S. policy approaches to restricting trade and investment with problematic partners. This isbecause U.S. trade and investment screening focuses on individual
entities or transactions, an approach that cannot keep pace with the
Chinese government’s military-civil fusion strategy. Policy solutions

12targeting only the most overtly threatening Chinese companies may
miss the diversity of actors in China’s military-industrial ecosystem.
Key Findings• A surge of U.S. investor participation in China’s markets is
outpacing the U.S. government’s defense against the diverse
threats to U.S. national and economic security posed by U.S.
investment in some problematic Chinese companies. This inflow
of U.S. capital into China’s economy is occurring as the Chinese
government strengthens its ability to direct nonstate firms andresources toward advancing strategic priorities that may harm
U.S. interests and as Beijing further fuses military and civilian
corporate operations.
• The Chinese government permits the participation of foreign
firms and investors in the Chinese market only when it suits
its national interest. As a result, nominal financial “opening”
in China in reality is a carefully managed process designed toreinforce state control over capital markets and channel foreign
funding toward fulfilling the Chinese government’s national development objectives.
• China’s military-industrial ecosystem encompasses state andnonstate firms, research institutes, and investment funds, allacting in concert in service of China’s military modernization
objectives. These coordinated efforts may advance an agendathat threatens U.S. national security but is not always evident
at the level of individual entities or transactions. Traditional
legal remedies, such as trade and investment restrictions, arelimited in their ability to fully address these threats, and current tools may be inadequate.
• The U.S. government’s defense against these challenges is further constrained by strong U.S. investor interest in Chinese
markets and the outsized influence of unregulated investment
indices in steering global capital flows. The substantial increasein the inclusion of Chinese securities in investment indices automates U.S. investor allocation toward Chinese companies.
Because passively managed index funds replicate these indicesand actively managed funds seek to at least outperform them,index providers have played a pivotal yet unregulated role inguiding foreign portfolio investment toward Chinese companies.
• Compared to portfolio investment, private equity and venture
capital investment present a unique set of challenges. Criticaltechnical knowledge, managerial expertise, and business connections often flow to the investment target in addition to funding.
Lack of transparency in private transactions compounds bothoversight challenges for U.S. regulators and potential risks to
U.S. economic and national security interests.

13
Chapter 3: U.S.-China Security, Politics, and Foreign Affairs
Section 1: Year in Review: Security, Politics, and Foreign
Affairs
In 2021, China’s leaders made plain their ambition to present the
CCP’s one-party rule to the world as a superior political, economic, and moral model to democracy and capitalism. Amid the triumphant celebrations surrounding the centennial of the Party’s founding, however, the message of senior leaders was sober. Rather than
evince satisfaction that China’s economic development had ushered
in a new era of peace and prosperity, CCP leaders assessed thatinternal and external threats from “enemy forces” were intensifying
and could grow into systemic risks affecting regime security. Today,
the regime is both confident and paranoid, insistent on its superiority but increasingly fearful of subversion and failure.
In its campaign to eradicate perceived harmful influences, overthe past year the CCP expanded efforts to control all aspects ofChinese society and culture it viewed as threatening. It issued new
counterespionage rules for organizations and enterprises in China
responding to intensified “infiltration” by hostile forces. Meanwhile,
the Chinese government continued its repression of ethnic minorities in the frontier regions of Xinjiang, Tibet, and Inner Mongolia.
Based on reports of authorities’ forced sterilizations, coerced abortions, and other human rights abuses against Uyghurs and otherethnic and religious minorities in Xinjiang, the United States formally determined the Chinese government to be committing genocide and ongoing crimes against humanity.
Meanwhile, Beijing stepped up its use of military coercion in the
East and South China Seas, the Taiwan Strait, and along the Indian border while encouraging the PLA to establish itself as a global
force able to defend China’s overseas interests. Chinese diplomats
matched the uncompromising tone set by CCP leadership, abandoning much of their remaining decorum as they deepened an embraceof confrontational “wolf warrior” behavior. Claiming that its aggressive approach was morally justified, Beijing refused to countenancecriticism of its actions. Instead, it demanded that the United Statesand other countries alter their own policies, abandoning actions Beijing viewed as competitive and remaining silent on the Chinese government’s destabilizing behavior toward Taiwan and human rights
violations in Hong Kong, Tibet, and Xinjiang. U.S. policy toward
China remained remarkably consistent across the outgoing Trump
Administration and new Biden Administration, with senior officials
in both administrations describing China as the United States’ foremost geopolitical challenge of the 21st century.
Key Findings• In 2021, the CCP marked the centennial of its founding by instructing Party members and the Chinese people to prepare for a
decades-long confrontation with the United States and other democracies over the future of the global order. Chinese leaders grew
more uncompromising in pursuing their interests as they insisted
historical trends proved the inferiority of democracy to the political, economic, and normative model of their one-party rule.

14• In an apparent paradox, the CCP assessed that internal andexternal threats facing the regime were intensifying and thatits rule was becoming less secure despite the growth of Chinese
power. CCP leaders vowed forceful measures against officials
and Party members wavering in the face of international pressure and continued their repressive campaigns in Hong Kongand against the Uyghur people, Tibetans, and other ethnic minority groups.
• Beijing reaffirmed its intent to maintain high levels of defense
spending to transform the PLA into a powerful force able tooperate in and beyond the Indo-Pacific region. Chinese leaders
showed new levels of frustration with the PLA’s lagging efforts
to improve its training and personnel quality amid perennialconcerns about the force’s lack of warfighting experience. The
PLA continued to commission advanced warships and field new
aircraft capable of projecting force beyond China’s borders. Beijing also signaled its interest in establishing additional overseas military bases, reportedly including locations on Africa’s
west coast.
• China’s diplomats deepened their embrace of a belligerent anduncompromising approach to foreign relations. The foreign ministry’s disregard for the reputational cost of its strident rhetoricreflected domestic incentives that reward efforts to raise China’s global standing while discrediting the United States andother democracies. As it grew more confrontational toward democratic countries, Beijing expanded its partnerships with Russia
and Iran and attempted to cast itself as a leader of developing
countries across Africa, the Middle East, and Central Asia.
• China’s aggressive tone and military coercion of its neighbors
prompted deepening cooperation between Indo-Pacific countries
and new efforts by the EU and others to increase their diplomatic and military presence in the region. China continued its
military tensions with India, building illegal military outpostsin neighboring Bhutan and launching cyberattacks that may
have caused blackouts across India.
• U.S. concerns over the growing national security threat from
China continue. Beijing’s refusal to cooperate in investigating the origins of the COVID-19 pandemic and demands thatthe Biden Administration cease all criticism of China’s humanrights abuses and abandon other policies opposed by the CCP
undermined Beijing’s initial hopes for a reset in bilateral ties.
Section 2: China’s Nuclear Forces: Moving beyond a Minimal
Deterrent
China is engaged in an unprecedented buildup of its nuclear forces.
The PLA is constructing hundreds of new silos for its intercontinental ballistic missiles, growing its stockpile of warheads, developing a
nuclear triad, and improving the accuracy of its delivery systems. At
the same time, the PLA is enhancing the intelligence, surveillance,and reconnaissance (ISR) capabilities essential for strategic early
warning, ballistic missile defense, and rapid retaliation. These qualitative and quantitative changes to China’s nuclear forces signal a

15
clear departure from the country’s historically minimalist nuclear
posture.
The modernization, expansion, and diversification of China’s nuclear forces raise concerning questions about Chinese leaders’ intentions. A larger, enhanced nuclear arsenal could reinforce thecountry’s longstanding nuclear strategy, which achieves deterrenceby maintaining the means to survive and retaliate against an enemy’s nuclear first strike. Yet recent improvements in China’s nuclear forces clearly allow Chinese leaders to pursue a more ambitious
nuclear strategy of limited first use if they wish to do so. Moreover,the growing technological sophistication of China’s nuclear forces
could enable it to adopt more destabilizing nuclear postures, suchas launch-on-warning, which heightens the risk of an accidental nuclear exchange.
China’s nuclear buildup creates new risks and planning dilemmas
for the United States. Most importantly, China’s growing nuclear
capabilities raise the risks of unintentional nuclear escalation or adeliberate nuclear exchange during a conventional conflict in the Indo-Pacific. An offensive nuclear strategy could strain U.S. extended
deterrence by emboldening Chinese leaders to pursue conventional aggression or nuclear coercion against U.S. allies and partners.
Moreover, improvements in China’s nuclear forces could complicate
U.S. nuclear deterrence planning if the United States is forced forthe first time to account for contingencies involving two peer nuclear-armed adversaries. Beijing’s longstanding refusal to participate
in arms control also inhibits deeper arms reductions by the UnitedStates, exacerbates the anxiety of U.S. allies, and threatens to ignite
a global arms race.
Finally, the proliferation of dual-use items with nuclear and missile applications by China-based entities challenges regional security and the global nonproliferation regime. The nuclear and ballistic
missile technologies provided to Iran, North Korea, and Pakistan inviolation of various international agreements restricting the transfer of nuclear and missile technologies over the years continue tothreaten the security of U.S. allies and partners, such as Israel,
Saudi Arabia, South Korea, Japan, and India. Combined with thedirect threat posed by the PLA’s growing nuclear arsenal, the indirect threat posed by such proliferation will increase the pressures
on U.S. allies and partners to develop missile defenses and credible
second-strike capabilities of their own.
Key Findings• The People’s Republic of China is carrying out its most substantial effort to expand, modernize, and diversify its nuclear forces
since first acquiring nuclear weapons in the 1960s. The PLA isdeveloping a nuclear triad; fielding new, more mobile, and moreaccurate nuclear weapons systems; and significantly expanding
its stockpile of nuclear warheads. The PLA has also enhanced
its ISR systems.
• China’s nuclear buildup puts it on a trajectory to become a nuclear peer of the United States in qualitative terms. Qualitative
nuclear parity could entail diversified, reliable, and survivabledelivery systems; highly precise missiles; warheads of various

16
yields; robust command and control processes; and sophisticated
ISR, all of which enable a truly secure second-strike capability
and options for calibrated, offensive nuclear use. Current public projections suggest China could also become a quantitative
peer in the number of land-based strategic missiles it deploysby 2030.
• Strategic and political forces are driving China’s departure froma minimalist nuclear posture. For most of its modern history,
China maintained a small nuclear stockpile mainly suitable forminimal retaliation against an adversary’s nuclear attack. General Secretary Xi’s ambitions for great power status, combinedwith military objectives beyond minimal retaliation, have likely
motivated the recent buildup of China’s nuclear arsenal.
• At minimum, China’s nuclear buildup enhances its current retaliatory strategy by better enabling its nuclear forces to deteror respond in kind to a nuclear attack. Chinese leaders may
worry that innovations in other nuclear weapon states haveundermined their nuclear deterrent, requiring them to makechanges in order to keep up.
• The scale of China’s nuclear buildup, however, suggests it could
also be intended to support a new strategy of limited nuclear first use. Such a strategy would enable Chinese leaders toleverage their nuclear forces to accomplish Chinese politicalobjectives beyond survival, such as coercing another state or
deterring U.S. intervention in a war over Taiwan.
• Uncertainties created by China’s nuclear buildup heighten therisk of an accidental nuclear exchange or unforeseen nuclear
escalation during a regional conflict. Specific risks of nuclear escalation stem from entanglement between China’s nuclear andconventional capabilities, its desperation to avoid losing a conventional war in the region, and false alarms that could result
from its possible shift to a launch-on-warning posture.
• The PLA’s growing arsenal also casts “nuclear shadows” over
China’s disputes with its neighbors, many of whom are U.S. allies and partners. Improved nuclear capabilities could encourage Chinese leaders to coerce or initiate a conventional conflictagainst U.S. allies or partners in the region if they believe their
nuclear capability would deter the United States from intervening.
• China has continued to play a concerning role in the global proliferation of missile and nuclear technologies, though the manner in which this proliferation occurs has evolved over time.
Whereas two decades ago the Chinese government and stateowned enterprises were the main source of missile and nuclear
technologies, Chinese companies and private individuals now
play a dominant role in the proliferation of such goods to countries of concern. The Chinese government turns a blind eye to,and in some cases tacitly supports, these illicit activities.

17
Chapter 4: A Dangerous Period for Cross-Strait Deterrence:
Chinese Military Capabilities and Decision-Making for a
War over Taiwan
Decades of concerted modernization by the PLA have shifted themilitary balance in the Taiwan Strait and dangerously weakened
cross-Strait deterrence. Today, the PLA either has or is close toachieving an initial capability to invade Taiwan—one that remains
under development but that China’s leaders may employ at highrisk—while deterring, delaying, or defeating U.S. military intervention. The PLA’s development of this capability has involved years of
campaign planning and advancements in anti-access and area denial capabilities. China has also demonstrated significant improvements in its shipbuilding capacity to bolster amphibious and civilian
sealift, both of which the PLA has used in amphibious landing exercises. The PLA will continue to develop all of these capabilities toenhance Chinese leaders’ confidence that it can successfully execute
an invasion campaign.
Cross-Strait deterrence still holds today because Chinese leaders
remain deeply concerned about the uncertain success of an attempted invasion as well as its risks and consequences. Failed attempts
by the PLA to invade Taiwan or to counter U.S. intervention risk
undermining the CCP’s legitimacy. The PLA still suffers from significant weaknesses in joint operations and personnel quality, contributing to uncertainty among China’s top leaders. A decision to
invade Taiwan also risks destabilizing regional trade flows and supply chains, damaging the most productive segments of the Chinese
economy and threatening other economic and political objectives associated with China’s national rejuvenation. Lastly, Chinese leaders
must consider the difficulty of controlling Taiwan’s population after
an invasion and responding to the international fallout from a conflict. U.S. measures that deepen Chinese leaders’ anxieties about
these risks are likely to enhance deterrence.
Taiwan is an important U.S. partner and a beacon for democracyin the region. Taiwan President Tsai Ing-wen has taken important
initial steps to address the cross-Strait military imbalance by increasing Taiwan’s defense budget and fostering Taiwan’s indigenous
defense industry. Nevertheless, the deterrence challenge facing U.S.
and Taiwan leaders will continue to grow more acute as the PLA
improves its capabilities. The United States has historically leaned
on its conventional military advantages to deter China. The question is whether and to what extent those tools will be effective if
the PLA continues to consolidate its military advantages within thefirst island chain.
Key Findings• Cross-Strait deterrence is in a period of dangerous uncertainty.
Improvements in China’s military capabilities have fundamentally transformed the strategic environment and weakened themilitary dimension of cross-Strait deterrence. China’s increasingly coercive approach to Taiwan puts almost daily pressure
on the cross-Strait status quo and increases the potential for a
military crisis.

18• Chinese leaders likely set 2020 as a key milestone for the PLA
to develop the capabilities needed to invade Taiwan. To achieve
this goal, for nearly two decades the PLA has systematicallyplanned, trained, and built the forces it believes are required to
invade the island. The PLA has already achieved the capabilities needed to conduct an air and naval blockade, cyberattacks,and missile strikes against Taiwan. PLA leaders now likely assess they have, or will soon have, the initial capability needed
to conduct a high-risk invasion of Taiwan if ordered to do so by
CCP leaders. They will continue enhancing this capability inthe coming years.
• Any near-term PLA invasion would remain a high-risk option.
Such an operation would rely on the success of the PLA’s moredeveloped cyberattack, missile strike, and blockade capabilities
to sufficiently degrade, isolate, or defeat Taiwan’s defending
forces as well as its anti-access and area denial capabilities toprevent decisive U.S. intervention. The PLA’s current military
sea and air lift capacity could carry an initial landing force of
25,000 or more troops. China has developed substantial capabilities to use civilian ships in military operations, providing
capacity for the PLA to land additional troops on Taiwan after
securing a beachhead.
• Given these developments, it has become less certain that U.S.
conventional military forces alone will continue to deter China’s
leaders from initiating an attack on Taiwan. A deterrence failure is most likely to occur if Chinese leaders believe the UnitedStates is not militarily capable of or politically willing to intervene, or if they interpret ambiguities in U.S. policy to meanthat opportunistic Chinese aggression against Taiwan will not
provoke a decisive U.S. response. General Secretary Xi’s higher
tolerance for risk and desire to establish a lasting legacy could
also contribute to a decision by China’s leadership to attack Taiwan despite U.S. warnings.
• Still, whether and when to invade Taiwan is a political rather
than a military question for CCP leaders, who continue to facesubstantial constraints on any decision to use force. These include the inherent uncertainty of a military confrontation with
the United States, the extensive damage that would likely result to the Chinese economy, and the risk that an attack on
Taiwan could prompt the formation of a coalition of countries
determined to constrain any further growth in China’s power
and influence.
• Taiwan has taken important steps toward asymmetrically defending against a PLA attack, achieving successes in developing indigenous missiles threatening a PLA invasion or blockade.
Nevertheless, Taiwan faces significant challenges from decadesof underinvestment in defense, leaving it with low stockpiles ofcritical resources for enduring a PLA blockade. Some militaryleaders are also resisting steps to adopt a more asymmetric posture.

19
Chapter 5: Hong Kong’s Government Embraces
Authoritarianism
Hong Kong has long been recognized as a center for global business and a vibrant multinational culture, but these advantages are
at risk as the government rapidly dissolves freedoms in the city.
The 1,283 U.S. companies and estimated 85,000 U.S. citizens residing in Hong Kong, as well as any who transit the territory, must
now contend with the possibility of arrest. Although the Hong Kong
government continues to emphasize its openness to business andpromote new investment mechanisms, it is increasingly difficult todetermine which business activities will remain safe from politicalintervention. This blurred line, along with the fear of being charged
under the National Security Law, presents growing risks not only to
Hong Kongers but also to the future of U.S. businesses, nonprofits,
and employees in Hong Kong.
A year since the Chinese government directly implemented the
National Security Law in the territory, the Beijing-controlled Hong
Kong government has transformed the city into a police state. Despite the Hong Kong government’s assurances that the law would
not be enforced retroactively, prosecutors have frequently citedonce-legal activities as evidence to charge defendants with what are
now considered to be national security crimes. The introduction of
the National Security Law destroyed the legal system that had prevailed in Hong Kong since 1997, rendering meaningless the rights
enshrined in the Basic Law, Hong Kong’s mini constitution. Handpicked judges now oversee all national security cases, and even if
defendants are ultimately acquitted, their inability to obtain bailmeans they may still face years in prison simply for being charged
with a crime.
Authorities have gone to great lengths to intimidate prodemocracy
advocates, eliminate any potential sources of dissent, and effectively
erase Hong Kong’s civil society. In January 2021, Hong Kong policearrested dozens of would-be opposition candidates en masse, setting
the tone for a year of systemic repression across all institutions in
the city. In March, the central Chinese government approved newrules designed to guarantee that only pro-Beijing candidates would
be able to run for office in Hong Kong, setting the conditions fordeepening authoritarianism in the territory. The Hong Kong government and pro-Beijing entities stripped Hong Kong media organizations of their independence, resembling censorship observed in the
Mainland’s heavily constrained media environment. Changes to educational curricula force Hong Kong’s educators to parrot CCP-approved propaganda, while civil servants must swear a new loyalty
oath to the Hong Kong and central Chinese governments.
Key Findings• In the past year, the CCP-controlled Hong Kong government’s
implementation of the National Security Law upended the city’ssocial and political environment. The government now views
peaceful political participation as inherently subversive, andthe authorities are targeting many across a broad cross-sectionof the population under the new law.

20
• Changes to Hong Kong’s elections and the composition of its
legislature now ensure pro-Beijing lawmakers will always havea majority, turning the once-competitive Legislative Council
into a rubber-stamp parliament.
• In the year since the imposition of the National Security Law,
Hong Kong experienced a net outflow of 87,100 permanent andnonpermanent residents. A new immigration bill that enteredinto force in August 2021 gives the Hong Kong government thepower to block travel. The government now has the legal authority to enact “exit bans” or to prevent critics of the Hong
Kong government or China’s central government from entering
the territory.
• Changes to Hong Kong’s educational curricula under the National Security Law now require teachers to promote the CCP’sinterpretation of history, and authorities are using these new
powers to fire them for unapproved speech. Educators are forced
to distort reality and history to portray the Party in a positive
light.
• Judges overseeing national security cases in Hong Kong are now
chosen from a list compiled under the supervision of the territory’s new national security apparatus, effectively stripping theHong Kong judiciary of its former independence. The changes enable the Hong Kong government to ensure all national security
cases are assigned to progovernment preferred judges, guaranteeing outcomes favorable to the government and the CCP.
• The National Security Law allows the Hong Kong government
to curtail the city’s freedoms with little notice or process. Authorities introduced strict film censorship rules overnight inJune 2021, and independent and prodemocracy media organizations have been systematically dismantled. Prodemocracy
Chinese-language newspaper Apple Daily was shut down after
the government froze its assets and arrested senior personnel,
having previously arrested its owner. Remaining media organizations have lost key staff and resources, and in other cases
mainland investors are acquiring control of publishers. The city
can introduce comprehensive internet censorship similar to theMainland’s Great Firewall at any time.
• Strict implementation of the National Security Law is stripping Hong Kong of long-held advantages that made it a global
financial center. While Beijing relies on Hong Kong to boost capital flows and innovation in the Guangdong-Hong Kong-Macau
Greater Bay Area, foreign companies are now more likely to findit advantageous to operate elsewhere in Asia, including in mainland China. Changes diminishing corporate transparency andweakening rule of law endanger U.S. businesses in Hong Kong.
• Hong Kong’s business environment is increasingly “Mainlandized,” which is likely to increase as the city is integrated further into the Greater Bay Area. Chinese companies are growing
their presence in Hong Kong as both the Chinese and Hong
Kong governments build greater incentives for Mainland immigration into the territory.

21
THE COMMISSION’S KEY RECOMMENDATIONSThe Commission considers 10 of its 32 recommendations to Congress to be of particular significance. The complete list of recommendations appears at the Report’s conclusion on page 491.
The Commission recommends:
1. Congress consider comprehensive legislation to address risks to
U.S. investors and U.S. interests from investments in Chineseequity, debt, and derivative instruments by:• Prospectively prohibiting investment in Variable Interest Entities (VIEs) linked to Chinese entities.
• Absent prohibition, ensuring that the risks of investments in
VIEs linked to Chinese entities are more prominently identified for investors, including that the VIE structure is illegal
under Chinese law, and that taxpayer subsidies do not support investments in such entities. Provisions that should beconsidered in support of this goal include:○ Requiring prominent identification of the potential highrisk for investments in VIEs linked to Chinese companiesby: Identifying VIEs linked to Chinese companies as such intheir stock trading symbols on U.S. exchanges.
 Requiring that broker-dealers provide risk warning labels on the potential lack of legal recourse for investors
for their investments in VIEs linked to Chinese entities.
○ Prohibiting preferential federal tax treatment on losses andgains on investments in VIEs linked to Chinese entities
made after the passage of appropriate statutory provisions.
• Directing the U.S. Securities and Exhange Commission (SEC)
as part of its evaluation of potential guidance on reportingon environmental, social, and governance matters by publicly
traded companies to require reporting of:○ Sourcing and due diligence activities of such companies involving supply chains that are directly or indirectly linked
to products and services utilizing forced labor from Xinjiang.
○ Transactions with companies that have been placed on the
U.S. Department of Commerce’s Entity List or those designated by the U.S. Department of the Treasury as Chinese
Military-Industrial Complex Companies.
• Requiring index providers that include within their indicessecurities issued on mainland Chinese exchanges or the Hong
Kong Stock Exchange, securities of China-headquarteredcompanies listed on U.S. exchanges through a VIE, or derivative instruments of either of the preceding types of securities,
be subject to regulation by the SEC.
2. Congress take urgent measures to strengthen the credibility of
U.S. military deterrence in the near term and to maintain theability of the United States to uphold its obligations established22
in the Taiwan Relations Act to resist any resort to force thatwould jeopardize the security of Taiwan, including:• Authorizing and funding the deployment of large numbers ofantiship cruise and ballistic missiles in the Indo-Pacific;• Authorizing and funding the requests of U.S. Indo-PacificCommand (INDOPACOM) for better and more survivable intelligence, surveillance, and reconnaissance in the East andSouth China Seas;• Authorizing and funding the requests of INDOPACOM for
hardening U.S. bases in the region, including robust missile
defense;• Authorizing and funding the stockpiling of large numbers of
precision munitions in the Indo-Pacific; and• Authorizing and funding programs that enable U.S. forces tocontinue operations in the event central command and control is disrupted.
3. Congress ensure the effective implementation of the Export
Control Reform Act of 2018 and the Foreign Investment Risk
Review Modernization Act of 2018 by enacting legislation that:• Creates a Technology Transfer Review Group (TTRG) within the Executive Office of the President responsible for identifying emerging and foundational technologies. The TTRG
should be chaired by the secretary of defense and include thedirector of the Office of Science and Technology Policy alongwith Cabinet-level secretaries or their designees from the U.S.
Departments of Commerce, Energy, and Homeland Security.
• Authorizes the TTRG to direct the Department of Commerce’s
Bureau of Industry and Security to implement export controls following the identification of these technologies.
• Authorizes and requires the TTRG to oversee multilateralengagement related to export controls, foreign investment
screening, and regulations over technology transfer by relevant agencies to ensure that such engagement does not undermine U.S. national and economic security interests.
• Require that additional resources be provided to improve andexpand end-user verification of export controls. Export licenses to the following entities should receive strict scrutiny:
end-users identified as Chinese Communist Military Companies per section 1237 of the National Defense Authorization
Act for Fiscal Year 1999, those identified as contributors to
China’s military-civilian fusion activities per section 1260H of
the National Defense Authorization Act for Fiscal Year 2021,
entities with direct and formal ties to the Chinese Communist Party (CCP) or government, and entities identified by the
U.S. Trade Representative, U.S. Department of Justice, andFederal Bureau of Investigation as being linked to efforts tosteal or coerce the transfer of U.S. intellectual property. The
inability to identify end-user facilities and, if identified, the23lack of adequate and timely access to these facilities should
strongly inform investigating officials and licensing officials.
• Require that the TTRG engage with the Department of Justice, the Department of Commerce’s Bureau of Industry andSecurity, and other relevant agencies to align “deemed export”
controls with engagement on knowledge transfer and expert
recruitment strategies such as the 1,000 Talents Program aswell as investigations of the CCP’s United Front Work Department and other entities and programs of the CCP designed to acquire U.S. technology and capabilities.
4. Congress consider legislation to create the authority to screen
the offshoring of critical supply chains and production capabilities to the People’s Republic of China (PRC) to protect U.S. national and economic security interests and to define the scopeof such supply chains and production capabilities. This would
include screening related outbound investment by U.S. entities.
Such legislation would direct the secretaries of defense andcommerce, along with the U.S. Trade Representative, to develop
procedures to evaluate existing and proposed supply relationships with the PRC and identify whether critical U.S. interests
are being adversely affected, including the loss of domestic production capacity and capabilities. The legislation would authorize the president to take appropriate action, including prohibiting supply relationships or certain transactions to protect U.S.
national security.
5. Congress enact legislation expanding the jurisdiction of existing
U.S. investment restrictions targeting Chinese entities placedon the Non-Specially Designated Nationals (SDN) Chinese Military-Industrial Complex (NS-CMIC) Companies List as well as
the scope of entities to be targeted by such restrictions. Suchprovisions should include:• Expanding the prohibitions relating to transactions and supporting work by U.S. persons in NS-CMIC securities covered
by Executive Order 14032 to include the execution, support,
or servicing of transactions by U.S. persons in any market orfor any other person, including both U.S. and non-U.S. persons; and• Providing additional resources to ensure that a more comprehensive list of entities engaged in supporting the Chinese
military-industrial complex be published and that subsidiaries supporting such entities be included on the list. In identifying entities that should be evaluated for inclusion in suchdesignations, authorities should include companies designated by Chinese securities issuing and trading entities as supporting the military-industrial complex.
6. Congress prevent the erosion of U.S. strategic nuclear superiority and respond to China’s qualitative and quantitative theater
nuclear advantages by directing the Administration to continue
implementation of the Obama-Trump Program of Record for nuclear modernization.

24
7. Congress direct the SEC to require that publicly traded U.S.
companies with facilities in China report on an annual basis
whether there is a CCP committee in their operations and summarize the actions and corporate decisions in which such committees may have participated.
8. Congress consider comprehensive legislation to ensure Chinese
entities sanctioned under one U.S. authority be automaticallysanctioned under other authorities unless a waiver is grantedby the president or the authority applying the initial sanction.
This legislation should rationalize existing U.S. sanctions targeting adversarial Chinese entities to ensure, for example, Chinese firms placed on the Entity List and/or Military End User
List of the Department of Commerce are also placed on the NSCMIC and vice versa.
9. Congress mandate from Treasury an annual update of the accurate U.S. portfolio investment position in China since 2008,
including money routed through offshore centers, such as the
Cayman Islands. This should include exposure for:• Individual Chinese sectors;• U.S. institution types, such as state pension funds;• Sanctioned Chinese entities (Entity List, NS-CMIC List, andothers);• Individual Chinese recipients who receive more than a minimum amount, such as $100 million; and• Individual U.S. investors with more than a minimum share of
the total, such as 2 percent.
10. Congress direct U.S. Customs and Border Protection to initiate
action to impose a region-wide Withhold Release Order on products originating from Xinjiang, China. In addition, Congressshould require the Department of Homeland Security to provide
a comprehensive list of technologies needed and an outline of
the resources required to enforce the Withhold Release Orderand address other instances of China’s use of forced labor.

INTRODUCTION
In 2021, the Chinese Communist Party (CCP) marked the centennial of its founding with boastful confidence, declaring the superiority of its system over a supposedly declining United States andliberal international order. The CCP not only celebrated its successes in overseeing China’s transformation into a formidable power on
the world stage but also presented its political and economic modelto the world as superior to democracy and capitalism. General Secretary of the CCP Xi Jinping reflected this outlook in a July speechin Tiananmen Square marking the Party’s centennial celebration,
claiming the CCP had used Marxism to “seize the initiative in history” and create a “new model for human advancement.” *Behind the CCP’s outward confidence, however, top leaders increased their warnings to guard against threats to the regime. In
late 2020, citing General Secretary Xi’s collection of speeches, The
Governance of China, a new Party study guide warned that theeconomic, social, and technological challenges facing China werelong-term and would only become more severe. To overcome thesechallenges, the study guide concluded that the CCP must act forcefully to defuse risks and neutralize potential threats. Channelingthis guidance, in 2021 Chinese leaders grew increasingly willing towield all tools of national power.
The application of these tools had clear patterns:
1. Increased internal repression in Hong Kong, Xinjiang, andTibet coupled with greater willingness to respond to ensuingforeign criticism using economic coercion. In the past, China tended to avoid such economic conflict with the UnitedStates. Over the past year, the United States may have been
the main target.
2. Broadened state intervention in the economy to achieve the
CCP’s economic, social, and political goals. This was unsurprising after the novel coronavirus (COVID-19) outbreak but
evolved in mid-2021 into a crackdown on nonstate sector capital raising. Along with the financial weakness demonstrated
by Evergrande, the CCP’s crackdown poses risks that passive U.S. investors may not understand. At the same time,
Chinese policymakers are courting foreign capital and fundmanagers as they work to make China’s capital markets
serve as a vehicle to fund the CCP’s technology development
objectives and other policy goals.
3. Expanded capabilities of the People’s Liberation Army emphasizing a buildup in nuclear forces. This expansion backed* Xinhua, “Xi Jinping: Speech at the Celebration of the Centenary of the Founding of the Chinese Communist Party” (习近平: 在庆祝中国共产党成立一百周年大会上的讲话), July 1, 2021. Translation.

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confrontational behavior with India and Taiwan, among others. In Taiwan in particular, the United States faces doubts
about U.S. deterrence which can only intensify in the shortterm without decisive steps to address them.
China’s strengths and the threats it presents to U.S. interests
are considerable. At the same time, the CCP’s own challenges are
numerous. Increasing rigidity within the CCP’s decision-making
process has allowed little course correction from existing policy direction, even when those policies appear to be ineffective. In consolidating power and ideological authority, General Secretary Xi has
contributed to CCP leaders’ unwillingness to tolerate criticism or
admit policy failure. Doing so would negate the Party’s narrative ofsuperiority and call into question its prediction of eventual triumphover the United States and other democratic countries. As General Secretary Xi attempts to further consolidate power ahead of the
CCP’s 20th National Congress next year, the Party’s decision-making process is likely to become even more inflexible and brittle.
The CCP was and is aggressively advancing its economic interests
to control global resources and markets and influence decision-makers. Its path through Africa and Latin America offers a clear example of its new way of colonizing. Combined with the escalation inprojection of power across land, sea, space, and the cyber domain,
China is engaged in a systematic effort to attack, oppress, erase, andmarginalize the people whose opinions, sociocultural and educational values, religion, and ethnicity it sees as threats to its goals andapproach. Whether spreading fake information designed to interfere
in elections in Australia; gutting the education system and judiciaryin Hong Kong; or carrying out belligerent military incursions acrossthe borders or into the airspace of India, Japan, and Taiwan, China
has transitioned from shaping global institutions from within to using punishing sanctions and economic, political, and military power
in a campaign to bend the will and destroy the identities of individuals and nations to serve a narrative of a rising China.
As Beijing attempts to curb the aspirations of a rising generationof entrepreneurs, leaders, and advocates of democracy, the message
is clear. National sovereignty along with constitutional rights, civiland human liberties, and free market economic values are impediments to the CCP goals of a “community of common human destiny,”
which in simplest terms is the Party’s ever-expanding control overits own people and other nations’ citizens as well.
At stake in this clash of identities and sovereignty is the safety and security of the United States and its partners, friends, andallies. The CCP is a long-term, consequential, menacing adversary
determined to end the economic and political freedoms that have
served as the foundation for security and prosperity for billions
of people. Each decision the United States makes over the coming
months and years must be taken in consultation with concerned
partners and be purposefully directed at upholding an international
system that has largely served us well. Otherwise, we will continue
to see the slow but certain erosion of the security, sovereignty, andidentity of democratic nations.

CHAPTER 1
U.S.-CHINA GLOBAL COMPETITIONSECTION 1: THE CHINESE COMMUNISTPARTY’S AMBITIONS AND CHALLENGES ATITS CENTENNIAL
Key Findings• The Chinese Communist Party (CCP) views the 2021 centennialof its founding as a time for both great confidence and great
caution as it seeks to consolidate domestic and international
support ahead of key political goals in 2035 and 2049. Througha widespread propaganda campaign, it has promoted a triumphalist narrative while omitting any mention of the CCP’s serious shortcomings and heavily censoring dissenting opinions.
The CCP’s triumphalism derives both from a genuine belief in
its own superiority and from the need to sustain its authoritarian system.
• CCP leaders publicly express confidence that China will prevailin an ideological and civilizational clash with the United Statesand other democracies they refer to as “the West.” Chinese leaders portray the United States as a waning superpower on apath toward inevitable decline and believe China will be able tocontinue expanding its power and influence globally.
• China confronts a range of challenges that undermine the CCP’s
triumphalist narrative. Economically, China faces a set of structural problems, including growing debt, income inequality, demographic decline, and technological dependence on the UnitedStates and other advanced democracies that policymakers havebeen only partly willing or able to address. Politically, the CCP
is concerned about internal disunity, corruption, and a lack ofideological conviction within its ranks.
• The CCP also perceives the international environment as becoming increasingly hostile to the Party’s aims. This view has
sharpened as the United States and other countries have more
firmly pushed back against China’s actions, including its policies in Xinjiang and Hong Kong, its handling of the novel coronavirus (COVID-19) pandemic, economic coercion, and Chinese
diplomats’ aggressive approach to foreign policy. External pressure has increased CCP paranoia about the potential for external forces to amplify internal dissent and threaten its regime.
• Both the CCP’s confidence and its insecurity have contributed
to an uncompromising approach domestically and to the outside
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world. Regardless of how China’s internal and external environments develop, the CCP’s aggressive posture will likely harden
further as Chinese leaders confront the tensions between theirrhetoric and their challenges. The CCP is now likely to react inan aggressive manner either in order to defend itself against
perceived threats or to press perceived advantages.
Recommendations
The Commission recommends:• Congress hold hearings including Administration witnesses to
explore the advisability of forming an economic defense coalition with allies and partners. The object of such a coalition
would be to provide mutual support in the event of economic
coercion by the People’s Republic of China (PRC) against a coalition member. Such support could include:○ Commitments not to seek, at the expense of the coerced party,
market share created by China’s action;○ Formal complaints to the World Trade Organization (WTO);○ Assistance to the coerced party to reduce its incentive to comply with Chinese demands; and○ Imposition of retaliatory measures against China in supportof the coerced party.
• Congress direct U.S. Customs and Border Protection to initiate
action to impose a region-wide Withhold Release Order on products originating from Xinjiang, China. In addition, Congressshould require the U.S. Department of Homeland Security toprovide a comprehensive list of technologies needed and an outline of the resources required to enforce the Withhold Release
Order and address other instances of China’s use of forced labor.
Introduction
For the CCP, 2021 has been a momentous year. As it celebrated the hundredth anniversary of its founding, the CCP aimed toshow the world that it has transformed China into a prosperous
and powerful country that is prepared to assume and is deservingof a greater leadership role in international affairs.* In recent decades, after CCP leaders reversed some of their earlier disastrous
policies, such as the Great Leap Forward, hundreds of millions ofpeople have risen out of poverty while China has grown into theworld’s second-largest economy. These successes have emboldened
CCP leaders and contributed to their belief in China’s supposedly
inexorable rise. Throughout the year of the centennial, CCP leaders
praised the Party’s centralized control of politics, economics, and society and predicted the triumph of China’s model over that of theUnited States and other democratic countries they refer to as “theWest.” This triumphalist propaganda, however, hides the CCP’s ris* The CCP seeks to revise the international order to be more amenable to its own interests
and authoritarian governance system. It desires for other countries not only to acquiesce to its
prerogatives but also to acknowledge what it perceives as China’s rightful place at the top of a
new hierarchical world order. (For more, see U.S.-China Economic and Security Review Commission, “The China Model: Return of the Middle Kingdom,” in 2020 Annual Report to Congress,
December 2020, 80–135.)29
ing concerns that failing to demonstrate the superiority of its modeland address long-term challenges could jeopardize the Party’s domestic control and international influence.
While China’s leaders may have envisioned 2021 as a showcase
for China’s rejuvenation under the CCP, the year also made clear
the profound internal and external challenges facing the Party. The
COVID-19 pandemic cast a pall on the centennial celebrations, further stalled China’s already-slowing economic growth, and exposedserious shortcomings in CCP governance. Internally, China struggles with persistent inequality and an often unresponsive politicalsystem that is failing to deliver an improving standard of living formany citizens. Externally, China faces what it perceives as growing hostility as many countries, particularly democracies, push backagainst its distorting economic policies, predatory trade practices
and economic coercion, termination of Hong Kong’s autonomy, andrepression of Uyghurs and other minority groups in Xinjiang. The
United States and a number of other countries have determinedthat the Chinese government’s treatment of the Uyghurs constitutes
genocide.* CCP leaders also view the United States as an increasingly dangerous competitor with the capability of restraining China’s ambitions in the short term, even as they insist the UnitedStates is already in long-term decline.
Faced with these problems, the CCP has maintained its triumphalist rhetoric while responding more harshly to any criticism andopposition. General Secretary of the CCP Xi Jinping continues torestructure the Party-state to amplify his own power while suppressing political resistance. Over the past several years, the CCP
has put greater emphasis on China’s domestic economy and placeda greater portion of the economy under state and Party control, prioritizing economic control over addressing distortions. Instead of acknowledging that economic coercion and diplomatic aggression haveharmed China’s image abroad, China’s diplomats continued to lashout in response to even minimal challenges to China’s image, agenda, or priorities.
This section assesses the CCP’s worldview and priorities at thecentennial of its founding. The section begins by examining theideological and governance imperatives driving the CCP’s centennial propaganda push. The section then assesses the many challenges
undermining the CCP’s confident narrative. These challenges include
ongoing shocks from the COVID-19 pandemic, structural economic
deficiencies, an unaccountable political system, and growing international opposition to the CCP’s increasingly aggressive behavior.
It concludes by discussing the implications of Chinese leaders’ domestic and foreign policies for the United States. The section draws
from the Commission’s January 2021 hearing on “U.S.-China Rela* The U.S. government, Lithuania’s parliament, the Czech senate, the British House of Commons, the Dutch parliament, and the Canadian parliament have all described CCP repressionof Uyghurs as genocide. Inter-Parliamentary Alliance on China, “Czech Senate Declares China
Perpetrating Genocide on Uyghurs Ahead of Key Vote in Belgian Parliament,” June 14, 2021;
Andrius Sytas, “Lithuanian Parliament Latest to Call China’s Treatment of Uyghurs ‘Genocide,’ ”
Reuters, May 20, 2021; BBC, “Uyghurs: MPs State Genocide Is Taking Place in China,” April 23,
2021; Reuters, “U.S. Will Address Uighur ‘Genocide’ in Talks with Chinese: White House,” March
11, 2021; Reuters, “Dutch Parliament: China’s Treatment of Uighurs Is Genocide,” February 25,
2021; BBC, “Canada’s Parliament Declares China’s Treatment of Uighurs ‘Genocide,’ ” February
23, 2021; Michael R. Pompeo, “Determination of the Secretary of State on Atrocities in Xinjiang,”
U.S. Department of State, January 19, 2021.

30
tions at the Chinese Communist Party’s Centennial,” consultations
with experts, and open source research and analysis.
Centennial Drives a Triumphalist Narrative
At the July 1 celebration of the centennial of the CCP’s founding, General Secretary Xi struck a victorious tone. In his speech, hecongratulated the CCP for its contributions to “the rejuvenation of
the Chinese nation” over the past century and declared that China
had realized the CCP’s first centennial goal—building a “moderately
prosperous society in all respects” by 2021.1 General Secretary Xi
also expressed confidence in China’s future under the CCP, statingthat China was “marching in confident strides” toward the second
centennial goal—intended to be completed by 2049, the centennialof the founding of the People’s Republic of China—of “building China into a great modern socialist country in all aspects.” * 2
General Secretary Xi’s speech was the culmination of monthsof CCP effort to create an overwhelmingly positive narrative surrounding the centennial, devoting special attention to the Party’s
central role in China’s development. In January 2021, PolitburoStanding Committee member and propaganda chief Wang Huning
met with propaganda officials, where he “demanded all-out effortson the publicity work for the celebration of the 100th anniversaryof the founding of the CCP, and to tell well CCP stories to markthe Party’s centenary.” 3 In April 2021, the CCP Central Committee
published a notice outlining propaganda themes for the centennialcelebration, with a guiding theme of “forever following the Party.” † 4 In addition to stories in media outlets, the CCP also planned
Party-themed entertainment and events across the country.5 In
April 2021, China’s National Film Administration required all Chinese cinemas to show and promote at least two approved new orclassic propaganda films per week through the end of 2021.6 Local officials were expected to encourage attendance.7 The directive
stated that the film screenings will cultivate “love of party, country,
and socialism.” 8
The CCP also intensified efforts to censor and punish any organizations or viewpoints that could harm the Party’s image. In March,
China’s Ministry of Civil Affairs announced a nationwide crackdown
on “illegal” nonprofit organizations, including health organizations
and religious groups, as part of an effort to create a “good environment” ahead of the centennial celebrations.9 In April, the Cy* According to a 2017 speech by General Secretary Xi, the second centennial goal includes
several objectives, including achieving “material, political, cultural and ethical, social, and ecological advancement” as well as becoming “a global leader in terms of composite national strengthand international influence.” Xi Jinping, “Secure a Decisive Victory in Building a Moderately
Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese
Characteristics for a New Era,” October 18, 2017.
† In April 2021, the Central Office of the CCP issued a list of 80 propaganda slogans for thecentennial, 33 of which directly mention the CCP. Slogans included: “Unswervingly listen to theParty, and follow the Party unswervingly!”; “To achieve the great rejuvenation of the Chinese
nation, we must uphold the leadership of the CCP!”; and “Unswervingly persist in and perfect the
Party’s leadership and continue to advance the great new project of Party building!” As the ChinaMedia Project notes, such a release of propaganda slogans on a national level had not occurredin the post-1978 era until 2019, when a list of 70 slogans was published to celebrate the 70th
anniversary of the founding of the People’s Republic of China. Office of Shanghai Spiritual Civilization Construction Committee, “Propaganda Slogans of the Central Committee on Celebrating
the 100th Anniversary of the Founding of the Communist Party of China” (中央关于庆祝中国共产党成立100周年的宣传标语口号), April 12, 2021. Translation; China Media Project, “CCP Slogansfor 2021,” April 14, 2021.

31
berspace Administration of China launched a hotline where people
can report online users who “distort” CCP history, attack CCP leadership or policies, defame national heroes, or “deny the excellenceof advanced socialist culture.” 10 Chinese diplomats have also challenged foreign viewpoints critical of China and the Party, responding
to even minor criticisms with harsh and often offensive rhetoric.11
In one example of Chinese diplomats’ aggressiveness, Jojje Olsson,a Swedish journalist who has published articles critical of Beijing’s
policies in Xinjiang, said in April he had received threats from the
Chinese Embassy in Sweden.12 Communication from an embassy
official instructed Mr. Olsson to stop his critical coverage of China“or face the consequences of [his] actions.” 13
CCP Propaganda Themes
Dubious Claims of Victory in China’s “War on Poverty”
One of the central themes of the centennial propaganda campaign
has been Beijing’s assertion that it had eliminated “extreme poverty” by 2020, a goal first announced by General Secretary Xi in
2015.14 In April 2021, China’s State Council Information Office released a white paper titled “Poverty Alleviation: China’s Experience
and Contribution.” The white paper referred to poverty alleviation
as “a key task and index of realization of the First Centenary Goal”
and claimed unambiguous success in the CCP’s efforts, stating, “China has secured a complete victory in the battle against extreme
poverty, eliminating overall and extreme poverty for the first time inits history of thousands of years, and realizing a century-long aspiration of the Chinese people.” 15 Outside experts have identified serious shortcomings in the Chinese government’s methodology, however, and poverty and income inequality remain serious problems
in China (see “Poverty and Inequality Undercut Claims of Success”
later in this section).
Rewriting the History of the CCP’s COVID-19 Response
The spread of COVID-19 has caused economic disruptions andexposed the weaknesses of the CCP’s governance model. (For more,see “Setbacks Expose Shortcomings in the CCP’s COVID-19 Response” later in this section.) Nevertheless, the CCP has attempted
to revise the narrative regarding its management of the outbreakinto a positive propaganda story focusing on its efforts to limit domestic spread while attacking any negative coverage, both at home
and abroad, that tried to bring light to the pandemic’s origin or
China’s early failings. Throughout 2020 and continuing into 2021,
Chinese policymakers and media continued to promote a victorious
message. As reported cases of COVID-19 fell across China in early
2021, media reports celebrated the apparent return to normal daily
life, particularly in Wuhan, where the outbreak began and was most
severe.16
The CCP also continued to exercise harsh censorship of stories that could show China’s policymakers in a negative light. In
January, Chinese journalists reported being instructed by editors
to avoid mentioning the anniversary of the lockdown in Wuhan,
and social media networks reportedly deleted posts with the word
“whistleblower.” 17 In June, Radio Free Asia reported Chinese au-32
thorities in Guangdong were cracking down on information abouta COVID-19 outbreak in the province, including detaining two men
for “rumor-mongering” after they posted about COVID-19 on social
media.18
Promoting the CCP as a Development Partner
While most of the centennial propaganda has been for domestic
consumption, Chinese policymakers have also promoted a narrative of the CCP’s international achievements. In a December 2020
speech, Chinese State Councilor and Foreign Minister Wang Yi stated, “As we celebrate the historic hundredth birthday of the [CCP],
we will better communicate to the world the [CCP]’s track record ofgovernance.” 19 A prominent focus of the CCP’s external messaging
has been China’s role as an international development partner. In
March 2021, the People’s Daily ran a feature summarizing pro-CCP
news articles published that month by media outlets in Africa, Asia,
Europe, and Latin America.* According to the feature, the topics
in these articles—750 in total, printed in 12 languages in 40 countries—included foreign investment in China as well as China’s rolein global poverty reduction efforts.20 According to the China Media
Project, a research program in partnership with the University ofHong Kong, these propaganda pieces represent the CCP’s massive
efforts “to overcome what its leadership sees as a global discourse
power deficit.” 21Overtaking the United States
Chinese leaders expressed great public confidence in the country’s
future and the United States’ continuing decline.22 According to astatement following the October 2020 Fifth Plenum, CCP leaders
assess they can continue extending China’s “period of strategic opportunity” during which the country can continue developing andadvancing its power and influence while avoiding armed conflict.23
Foremost among the opportunities the top leadership identified at
the Fifth Plenum is a so-called “profound adjustment to the international balance of power,” a phrase the CCP uses to describe theincrease in China’s relative international strength.24 At a high-levelmeeting in January 2021, General Secretary Xi asserted “time andmomentum are on China’s side,” with other officials echoing his assessment.25
In keeping with their triumphalist narrative, Chinese leaders andscholars portray the United States as a declining power.26 General
Secretary Xi has prominently described the United States as a weakened superpower in a civilizational confrontation with an ascendant
China.27 In early 2021, other top CCP leaders began repeating thephrase “the East is rising and the West is declining,” attributing
the judgment to General Secretary Xi himself.28 Chinese scholars
have reiterated similar views. In April 2021, Zhang Shuhua, headof the Political Research Institute and School of Government Management at the Chinese Academy of Social Sciences, described the* According to David Bandurski of the China Media Project, while it is unknown whether the
CCP directly paid for all these articles, referred to as “media drops,” “the vast majority of thedrops would certainly have been paid for, and this would represent a substantial ad buy, runningto tens of millions of dollars.” David Bandurski, “Inside China’s Global Media Blitz,” China Media
Project, March 17, 2021.

33
United States as “contaminated with serious illness” and “waning
with age.” 29 He claimed the United States uses democratic values
mainly as cover for suppressing China and other states and insiststhat no matter how hard the United States tries to maintain its
global influence, “not only will it not prevail, it will actually accelerate its own decline” as other countries reject its leadership.30 A
May Xinhua article entitled “Reasons that a Hegemon Is Bound to
Decline” touted a similar theme and insisted the United States is“embarking on the beaten road” to decline.31
Ideology Drives the CCP’s Messaging
The CCP’s triumphalism likely derives both from a genuine belief
in its own superiority and from the need to legitimize and sustain
its one-party rule. In official statements, General Secretary Xi andother Party leaders assert that the CCP is the only political force
suited to lead China and will inevitably demonstrate the superiorityof its one-party system over liberal democracy. In his speech at the
19th Party Congress in 2017, General Secretary Xi described the socalled “scientific truth of Marxism-Leninism” as “a solution to China’s problems” and claimed that the CCP alone out of all politicalforces was able to fulfill the Chinese people’s desire for rejuvenation
after a history of humiliation by outside powers.32 In his lecture on
Party history in February 2021, General Secretary Xi told gathered
Party cadres that history reveals “why the Chinese Communist Party is capable, why Marxism works, and why socialism with Chinesecharacteristics is good.” 33 He also lectured on the need for Party
members to understand “how profoundly Marxism has changed China and changed the world.” 34
Lacking a representative governance system, the CCP also uses
claims about the superiority of its political model to justify its
authoritarian rule and views any criticism or admission of failure
as a threat to its legitimacy. CCP leaders thus feel obligated tohighlight what they consider to be advantages of China’s authoritarian system, even in the face of clear systemic failures. For
example, in January 2021, Xinhua described centralized government control as the “fundamental guarantee of China’s systemic
advantage” over other countries, echoing similar statements by
the People’s Daily in March 2020.35 In an interview in July 2021,
China’s Vice Foreign Minister Le Yucheng claimed that so-called“brilliant governance achievements” by the CCP constitute “themost convincing democracy.” 36 He similarly attempted to dismiss
the CCP’s widespread human rights abuses by claiming the Party
was not only “blameless” on human rights issues but “should also
be awarded gold medals.” 37 In December 2020, former Ministerof Public Security Guo Shengkun professed that China’s handlingof the COVID-19 pandemic demonstrated the superiority of the
CCP’s governance system.38 He cautioned, however, that the CCP
must continue demonstrating its alleged superiority to maintainthe security of the regime, warning that “momentum that is notflourishing is in decline; order that is not advancing is in retreat.” 39

34
Challenges to the CCP’s Triumphalist Narrative
The CCP’s centennial propaganda campaign masked Beijing’sview that it in fact faced a considerably more troubling state ofaffairs. A range of political, social, and economic problems belie thetriumphalist narrative the CCP promoted throughout 2021. The
ongoing economic shocks and international scrutiny of the CCP’shandling of the COVID-19 pandemic, along with growing international pushback against the CCP’s repressive policies in Xinjiang
and violation of its commitment to maintain Hong Kong’s autonomy, provide perhaps the most jarring contrast with the optimistic
image promoted by Beijing. Meanwhile, the CCP perceives itself as
engaged in a simultaneous struggle against domestic and foreign
threats it believes threaten the regime’s stability. As Sheena Chestnut Greitens, associate professor at the University of Texas, notedin her testimony to the Commission, the Party’s combative mindset
and intense paranoia stem in large part from its assessment that internal and external security threats to the regime are tightly linked
and have the potential to exacerbate one another.40
Setbacks Expose Shortcomings in the CCP’s COVID-19 Response
In March, China’s state media ran an interview with a Chinese
professor who claimed “China [had] essentially brought [COVID-19]
under control, while most of the West failed in implementing sterncontainment measures.” 41 While officially reported COVID-19 casenumbers have indeed fallen across China compared with the early stages of the pandemic, China’s stated success in suppressing
COVID-19 has come at the cost of lockdowns that have resulted in
massive economic disruption. In August, a single case of COVID-19
in a worker at Ningbo-Zhoushan Port, the world’s third-busiest port,
led to an almost two-week closure of a terminal that represented
approximately one-quarter of the port’s overall capacity.42 Authorities have shut down other ports due to COVID-19 infections among
workers, including the Yantian Port in Shenzhen, which led to shipping delays of more than two weeks.43 (For more on China’s closureof the Yantian Port, see Chapter 2, Section 1, “Year in Review: Economics and Trade.”) China’s government has also instituted strict
travel prohibitions and business closures upon detecting just a few
cases in a city. In September, for instance, after detecting a dozen
COVID-19 cases in Xiamen, a city with a population of 4.5 million
people, Chinese authorities prevented residents from leaving thecity in most cases and closed venues, such as libraries, bars, andmovie theaters.44
If official data are credible, China’s shutdown measures have notsignificantly harmed the economy. Contrary to most economists’ expectations, for example, China’s export data from August showed
25.6 percent year-on-year growth despite the Ningbo Port closure.45
Economists have warned, however, that a continuation of China’s
extreme lockdown measures will weigh down economic growth. In
September, an S&P Global Ratings report highlighted the economic risks that China’s zero-COVID policy posed to Chinese companies already struggling with economic headwinds, saying China’s
zero-tolerance approach may “push rating momentum further into

35
the negative if outbreaks continue to bring mobility restrictions that
disrupt large parts of the country.” 46
Suppressing the spread of COVID-19 cases in China is made moredifficult by the fact that Chinese-produced vaccines have lower efficacy rates than vaccines produced in other countries, such as theUnited States.47 This means that costly and disruptive lockdown
measures will remain a necessity, leading some experts in China toquestion the feasibility of China’s zero-tolerance COVID-19 policy.48
Zhang Wenhong, an infectious disease specialist who is viewed bymany Chinese citizens as a trusted voice on public health issues
in China, said that “the [July] Nanjing outbreak has prompted anational stress test and serves as food for thought for the future of
our pandemic response.” 49 Dr. Zhang acknowledged that China “willhave more to learn” on living with the virus.50 In some cases, interviews with Chinese experts who question China’s zero-tolerance
COVID-19 policy have been censored and removed from Chinese
media outlets.51
International Fallout from Handling of COVID-19
While the CCP has trumpeted its COVID-19 response as a success, international reception has been less laudatory. Ongoing international scrutiny of the origins of COVID-19 and Beijing’s initialhandling and coverup of the outbreak continue to bring the CCP’s
credibility into question. Chinese policymakers have obstructed international attempts to investigate the origins of COVID-19 in China, including the possibility that SARS-CoV-2, the virus that causes
COVID-19, accidentally leaked from a facility in China. In March,
the World Health Organization (WHO) released a joint report witha Chinese research team on the origins of COVID-19 based on an
investigation in January and February.52 While the report concluded
that a lab leak was “extremely unlikely,” many observers criticized
the Chinese government for not allowing the WHO investigators
sufficient access to facilities and data.53 In July, Tedros Adhanom
Ghebreyesus, WHO director-general, admitted there had been a“premature push” to rule out a lab leak.54 Dr. Tedros also proposeda second phase of the investigation, including audits of laboratories
and research institutions in Wuhan, this time publicly asking China“to be transparent and open and cooperate” on further investigations.55 Zeng Yixin, the vice minister of China’s National HealthCommission, rejected the proposal and said the WHO needed to get
rid of “political interference.” 56 In August, the Office of the Director of National Intelligence released an unclassified summary of its
classified report on the origins of the COVID-19 pandemic, whichfound that Beijing “continues to hinder the global investigation, resist sharing information and blame other countries, including theUnited States.” 57 (For more on the report, see Chapter 3, Section 1,“Year in Review: Security, Politics, and Foreign Affairs.”)
China is the predominant global supplier of personal protective
equipment (PPE).58 In early 2020, as reports of COVID-19 cases
in Wuhan emerged, Chinese authorities began aggressively implementing export controls on PPE, including both finished products,
such as face masks, and raw materials used to produce equipment.
These restrictions contributed to massive PPE shortages in the36
United States and in other countries.59 The global PPE crisis was
exacerbated by skyrocketing prices and China’s apparent prioritization of certain countries to receive PPE before others.60 Further, independent analysis confirms that a majority of certain U.S. importsof PPE, including from China, failed to meet necessary healthcare
safety standards.61
In addition to imposing export controls, China stockpiled massive
amounts of PPE. Before COVID-19 cases were widely reported outside of China, the CCP’s United Front Work Department orchestrated a campaign to purchase PPE items in countries around the worldand send them to China.* 62 A September 2021 report by Internet
2.0, an Australian cybersecurity company, also found that a number of Chinese government institutions in Hubei Province, where
Wuhan is located, sharply increased procurement of tests used todetect infectious diseases before Chinese authorities acknowledged
the outbreak.† 63 Test purchases nearly doubled from $5.7 million(renminbi [RMB] 36.7 million) in 2018 to $10.5 million (RMB 67.4
million) in 2019, with a sharp uptick beginning as early as May
2019.‡ 64
While China sold the vast majority of the PPE it exported, Beijing
also engaged in a diplomatic campaign of donating certain medical
equipment to other countries.65 These donations often came with political conditions, such as public statements of gratitude, and somerecipients have claimed that the Chinese equipment failed to meetbasic safety standards.§ 66 In 2021, China’s COVID-19 diplomacy efforts have shifted from medical equipment to vaccines. According
to data compiled by Bridge Consulting, a China-based consulting
firm, China has primarily sold rather than donated vaccines to other countries, selling 1.3 billion doses and donating 71.9 million asof October 4, 2021.67 (For more on China’s vaccine diplomacy, see
Chapter 3, Section 1, “Year in Review: Security, Politics, and Foreign
Affairs.”) Struggles with the effectiveness of vaccines developed by
the Chinese companies Sinovac and Sinopharm have undermined
Beijing’s external messaging, however. In April 2021, Gao Fu, thedirector for the Chinese Center for Disease Control and Prevention,
said China’s government was considering mixing vaccines as a wayof dealing with “not high” efficacy rates of existing vaccines.68 Mr.
Gao later said his remarks were taken out of context and that hewas speaking about “vaccines in the world, not particularly for China.” 69* The United Front Work Department is a Chinese government entity charged with extending
the CCP’s influence and control over non-Party organizations both domestically and abroad toadvance CCP policy objectives. For more on the United Front Work Department, see Alexander
Bowe, “China’s Overseas United Front Work: Background and Implications for the United States,”
U.S.-China Economic and Security Review Commission, August 24, 2018.
† The study assessed 1,716 procurement contracts for polymerase chain reaction (PCR) tests
from 2007 to the end of 2019 and found “significant and abnormal 2019 purchases of PCR equipment in Wuhan” by the following entities at the following times: the PLA Airborne Corps Military
Hospital in May 2019; the Wuhan Institute of Virology in November 2019; the Wuhan Universityof Science and Technology in October 2019; and the Hubei Province Districts Centers for Disease
Control and Prevention between May and December 2019. David Robinson et al., “Procuring fora Pandemic: An Assessment of Hubei Province (China) PCR Procurement Requirements,” Internet
2.0, September 2021, 2–3.
‡ Unless noted otherwise, this section uses the following exchange rate throughout: $1 = RMB
6.43.
§ For more on Beijing’s “mask diplomacy” in the beginning of the COVID-19 pandemic, see
U.S.-China Economic and Security Review Commission, Chapter 3, Section 1, “Year in Review: Security, Politics, and Foreign Affairs,” in 2020 Annual Report to Congress, December 2020, 347–349.

37Countries that have relied heavily on Chinese vaccines have struggled to contain COVID-19 outbreaks. In May 2021, Seychelles experienced a spike in COVID-19 cases, despite being the country withthe highest vaccination rate in the world at the time.70 Seychelles
had used vaccines supplied by Sinopharm for more than 60 percent of the doses administered at the time of the outbreak.71 Other
countries relying on Sinopharm vaccines, including Chile, Uruguay,
and Bahrain, also saw outbreaks continue even amid high vaccination rates.72 In July, Malaysia’s Ministry of Health announced thatonce its current supply of the vaccine was depleted it would stopusing vaccines made by Sinovac and begin using Pfizer vaccines.73
That month, Indonesia and Thailand announced they would begin
supplementing Sinovac doses with non-Chinese vaccines in order toimprove the efficacy of the immunizations.74 In September, the WallStreet Journal reported Brazil’s federal government had stopped negotiations to purchase an additional 30 million doses of the Sinovac
vaccine amid concerns over its efficacy against the Delta variant.75
Economic Challenges Jeopardize Long-Term Growth
Throughout 2021, CCP policymakers promoted an optimistic assessment of China’s economic trajectory despite persistent problems
in its economy. Beijing’s confidence is reflected in the 14th Five-Year
Plan (FYP) released in March 2021, which sets China’s top economic
policy objectives for 2021–2025.76 In an unusual move, along withthe 14th FYP the CCP also released a longer-range plan in March
2021 detailing goals for 2035, including doubling the size of China’s
2020 gross domestic product (GDP).* In order to meet this goal, China’s GDP would need to grow by an average of 4.7 percent annually
through 2035.77 This plan also carries an implicit goal of making
China the world’s largest economy by 2035, demonstrating CCP confidence in China’s continued economic growth.78 (For more on the
14th FYP, see Chapter 2, Section 2, “The Chinese Communist Party’s Economic and Technological Ambitions: Synthetic Biology, New
Mobility, Cloud Computing, and Digital Currency.”)
Even as the CCP claims China is on track to achieve its economic
ambitions, Beijing has admitted that China’s economic growth faces
increasing headwinds. At the October 2020 Fifth Plenary Session of
the 19th Party Congress, CCP leaders offered a frank assessment ofmany of China’s economic challenges:
Our country still faces acute problems of unequal and insufficient development; reforming critical steps of key domains
remains difficult; our innovation capacity does not matchthe needs of high-quality development; our agricultural
foundation is not strong enough; there is a large rural-urban divide; monumental work awaits on environmental
protection; and gaps remain in people’s livelihoods and insocial management.79* The release of such a long-term goal document is highly unusual, having occurred only one
other time in the past 25 years. Damien Ma, “Getting to $30 Trillion: China Aims for Largest
Economy by 2035,” MacroPolo, March 1, 2021.

38“Dual Circulation” Signals Greater Focus on China’s Domestic
EconomyThroughout 2021, the CCP has sharpened its emphasis on China’s
domestic economy, reflecting Beijing’s concerns about China’s international economic dependence. While CCP policymakers at the 2020
Fifth Plenum discussed domestic economic challenges, they signaled
greater concern than in years past about the country’s external economic challenges. According to Yuen Yuen Ang, associate professorof political science at the University of Michigan, compared with theFifth Plenum in 2015, which previewed the 13th FYP (2016–2020),
the 2020 Fifth Plenum paid comparatively less attention to domestic
challenges and placed paramount emphasis on COVID-19 and what
it views as an increasingly difficult international environment.80
Similarly, the 14th FYP notes that “China’s development environment faces profoundly complex changes,” including an international
environment that “is growing steadily more complex, with instability and uncertainty increasing significantly.” 81
One of the most visible manifestations of this trend has been the
CCP’s increasing invocation of the “dual circulation” strategy first
introduced at a Politburo meeting in May 2020. Dual circulation
remains vaguely defined but broadly calls for rebalancing China’s
economy away from export-led growth and emphasizing China’s
domestic consumption (referred to as the “domestic cycle”) over international trade and investment (referred to as the “international
cycle”).82 Through dual circulation, the CCP hopes to hedge against
what it views as an increasingly hostile international environment
by making China’s economy less dependent on external sources ofgrowth while making the rest of the global economy increasingly
dependent on China. At a high-level meeting in January, General Secretary Xi promoted dual circulation, saying, “Only by being
self-reliant and developing the domestic market and smoothing out[the domestic cycle] can we achieve vibrant growth and development, regardless of the hostility in the outside world.” 83
Even as the CCP has placed greater emphasis on China’s domestic economy, however, it has continued opening in certain sectors
where it wants to attract foreign capital and knowhow. At a press
conference in March, Premier Li Keqiang stated that China would“continue to take the initiative to open further” and said, “China willremain a key destination for foreign investment and a big market
to the world.” 84 Jude Blanchette and Andrew Polk of the Center
for Strategic and International Studies have described dual circulation as a “hedged integration” strategy, “engaging international
capital, financial, and technological markets when advantages canbe gained while simultaneously bolstering indigenous capabilities toavoid overreliance on the global economy—due to national security
concerns or the vagaries of global economic cycles.” 85
Poverty and Inequality Undercut Claims of Success
Although claims of eliminating extreme poverty have been crucial
to the CCP’s centennial propaganda campaign, the living standardsof many Chinese citizens remain low. In May 2020, Premier Li provoked controversy when he said 600 million Chinese citizens lived
on a monthly income of less than $155 (RMB 1,000).86 Dr. Ang tes-

39
tified before the Commission in January 2021 that “while this may
seem mundane to audiences outside of China, in effect, what he saiddeflated triumphalist narratives about China’s superpower rise.” 87
While General Secretary Xi celebrated China’s supposed eradication of extreme poverty in his centennial speech, throughout 2021
he also frequently spoke publicly about the need to pursue “common
prosperity.” * While the concept of “common prosperity” remains ill
defined, it entails greater attention to reducing income inequality. An
August 2021 meeting of the Central Commission for Financial andEconomic Affairs, the CCP’s top economic deliberation body, chairedby General Secretary Xi, signaled greater scrutiny of wealthy Chinese people and companies. A readout of the meeting said China“must reasonably adjust excessive high-income [sectors] and encourage high-income individuals and companies to make more contributions to society.” 88
The metrics, methodology, and accuracy of the CCP’s assertion of
victory over extreme poverty have met with considerable skepticism
among outside observers. The Chinese government’s threshold forpoverty is set at an annual income of $622 (RMB 4,000) per person
as of 2020, or $1.70 a day.89 While this standard is slightly higher
than the World Bank’s threshold for extreme poverty,† economists
have argued that it is nevertheless too low for a country with China’s aggregate wealth.90 A report published in June by Bill Bikales,
former lead economist for the UN in China, also found that the
CCP’s definition of poverty reduction overlooked significant portionsof China’s population. Notably, Chinese policymakers do not countany urban residents as being poor, even those who receive funds
from the Minimum Living Standard Assistance Program, China’s
largest social assistance program.‡ 91 The CCP’s poverty reduction
tally also did not include households that entered poverty in 2020 asa result of the economic slowdown caused by COVID-19.92 Moreover,
China’s official poverty statistics are difficult to verify, with “a conspicuous lack of detailed data that would allow an outside observer
to confirm or reject the accuracy” of China’s claims of eliminating
poverty.93 The report concluded that despite progress in poverty reduction, “China has not eradicated poverty—even extreme poverty.” 94* According to analysis by Bloomberg, General Secretary Xi mentioned “common prosperity” 65
times from January to mid-August 2021, more than the previous four years combined. Bloomberg,“Xi Doubles Mention of ‘Common Prosperity,’ Warning China’s Rich,” August 22, 2021.
† The World Bank’s threshold for extreme poverty is $1.90 a day in 2011 dollars in the UnitedStates. This is equivalent to $1.33 in China in 2020 after adjusting for U.S. consumer inflationand purchasing power parity between the United States and China based on World Bank data.
Purchasing power parity is a standard measure for determining the amount of money required
to purchase the same basket of goods and services across two countries, but economists disagree on the accuracy and the robustness of the measure. World Bank International Development
Program, World Bank Development Indicators Database, and Eurostat-OECD PPP Programme,“PPP Conversion Factor, GDP (LCU Per International $),” World Bank Group, September 15,
2021; International Monetary Fund and International Financial Statistics, “Official Exchange
Rate (LCU Per US$, Period Average),” World Bank Group, September 15, 2021; International
Monetary Fund and International Financial Statistics, “Inflation, Consumer Prices (Annual %),”
World Bank Group, September 15, 2021.
‡ Eligibility for the Minimum Living Standards Assistance Program is determined by local
governments based on the cost of living in a given locality. According to Mr. Bikales’s analysis,
setting separate urban and rural poverty lines “may be desirable” given the persistent urban andrural income gap. Doing so reveals an urban poverty rate as high as 14 percent, accounting for
120 million urban residents living in poverty. Bill Bikales, “Reflections on Poverty Reduction in
China,” June 2021, 34.

40
Some economists have also noted the most significant cause ofpoverty reduction in China since 1987 was simply the cessation ofdestructive economic policies. According to World Bank data, China’s
per-capita GDP in 1978 was below all other countries but five.95 As
Dan Rosen of Rhodium Group described in a 2014 review of China’s economic growth, “This greatly impoverished position did notcome naturally but reflected the immiserating mistakes of Mao-era
economic policy.” 96 A 2021 National Bureau of Economic Researchstudy on China’s poverty reduction examined the effectiveness ofdifferent policies and similarly concluded that “a large share of China’s success following Deng’s reforms reflected the prior failure of
the Maoist economic-policy model.” 97
Despite progress in reducing poverty, income inequality remains
a serious problem in China. As of 2019, China’s Gini coefficient—ameasure of income inequality—was 0.465, according to Chinese
government statistics.* 98 While this is an improvement from thepeak of 0.491 in 2008, China’s leaders have previously stated thatany Gini coefficient above 0.40 is potentially destabilizing.99 Income
inequality among China’s provinces is stark and particularly pronounced between urban and rural areas. In 2019, the average income of China’s three wealthiest provinces was 3.5 times higher
than that of the three poorest provinces.100 According to government
figures, the average disposable income of the wealthiest 20 percent
of Chinese households was approximately $11,600 (RMB 76,400) in
2019, which is more than ten times the disposable income of thepoorest 20 percent of households, at $1,100 (RMB 7,380).† 101 As
Elizabeth Economy, now senior advisor for China at the U.S. Department of Commerce, wrote in a May 2021 Foreign Affairs article,
persistent income inequality can thwart efforts to promote consumption in China and “limit economic growth and sustainability, weaken
investment in health and education, and slow economic reform.” 102
China’s Economic Growth Faces Structural Problems
Although Chinese officials acknowledge difficulties facing China’s
economy, some of the solutions the CCP has pursued appear likely
to exacerbate these longstanding problems. Even as China’s government strengthens its control of the economy, it worsens inefficient
allocation of capital and dampens the productivity of China’s workers. For the CCP, however, economic inefficiency is an acceptableprice to pay for ensuring its power is secured and its political objectives are met.
Rising Debt
In the wake of China’s stimulus-led recovery from the COVID-19
pandemic, China’s debt burden has further increased, stressing afinancial system still struggling to manage an unprecedented debt
* The Gini coefficient measures a country’s income inequality on a scale of 0 to 1. Higher Gini
coefficients indicate greater levels of inequality. A 2018 International Monetary Fund working
paper found China’s Gini coefficient was among the highest in the world. Sonali Jain-Chandra
et al., “Inequality in China—Trends, Drivers and Policy Remedies,” International Monetary FundWorking Paper, June 2018, 4.
† Disposable income in China includes wage and salary income, net business income, net property income, and net transfer income (i.e., government benefits and subsidies). China’s National
Bureau of Statistics, Households’ Income and Consumption Expenditure in 2020, January 19,
2021.

41
expansion following the 2008 global financial crisis.103 In 2016, China’s financial regulators launched a deleveraging campaign amid
fears over growing instability in the financial system. China’s debt
has continued to balloon, however, particularly over the past year
as the CCP used fiscal stimulus measures to address the economic
slowdown caused by COVID-19.104 By the end of the fourth quarterof 2019, China’s total credit * reached 262.9 percent of its GDP at$37.2 trillion (RMB 259 trillion), up from 178.8 percent at the endof 2010, according to data from the Bank for International Settlements.† 105 China’s debt growth accelerated between the end of 2019
and the end of 2020, rising to 289.5 percent of GDP.‡ In December 2020, former finance minister Lou Jiwei said government debt
would “increasingly become a threat to future fiscal stability andeconomic security” of China.106 The Chinese government has continued to emphasize the importance of debt reduction, listing deleveraging as one of the “five major tasks” for the year in the March 2021
government work report.107 (For more on debt problems in China,
see Chapter 2, Section 1, “Year in Review: Economics and Trade.”)Weak Consumption
In December 2020, China’s Ministry of Commerce said it would
promote dual circulation by increasing domestic consumption, echoing a longstanding goal of CCP policymakers. Nevertheless, Beijing
struggled to improve anemic consumption throughout 2021.108 For
decades, China’s growth has relied more heavily on investment
spending largely financed by the state, rather than consumption.
Since 2001, when China joined the WTO, household consumption
has fallen as a proportion of China’s GDP, indicating the structureof China’s economy has become more unbalanced at the expense ofhouseholds, even as the country grew wealthier.109 In 2001, household consumption accounted for 45.5 percent of China’s $1.3 trillion(RMB 11.1 trillion) GDP.110 As of 2019, household consumption accounted for 39.2 percent of China’s $14.3 trillion (RMB 98.7 trillion)
GDP—a proportion far below the share of economies such as Russia (51.1 percent), India (60.5 percent), Brazil (64.8 percent), or theUnited States (67.9 percent).§ 111 China’s relatively low consumption
levels reflect higher precautionary savings among Chinese households, a phenomenon that is driven in part by China’s limited social
safety net.112* The Bank for International Settlements’ measurement of total credit includes credit to thenonfinancial nonstate sector and to the government sector. It encompasses currency and deposits, loans, and debt securities. The Bank for International Settlements’ debt data do not include
special drawing rights (SDRs); insurance, pension, and standardized guarantee schemes; or otheraccounts receivable/payable, which the bank indicates should “be included in any comprehensive
picture of government debt.” These are not measured in the same way across countries, so their
exclusion makes international comparison more reliable. Bank for International Settlements, “Introduction to BIS Statistics.”† While total U.S. debt levels are comparable to China’s levels when measured as a proportionof each country’s GDP, U.S. total credit grew much more slowly between 2010 and 2019. At theend of 2019, total U.S. debt was 254 percent of U.S. GDP at $54.3 trillion, up from 248.7 percent
at the end of 2010. Bank of International Settlements, “Total Credit to the Non-Financial Sector(Core Debt)—As a Percentage of GDP”; Bank of International Settlements, “Total Credit to the
Non-Financial Sector (Core Debt)—In Billions of USD”; Bank of International Settlements, “Total
Credit to the Non-Financial Sector (Core Debt)—Domestic Currency Billions.”‡ U.S. debt grew more quickly than Chinese debt in 2020, rising to 295.5 percent of GDP at theend of the year. Bank of International Settlements, “Total Credit to the Non-Financial Sector.”§ Exchange rate based on World Bank data.

42This unbalanced model is related to China’s slowing growth inproductivity, or the amount of output that can be produced from agiven amount of inputs, such as labor and capital. Between 1978
and 2007, a period when China’s officially reported GDP per capita
grew an average of 8 percent a year, upward of 70 percent of thisgrowth was due to reallocation of resources from low- to high-efficiency sectors and firms.113 Since 2007, however, GDP growth has
mostly been driven by state-directed investment in infrastructureand housing projects, which faces diminishing returns even if it was
initially justifiable.* 114 The economic recovery from COVID-19 has
prolonged this imbalance, as much of China’s initial bounce-back
was due to heavy government spending and investment in industries such as real estate and infrastructure, while consumption gains
have remained weak.115 (For more on slowing productivity growthin China, see Chapter 2, Section 2, “The Chinese Communist Party’s Economic and Technological Ambitions: Synthetic Biology, New
Mobility, Cloud Computing, and Digital Currency.”)
Demographic Decline
According to the results of China’s latest decennial census, released in May 2021, China’s population was 1.41 billion people in2020, which is an increase of 72 million from the 2010 census—theslowest decade of population growth since at least the 1960s.116 China’s anemic population growth threatens to stall the economy as theworkforce shrinks.117 China’s population is also aging more quickly than other low- and middle-income countries, leading to higher
healthcare costs and pension payments, while the labor force (people
aged 16–59) has fallen for eight years in a row.† 118 At the National
People’s Conference in March, Premier Li said China would gradually raise its retirement age over the next five years and try toreach an “appropriate birth rate.” 119 Prospects for the CCP’s ability to reverse the population trends are dim, however. After Chinaraised the birth limit to two children for most families in 2016, thecountry saw a small increase in birth rates that year, but the rates
resumed their decline in 2017.120 According to statistics by China’s
Ministry of Public Security, there were ten million births in China
in 2020, a 15 percent decrease from 2019 births.121 In May 2021,
the CCP announced married couples could have up to three children and promised increased government support for child-rearing
expenses. Many Chinese people reacted to the announcement withindifference or even anger, noting having three children could resultin career setbacks or unbearable financial burdens.122 As Julian Evans-Pritchard, senior economist at Capital Economics, wrote, “Withsmall family sizes now well ingrained into the fabric of Chinese* China currently spends 25 percent of its GDP on construction investment, a higher proportion
than South Korea, Japan, or Taiwan spent during the peak of their construction investment in
the 1980s (Japan) and 1990s (South Korea and Taiwan). Houze Song, “Is China’s Productivity
Slowdown Here to Stay?” MacroPolo, February 3, 2021.
† China’s dependency ratio (the ratio of people younger than 15 or over 64 to the working-age
population) has grown from 36.5 in 2010 to 41.4 in 2019, according to World Bank data. This
growth has come almost entirely from an increase in people over 64. The proportion of Chinese
people over 64 to the working-age population increased from 11 in 2010 to 16.2 in 2019. World
Bank, “Age Dependency Ratio—China”; World Bank, “Age Dependency Ratio, Old (% of Working-Age Population)—China.”

43
society, there is little that policymakers can do to turn back theclock.” 123
Environmental Degradation
Decades of pursuing economic growth at any cost have left China
as one of the most polluted countries in the world. An estimated
80 percent of Chinese citizens are regularly exposed to air, water,
and land contaminants and pollution, compromising safety andwellbeing.* 124 China’s environmental degradation has led to higher
healthcare costs, slower economic growth, and increasing complaints
among Chinese citizens over quality-of-life issues, such as food contamination and air pollution.125 CCP leaders have acknowledged
the importance of finding more environmentally sustainable formsof growth, and the 14th FYP sets a goal of “new progress of ecological civilization” as well as more specific environmental targets,
such as an 18 percent reduction in carbon dioxide intensity overthe next five years.126 As of July 2021, China-headquartered firms
accounted for 56 percent of global capacity for coal plants plannedor under construction, according to Global Energy Monitor, a nongovernmental organization.† 127 In a September speech at the UN
General Assembly, General Secretary Xi said China would not build
new coal-fired power plants in other countries.128 According to Li
Shuo, a policy advisor at Greenpeace China, it was unclear whether
General Secretary Xi’s pledge applied to the nonstate sector or to
projects that have already been proposed, been approved, or begun
construction.129 Additionally, Mr. Li said it was unclear whether
the moratorium applied to the financing of projects in addition to
construction.130 China’s government has also long failed to deliver
meaningful emissions reductions domestically, particularly as local
governments continue to rely on coal-powered plants as an inexpensive source of energy, investment, and jobs.131 This reliance on coal
power seriously threatens China’s pledge to reach carbon neutrality
by 2060.132
Dependence on Foreign Technology
China remains highly dependent on foreign technology, somethingthat has concerned CCP policymakers for decades. In 2016, General
Secretary Xi said, “The fact that core technology is controlled byothers is our greatest hidden danger.” 133 Lacking domestic capacity,
Chinese companies are highly vulnerable to supply chain disruptions, including from U.S. export restrictions. In the second quarter of 2021, Chinese telecom giant Huawei reported a 38 percent
year-on-year fall in revenue, the third straight quarter of decline.134
Huawei executives have attributed their troubles to U.S. sanctions,* For example, in 2017 the average exposure of China’s population to particulate matter with adiameter of less than 2.5 micrometers (PM2.5), an important indicator of air pollution, was morethan five times the World Health Organization’s guidelines for average annual exposure. At 52.7
micrograms per cubic meter, China’s average PM2.5 exposure was the world’s 20th worst in 2017
out of 194 reporting countries and territories. World Bank, “PM2.5 Air Pollution, Mean Annual
Exposure (Micrograms Per Cubic Meter)”; World Health Organization, “Ambient (Outdoor) Air
Pollution,” May 2, 2018.
† Planned projects include those announced, pre-permitted, and permitted but not yet underconstruction. Capacity is measured as gross megawatts of energy output prior to subtracting thecapacity used for plant operations. Global Energy Monitor, “Global Coal Plant Tracker,” July 2021.

44
which restricted the company’s access to chips used in many of its
phones.* 135
Despite massive investment, the CCP has fallen far short of its
ambition of creating a self-sufficient domestic manufacturing baseto meet China’s technological needs. The Made in China 2025 Plan,
released in 2015, called for Chinese firms to produce 40 percent ofsemiconductors used in China by 2020 and 70 percent by 2025.136
In 2020, Chinese firms produced only 5.9 percent of semiconductors
used in China, with foreign-owned companies in China producing
an additional 10 percent, according to a research report by market research firm IC Insights.137 The CCP’s efforts to foster technological self-sufficiency have also highlighted the inefficiency ofChina’s state-led investment approach, with approximately 50,000
new Chinese firms registering as “semiconductor-related businesses” in 2020, nearly quadruple the number of registrants in 2015.138
These registrants included companies that had highly questionable
connections with semiconductors, including restaurants and realestate developers.139 In October 2020, a spokeswoman for China’s
National Development and Reform Committee said that some firms“with insufficient knowledge of integrated circuit development haveblindly entered into projects.” 140 The case of Wuhan Hongxin Semiconductor Manufacturing, a company founded in 2017, is a recent
illustration of this problem. In March 2021, the Chinese technology
company 36Kr reported that Wuhan Hongxin Semiconductor Manufacturing was a fraudulent business whose founder had no expertisein semiconductors.141 The company reportedly received an estimated $1.9 billion (RMB 12.4 billion) in government investments, bankloans, and contractor deposits before failing.142 (For more on China’s
efforts to achieve technological self-sufficiency, see Chapter 2, Section 2, “The Chinese Communist Party’s Economic and TechnologicalAmbitions: Synthetic Biology, New Mobility, Cloud Computing, andDigital Currency.”)
Domestic Disunity and Flagging Ideological Commitment
Threaten Political Control
In addition to its wide-ranging economic difficulties, the CCP faces significant challenges with internal disunity that appear to extend from the lowest-ranked CCP members to the highest levelsof the policymaking apparatus.143 The CCP top leadership feels a
growing sense of insecurity about flagging ideological commitment
and Party unity.144 In October 2020, China’s Ministry of State Security Party Committee published a study guide in the People’s Daily
for the third volume of General Secretary Xi’s book, The Governanceof China. The study guide warned the Party to “strengthen politicalacuity and political differentiation abilities” to “overcome the political paralysis disease where one lacks the will for struggle, cannot
smell out the enemy positions, cannot differentiate right and wrong,and does not understand the direction.” 145 In a forceful lecture in
February 2021, General Secretary Xi identified intra-Party threats* In May 2020, the U.S. Department of Commerce Bureau of Industry and Security issued arule restricting exports of U.S. semiconductors to Huawei. This was followed by a rule in August2020 that closed loopholes in the May 2020 rule, such as non-U.S. chip designers selling semiconductors they had contracted from other firms to Huawei. Ben Thompson, “New Huawei Rules,
What Now for Huawei, Apple’s Brand and China Inc.,” Stratechery, August 19, 2020.

45
as the biggest risk facing the CCP, warning that “the fortress iseasiest to break from the inside.” 146 State media commentary on
his speech further described the CCP’s hundred-year history as “thehistory of our Party . . . unceasingly guarding against the danger ofbeing disintegrated and corrupted.” 147
Persistent problems with corruption and questionable commitment
from lower-level cadres reveal core problems with the CCP’s claims
to superior governance. In his January 2021 work report, PolitburoStanding Committee member and Secretary for the CCP’s Commission for Discipline Inspection Zhao Leji described ongoing corruption
within the Party as a “political hazard” and bureaucratic formalism as“a stubborn chronic disease.” 148 In February 2021, General Secretary
Xi emphasized the importance of adhering to Party centralization andcriticized cadres for “not paying attention to implementing the major
policies of the CCP Central Committee.” 149 He admitted that many
CCP cadres “will not consider showing initiative” and “waste time inlazy governance,” calling increased attention to an ongoing problem
in which lower-level officials calculate it is politically safer to do very
little rather than take actions for which they may later be blamed.150
This failure of the CCP system is a direct consequence of politicalcentralization and the central government’s associated tendency toblame lower levels for problems.151 As Jacqueline Deal, president andCEO of the Long Term Strategy Group, testified before the Commission, such widespread unwillingness to take risks or innovate inevitably erodes the state’s adaptive potential and decreases its ability toreact to and navigate new situations.152
Evidence suggests disagreements even persist between some of
China’s most senior leaders. The widely reported conflict between
factions associated with General Secretary Xi and Premier Li is one
important example of these high-level disputes. As Dr. Ang argued inher testimony before the Commission, Premier Li’s faction continues
to advance an image of China as a developing county still lagging
far behind the United States, which contradicts General Secretary
Xi’s preferred triumphalist narrative.153 In September 2020, Yuan
Nansheng, vice president of the foreign ministry-affiliated thinktank the China Institute of International Studies and former Chinese consul general in San Francisco, warned that interpreting the
COVID-19 pandemic as a historic opportunity for China’s rise wasa “strategic misjudgment.” 154 His article was censored after goingviral on WeChat.155 In April 2021, an unnamed Chinese government
advisor also criticized China’s diplomatic strategy to outside media
for being too focused on “internal propaganda” and stressed that
China needs to “make more friends, fewer enemies.” 156
Also in mid-April 2021, former Premier Wen Jiabao published anessay memorializing his late mother in a Macau newspaper that mainland media censors interpreted as a criticism of General Secretary
Xi and outside observers described as a “remarkable” intervention incurrent politics by a Party elder.157 The former premier implied his
discontent with General Secretary Xi’s increasingly brutal leadershipby including the statement, “In my mind, China should be ‘a country
full of fairness and justice,’ and there should always be respect for
the will of the people, humanity and the nature of human beings.” 158
After the essay generated a social media storm within China, WeChat

46
and Weibo stepped in to block users from sharing it, and reprints ofthe piece were removed from the internet.159
An additional topic of debate among the CCP leadership is China’s policy toward the United States. In December 2020, Xinhua
published a sharply worded commentary that poured vitriol on unspecified Chinese officials for taking too soft a stance on relations
with the United States.160 The article’s prominence revealed a view
among the highest echelons of the CCP that certain officials’ desire
for a less confrontational approach to the United States posed a sufficient threat to merit public condemnation.161 The author accusedthese officials of “worshipping America,” “kneeling to America,” and“bowing their heads and gluing their ears” to the United States.162
The article further accused them of suffering from ideological “softbone disease” and having “lost basic judgement” and exhorted readers to “resolutely struggle [against them], pierce through their disguises, eliminate their influence, and not allow wrong values to leadthe people’s hearts astray.” 163
Expanding Domestic Control Measures
In an effort to maintain political stability in the year of its centennial, the CCP has continued to tighten the political consolidationand domestic control measures that have characterized General Secretary Xi’s rule. In March, the National People’s Congress passed anamendment that could facilitate General Secretary Xi’s selection ofa political ally to replace Premier Li when the latter’s term as StateCouncil premier expires in 2023.* 164 In 2021, General Secretary Xi
escalated his signature anticorruption campaign, which he has used
to address issues of corruption as well as consolidate his power andeliminate political rivals. In January, the leadership set an uncompromising tone for its centennial year by executing Lai Xiaomin, former chairman of state-owned asset management conglomerate China Huarong Asset Management, who had been accused of accepting
bribes, shattering a previously unwritten rule against execution forbribery or financial crimes.165 In April, former senior inspector at
the CCP’s Central Commission for Discipline Inspection Dong Hongwas expelled from the Party on allegations of corruption.166 Seeking
to convince the broader public that General Secretary Xi’s campaign
has been effective, state media has prominently covered stories ofofficials who voluntarily turned themselves in for corruption.167 The
CCP also used the anticorruption campaign to take down businessleaders perceived as threatening.168
China’s leadership has approached the year of its centennial withan increased focus on preemptively identifying and neutralizing perceived political challenges before they can do lasting damage to the* The amendment vests the National People’s Congress Standing Committee with new authority to appoint or remove vice premiers at any time, actions previously requiring the approval of
the full National People’s Congress, which convenes only once per year. In practice, this adjustment provides a workaround for the current situation in which no sitting vice premiers young
enough to be eligible for promotion to premier in 2023 are General Secretary Xi loyalists. Threeof the four are nearing or have already reached the Party’s unofficial retirement age of 68 for top
officials, and the fourth is aligned with the same faction as Premier Li. The amendment createsa new opportunity for General Secretary Xi to orchestrate the installation of favored candidates
as vice premiers in sufficient time for them to gain experience before the next premier is chosen
in 2023. NPC Observer, “2021 NPC Session: Dissecting the Amendments to the NPC’s Two Governing Laws (Updated),” March 12, 2021; Tsukasa Hadano, “China Alters Vice Premier Selection,
Paving the Way for Xi Loyalists,” Nikkei Asia, March 11, 2021.

47
regime. The communiqué from the CCP’s Fifth Plenum in October
2020 called for the strengthening of a “system for preventing and resolving great risks.” * According to Dr. Greitens, this means a heavier
reliance on surveillance, policing, ideological indoctrination, and othercoercive measures of internal control.169 Around the same time, China’s Ministry of State Security Party Committee’s study guide in the
People’s Daily warned that the Party needed to “have clear eyes, see
things, early, [and] act quickly” to prevent political risks from developing.170 In January 2021, the Politburo Standing Committee held ameeting with the theme “be wary of dangers in the midst of stability,”
signaling continued attention to political regime security.171 In his
speech on January 15, Chen Yixin, secretary general of the CCP’s
Central Political and Legal Affairs Commission and a protégé of General Secretary Xi, instructed the Party to “build an impenetrable wall
to guard against infiltration, subversion, and destruction from outside
enemy forces” and “eradicate the soil of internal forces that influencepolitical security.” 172 Also in January, State Councilor and head of the
Ministry of Public Security Zhao Kezhi called upon the Party leadership to prioritize “the prevention of political risks” and to “strictly
crack down against hostile forces’ infiltration, disruption, subversion,and sabotage activities . . . [in] the battle of defending political security.” 173 The same month, the CCP amended internal regulations tofurther restrict Party members’ ability to publicly express views contrary to those of the central leadership.174
Increased power consolidation raises the likelihood of policy mistakes and instability. The increasing centralization and repression,
combined with a developing cult of personality around General Secretary Xi, make officials less willing to make decisions and thus
undermine the Party’s ability to deliver on its promises of efficient
governance. According to Dr. Deal, the Party’s turn toward totalitarian governance has made it more prone to sudden shocks anddiscontinuities.175 Tightened information controls within the Party and prohibitions against criticizing leadership decisions reducechannels for feedback and impede the flow of bad news, creating anecho chamber at the highest levels of the Chinese government.176
According to Dr. Deal, although consolidation increases General
Secretary Xi’s direct control over policy decisions, the accompanying reduction in critical feedback “increases the likelihood that thestate will charge ahead in the wrong direction.” 177 Dr. Deal notedin her testimony that China faced this problem during the Great
Leap Forward in late 1950s and early 1960s, when then Chairman
Mao Zedong’s plan for rapid industrialization of China led instead towidespread famine but CCP elites did not dare to confront him withevidence of the policy’s failure.178 Finally, General Secretary Xi has
rendered China’s government dangerously reliant on him for political direction and created serious risk for the Party by eliminating
his political rivals and failing to designate a successor, taking personal control over critical governance institutions, and enshrining
his right to remain in power indefinitely.179* This represents an intensification of the Party’s focus on preventive management of potential
instability, which began with the release of General Secretary Xi’s national security strategy andassociated policy statements in 2014. Sheena Chestnut Greitens, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese
Communist Party’s Centennial, January 28, 2021, 5.

48Growing International Opposition
The CCP perceives an international environment fraught withchallenges for China. Foremost among the challenges identified at
the Fifth Plenum is an intensification of geopolitical uncertainty,
particularly from the United States and other democracies. According to M. Taylor Fravel, professor of political science at the Massachusetts Institute of Technology, the CCP’s most recent uses of thephrase “profound changes unseen in a century” * have emphasized
the negative impact of an uncertain and complex international situation strongly associated with intensifying competition with theUnited States.180 Chinese leaders believe fallout from the COVID-19
pandemic has further intensified existing uncertainties, creating aninternational political environment they describe as fraught with“turbulent change.” 181 A January 2021 commentary in the People’s
Daily captured this sense of unease, warning that the challenges the
CCP faced heading into its centennial year were increasingly severe:
The closer we get to national rejuvenation, the less likely
smooth sailing will be, the more risks, challenges, and evenstormy seas there will be . . . . In the past we were able totake advantage of the trend and opportunities were relatively easy to grasp; now we have to go up against the wind . . .
In the past, the general environment was relatively stable,
and risks and challenges were relatively easy to see clearly;
now global circumstances are turbulent and complex, geopolitical challenges are high and pressing, and there are many
submerged reefs and undercurrents.182
The CCP views the United States, even if in decline, as posing aparticularly severe challenge to its power. In the months preceding
the centennial, China’s leaders and political elites reiterated longstanding views that the United States is a dangerous opponent withwhich China is locked in a long-term ideological and civilizational
confrontation. In January 2021, Secretary General Chen warned
that China faced a major threat from “containment and oppression”
by the United States.183 In March, Yuan Peng, vice president of the
China Institute of Contemporary International Relations,† publicly
stated that the “security dilemma” between the United States andChina is “more profoundly fraught than any other rise and fall ofgreat powers in history.” 184 In his view, the epochal stakes at play in
U.S.-China competition are the result of major ideological and cul* This phrase refers to both the benefits and risks of what the CCP perceives to be accelerated
global trends toward multipolarity. As Dr. Fravel explained in his testimony before the Commission, the phrase has been a constant refrain for CCP top leadership since General Secretary Xi
first introduced it in 2017. M. Taylor Fravel, written testimony for U.S.-China Economic andSecurity Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 1–6; Xinhua, “(Authorized Release) Communique of the Fifth Plenary Session of the 19th Central Committee of the Chinese Communist Party” ((受权发布) 中国共产党第十九届中央委员会第五次全体会议公报), October 29, 2020. Translation.
† The China Institute of Contemporary International Relations is a research institution affiliated with China’s Ministry of State Security. In addition to his position as vice president, Yuan
Peng directs the organization’s Institute of American Studies and is known to counsel the Chinese elite on U.S.-China relations. Yuan Peng lectured China’s Politburo on national security inDecember 2020. China-U.S. Focus, “Commentaries by Yuan Peng, China-United States Exchange
Foundation,” 2021; David Ownby, “Yuan Peng on the Anchorage Summit,” Reading the China
Dream, 2021; William Zheng, “Why Did China’s Communist Party Elite Need a Lecture on the
U.S.?” South China Morning Post, December 14, 2020.

49
tural factors, such as a “conflict between capitalism and socialism”
and a “clash of Eastern and Western civilizations.” 185
In addition to the challenges posed by the United States, China
faces growing international pushback against its foreign and domestic policies. By early 2021, Beijing’s assertive actions had caused
significant frictions with many of the world’s democracies. Throughout the year of its centennial, the CCP faced growing criticism of its
human rights abuses in Xinjiang. In late March 2021, the UnitedStates, the EU, Canada, and the United Kingdom each announced
sanctions on Chinese entities over human rights abuses in Xinjiang,
eliciting a furious response and countersanctions from the Chinese
government.186 (For more on China’s countersanctions and the EU
response, see Chapter 3, Section 1, “Year in Review: Security, Politics, and Foreign Affairs.”) Shortly after the initial sanctions against
China, lawmakers in Japan, the only G7 country then lacking an
explicit legal basis for international human rights sanctions, announced a cross-party effort to craft legislation that would enable
them to develop sanctions of their own.187 By May, Japan’s newly
created Nonpartisan Parliamentary Association for Reconsidering
Human Rights Diplomacy had released a draft bill that would allow the freezing of assets and denial of entry into Japan for serious violators of international human rights law.188 The Chinese
government believes the United States is responsible for turning
other countries against China, and a statement from China’s Ministry of Foreign Affairs in mid-April 2021 accused the United Statesof “engaging in bloc politics along ideological lines, and ganging up
to form anti-China cliques.” 189
CCP Response to Internal and External Threats in
Xinjiang and Hong Kong
The Chinese government’s human rights abuses of Uyghurs andother minorities * in Xinjiang, which the U.S. Department of State
recognized in 2021 as genocide, and its imposition of authoritarian rule in Hong Kong are stark examples of how the CCP’s fearof mutually intensifying internal and external threats shapes its
foreign and domestic policies. The CCP has long feared the potential for Uyghur resistance to its rule in Xinjiang threatening its
control over the region and finding support amid the ethnicallysimilar populations in neighboring Central Asian states.190 Growing international outrage over the CCP’s human rights abuses in
Xinjiang and violation of Hong Kong’s autonomy has undermined
the Chinese government’s efforts to prevent its policies in thetwo regions from damaging its relations with the international
community.
* Since 2017, the CCP has detained an estimated one to three million Uyghurs, Kazakhs, andother Muslims in prison camps it claims are for “transformation through education” and vocational training. In fact, detainees are kept in extraordinarily poor conditions, forced to denounce theirreligious beliefs and culture, and subjected to brainwashing, torture, forced sterilization and abortions, and forced labor. Phil Stewart, “China Putting Minority Muslims in ‘Concentration Camps,’
U.S. Says,” Reuters, May 3, 2019; China Digital Times, “Foreign Citizens, Residents Caught inXinjiang Camps,” April 2, 2019; Tara Francis Chan, “U.S. Resident May Be One of a Million People Imprisoned in China’s Secretive Detention Camps,” Newsweek, March 29, 2019; U.S.-China
Economic and Security Review Commission, 2018 Annual Report to Congress, November 2018,271–272; Nick Cumming-Bruce, “U.N. Panel Confronts China over Reports That It Holds a Million
Uighurs in Camps,” New York Times, August 10, 2018.

50
CCP Response to Internal and External Threats in
Xinjiang and Hong Kong—Continued
In both cases, the CCP has attempted to address its concerns
through harsh measures both at home and abroad. Internationally, it has attempted to fight coverage of its actions with disinformation, sought international support for its policies throughthe UN, and retaliated against countries, companies, or individuals who have criticized Chinese policies. At the same time, the
CCP fears foreign criticism of its actions may influence domestic
opinion and foment discontent with CCP control, so it couples
its international response with tightened internal controls and acontinual stream of propaganda aimed at the domestic audience.
Internal-facing propaganda paints China’s external critics as unjust slanderers and portrays the defense of China’s Xinjiang andHong Kong policies as a patriotic duty.191 For example, after the
Swedish clothing brand H&M spoke out against forced labor in
the Xinjiang cotton industry, the CCP retaliated in March 2021 byerasing the company’s internet presence in China and using state
media to call for a boycott of its products and accuse it of “dancing
with anti-Chinese forces.” * 192 The Chinese government also often
targets Uyghurs overseas, either demanding their deportation orharassing them and threatening their family members remaining
in China.† 193 In the case of Hong Kong, Beijing has attempted tosilence international criticism through extraterritorial law.194 The
National Security Law ‡ that Beijing unilaterally imposed on the
territory in June 2020 includes provisions that criminalize any
perceived criticism of the Chinese or Hong Kong governments,
regardless of where the offending individual or entity resides.195
The CCP is particularly concerned about these combined internal and external threats in the context of U.S.-China competition.196 The Chinese government and state media have accused
the United States both of seeking to destabilize China fromwithin by supporting Uyghur unrest and of using Xinjiang as a
focal point for intensifying China’s external confrontation with
the United States and its allies and partners.§ 197 Thus, the CCP* Pressure from Beijing has not been successful in convincing H&M to change its policies. According to its online statement, H&M does not work with any garment manufacturing factories
located in Xinjiang and does not source products from the region. H&M Group, “H&M GroupStatement on Due Diligence.”† The Chinese government has employed these tactics to attempt to silence Uyghur activists
and journalists living in the United States, including some U.S. citizens. Chinese government
officials have targeted these individuals by intercepting communications between them and theirfamily members in China; sending harassing messages through their family members’ social
media accounts; and physically detaining, interrogating, and threatening their family members
in China. Meagan Flynn, “Their Uyghur Relatives Are Imprisoned in China. From Virginia, They
Plead for Help,” Washington Post, March 19, 2021; Michael R. Pompeo, “Harassment of the Family
Members of Uighur Activists and Survivors in Xinjiang, China,” U.S. Department of State, November 5, 2019; Gulchera Hoja, written testimony for Congressional-Executive Commission on China,
Hearing on Surveillance, Suppression, and Mass Detention: Xinjiang’s Human Rights Crisis, July26, 2018, 25-26; Shohret Hoshur, written testimony for Congressional-Executive Commission on
China, Hearing on Urging China’s President Xi Jinping to Stop State-Sponsored Human Rights
Abuses, September 18, 2015.
‡ The law’s full official title is Law of the People’s Republic of China on Safeguarding National
Security in the Hong Kong Special Administrative Region.
§ Chinese state media also insists on framing international opposition to the CCP’s Xinjiang
policies in terms of civilizational conflict. A March 2021 editorial in the state-backed tabloid
Global Times asserts that “[the U.S.] objective is to promote opposition between the entire West
and China . . . [and] it has chosen Xinjiang as a point of conflict.” The article also warns in stark

51
CCP Response to Internal and External Threats in
Xinjiang and Hong Kong—Continued
believes U.S. actions with regard to Xinjiang have implications
for not only China’s domestic stability but also its international
standing.198 The Chinese government has similarly accused U.S.
diplomats and journalists of acting as “black hands” supportingthe 2019 prodemocracy protests in Hong Kong, and it continues
to claim that U.S. policy toward Hong Kong constitutes “interference in China’s internal affairs.” 199
China Launches Assertive Measures
The CCP is attempting to push back against these perceived international threats. According to testimony before the Commission
by Robert Sutter, professor of practice of international affairs at theGeorge Washington University, the CCP seeks to “weaken a nascentfront against China.” 200 Top leaders at the October 2020 Fifth Plenum identified the main goal for diplomacy heading into the centennial as “actively construct[ing] a favorable external environment” forChina and emphasized China’s need for reliable global partnerships
to accomplish that goal in the face of competition with the United States.201 According to Global Times in March 2021, in order tosucceed in its “game” against the United States, China must “formmore public customs and unspoken rules with the outside world.” 202
Another Global Times editorial in April 2021 highlighted a string ofChinese diplomatic exchanges with Russia, five Asian countries, six
Middle Eastern countries, and four European countries * as efforts
to “break America’s encirclement.” 203
The CCP has demonstrated a brazen disregard for international
norms, responsibilities, and perceptions. Although the Chinese government long sought to avoid provoking harsh responses by painting China as a country of modest ambition abroad, it is increasingly turning to open intimidation to force other countries to do its
bidding.204 China has a developed set of coercive tools for pursuing its national interests vis-à-vis other states, including gray zone
operations,† economic coercion, and aggressive diplomacy, which it
views as having been highly effective in advancing its interests ininterstate disputes.205 As Peter Jennings, executive director of theAustralian Strategic Policy Institute, noted in his testimony before
the Commission, in recent years China’s leaders have demonstrated
that their “primary objective is to achieve their strategic aims, andit doesn’t matter so much to them if . . . they are . . . perceived moreterms that China views the issue as nonnegotiable, stating that “the West would need to die inorder to change China’s mind on this point of Xinjiang policy.” Global Times, “Editorial: China
and Europe Must Both Be on Alert, Not to Fall into the United States’ ‘Supposed Battlefield’ ” (社评: 中欧都要警惕, 不掉入美国的 “预设战场”), March 28, 2021. Translation.
* Countries identified by name include Indonesia, Malaysia, the Philippines, Russia, Singapore, and South Korea. The six Middle Eastern countries and four European countries were notindividually named. Global Times, “Editorial: Encircle China? Who Is Willing to Be a Brick forAmerica Building a Wall?” (社评: 包围中国？有谁愿给美国砌墙当砖头), Global Times, April 1, 2021.
Translation.
† Gray zone operations are akin to military activities that leverage nonmilitary tools to achieve
competitive objectives by means below the threshold for open war. Gray zone activities often creep
incrementally toward their objectives. For more on gray zone operations, see Michael J. Mazarr,“Struggle in the Gray Zone and World Order,” War on the Rocks, December 22, 2015.

52
negatively by countries in the region while they do it.” 206 Mr. Jennings further stated that “with Machiavelli, the CCP has concluded
that it is better to be feared than loved.” 207
CCP leaders, including General Secretary Xi, have encouraged
this aggressive stance. In April 2019, Xinhua called on the CCP to“wage an uncompromising struggle against all phenomena, trendsof thought, and actions that damage the fundamental interests of
the Chinese nation.” 208 In September 2019, General Secretary Xi
signaled his approval of government officials engaging in public conflicts on China’s behalf when he instructed CCP cadres to “take theinitiative to throw themselves into various kinds of struggles,” “dareto show the sword,” and “dare to resolutely struggle in the face of
noxious winds and evil influences.” 209 In July 2020, Xinhua circulated General Secretary Xi’s instruction that CCP cadres must “rushup at the critical moment” with the spirit to “prevail over every
enemy and not succumb to any enemy.” 210 In a provocative speechin August 2021, the new Chinese ambassador to the United States,
Qin Gang, enumerated U.S. leaders’ supposed “wrong beliefs” about
China and accused Congress of acting with “no knowledge” when
passing legislation on China policy.211
Economic Coercion Engenders International Pushback
The CCP continues to view China’s massive economy as a sourceof international political leverage. In lieu of soft power, which it
has largely failed to cultivate, the CCP has attempted to use theappeal of China’s markets to influence or even coerce other countries into supporting Beijing’s policy priorities. In testimony before
the Commission, Mr. Jennings described this strategy as Beijing’s“money power.” 212 Countries that frustrate Beijing’s goals havefound themselves subject to punitive manifestations of this “money
power,” which often includes being cut off from the Chinese market.
In a stark example of the CCP’s escalating use of economic coercion, throughout 2020 and 2021 the CCP banned imports of some
Australian products and resources after the Australian governmentin April 2020 supported calls for an independent inquiry into theorigins of the Chinese government’s response to the COVID-19 pandemic.213 The Chinese government introduced trade barriers on a
range of Australian exports, including wine, barley, and beef.214
China’s 14 Grievances against Australia
In November 2020, amid deteriorating China-Australia relations
and China’s imposition of trade barriers against Australia, the Chinese Embassy in Canberra sent Australian media outlets a list of
14 grievances China has against Australia.215 The list outlined thefollowing practices of the Australian government that the Chinese
government deemed damaging to the bilateral relationship:
1. Foreign investment decisions, with acquisitions blocked on
opaque national security grounds in contravention of [theChina-Australia Free Trade Agreement] . . . . [S]ince 2018,
more than 10 Chinese investment projects have been rejectedby Australia citing ambiguous and unfounded “national se-

53
China’s 14 Grievances against Australia—Continued
curity concerns” and putting restrictions in areas like infrastructure, agriculture and animal husbandry.
2. The decision banning Huawei Technologies and ZTE fromthe 5G network, over unfounded national security concerns,
doing the bidding of the US by lobbying other countries.
3. Foreign interference legislation, viewed as targeting China
and in the absence of any evidence.
4. Politicization and stigmatization of the normal exchanges
and cooperation between China and Australia and creating
barriers and imposing restrictions, including the revoke ofvisas for Chinese scholars.
5. Call for an international independent inquiry into the
COVID-19 virus, act as a political manipulation echoing the
US attack on China.
6. The incessant wanton interference in China’s Xinjiang, Hong
Kong and Taiwan affairs; spearheading the crusade against
China in certain multilateral forums.
7. The first nonlittoral country to make a statement on theSouth China Sea to the United Nations.
8. Siding with the US’ anti-China campaign and spreading
disinformation imported from the US around China’s efforts
of containing COVID-19.
9. The latest legislation to scrutinize agreements with a foreign
government targeting towards China and aiming to torpedo
the Victorian participation in [the Belt and Road Initiative].
10. Provided funding to anti-China think tank for spreading
untrue reports, peddling lies around Xinjiang and so-called
China infiltration aimed at manipulating public opinion
against China.
11. The early dawn search and reckless seizure of Chinese journalists’ homes and properties without any charges and giving any explanations.
12. Thinly veiled allegations against China on cyberattacks
without any evidence.
13. Outrageous condemnation of the governing party of China
by MPs and racist attacks against Chinese or Asian people.
14. An unfriendly or antagonistic report on China by media, poisoning the atmosphere of bilateral relations.
Following the release of the list, a Chinese official said, “China is angry. If you make China the enemy, China will be theenemy”; he also stated it “would be conducive to a better atmosphere” if Australia stopped the 14 practices China specified.216
Australian politicians roundly criticized the list, with AustralianPrime Minister Scott Morrison saying, “Our values are not up
for trade, our democracy is not up for trade, and our sovereignty
is not up for trade.” 217
The CCP’s threats against Australia, however, have had limited
effect and in some cases have proven counterproductive to Beijing’s
goals. After China restricted certain Australian exports in 2020,

54
Australian sellers were generally able to divert their products toother markets. Between late 2020 and April 2021, exports of affected goods fell in annualized terms by $10 billion to China but rose by$14 billion to other markets, including Saudi Arabia and India.218
In April 2021, Roland Rajah, director of the International Economy
Program at Australia’s Lowy Institute, commented that “the mostremarkable aspect of the experience so far is just how ineffective
China’s attempted trade coercion has been.” 219 Similarly, after China’s March 2021 announcement that it would suspend imports ofpineapples from Taiwan, Taiwan’s Council of Agriculture recorded
a surge in pineapple demand, both in domestic sales and export
orders.220
In practice, it appears China’s high-profile trade attacks havefailed to induce target countries to change their policies to the CCP’s
liking. On the contrary, China’s economic coercion has contributed
to a growing backlash among its economic partners. In March 2021,
Secretary of State Antony Blinken said during a visit to Tokyo, “Wewill push back, if necessary, when China uses coercion and aggression to get its way.” 221 While concrete international action has remained limited so far, as China’s coercive measures become morewidespread, countries may respond in ways that harm China’s economic interests. In April, Australian Foreign Minister Marise Payne
announced the cancelation of two contracts that the state of Victoria
had signed in 2018 and 2019 to participate in the Belt and Road
Initiative, saying the agreements were “inconsistent with Australia’s foreign policy or adverse to our foreign relations.” 222 In August,Australian Prime Minister Scott Morrison proposed a strategic economic dialogue with the United States to help guard against “economic coercion.” 223 In September, Australia, the United States, andthe United Kingdom jointly announced the formation of a triliteral
security pact, known as AUKUS, as well as an agreement underwhich Australia would receive access to technology for nuclear-powered submarines.224 (For more on AUKUS, see Chapter 3, Section 1,“Year in Review: Security, Politics, and Foreign Affairs.”)
In some instances, Beijing’s use of China’s economic might to gain
political leverage has taken less overtly confrontational and more
subtle forms—making a coordinated response more difficult. China’s
international lending, for instance, is often accompanied by politicalconditions that are not commonly seen among other international
lenders. A March 2021 study by AidData, the Center for Global Development, the Peterson Institute for International Economics, andthe Kiel Institute for the World Economy analyzing 100 agreements
between Chinese state-owned enterprises (SOEs) and foreign governments found many of the contracts contained clauses that could
give the Chinese government substantial political leverage over the
borrowers. These included cross-default clauses, which, while common in commercial lending settings, are comparatively rare in bilateral and multilateral loans.* The cross-default clauses were also
* Cross-default clauses allow the lender to terminate the loan and demand full repayment if
the borrower defaults on any loans to other lenders. The study compared Chinese development
financing contracts with a benchmark sample of bilateral and multilateral development financing
contracts and found that cross-default clauses were present in approximately half of bilateral contracts and only 10 percent of multilateral contracts. In the sample set of 100 Chinese contracts,
98 contained cross-default clauses. Anna Gelpern et al., “How China Lends: A Rare Look into

55
broad enough to potentially apply to political developments in the
borrowing country, such as clauses that could be triggered if the
debtor took action adverse to “any PRC entity” in the borrowing
country. The study also found that some of the contracts could allow
China to demand accelerated loan repayment in the event of a “political disagreement,” though Chinese lenders do not yet appear tohave exercised this sweeping power.225 (For a case study of China’s
international financing practices, see Chapter 1, Section 2, “China’s
Influence in Latin America and the Caribbean.”)
As China’s economic growth slows, however, its “money power”
and ability to engage in economic coercion may face new limitations.
Even before the COVID-19 pandemic, for instance, China’s overseas
lending had dropped considerably. According to a 2020 study by Boston University, the outbound lending commitments from the China
Development Bank and the Export-Import Bank of China, China’s
two main policy banks, dropped from $75 billion in 2016 to $3.9 billion in 2019.226 This slowdown has largely been driven by domestic
economic constraints, but it also reflects pushback against China’s
lending practices by some debtor countries.227
Implications for the United States
After one hundred years of the CCP’s existence, China has become
a formidable global power with a dynamic economy and growing
ability to shape key aspects of world affairs. Still, in the year of its
centennial, CCP messaging has been inconsistent as official proclamations of triumph coexist alongside expressions of trepidation. A
pressing need to defend itself from what it perceives as mounting
internal and external challenges compels the CCP to acknowledge
its concerns and attempt to address them. At the same time, however, the CCP’s political inability to admit failure and genuine belief in
its own superiority limit China’s ability to address those same challenges. As a result, the CCP views itself as destined to succeed yet
threatened from all sides and from within. It perceives an environment that is both ripe with opportunity to expand its own influence
and also unstable and increasingly hostile. Rather than reconcile
these two assessments by allowing one to temper the other, the CCP
pursues both simultaneously by insisting on the Party’s infallibility
while attempting to address some of its many shortcomings.
The CCP’s combined triumphalism and paranoia elevate the likelihood of risky decisions, aggression, and miscalculation by Beijing
and necessitate U.S. vigilance. The leadup to and celebration of the
CCP’s centennial heightened Chinese government attention to longterm political goals, such as immunity from criticism and a leadinginternational role for China, that it considers crucial for its own
security but run directly counter to U.S. interests. In his speech on
Party history in February 2021, General Secretary Xi illustrated
this urgency by warning CCP cadres, “At the moment of this criticaljuncture, [the Party] cannot tolerate any pause, hesitation, or waiting to see.” 228
Regardless of whether future developments cause the Chinese
government to feel more or less secure, it will likely react by go100 Debt Contracts with Foreign Governments,” Aid Data, Kiel Institute for the World Economy,Peterson Institute for International Economics, March 2021.

56
ing on the offensive. Beijing’s belief that international trends create
opportunities for China to advance may lead to an escalation of assertive behavior. At the same time, the CCP’s paranoia incentivizes
it to react harshly to perceived threats, also resulting in a more aggressive posture toward the outside world. As Dr. Deal testified before the Commission, the CCP’s hypersensitivity to negative developments and perceived “need to reverse negative momentum” havehistorically resulted in a record of “striking out at moments when it
perceives sudden shifts in the tide against it.” 229 The high politicalstakes of the centennial have further increased the Chinese government’s focus on preempting and countering potential threats to its
regime security, raising the likelihood of overly defensive reactions
to both internal developments and U.S. and other foreign countries’
actions. Responses to both success and failure are amplified by General Secretary Xi’s increasing appetite for risk.230
The CCP’s efforts to sow division between the United States andits allies and partners further challenge U.S. interests. Beijing has
attempted to leverage its economic relationships with advanced
democracies to push for compliance with its agenda and signal toother countries that defying Beijing carries a price. In doing so, Beijing has at times taken advantage of other countries’ limited mechanisms for coordination against economic coercion by framing issues
that challenge the interests of all democratic states as bilateral disputes. This has complicated efforts by the United States and othercountries to develop common responses with its affected partners.231
As CCP leaders perceive an increasingly fraught international environment, such attempts to impede coordination between the UnitedStates and other democracies will likely intensify.
Economically, China’s increased emphasis on self-sufficiency willlead to continued difficulties, such as discriminatory treatment for
U.S. firms hoping to participate in China’s market. To be certain,
this trend is not monolithic, and the Chinese government will continue to open discrete sectors of its economy when it judges doing so
will benefit its interests. In those cases, some U.S. businesses may
benefit from entering China’s market. Even if U.S. firms nominallygain more access to China, however, the premium the CCP placeson economic stability will lead to policymakers exercising increasing
control over larger aspects of China’s economy. State intervention
in China’s economy means U.S. businesses operating in China will
face various restrictions that place them at a disadvantage relative
to Chinese firms. Because the CCP views state control of the economy as an increasingly important part of economic policymaking,
the United States and other economic partners of China should not
expect to negotiate any meaningful structural changes to China’s
economy, even if doing so would ultimately result in a more dynamic
Chinese market.
At the same time, China’s government seeks to play its foreign
trade partners against each other to prevent an emergence of coordinated pushback against China. As the European Parliament’s
decision to suspend discussions on the Comprehensive Agreement
on Investment shows, the CCP’s attempts to use its markets asleverage over other countries have limits and can backfire. Nevertheless, the recent conclusion of the Regional Comprehensive Eco-

57
nomic Partnership and China’s formal application to join the Comprehensive Progressive Trans-Pacific Partnership demonstrate that
China remains determined to increase its presence in international
economic agreements. In the long term, China’s increasing use of
economic leverage could disrupt U.S. economic relations with many
traditional U.S. economic partners and challenge U.S. influence in
the international economic system.
The importance the CCP has placed on its centennial year has
introduced a sense of urgency into the CCP’s approach to both domestic and international affairs that is likely to persist. China’s
leadership is increasingly uninterested in compromise and willing toengage in destabilizing and aggressive actions in its efforts to insulate itself from perceived threats. The United States must confront
an increasingly combative CCP that will push back against actions
taken by the United States and its allies and partners that promote an open, rules-based international order. CCP leaders appear
to have decided from recent experience that progressive risk-taking
can pay off. They will likely continue escalating with this approach.

58
ENDNOTES FOR SECTION 1
1. Nikkei Asia, “Full Text of Xi Jinping’s Speech on the CCP’s 100th Anniversary,”
July 1, 2021.
2. Nikkei Asia, “Full Text of Xi Jinping’s Speech on the CCP’s 100th Anniversary,”
July 1, 2021.
3. Xinhua, “Senior CPC Official Stresses Public Communication for Building Modern Socialist Country,” January 6, 2021.
4. General Office of the Central Committee of the Chinese Communist Party, “Celebrating the Hundredth Anniversary of the Founding of the Communist Party of
China, Organizing Publicity and Education Activities on the Mass Theme of ‘Forever
Following the Party’ ” (庆祝中国共产党成立100周年组织开展 “永远跟党走” 群众性主题宣传教育活动), April 12, 2021. Translation.
5. Javier C. Hernández, “ ‘Follow the Party Forever’: China Plans a Communist
Birthday Bash,” New York Times, April 19, 2021.
6. Javier C. Hernández, “ ‘Follow the Party Forever’: China Plans a Communist
Birthday Bash,” New York Times, April 19, 2021; Rebecca Davis, “China’s Film Authority Orders All Cinemas to Screen Propaganda Films at Least Twice a Week,”
Variety, April 2, 2021.
7. Javier C. Hernández, “ ‘Follow the Party Forever’: China Plans a Communist
Birthday Bash,” New York Times, April 19, 2021; Rebecca Davis, “China’s Film Authority Orders All Cinemas to Screen Propaganda Films at Least Twice a Week,”
Variety, April 2, 2021.
8. Radio Free Asia, “China Launches Compulsory Film Screenings to Mark Party
Centenary,” April 6, 2021.
9. Guo Rui, “China Prepares for Communist Party Celebrations with Crackdown
on ‘Illegal’ NGOs,” South China Morning Post, March 23, 2021.
10. Cade Cadell, “China Launches Hotline for Citizens to Report ‘Illegal’ History
Comments,” Reuters, April 11, 2021.
11. Yaoyao Dai and Luwei Rose Luqiu, “China’s ‘Wolf Warrior’ Diplomats Like to
Talk Tough,” Washington Post, May 12, 2021.
12. Keoni Everington, “Chinese Embassy Unwittingly Admits Taiwan Is Independent in Threatening Email to Swedish Journalist,” Taiwan News, April 13, 2021.
13. Hannah Somerville, “China’s Embassy in Sweden under Fire over ‘Threats’ to
Journalist,” Euronews, April 12, 2021.
14. Ben Westcott and Serenitie Wang, “Xi Jinping Is Determined to End All Poverty in China by 2020. Can He Do It?” CNN, April 20, 2019; Xinhua, “Xi Pledges
Stronger Support to Rid All Chinese of Poverty by 2020,” October 16, 2015.
15. China’s State Council Information Office, Poverty Alleviation: China’s Experience and Contribution, April 2021.
16. Amy Qin and Javier C. Hernández, “A Year after Wuhan, China Tells a Tale of
Triumph (and No Mistakes),” New York Times, January 14, 2021.
17. Amy Qin and Javier C. Hernández, “A Year after Wuhan, China Tells a Tale of
Triumph (and No Mistakes),” New York Times, January 14, 2021.
18. Radio Free Asia, “China Detains Two for Social Media Comments about
COVID-19,” June 10, 2021.
19. Wang Yi, “Serving the Country and Contributing to the World: China’s Diplomacy in a Time of Unprecedented Global Changes and a Once-in-a-Century Pandemic,” Symposium on the International Situation and China’s Foreign Relations in
2020, Beijing, December 11, 2020. https://www.fmprc.gov.cn/mfa_eng/wjb_663304/
wjbz_663308/2461_663310/t1839532.shtml.
20. People’s Daily, “Injecting Positive Energy into Global Development”(为世界发展注入正能力), March 17, 2021. Translation.
21. China Media Project, “Inside China’s Global Media Blitz,” March 17, 2021.
22. Global Times, “Zhang Shuhua: It’s Time to End America’s Old ‘Democracy and
Human Rights’ Trick” (张树华: 美国 “民主人权” 老把戏该收收了), April 4, 2021. Translation; Xi Jinping, “Speech at the Party History Study and Education Mobilization
Assembly” (在党史学习教育动员大会上的讲话), Qiushi, February 20, 2021. Translation;
Zack Cooper, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 3; Robert Sutter, written testimony for U.S.-China Economic
and Security Review Commission, Hearing on U.S.-China Relations at the Chinese
Communist Party’s Centennial, January 28, 2021, 9.
23. M. Taylor Fravel, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 1.

59
24. Jude Blanchette and Scott Kennedy, “China’s Fifth Plenum: Reading the Initial
Tea Leaves,” Center for Strategic and International Studies, October 30, 2020.
25. Zack Cooper, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 3; “What Is New in the New Development Period? Chen
Yixin Explains from Eight Aspects” (新发展阶段新在哪里？陈一新从八个方面进行阐释),January 15, 2021. Translation; Kinling Lo and Kristin Huang, “Xi Jinping Says ‘Time
and Momentum on China’s Side’ as He Sets Out Communist Party Vision,” South
China Morning Post, January 12, 2021.
26. Michael D. Swaine, “Chinese Views of U.S. Decline,” China Leadership Monitor, September 1, 2021; Zack Cooper, written testimony for U.S.-China Economic
and Security Review Commission, Hearing on U.S.-China Relations at the Chinese
Communist Party’s Centennial, January 28, 2021, 2–3.
27. Chris Buckley, “ ‘The East Is Rising’: Xi Maps Out China’s Post-Covid Ascent,’ ”
New York Times, March 3, 2021; Kinling Lo and Kristin Huang, “Xi Jinping Says
‘Time and Momentum on China’s Side’ as He Sets Out Communist Party Vision,”
South China Morning Post, January 12, 2021.
28. Jia Qingguo, “Jia Qingguo: International Order in the Post-Pandemic Era” (贾庆国: 后疫情时代的国际秩序), May 27, 2021. Translation; Chris Buckley, “ ‘The East Is
Rising’: Xi Maps Out China’s Post-Covid Ascent,’ ” New York Times, March 3, 2021;
Hubei Province Health Commission, “‘New, Progressive, Real’ — New Development
Stage Keywords Analysis” (‘新、进、实’— 新发展阶段的关键词浅析), January 7, 2021.
Translation.
29. Global Times, “Zhang Shuhua: It’s Time to End America’s Old ‘Democracy and
Human Rights’ Trick” (张树华: 美国 “民主人权” 老把戏该收收了), April 4, 2021. Translation.
30. Global Times, “Zhang Shuhua: It’s Time to End America’s Old ‘Democracy and
Human Rights’ Trick” (张树华: 美国 “民主人权” 老把戏该收收了), April 4, 2021. Translation.
31. Xin Ping, “Reasons that a Hegemon Is Bound to Decline,” Xinhua, May 4, 2021.
32. Xi Jinping, “Secure a Decisive Victory in Building a Moderately Prosperous
Society in All Respects and Strive for the Great Success of Socialism with Chinese
Characteristics for a New Era,” 19th National Congress of the Communist Party of
China, Beijing, October 18, 2017.
33. Xi Jinping, “Speech at the Party History Study and Education Mobilization
Assembly” (在党史学习教育动员大会上的讲话), Qiushi, February 20, 2021. Translation.
34. Wang Zihui, ed., “Party History Study Education, Xi Jinping Opens with the‘First Lesson’ ” (党史学习教育, 习近平开张 “第一颗”), Xinhua, February 21, 2021.
35. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 4; CCTV, “[Video] CCP Central Committee PolitburoStanding Committee Convenes a Meeting; Listens to Reports from the Party Leadership Groups of the National People’s Congress Standing Committee, State Council,
National Chinese People’s Political Consultative Conference, Supreme People’s Court,
Supreme People’s Procuratorate; Listens to the Central Secretariate Work Report;
General Secretary of the CCP Central Committee Xi Jinping Presides Over the Meeting” ([视频]中共中央政治局常务委员会召开会议 听取全国人大常委会、国务院、全国政协、最高人民法院、最高人民检察院党组工作汇报 听取中央书记处工作报告 中共中央总书
记习近平主持会议), January 7, 2021. Translation; People’s Daily, “Promote Major Scientific and Technological Innovation through a New Type of Country-Wide System” (以新型举国体制助力重大科技创新), March 31, 2020. Translation.
36. “Observer Net Interview with Vice Foreign Minister Le Yucheng: Chinese People Cannot Be Intimidated, Are Not Afraid of a ‘Position of Strength’ ” (观察者网专访
外交部副部长乐玉成: 中国人吓不倒, 不怕什么 “实力地位”), July 12, 2021. Translation.
37. “Observer Net Interview with Vice Foreign Minister Le Yucheng: Chinese People Cannot Be Intimidated, Are Not Afraid of a ‘Position of Strength’ ” (观察者网专访
外交部副部长乐玉成: 中国人吓不倒, 不怕什么 “实力地位”), July 12, 2021. Translation.
38. Guo Shengkun, “Build a Higher-Level Safe China” (Study and Implement theSpirit of the Party’s 19th Fifth Plenum) (建设更高水平的平安中国 (学习贯彻党的十九届五中全会精神)), People’s Daily, December 2, 2020. Translation.
39. Guo Shengkun, “Build a Higher-Level Safe China” (Study and Implement theSpirit of the Party’s 19th Fifth Plenum) (建设更高水平的平安中国 (学习贯彻党的十九届五中全会精神)), People’s Daily, December 2, 2020. Translation.
40. Sheena Chestnut Greitens, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 4.

60
41. CGTN, “Expert: China Has Essentially Brought COVID-19 under Control,”March 14, 2021.
42. Bloomberg, “China Reopens Terminal at World’s Third-Busiest Port,” August24, 2021.
43. Michelle Toh, “The World’s Third Busiest Container Port Is Back but the Shipping Crisis Isn’t Over Yet,” CNN, August 25, 2021; Weizhen Tan, “Another Shipping
Crisis Looms on Covid Fears in Southern China,” CNBC, June 14, 2021.
44. Bloomberg, “China Locks Down City of 4.5 Million as Delta Surges Again,”
September 13, 2021.
45. Orange Wang, “China’s August Trade Surprises as Imports and Exports Defy
Analysts’ Expectations,” South China Morning Post, September 7, 2021.
46. Charles Chang, Chang Li, and Boyang Gao, “China’s Zero-COVID Approach toAggravate Rising Corporate Risks,” S&P Global Ratings, September 6, 2021.
47. Bloomberg, “China’s Covid-Zero Strategy Risks Leaving It Isolated for Years,”
August 9, 2021.
48. Bloomberg, “Delta’s Spread Is Testing Even Aggressive ‘Covid Zero’ Defenses,”
July 28, 2021.
49. Rebecca Tan and Alicia Chen, “China’s Delta Outbreak Tests Limits of Zero-Tolerance Covid Approach,” Washington Post, July 29, 2021.
50. Rebecca Tan and Alicia Chen, “China’s Delta Outbreak Tests Limits of Zero-Tolerance Covid Approach,” Washington Post, July 29, 2021.
51. Trivium China, “Far from a Done Deal,” Tip Sheet, August 20, 2021.
52. World Health Organization, “WHO-Convened Global Study of Origins of SARSCoV-2: China Part,” March 30, 2021; Jeremy Page, Betsy McKay, and Drew Hinshaw,“How the WHO’s Hunt for Covid’s Origins Stumbled in China,” Wall Street Journal,
March 17, 2021.
53. World Health Organization, “WHO-Convened Global Study of Origins of SARSCoV-2: China Part,” March 30, 2021; Jeremy Page, Betsy McKay, and Drew Hinshaw,“How the WHO’s Hunt for Covid’s Origins Stumbled in China,” Wall Street Journal,
March 17, 2021.
54. Frank Jordans and Maria Cheng, “WHO Chief Says It Was ‘Premature’ to Rule
Out COVID Lab Leak,” Associated Press, July 15, 2021.
55. Stephanie Nebehay, “WHO Proposes Fresh Coronavirus Mission to China andLab Audits,” Reuters, July 16, 2021; Reuters, “China Should Provide Raw Data on
Pandemic’s Origins—WHO’s Tedros,” July 16, 2021.
56. Gabriel Crossley, “China Rejects WHO Plan for Study of COVID-19 Origin,”
Reuters, July 22, 2021.
57. Office of the Director of National Intelligence, Unclassified Summary of Assessment on COVID-19 Origins, August 27, 2021, 2.
58. Talha Burki, “Global Shortage of Personal Protective Equipment,” Lancet Infectious Diseases 20:7 (July 2020): 785–786; Keith Bradsher, “China Dominates Medical
Supplies, in This Outbreak and the Next,” New York Times, July 5, 2020.
59. Karen M. Sutter, Michael D. Sutherland, and Andres B. Schwarzenberg,“COVID-19: China Medical Supply Chains and Broader Trade Issues,” Congressional
Research Service, December 23, 2020, 15–16; Talha Burki, “Global Shortage of Personal Protective Equipment,” Lancet Infectious Diseases 20:7 (July 2020): 785–786;
David Brunnstrom, “U.S. Appeals to China to Revise Export Rules on Coronavirus
Medical Gear,” Reuters, April 16, 2020; Karl Harenbrock, “Surgical Mask Shortages
after China Export Ban,” DW, February 25, 2020.
60. Karen M. Sutter, Michael D. Sutherland, and Andres B. Schwarzenberg,“COVID-19: China Medical Supply Chains and Broader Trade Issues,” Congressional Research Service, December 23, 2020, 20; Lisa Ishii, “Surgical Gowns Cost My
Hospital 40 Cents before the Pandemic. Now They’re $9,” Vox, July 29, 2020; JamesM. Berklan, “Analysis: PPE Costs Increase over 1,000% during COVID-19 Crisis,”
McKnights, April 9, 2020.
61. ECRI, “More than Half of Disposable Gowns ECRI Tested Fail to Meet Necessary Protection Standards,” November 10, 2020.
62. Sheridan Prasso, “China’s Epic Dash for PPE Left the World Short on Masks,”
Bloomberg, September 17, 2020.
63. David Robinson et al., “Procuring for a Pandemic: An Assessment of Hubei
Province (China) PCR Procurement Requirements,” Internet 2.0, September 2021,
2–3.
64. Jamie Tarabay, “China PCR Purchases Spiked in Months before First Known
Covid Cases, Firm Says,” Bloomberg, October 4, 2021; David Robinson et al., “Procuring for a Pandemic: An Assessment of Hubei Province (China) PCR Procurement
Requirements,” Internet 2.0, September 2021, 3.

61
65. Andreas Fuchs et al., “Mask Wars: China’s Exports of Medical Goods in Timesof COVID-19,” Aid Data, June 2021, 7.
66. Bethany Allen-Ebrahimian, “Beijing Demanded Praise in Exchange for Medical
Supplies,” Axios, May 6, 2020; Barnini Chakraborty, “China Cashes In off Coronavirus, Selling Spain $467 Million in Supplies, Some of Them Substandard,” Fox News,
March 26, 2020; David Brunnstrom, “U.S. Appeals to China to Revise Export Rules
on Coronavirus Medical Gear,” Reuters, April 16, 2020.
67. Bridge Consulting, “China COVID-19 Vaccine Tracker.”
68. Christian Shepherd and Primrose Riordan, “China Backtracks on Comments
Questioning Efficacy of Local Vaccines,” Financial Times, April 12, 2021; Joe McDonald and Huizhong Wu, “Top Chinese Official Admits Vaccines Have Low Effectiveness,” Associated Press, April 11, 2021.
69. Christian Shepherd and Primrose Riordan, “China Backtracks on Comments
Questioning Efficacy of Local Vaccines,” Financial Times, April 12, 2021; Joe McDonald and Huizhong Wu, “Top Chinese Official Admits Vaccines Have Low Effectiveness,” Associated Press, April 11, 2021.
70. Sui-Lee Wee, “World’s Most Vaccinated Nation Is Spooked by COVID Spike,”
New York Times, May 12, 2021.
71. Adam Taylor, “Why the World’s Most Vaccinated Country Is Seeing an Unprecedented Spike in Coronavirus Cases,” Washington Post, May 6, 2021.
72. Adam Taylor and Paul Schemm, “China’s Great Vaccine Hope, Sinopharm, Sees
Reputation Darkened amid Covid Spikes in Countries Using It,” Washington Post,
June 3, 2021.
73. Sebastian Strangio, “Malaysia to Phase Out China’s Sinovac Vaccine,” Diplomat, July 16, 2021.
74. Tessa Wong, “Covid: Is China’s Vaccine Success Waning in Asia?” BBC, July19, 2021.
75. Luciana Magalhaes and Samantha Pearson, “Brazil Moves Away from Chinese
Covid-19 Vaccine,” Wall Street Journal, September 11, 2021.
76. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 Long-Term
Goals, March 12, 2021.
77. Bloomberg, “China Says It Needs 4.7% Annual Growth to Reach 2035 GDP
Target,” November 28, 2020.
78. Damien Ma, “Getting to $30 Trillion: China Aims for Largest Economy by2035,” MacroPolo, March 1, 2021; Zhou Xin, “Beyond Propaganda: China’s 2035 Vision Assumes that It Will Overtake U.S. as the World’s No 1 Economy,” South China
Morning Post, November 2, 2020.
79. Xinhua, “Communiqué of the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China” ((受权发布) 中国共产党第十九届中央委员会
第五次全体会议公报), October 29, 2020. Translation.
80. Yuen Yuen Ang, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 12.
81. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 Long-Term
Goals, March 12, 2021.
82. CGTN, “CGTN Explains: What Does ‘Dual Circulation’ Development Pattern
Mean?” September 16, 2020; Kevin Yao, “What We Know about China’s ‘Dual Circulation’ Economic Strategy,” Reuters, September 15, 2020.
83. Kinling Lo and Kristin Huang, “Xi Jinping Says ‘Time and Momentum on
China’s Side’ as He Sets Out Communist Party Vision,” South China Morning Post,
January 12, 2021.
84. China’s Ministry of Foreign Affairs, Premier Li Keqiang Meets the Press: Full
Transcript of Questions and Answers, March 12, 2021.
85. Jude Blanchette and Andrew Polk, “Dual Circulation and China’s New Hedged
Integration Strategy,” Center for Strategic and International Studies, August 24, 2020.
86. Zhou Xin, “Is China Rich or Poor? Nation’s Wealth Debate Muddled by Conflicting Government Data,” South China Morning Post, May 29, 2020.
87. Yuen Yuen Ang, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 91.
88. Willy Wo-Lap Lam, “Early Warning Brief: Implications of Xi’s Revival of the
Maoist Slogan “Common Prosperity,” Jamestown Foundation, August 26, 2021.
89. Xinhua, “Data Visualization: Getting Rid of Poverty, China Has Gone This Way”
(数据可视化: 摆脱贫困, 中国这样走过), February 23, 2021.
90. Bill Bikales, “Reflections on Poverty Reduction in China,” June 2021, 31–32;
Indermit Gill, “Deep-Sixing Poverty in China,” Brookings Institution, January 25,
2021.

62
91. Alex Smith, “China’s Poverty-Shaming Social Assistance System and the Urgent Need for Reform,” SupChina, April 30, 2020.
92. Bill Bikales, “Reflections on Poverty Reduction in China,” June 2021, 29.
93. Bill Bikales, “Reflections on Poverty Reduction in China,” June 2021, 4.
94. Bill Bikales, “Reflections on Poverty Reduction in China,” June 2021, 30.
95. World Bank, “GDP Per Capita (Current US$).”
96. Daniel H. Rosen, “Avoiding the Blind Alley: China’s Economic Overhaul and Its
Global Implications,” Asia Society, October 2014, 30.
97. Martin Ravaillon, “Poverty in China since 1950: A Counterfactual Perspective,”
National Bureau of Economic Research, NBER Working Paper 28370, January 2021, 2.
98. China’s National Bureau of Statistics via CEIC.
99. Branko Milanovic, “China’s Inequality Will Lead It to a Stark Choice,” Foreign
Affairs, February 11, 2021; Stella Yifan Xie, “China Beat Back COVID-19, but It’s
Come at a Cost—Growing Inequality,” Wall Street Journal, October 21, 2020.
100. Branko Milanovic, “China’s Inequality Will Lead It to a Stark Choice,” Foreign
Affairs, February 11, 2021.
101. China’s National Bureau of Statistics, “6–2 Nationwide Per Capita Disposable
Income of Households by Quintile,” 2020 Statistical Yearbook.
102. Elizabeth Economy, “China’s Inconvenient Truth,” Foreign Affairs, May 28,2021.
103. U.S.-China Economic and Security Review Commission, 2020 Annual Reportto Congress, December 2020, 245.
104. Amanda Lee, “China Debt: How Has It Changed in 2021 and How Big Is It
Now?” South China Morning Post, June 5, 2021.
105. Bank of International Settlements, “Total Credit to the Non-Financial Sector(Core Debt)—As a Percentage of GDP”; Bank of International Settlements, “Total
Credit to the Non-Financial Sector (Core Debt)—In Billions of USD”; Bank of International Settlements, “Total Credit to the Non-Financial Sector (Core Debt)—Domestic Currency Billions.”
106. Orange Wang and Frank Tang, “China’s ‘Two Sessions’: Leaders Must Decide
Whether to Scale Back Stimulus as Debt Risks Loom,” South China Morning Post,
February 25, 2021.
107. Sara Hsu, “COVID-19 Made China’s Debt Problem Worse,” Diplomat, March
18, 2021.
108. Eustance Huang, “Weak Consumption Is a ‘Major Problem’ for China’s Recovery, Says Analytics Firm,” CNBC, June 10, 2021; Reuters, “China Commerce Ministry
to Promote Domestic Consumption in ‘Dual Circulation’ Strategy,” December 26, 2020.
109. Longmei Zhang et al., “China’s High Savings: Drivers, Prospects, and Policies,”
International Monetary Fund Working Paper, December 2018, 5.
110. World Bank, “GDP (Current US$)”; World Bank, “GDP (Current LCU)—China”; World Bank, “Households and NPISHs Final Consumption Expenditure (Percent
of GDP).”
111. Luo Meihan, Ya Hairong, and Cheng Siwei, “In Depth: China’s Long March
to Become a Consumer-Driven Economy,” Caixin, March 26, 2021; World Bank, “GDP(current US$)”; World Bank, “Households and NPISHs Final Consumption Expenditure (Percent of GDP).”112. International Monetary Fund, “People’s Republic of China Staff Report for the
Article IV Consultation,” December 2, 2020, 7; Hui He et al., “Evidence of Precautionary Savings in China,” Vox China, September 5, 2018.
113. Loren Brandt, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions,Plans, and Metrics of Success, April 15, 2021, 3–4, 14.
114. Loren Brandt et al., “China’s Productivity Slowdown and Future Growth Potential,” World Bank Group, June 2020, 15.
115. Jonathan Cheng, “China’s Economic Recovery Is Looking Gloomier,” WallStreet Journal, September 15, 2021; Bloomberg, “China’s Wide Income Gap Undercut
Spending as Growth Recovers,” January 18, 2021.
116. Ben Westcott and Eric Cheung, “China Has Recorded Its Slowest Population
Growth in Decades, New Census Reveals,” CNN, May 11, 2021; Sun Yu, “China Set
to Report First Population Decline in Five Decades,” Financial Times, April 27, 2021.
117. Steven Lee Myers, Jin Wu, and Claire Fu, “China’s Looming Crisis: A Shrinking Population,” New York Times, January 17, 2019.
118. Linda Lew, “China Wants More Babies; China’s Women Have Other Plans,”
South China Morning Post, March 8, 2021.
119. Linda Lew, “China Wants More Babies; China’s Women Have Other Plans,”
South China Morning Post, March 8, 2021.

63120. Steven Lee Myers, Jin Wu, and Claire Fu, “China’s Looming Crisis: A Shrinking Population,” New York Times, January 17, 2019.
121. Jiayun Feng, “Instead of a Desperately Needed Baby Boom, China Gets a
COVID-19 Baby Bust,” SupChina, February 9, 2021.
122. Vivian Wang, “Have Three Children? No Way, Many Chinese Say,” New YorkTimes, June 1, 2021.
123. Liyan Qi, “China Delivers Three-Child Policy, but It’s Too Late for Many,” WallStreet Journal, June 1, 2021.
124. Council on Foreign Relations, “Environmental and Health Crises Threaten
China’s Rise, Warns Yanzhong Huang in New Book,” October 22, 2020.
125. Council on Foreign Relations, “Environmental and Health Crises Threaten
China’s Rise, Warns Yanzhong Huang in New Book,” October 22, 2020.
126. Carbon Brief, “Q&A: What Does China’s 14th ‘Five Year Plan’ Mean for Climate Change?” March 12, 2021.
127. Global Energy Monitor, “Global Ownership of Coal Plants,” July 2021.
128. Velerie Volcovici, David Brunnstrom, and Michelle Nichols, “In Climate Pledge,
Xi Says China Will Not Build New Coal-Fired Power Projects Abroad,” Reuters, September 22, 2021.
129. Azi Paybarah, “China Says It Won’t Build New Coal Plants Abroad. What
Does That Mean?” New York Times, September 22, 2021.
130. Azi Paybarah, “China Says It Won’t Build New Coal Plants Abroad. What
Does That Mean?” New York Times, September 22, 2021.
131. Mary Hutzler, “China’s Economic Recovery Will Be Powered by Coal,” Power,
August 3, 2020; David Stanway, “In China, Coal Creeps Back In as Slowing Economy
Overshadows Climate Change Ambitions,” Reuters, December 2, 2019.
132. Chris Buckley, “The Rock Standing in the Way of China’s Climate Ambitions:
Coal,” New York Times, March 26, 2021.
133. James A. Lewis, “Learning the Superior Techniques of the Barbarians: China’s Pursuit of Semiconductor Independence,” Center for Strategic and International
Studies, January 2019, 2.
134. Dan Strumpf, “China’s Huawei Reports 38% Revenue Drop as U.S. Sanctions
Bite,” Wall Street Journal, August 6, 2021.
135. Dan Strumpf, “Huawei Suffers Rare Drop in Revenue as U.S. Sanctions Bite,”
Wall Street Journal, March 31, 2021; Sean Keane, “Apple Takes Back Crown asWorld’s No. 1 Phone Maker, Analyst Says,” CNet, February 22, 2021.
136. Wei Sheng, “China Made 6% of Chips It Used in 2020: Report,” TechNode,February 19, 2021; James Andrew Lewis, “China’s Pursuit of Semiconductor Independence,” CSIS, February 27, 2019.
137. Wei Sheng, “China Made 6% of Chips It Used in 2020: Report,” TechNode,February 19, 2021.
138. John Chan, “China Spends Big on Semiconductor Development, but Frontrunners Stumble,” China Digital Times, November 18, 2020; Liza Lin, “Tech War with
U.S. Turbocharges China’s Chip-Development Resolve,” Wall Street Journal, November 16, 2020.
139. Liza Lin, “Tech War with U.S. Turbocharges China’s Chip-Development Resolve,” Wall Street Journal, November 16, 2020.
140. Hui Tse Gan, “Out of Bargaining Chips: Inside HSMC’s Billion-Dollar Grift,”
KrAsia, February 10, 2021.
141. Hui Tse Gan, “Out of Bargaining Chips: Inside HSMC’s Billion-Dollar Grift,”
KrAsia, February 10, 2021.
142. Kevin Xu, “China’s ‘Semiconductor Theranos’: HSMC,” Interconnected, March
4, 2021.
143. Minxin Pei, “Ideological Indoctrination under Xi Jinping,” China Leadership
Monitor, December 1, 2019.
144. Minxin Pei, “Ideological Indoctrination under Xi Jinping,” China Leadership
Monitor, December 1, 2019.
145. China’s Ministry of State Security Party Committee, “Scientific Guide to Being on Guard to Resolve Risks and Challenges (Deeply Study and Implement Xi
Jinping Thought on Socialism with Chinese Characteristics for a New Era)” (防范化解风险挑战的科学指南 (深入学习贯彻习近平新时代中国特色社会主义思想)), People’s Daily,
October 27, 2020. Translation.
146. Xi Jinping, “Speech at the Party History Study and Education Mobilization
Assembly” (在党史学习教育动员大会上的讲话), Qiushi, February 20, 2021. Translation.
147. Xinhua, “At the Party History Study Education Mobilization Meeting, Xi Jinping Emphasizes Studying Party History, Comprehending Thought, Doing PracticalThings, and Opening New Ways; Welcoming the Hundredth Anniversary of the Party’s Founding with Exceptional Achievements. Li Keqiang, Li Zhanshu, Wang Yang,

64
Zhao Leji, Han Zheng, and Wang Qishan Attended. Wang Huning Presided” (习近平在党史学习教育动员大会上强调 学党史悟思想办实事开新局 以优异成绩迎接建党一百周年李克强栗战书汪洋赵乐际韩正王岐山出席王沪宁主持), February 20, 2021. Translation.
148. Zhao Leji, “Promote High-Quality Development of New Era Discipline Inspection Work and Celebrate the 100th Anniversary of the Chinese Communist Party’s
Founding with Exceptional Achievements. Work Report at the Fifth Plenary Sessionof the Chinese Communist Party’s 10th Central Commission for Discipline Inspection” (推动新时代纪检工作高质量发展以优异成绩庆祝中国共产党成立100周年 在中国
共产党第十九届中央纪律检查委员会第五次全体会议上的工作报告), Xinhua, March 15,2021. Translation.
149. Xi Jinping, “Speech at the Party History Study and Education Mobilization
Assembly” (在党史学习教育动员大会上的讲话), Qiushi, February 20, 2021. Translation.
150. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 4; Xi Jinping, “Speech at the Party History Study and
Education Mobilization Assembly” (在党史学习教育动员大会上的讲话), Qiushi, February 20, 2021. Translation.
151. Minxin Pei, “China’s Coming Upheaval,” Foreign Affairs, May/June 2020; John
Pomfret, “How Xi Jinping’s Brand of Authoritarianism Is Stifling China,” Washington
Post, November 6, 2019; Elizabeth Economy, “The Problem with Xi’s China Model,”Foreign Affairs, March 6, 2019.
152. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 4.
153. Yuen Yuen Ang, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 141.
154. Jun Mai, “China’s Generation N: The Young Nationalists Who Have Beijing’s
Back,” South China Morning Post, August 29, 2021.
155. Jun Mai, “China’s Generation N: The Young Nationalists Who Have Beijing’s
Back,” South China Morning Post, August 29, 2021.
156. Amber Wang, “Beijing Asks Challenged Wolf Warriors to Find Wisdom in China’s Past,” South China Morning Post, April 11, 2021.
157. Central News Agency, Wen Jiabao Essay Remembering His Mother Raises
Fairness and Justice Sharing of the Deleted Article Is Forbidden” (溫家寶憶母親文章
提到公平正義 被刪文禁止分享), April 18, 2021. Translation; James Griffiths and Nectar Gan, “Did China’s Former Premier Just Subtly Criticize President Xi Jinping?”
CNN, April 20, 2021
158. Central News Agency, Wen Jiabao Essay Remembering His Mother Raises
Fairness and Justice Sharing of the Deleted Article Is Forbidden” (溫家寶憶母親文章
提到公平正義 被刪文禁止分享), April 18, 2021. Translation.
159. Reuters, “China Censors Ex-Premier’s Article Ahead of Communist Party Anniversary,” April 20, 2021; James Griffiths and Nectar Gan, “Did China’s Former Premier Just Subtly Criticize President Xi Jinping?” CNN, April 19, 2021; Central News
Agency, Wen Jiabao Essay Remembering His Mother Raises Fairness and Justice
Sharing of the Deleted Article Is Forbidden” (溫家寶憶母親文章提到公平正義 被刪文禁止分享), April 18, 2021. Translation.
160. Xin Zhiping, “Xin Zhiping: ‘Worshipping America’ ‘Kneeling to America’ Soft
Bone Disease Must Be Cured!” (辛识平: “崇美” “跪美” 的软骨病得治!), December 16,
2020. Translation.
161. Centre for China Analysis and Strategy, “China-Leadership: Xinhua Commentary Hints at Continuing Inner-Party Differences on Xi Jinping’s Stance Towards
U.S.,” 2021. https://ccasindia.org/newsdetails.php?nid=5382; Xin Zhiping, “Xin Zhiping: ‘Worshipping America’ ‘Kneeling to America’ Soft Bone Disease Must Be Cured!”(辛识平: “崇美” “跪美” 的软骨病得治!), December 16, 2020. Translation.
162. Xin Zhiping, “Xin Zhiping: ‘Worshipping America’ ‘Kneeling to America’ Soft
Bone Disease Must Be Cured!” (辛识平: “崇美” “跪美” 的软骨病得治!), December 16,
2020. Translation.
163. Xin Zhiping, “Xin Zhiping: ‘Worshipping America’ ‘Kneeling to America’ Soft
Bone Disease Must Be Cured!” (辛识平: “崇美” “跪美” 的软骨病得治!), December 16,
2020. Translation.
164. NPC Observer, “2021 NPC Session: Dissecting the Amendments to the NPC’s
Two Governing Laws (Updated),” March 12, 2021; Tsukasa Hadano, “China Alters
Vice Premier Selection, Paving the Way for Xi Loyalists,” Nikkei Asia, March 11,2021.
165. Tsukasa Hadano, “Corruption Confessions in China Surge Ahead of Party
Congress,” Nikkei Asia, May 26, 2021.

65
166. Caixin Global, “Former Anti-Graft Investigator Faces Corruption Charges,”
June 11, 2021; William Zheng, “China to Put Former Top Anti-Corruption Inspector
on Trial for Graft,” South China Morning Post, April 27, 2021; Reuters, “Former Aide
to Chinese Vice President Named in Anti-Graft Probe,” October 3, 2020.
167. Tsukasa Hadano, “Corruption Confessions in China Surge Ahead of Party
Congress,” Nikkei Asia, May 26, 2021.
168. Bloomberg News, “Look Who’s Not Coming to China’s Party: Business Leaders
Sidelined by Graft,” March 3, 2015.
169. Sheena Chestnut Greitens, written testimony for U.S.-China Economic andSecurity Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 2–3.
170. China’s Ministry of State Security Party Committee, “Scientific Guide to Being on Guard to Resolve Risks and Challenges (Deeply Study and Implement Xi
Jinping Thought on Socialism with Chinese Characteristics for a New Era)” (防范化解风险挑战的科学指南 (深入学习贯彻习近平新时代中国特色社会主义思想)), People’s Daily,
October 27, 2020. Translation.
171. Willy Wo-Lap Lam, “Xi Jinping Boosts the Party’s Control and His Own Authority,” Jamestown Foundation, January 12, 2021.
172. “What Is New in the New Development Period? Chen Yixin Explains from
Eight Aspects” (新发展阶段新在哪里？陈一新从八个方面进行阐释), January 15, 2021.
Translation.
173. Qing Dao Public Security Online, “Zhao Kezhi: Grasp the New Development Period and Promote High Quality Development Celebrate
the 100th Anniversary of the Founding of the Party with Exceptional Achievements in Ensuring State Political Security and Social Stability”(赵克志: 把握新发展阶段推动高质量发展以确保国家政治安全和社会稳定的优异成绩庆祝建党100周年), January 20, 2021. Translation.
174. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 5; Jun Mai, “Chinese Communist Party Introduces
New Rules on What Members Can Say as It ‘Boosts Internal Democracy,’ ” South
China Morning Post, January 5, 2021.
175. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 9.
176. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 4–5; Sarah Cook, “Behind Xi Jinping’s Steely Façade,a Leadership Crisis Is Smoldering in China,” Diplomat, October 9, 2020; Radio Free
Asia, “Interview: ‘You Can Criticize the CCP, but You Must Not Criticize Xi Jinping,’ ”
August 8, 2018.
177. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 5.
178. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 5.
179. Richard McGregor and Jude Blanchett, “After Xi: Future Scenarios for Leadership Succession in Post-Xi Jinping Era,” Center for Strategic and International Studies and Lowy Institute, April 2021, 13, 17; Mary Lovely, oral testimony for U.S.-China
Economic and Security Review Commission, Hearing on U.S.-China Relations at the
Chinese Communist Party’s Centennial, January 28, 2021, 63; Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on
U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021,
11–12; Susan L. Shirk, “China in Xi’s ‘New Era’: The Return to Personalistic Rule,”
Journal of Democracy 29:2 (April 2018): 22–36.
180. M. Taylor Fravel, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 2–3.
181. M. Taylor Fravel, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S.-China Relations at the Chinese Communist
Party’s Centennial, January 28, 2021, 1; Xinhua, “(Authorized Release) Communiqueof the Fifth Plenary Session of the 19th Central Committee of the Chinese Communist Party” ((受权发布) 中国共产党第十九届中央委员会第五次全体会议公报), October
29, 2020. Translation; Zheng Bijian, “World Enters ‘Time of Tumultuous Transformation’—‘Great Changes, Great Trials, Great Cooperation’ ” (世界进入 “动荡变革期”——“大变动、大考验、大合作”), Xinhua, November 30, 2021. Translation.

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182. Ren Zhongping, “Long Journey from Scratch: Of the Spirit of a Willing Ox,
Pioneering Ox, and Old Ox in the New Journey” (征途漫漫从头越: 论新征程上的孺子牛
拓荒牛老黄牛精神), People’s Daily, January 22, 2021, 3, Translation.
183. Chris Buckley, “ ‘The East Is Rising’: Xi Maps Out China’s Post-Covid Ascent,”
New York Times, March 3, 2021; Jane Cai, “Beijing Pins Hopes on ‘Guy with theEmperor’s Sword’ to Restore Order in Coronavirus-Hit Hubei,” South China Morning
Post, February 12, 2020.
184. David Ownby, “Yuan Peng on the Anchorage Summit,” Reading the China
Dream, 2021; Yuan Peng, “High-Level Strategic Dialogue Is Imminent: Where Are
China-U.S. Relations Headed?” (袁鹏: 高层战略对话在即 中美关系向何处去), China
News Service, March 17, 2021. Translation.
185. David Ownby, “Yuan Peng on the Anchorage Summit,” Reading the China
Dream, 2021; Yuan Peng, “High-Level Strategic Dialogue Is Imminent: Where Are
China-U.S. Relations Headed?” (袁鹏: 高层战略对话在即 中美关系向何处去), China
News Service, March 17, 2021. Translation.
186. AP News, “China Sanctions U.S., Canadian Officials over Xinjiang,” March 27,2021; Jacob Knutson, “China Retaliates after Sanctions by U.K. over Xinjiang Abuses,” Axios, March 26, 2021; Stuart Lau, “China Slaps Retaliatory Sanctions on EU
Officials,” Politico, March 22, 2021; Emily Rauhala, “U.S., E.U., Canada and Britain
Announce Sanctions on China over the Abuse of Uyghurs,” Washington Post, March
22, 2021; Robin Emmott and David Brunnstrom, “West Sanctions China over Xinjiang Abuses, Beijing Hits Back at EU,” Reuters, March 22, 2021.
187. Ryo Memoto, “China Sanctions Inspire Push for Japan’s Own Magnitsky Act,”
Nikkei Asia, March 25, 2021.
188. Kanae Doi, “Japan’s Next Premier Should Endorse a Sanctions Law,” Human
Rights Watch, September 23, 2021; Nonpartisan Parliamentary Association for Reconsidering Human Rights Diplomacy, “Message to Diet Members from the Nonpartisan
Parliamentary Association for Reconsidering Human Rights Diplomacy,” 2021.
189. Gabriel Crossley and Yew Tian, “Analysis: Beijing Huddles with Friends,
Seeks to Fracture U.S.-Led ‘Clique,’ Reuters, April 19, 2021.
190. Mark Burles, “Chinese Policy toward Russia and the Central Asian Republics,”
RAND Corporation, 1999, 8–9.; Zhao Huasheng, “China’s View of and Expectations
from the Shanghai Cooperation Organization,” Asian Survey 53:3 (2013): 436–460,
437–441; Stephen Blank, written testimony for the Commission on Security and Cooperation in Europe, The Shanghai Cooperation Organization: Is It Undermining U.S.
Interests in Central Asia? September 26, 2006, 45.
191. Xinhua, “Zhao Lijian: These People’s Rumors and Smears Are the Best Patriotic Education” (赵立坚: 这些人的造谣抹黑就是最好的爱国主义教育), March 29, 2021.
Translation; Fu Zhu, “So-Called China ‘Genocide’ Is a Pack of Lies That Violates International Law” (所谓中国 “没觉种族” 是违反国际法的弥天大谎), People’s Daily, March
39, 2021. Translation; Global Times, “Editorial: Rectify the Name of Xinjiang Cotton,
China’s Handhold for Opposing Smears” (社评: 给新疆棉花正名, 中国反抹黑的抓手),
March 25, 2021. Translation; Xinhua, “Only Implementing “Patriots Governing HongKong” Can Protect ‘One County Two Systems’ ” (落实 “爱国者治港” 才能守护 “一国两制”), March 8, 2021. Translation.
192. Stu Woo, “H&M Pays Price of Upsetting Beijing as China Sales Drop,” WallStreet Journal, July 1, 2021; People’s Daily, “People’s Commentary: Earning Our Money while Playing Dirty Tricks, H&M; You Should Consider” (人民锐评: 一边歉我们的钱一边使坏, H&M: 你该掂量了), Paper, March 25, 2021. Translation; Eva Xiao, “H&M Is
Erased from Chinese E-Commerce over Xinjiang Stance,” Wall Street Journal, March
25, 2021; BBC, “Nike, H&M Face China Fury over Xinjiang Cotton ‘Concerns,’ ” March
25, 2021; Eva Dou, “China’s State Media Outlets Call for Boycott of H&M for Avoiding Xinjiang Cotton,” Washington Post, March 24, 2021.
193. Forest Cong, “Beijing’s Persecution of Uyghurs Reaches Nearly 30 Countries,
Report Finds,” Voice of America, July 1, 2021; Asim Kashgarian and Sirwan Kajjo,“Families of Uighurs Abroad Increasingly Targeted by China,” Voice of America, June20, 2019.
194. Colombia Journal of Transnational Law, “China’s Ambition of Extraterritorial Jurisdiction and the American Response,” March 4, 2021; Jun Mai and Sarah
Zheng, “Hong Kong National Security Law’s Long-Arms Jurisdiction ‘Extraordinary
and Chilling,’ ” South China Morning Post, July 2, 2020.
195. Naomi Xu Elegant, “If You’re Reading This, Beijing Says Its New Hong Kong
Security Law Applies to You,” Fortune, July 7, 2020.
196. David Ownby, “Yuan Peng on the Anchorage Summit,” Reading the China
Dream, 2021; Yuan Peng, “High-Level Strategic Dialogue Is Imminent: Where Are
China-U.S. Relations Headed?” (袁鹏: 高层战略对话在即 中美关系向何处去), China
News Service, March 17, 2021. Translation.

67
197. Catherine Wong, “U.S.-China Ties: Washington Funded Terrorists in Xinjiang,
Beijing Says,” South China Morning Post, April 14, 2021; Zeng Qingxiang, “The Deep
Reason American and Western Media Avoid the Truth about Our Country’s Anti-Terrorism” (美西方媒体回避我国反恐真相的深层原因), Guangming Daily, April 5, 2021.
Translation; Global Times, “Editorial: China and Europe Must Both Be on Alert, Not
to Fall into the United States’ ‘Supposed Battlefield’ ” (社评: 中欧都要警惕, 不掉入美
国的 “预设战场”), March 28, 2021. Translation; China’s Ministry of Foreign Affairs,
Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on March
26, 2021, March 27, 2021; CGTN, “Beijing: So-Called Xinjiang Uygur Issue Is U.S.
Strategic Conspiracy,” March 26, 2021; Holly Chik, “China State Media Claim Xinjiang Conspiracy Hidden in Old Video of Retired U.S. Colonel,” South China Morning
Post, March 26, 2021.
198. Global Times, “Editorial: China and Europe Must Both Be on Alert, Not to
Fall into the United States’ ‘Supposed Battlefield’ ” (社评: 中欧都要警惕, 不掉入美国的“预设战场”), March 28, 2021. Translation.
199. Xinhua, “Ministry of Foreign Affairs Presses U.S. Side Immediately Cease
Meddling in Hong Kong Affairs, Meddling in China’s Internal Affairs” (外交部敦促
美方立即停止干预香港事务、干涉中国内政), May 28, 2021. Translation; Xinhua, “Comprehensive News: China’s Internal Affairs Cannot Be Meddled In by Other Countries-- Multinational Public Figures Criticize the Signing into Law of the U.S. Side’s SoCalled “Hong Kong Autonomy Act”” (综合消息: 中国内政不容他国干涉——多国人士批
评美方将所谓 “香港自治法案” 签署成法), July 20, 2020. Translation; Andrew Higgins,“China’s Theory for Hong Kong Protests: Secret American Meddling,” New York Times,
August 8, 2019.; Eva Dou, Natasha Khan, and Wenxin Fan, “China Claims U.S. ‘Black
Hand’ Is behind Hong Kong Protests,” Wall Street Journal, August 9, 2019.
200. Robert Sutter, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 7.
201. M. Taylor Fravel, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 7–9; Xinhua, “(Authorized Release) Communiqueof the Fifth Plenary Session of the 19th Central Committee of the Chinese Communist Party” ((受权发布) 中国共产党第十九届中央委员会第五次全体会议公报), October 29,
2020. Translation.
202. Global Times, “Editorial: China and Europe Both Must Be on Alert, Not to
Fall into the United States’ ‘Supposed Battlefield’ ” (社评: 中欧都要警惕, 不掉入美国的“预设战场”), March 28, 2021. Translation.
203. Global Times, “Editorial: Encircle China? Who Is Willing to Be a Brick forAmerica Building a Wall?” (社评: 包围中国？有谁愿给美国砌墙当砖头), Global Times,
April 1, 2021. Translation.
204. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 7–8.
205. M. Taylor Fravel, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 17–18.
206. Peter Jennings, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s Centennial, January 28, 2021, 183.
207. Peter Jennings, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 2.
208. Meng Ting and Wu Hu, “Maintain the Spirit of Struggle, Strengthen the Ability to Struggle” (永葆斗争精神 增强斗争本领), Xinhua, April 9, 2019. Translation.
209. Wang Zihui, “ ‘Struggle!’ This Speech by Xi Jinping Has Deep Significance”(“斗争!” 习近平这篇讲话大有深意), Xinhua, September 4, 2019. Translation.
210. Yang Mingwei, “The Chinese Communist Party Has Made a New Heaven andEarth” (中国共产党干出了一片新天地), Xinhua, July 7, 2020. Translation.
211. Qin Gang, “Keynote Speech by Ambassador Qin Gang at the Welcome Eventby the National Committee on US-China Relations Board of Directors,” Embassy of
the People’s Republic of China, August 31, 2021.
212. Peter Jennings, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 1–3.
213. Fergus Hanson, Emilia Currey, and Tracey Beattie, “The Chinese Communist
Party’s Coercive Diplomacy,” Australian Strategic Policy Institute, September 1, 2020,
21.

68214. Bloomberg News, “China Sets Duties on Australian Wine for 5 Years as Relations Sour,” March 27, 2021; Fergus Hanson, Emilia Currey, and Tracey Beattie,“The Chinese Communist Party’s Coercive Diplomacy,” Australian Strategic Policy
Institute, September 1, 2020, 21.
215. Jonathan Kearsley, Eryk Bagshaw, and Anthony Galloway, “ ‘If You Make China the Enemy, China Will Be the Enemy’: Beijing’s Fresh Threat to Australia,” Sydney Morning Herald, November 18, 2020.
216. Jonathan Kearsley, Eryk Bashaw, and Anthony Galloway, “ ‘If You Make China
the Enemy, China Will Be the Enemy’: Beijing’s Fresh Threat to Australia,” Sydney
Morning Herald, November 18, 2020.
217. 9News, “PM Refuses to Back Down to China over Leaked Dossier of ‘Grievances,’ November 18, 2020.
218. Roland Rajah, “Vital Trade Lessons from China’s Failed Attempt at Coercion,”
Australian, April 14, 2021.
219. Roland Rajah, “Vital Trade Lessons from China’s Failed Attempt at Coercion,”
Australian, April 14, 2021.
220. John Feng, “Taiwan and Allies Rally to Defy China’s Economic Coercion on
Pineapples,” Newsweek, March 2, 2021.
221. U.S. Department of State, “Secretary Antony J. Blinken, Secretary of Defense
Lloyd Austin, Japanese Foreign Minister Toshimitsu Motegi, and Japanese Defense
Minister Nobuo Kishi at a Joint Press Availability,” March 16, 2021.
222. Kirsty Needham, “Australia Cancels Belt and Road Deals; China Warns ofFurther Damage to Ties,” Reuters, April 21, 2021.
223. Phillip Coorey, “US-Australia Talks Needed to Combat Economic Coercion:
PM,” Australian Financial Review, August 11, 2021.
224. Alexander Ward and Paul McLeary, “Biden Announces Joint Deal with U.K.
and Australia to Counter China,” Politico, September 15, 2021; Julian Borger and
Dan Sabbagh, “U.S., UK, and Australia Forge Military Alliance to Counter China,”
Guardian, September 15, 2021.
225. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Aid Data, Kiel Institute for the World Economy, and Peterson Institute for International Economics, March 2021.
226. Mathew Mingey and Agatha Kratz, “China’s Belt and Road: Down but Not
Out,” Rhodium Group, January 4, 2021.
227. Jonathan Wheatley and James Kynge, “China Curtails Overseas Lending in
Face of Geopolitical Backlash,” Financial Times, December 7, 2020.
228. Xi Jinping, “Speech at the Party History Study and Education Mobilization
Meeting” (在党史学习教育动员大会上的讲话), February 20, 2021. Translation.
229. Jacqueline Deal, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 5–6.
230. Peter Jennings, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 197; Peter Jennings, written testimony for U.S.-China
Economic and Security Review Commission, Hearing on U.S.-China Relations at the
Chinese Communist Party’s Centennial, January 28, 2021, 3–5.
231. Peter Jennings, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 213; Peter Jennings, written testimony for U.S.-China
Economic and Security Review Commission, Hearing on U.S.-China Relations at the
Chinese Communist Party’s Centennial, January 28, 2021, 4.

SECTION 2: CHINA’S INFLUENCE IN LATIN
AMERICA AND THE CARIBBEAN
Key Findings• China has expanded and diversified its relationships with Latin American and Caribbean countries over the past decade. Although economic interests are the main driver for its activities
in the region, China is devoting increasing attention to pursuing political and to some degree security objectives, including
gaining international support for its diplomatic initiatives, pressuring countries to sever relations with Taiwan, and deepening
military relationships.
• China employs a whole-of-government approach in its relationships with Latin American and Caribbean countries, often bypassing national governments to advance its interests at the local level. Beijing’s strategy coordinates efforts by China’s official
government representatives, such as embassies and politicalinfluence entities, state and nonstate companies, and quasi-governmental entities, to influence decisions across unrelated issue
areas. China adapts its approach to individual countries’ political and social structures, cultivating relationships with national
governments, subnational governments, and nongovernmentalorganizations (NGOs).
• China’s economic importance and targeted political influence encourage Latin American and Caribbean governments to make domestic and foreign policy decisions that favor China while undermining democracies and free and open markets. China’s position
as a top trading partner and bilateral lender for many countries
gives it economic and political leverage. Substantial foreign direct
investment from China is a tool of influence, as accumulation ofassets affords Chinese companies the power to impact local anddomestic prices in key sectors, such as minerals and energy.
• China has closely collaborated with authoritarian regimes in
the region, such as the Maduro regime in Venezuela, and enabled democratic backsliding in other countries, such as Ecuador and Bolivia. By selling digital and surveillance technologies
to regimes in the region, China has enabled them to surveil andrepress their populations, critics, and opponents. China has also
provided significant financial support to these governments,
thereby extending them an economic lifeline when they were
cut off from international financial markets.
• Although China’s demand for commodities has boosted regional
economic growth, it has also encouraged its trading partners’
overreliance on natural resource extraction at the expense ofhigher-value-added activities. Many countries voluntarily com(69)70
promise their own environmental, social, and governance regulations to attract Chinese investment. Due to the region’s weak
institutions, China’s expanding influence may also facilitate corruption and increase risks to countries’ resource security andnational interests.
• China aspires to deepen its military engagement in Latin America and the Caribbean, although its current security activities in
the region are limited in scope. Beijing has previously leveraged
its economic and political influence in Argentina to establish aspace tracking station operated by the People’s Liberation Army
(PLA). Influence gained by financing and constructing potential dual-use infrastructure, such as ports, and supporting space
programs throughout the region positions China to further increase its military presence in the future.
Recommendations
The Commission recommends:• Congress recognize that Chinese economic, diplomatic, and security initiatives in Latin America and the Caribbean are robust and growing and demand a comprehensive response. Steps
Congress should consider include:○ Strengthening U.S. competitiveness in building out Latin American and Caribbean infrastructure through the expansion offunding mechanisms, including but not limited to low-interest
loans from U.S. lending institutions to U.S. companies willingto invest in targeted critical infrastructure projects in high-priority Latin American and Caribbean countries;○ Supporting the deployment of novel coronavirus (COVID-19)
vaccines in Latin American and Caribbean countries, including by requiring a public report issued by the U.S. Department of State every six months outlining vaccine deployment
to countries in the region; and○ Expanding educational exchanges between the United Statesand Latin America and the Caribbean, including by expanding partnership agreements between U.S. universities andhigher education institutions in Latin American and Caribbean countries.
• Congress support Latin American and Caribbean countries inthe establishment of inbound foreign investment review processes for sectors critical to national security and economic security by doing the following:○ Expanding the support given by the U.S. government to governments of U.S. allied and partner countries to establish inbound foreign investment review processes similar to those of
the Committee on Foreign Investment in the United States(CFIUS) established in the Foreign Investment Risk Review
Modernization Act within Title XVII of the National Defense
Authorization Act for Fiscal Year 2019. Support for thesegovernments will expand upon existing information exchange
processes to include provision of technical assistance and personnel training.

71○ Requiring the U.S. Department of State, in conjunction with
CFIUS, to provide an annual report to Congress for three consecutive years after enactment of this provision. The reportshall outline the progress and outcomes of its engagementwith Latin American and Caribbean countries to establish
their own inbound foreign investment review processes.
• Congress require the director of national intelligence, in conjunction with the U.S. Department of State and U.S. Department of
Defense, to produce an unclassified report, including a classified
annex, documenting Chinese investment in port infrastructurein the Western Hemisphere and detailing any known Chinese interest in establishing a military presence at or near these ports.
The report should include an assessment of China’s current andpotential future ability to leverage commercial ports for military
purposes and the implications for the United States.
• Congress enact legislation directing the U.S. Development Finance Corporation, U.S. Agency for International Development,
U.S. Trade and Development Agency, Millennium Challenge Corporation, and other executive agencies responsible for disbursing foreign aid and development assistance to require within
all aid-related applications mandatory disclosures on debt theapplicant may owe to Chinese entities, including loan amounts,
duration, rates, and contractual provisions.
• Congress enact legislation requiring the U.S. government authorities identified in the Maritime Security and Fisheries
Enforcement (SAFE) Act within section 3544 of the National
Defense Authorization Act for Fiscal Year 2020 to create a partnership with coastal Latin American states, similar to the Oceania Maritime Security Initiative and the Africa Maritime Law
Enforcement Partnership. This partnership would assist coastal Latin American states in maritime domain awareness, witha particular focus on increasing partner countries’ capacity tocombat illegal, unreported, and unregulated fishing by Chinese
vessels in the region.
Introduction
Over the past decade, China has significantly deepened and diversified its activities in Latin America and the Caribbean. China’s
primary interests in the region have always been economic in nature and include access to commodities and emerging markets. As it
has become more embedded within the region, however, China has
devoted increasing attention to promoting its political and security
interests.
Given the diversity of markets, resources, governments, and geographies across the region, China’s approach varies by country andsubregion. China’s partners in Latin America fulfill Chinese demandfor commodities. In Caribbean countries, Beijing cultivates ties tosupport its diplomatic agenda on issues such as defending itself
against criticism of its human rights abuses. Meanwhile, China’sloans and investment in the Caribbean deepen its influence in a
strategic subregion where it has built potential dual-use port infrastructure and is attempting to expand security engagement. In pur-72
suit of its goals, China has cultivated relationships in Latin American and Caribbean countries at all levels of government, across thepolitical spectrum, and with nongovernmental actors.
China’s deepening relationships with select Latin American and
Caribbean countries have reinforced trends that run counter to U.S.
values and interests. Beijing’s provision of loans and surveillance technologies to authoritarian regimes and countries with nondemocratic
tendencies strengthens these regimes’ abilities to control and suppress
their populations and political opponents. To attract more Chinese investment, governments in the region have undermined their own environmental, social, and governance protections, while Chinese tradeand investment disincentivizes industrialization for regional economies. In some countries, the negative impacts of Chinese engagement
have generated pushback among civil society organizations and local
communities; however, governments have been hesitant to restrict Chinese investments. Finally, China has leveraged its economic influence
to establish a PLA-controlled satellite tracking facility and deepen its
security relationships in the region more broadly.
This section explores China’s growing influence in Latin America
and the Caribbean and assesses its implications for the United States.
It first examines China’s whole-of-government approach to engagementwith Latin American and Caribbean countries and its role as a supporter of authoritarianism in the region. The section then assesses China’s growing economic ties and resulting leverage over countries in theregion, as well as its approach to securing access to commodities anddeveloping supporting infrastructure. Finally, it discusses China’s expanding security relationships and construction of dual-use infrastructure. This section draws from the Commission’s May 2021 hearing on“China in Latin America and the Caribbean,” consultations with policy
experts, and open source research and analysis.
China Pursues an Integrated Strategy
China carries out a whole-of-government approach to its relationships with countries in the Latin American and Caribbean region. Beijing’s strategy coordinates efforts by China’s official government representatives, such as embassies, and political influence entities,* stateand nonstate companies, and quasi-governmental entities, to advance
China’s interests. China adapts its approach to individual countries’
political and social structures, often bypassing national governments toadvance its interests at the local level. Through trade, loans, and political backing, China has also provided an economic lifeline to authoritarian regimes and supported democratic backsliding in the region.
Increasing Attention to the Region
China’s role in Latin America and the Caribbean has become lessconstrained and increasingly visible in recent years. Factors driving
this evolution include an increasing demand from Latin American
and Caribbean countries for Chinese trade and investment and aperception in Beijing that the United States has decreased its attention to the region.1 Growing authoritarian and nondemocratic ten* Chinese Communist Party-affiliated organizations with a role in China’s overseas influence
activities include the International Liaison Department, the United Front Work Department, andthe Chinese People’s Association for Friendship with Foreign Countries.

73
dencies among certain Latin American and Caribbean regimes also
facilitate deeper Chinese engagement.2 Additional trends driving
China’s heightened attention to Latin America and the Caribbean
are common to other regions of the world, such as China’s growing
pursuit of foreign opportunities for economic growth and the Chinese government’s growing determination under General Secretaryof the Chinese Communist Party (CCP) Xi Jinping to gain influence
as a leading world power.3
As it does in other parts of the world, China uses diplomatic partnership labels to reflect which countries it prioritizes in its engagement.4 Between 2012 and 2016, China upgraded its relationships
with Brazil, Peru, Mexico, Argentina, Venezuela, Ecuador, and Chile
to “comprehensive strategic partnerships,” the highest rank applied
to any country in the region though lower than the rank accorded tosome countries in Africa and Asia (see Figure 1).* 5 These countries
have significant economic, political, and security ties with China
and rank among Beijing’s top partners in the region for commodity-related trade and investment, party-to-party engagements, spacecooperation, and other security activities.6 These comprehensive
strategic partners also account for 7 of the 11 countries General
Secretary Xi has visited in the region since coming to power in 2012,
with Argentina and Brazil each visited twice.7
China has added Uruguay, Bolivia, and Jamaica as “strategic
partners” since 2016.8 Bolivia ranks among China’s favored security
partners and is a potentially important source of lithium for China’s
growing electric vehicle industry.9 Jamaica, China’s newest strategic
partner, is the first Caribbean country to receive the designation.10
Taken together with Suriname and Trinidad and Tobago, whichhold partnership designations at lower levels,† Jamaica’s promotion
represents a broadening of China’s diplomatic attention beyond thelarge commodity-exporting countries of Latin America. China also
has a longstanding relationship with Cuba and frequently refers to
the country as a “good brother, good comrade, good friend” in reflection of their shared political system.11* Although the exact meaning of China’s partnership ranking is unclear, according to an explanation by former Premier Wen Jiabao, the word “comprehensive” indicates cooperation acrosseconomic, technological, cultural, and political domains and in both bilateral and multilateralsettings, while “strategic” indicates cooperation that is stable over time and not hindered by differences in ideology and political systems. Four of China’s seven comprehensive strategic partners
in Latin America previously held the slightly lower-ranking title of “strategic partner.” China
designated Brazil its first “strategic partner” in the region in 1993. China elevated Argentina tothis same level in 2004, and did the same for Peru in 2008 and Chile in 2012. No Latin Americanor Caribbean country has yet been granted the higher-level designation “comprehensive strategiccooperative partner” used in other regions, such as Africa and Asia. Margaret Myers and Ricardo Barrios, “How China Ranks Its Partners in LAC,” Dialogue, February 3, 2021; South China
Morning Post, “Quick Guide to China’s Diplomatic Levels,” January 20, 2016; Feng Zhongpingand Huang Jing, “China’s Strategic Partnership Diplomacy: Engaging with a Changing World,”
European Strategic Partnership Observatory, June 2014, 18.
† Since 2019, China has referred to its relationship with Suriname as a “strategic cooperative
partnership,” a label Mexico possessed before its promotion to the higher level of “comprehensive
strategic partnership.” China has referred to its relationship with Trinidad and Tobago as a “comprehensive cooperative partnership” since 2013, when General Secretary Xi visited the country
on his first trip to the region after taking power. Margaret Myers and Ricardo Barrios, “How
China Ranks Its Partners in LAC,” Dialogue, February 3, 2021; China Foreign Ministry, China’s
Relations with Trinidad and Tobago (中国同特立尼达和多巴哥的关系), February 2021. Translation;
Xinhua, “China and Suriname Announce the Establishment of Strategic Cooperative Partnership Relations” (中国和苏里南宣布建立战略合作伙伴关系), November 27, 2019. Translation; CGTN,“China, Suriname Elevate Ties to Strategic Partnership of Cooperation,” November 27, 2019;
Feng Zhongping and Huang Jing, “China’s Strategic Partnership Diplomacy: Engaging with a
Changing World,” European Strategic Partnership Observatory, June 2014, 18.

74
Figure 1: China’s Main Diplomatic Partners in Latin America
and the Caribbean

LATIN AMERICAMEXICOSEE CARIBBEANINSET BELOW

BELIZE*JAMAICAGUATEMALA* HONDURAS*
EL SALVADOR NICARAGUA*COSTA RICA

PANAMAVENEZUELA
COLOMBIASURINAMEAGUYANAECUADORPERU

BRAZILCOMPREHENSIVE STRATEGIC PARTNER
BOLIVIASTRATEGIC PARTNERA

STRATEGIC COOPERATIVE PARTNERB

COMPREHENSIVE COOPERATIVEPARTNERC

GOOD BROTHER, GOOD COMRADE,
GOOD FRIENDPARAGUAY*URUGUAY
ARGENTINAVISITS BY XI JINPINGCHILEKNOWN PARTY-TO-PARTY MEETINGSCONFUCIUS INSTITUTES*DIPLOMATICALLY RECOGNIZES TAIWANCARIBBEAN

BAHAMASCUBACJAMAICAHAITI*DOMINICAN
REPUBLIC
SAINT KITTS
AND NEVIS*ANTIGUA ANDBARBUDADOMINICASAINT LUCIA*BARBADOSSAINT VINCENT AND
THE GRENADINES*
GRENADAB

TRINIDAD AND
TOBAGO

Note: Data for “Known Party-to-Party Meetings” are collected for the years 2019–2021.
Source: Various.12

75
China Uses Influence for Political Gain
The CCP has worked to secure diplomatic support from Latin
American and Caribbean countries for its human rights abuses anddefiance of international law.13 In 2016, when Beijing refused torecognize the outcome of arbitration between China and the Philippines on China’s illegal claims in the South China Sea, Dominica, Grenada, and Venezuela publicly supported China’s position.14
In 2019, Bolivia, Cuba, and Venezuela signed a joint letter to the
UN Human Rights Council and UN High Commissioner for Human Rights defending China’s human rights abuses in Xinjiang.15
A year later, Cuba, Dominica, Grenada, Nicaragua, and Venezuela
supported a similar joint statement at the UN.16 Also in 2020, a UN
statement supporting China’s unilateral imposition of the National
Security Law in Hong Kong was backed not only by authoritarianregimes in Cuba, Nicaragua, and Venezuela, but also by Antigua
and Barbuda, Dominica, and Suriname.17 Finally, in March 2021
General Secretary Xi expressed appreciation to the prime ministerof Trinidad and Tobago for its support to Beijing on Hong Kong,
Xinjiang, and Taiwan.18
China signaled its increasing attention to Latin America and the
Caribbean by extending its Belt and Road Initiative (BRI) to theregion in 2017.19 Although Latin America and the Caribbean havebeen among the last regions to participate in the initiative, as of2021, 19 of the 24 Latin American and Caribbean countries thatrecognize China have signed on * in hopes of bringing in Chinese
investment.20 Since the official launch of BRI in the region, however, there has not been a noticeable uptick in Chinese investment.21
Instead, China has labeled many of its preexisting projects in theregion as now being part of BRI.22 Nevertheless, Beijing has heavily
promoted BRI branding in the region to deepen its economic andgeopolitical influence.
Latin America and the Caribbean is important to China’s efforts
to isolate Taiwan, as 9 of Taiwan’s 15 remaining diplomatic partners
are in the region.† 23 Almost immediately after ending an eight-year
tacit truce in its diplomatic contest for recognition with Taiwan in
2016,‡ Beijing leveraged economic agreements to induce Panama to* Nineteen Latin American and Caribbean countries have signed a Memorandum of Understanding with China to signify their joining BRI. These countries include Antigua and Barbuda, Barbados, Bolivia, Chile, Costa Rica, Cuba, Dominica, the Dominican Republic, Ecuador, El
Salvador, Grenada, Guyana, Jamaica, Panama, Peru, Suriname, Trinidad and Tobago, Uruguay,
and Venezuela. Latin American and Caribbean countries that recognize the People’s Republic ofChina but have not joined BRI include Argentina, the Bahamas, Brazil, Colombia, and Mexico.
Green Belt and Road Initiative Center, “Countries of the Belt and Road Initiative (BRI),” January2021; Embassy of the People’s Republic of China in the Commonwealth of Dominica, Chinese
Government and Dominican Government Sign Memorandum of Understanding on Jointly Building the “Belt and Road” (中国政府与多米尼克政府签署共建 “一带一路” 谅解备忘录), July 17, 2018.
Translation.
† Latin American and Caribbean countries that recognize Taiwan include Belize, Guatemala,Haiti, Honduras, Nicaragua, Paraguay, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and
the Grenadines. Taiwan’s Ministry of Foreign Affairs, Diplomatic Allies, 2020.
‡ Between 2008 and 2016, Beijing and Taipei operated under a tacit understanding not touse financial incentives to compete for recognition from one another’s diplomatic partners. This
eight-year period coincided with the presidency of Ma Ying-jeou in Taiwan, a member of the Kuomintang Party who sought to improve relations with Beijing. Following the January 2016 electionof Tsai Ing-wen from the Democratic Progressive Party, China’s leaders became more concerned
about preventing Taiwan independence. Two months later, Beijing ended the truce by establishing relations with the Gambia in March 2016. Matthew Southerland, “As Chinese Pressure on
Taiwan Grows, Beijing Turns Away from Cross-Strait ‘Diplomatic Truce,’ ” U.S.-China Economic
and Security Review Commission, February 9, 2017, 1; Ben Blanchard and J.R. Wu, “With Gambia

76
switch diplomatic recognition in 2017, followed by the Dominican
Republic and El Salvador in 2018.24 In testimony before the Commission, R. Evan Ellis, research professor at the U.S. Army War College, argued that although China has benefitted economically fromestablishing ties with countries that switched recognition from Taiwan, the countries themselves saw limited lasting trade benefits.25
Beijing has attempted to use the promise of assistance in managing the COVID-19 outbreak as leverage to pressure Paraguay and
Honduras to terminate diplomatic relations with Taiwan, although
without success to date.26 Guatemala, which also recognizes Taiwan,
has preemptively announced it would not source vaccines from China due to their low efficacy.27
A Whole-of-Government Approach
China’s whole-of-government approach allows it to exploit existingties with national and subnational governments, local businesses,
and other stakeholders to create new opportunities. As Thiago deAragão, director of strategy at Arko Advice Public Affairs and seniorresearcher at the Center for Strategic and International Studies,
explained in testimony before the Commission, centralized authority in Beijing means the same channels by which economic deals
are negotiated also serve as routes for other economic, diplomatic,
and security interests, allowing China to benefit from “cross negotiations.” 28 In 2021, Brazil, which previously planned to bar China’s
telecoms giant Huawei from participating in its 5G buildout due
to security concerns, reversed the ban two weeks after appealing
to China for COVID-19 vaccines.* 29 After President Jair Bolsonaro
indicated Brazil would not buy Chinese vaccines, Beijing leveraged
subnational relationships to bypass the central government and negotiate a partnership for Chinese vaccine producer Sinovac to manufacture the vaccine locally in São Paulo Province and later supply
the country with Chinese vaccines.30 Vaccine ingredient shipmentsfrom China to the São Paulo manufacturer were later delayed, allegedly at the behest of the Chinese government, following President Bolsonaro’s statements insinuating COVID-19 originated in a
Chinese lab.31
CCP leaders aim to cultivate a network of government officials in
Latin American and Caribbean countries who admire China’s stateled economic model and support China’s policy objectives.32 Between
2015 and 2018, over 1,000 leaders of political parties from Latin
American and Caribbean countries visited China, and in 2018 theMove, China Ends Diplomatic Truce with Taiwan,” Reuters, March 17, 2016; Shannon Tiezzi, “DidChina Just Break Its ‘Diplomatic Truce’ with Taiwan?” Diplomat, March 17, 2016; AssociatedPress, “Taiwan Says China Appears to Accept Diplomatic Truce,” October 16, 2008; Taiwan’s Officeof the President, President Ma’s Remarks at Ministry of Foreign Affairs: The Concept and Strategyof the “Flexible Diplomacy,” August 5, 2008.
* The date of Brazi’s 5G auction was repeated delayed. As of September 2021, it was expected tooccur in early November 2021. Alberto Alerigi, “Brazil Sets 5G Mobile Auction for Nov 4, Expects
to Raise $1.9 bln,” Reuters, September 24, 2021; Janaína Camelo, “Huawei O.K. with 5G Compromise Deal in Brazil,” Brazilian Report, August 20, 2021; Reuters and Latin America Business
Stories, “U.S. Warned Brazil about China’s Huawei in 5G Network—White House Official,” August
9, 2021; Juan Pedro Tomás, “Brazilian Government Confirms 5G Auction for August: Report,”
RCR Wireless News, July 1, 2021; Giovana Fleck, “Why Huawei Was Almost Excluded from the 5G
Race in Brazil,” Global Voices, May 28, 2021; Reuters, “Brazil Regulator Approves 5G Spectrum
Auction Rules, No Huawei Ban,” February 25, 2021.

77
Chinese government pledged to invite over 600 more by 2021.* 33
China’s leaders seek to build influence with Latin American and
Caribbean civil servants, legislators, and party leaders from acrossthe political spectrum and at multiple levels of government.34 For
example, between 2002 and 2017, representatives from the CCP’s
International Liaison Department † held nearly 300 meetings with
74 different political parties in 26 of the 33 Latin American and Caribbean countries.35 China tailors its approach to suit host country
dynamics and local political power structures, focusing on official
diplomatic channels in countries with strong central government
authority and prioritizing municipal governments alongside privatecompanies and associations in countries that are more decentralized.36 Through party-to-party trainings, meetings, travel, and otherengagements sponsored by the Chinese government and the CCP,
Beijing tries to convince many Latin American and Caribbean leaders that partnership with China is the most effective path to economic growth in their own countries.37
Beijing uses people-to-people exchanges to deepen its influenceamong the region’s publics.38 The Overseas Chinese Affairs Office,subsumed under the United Front Work Department in 2018, worked
for over a decade with overseas Chinese communities in Latin American and Caribbean countries in an effort to shape positive viewsof China that would facilitate investment and commercial deals.39
There are about 45 Confucius Institutes in the region, which playa significant role in China’s efforts to project soft power.40 In testimony to the Commission, Ryan Berg, senior fellow at the Center
for Strategic and International Studies, explained that the impact
of Confucius Institutes is particularly strong in Caribbean countries
where the United States has no official diplomatic presence.‡ 41 The
Chinese government also pays for students, businesspeople, farmers, academics, and other professionals to come to China for classes, trainings, and conferences, aiming to influence the region’s next
generation of leaders.42 For example, over 4,000 professionals from
Latin American and Caribbean countries participated in training in
China between 2015 and 2018.43 While absolute numbers may not* It is unknown how many of the pledged 600 actually completed their visits, particularly given
the disruption of the COVID-19 pandemic. Officials who have traveled to China have attended
seminars on a range of topics. For example, officials from Colombia attended seminars on agricultural production technology in 2017 and 2018, Argentinian officials attended a seminar on public
administration in 2018, and Brazilian civil servants attended programs on foreign investment
and sustainable development in 2019. Claudia Trevisan, “Trade, Investment, Technology, andTraining Are China’s Tools to Influence Latin America,” Council on Foreign Relations, 2020, 11;
China’s Ministry of Foreign Affairs, Join Hands across the Ocean in a New Era, January 25, 2018.
† The International Liaison Department is the branch of the CCP that conducts party-to-party
engagement with foreign political parties. Its focus is on long-term relationship building and ideology, and Dr. Berg suggested in his testimony to the Commission that it also plays an informalrole in supporting economic dealmaking. For example, the International Liaison Department met
with the mainstream and ruling political parties in Colombia directly before a Chinese company won a roughly $4-billion-dollar Bogota metro project. Ryan Berg, oral testimony for the
U.S.-China Economic and Security Review Commission, Hearing on China in Latin America andthe Caribbean, May 20, 2021, 77; Ryan Berg, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 5; Jorge Valencia, “By Building Bogotá Metro, China Makes a New Breakthrough in Latin
America,” The World, November 5, 2020.
‡ The United States Embassy in Barbados concurrently serves six other countries, including
Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent
and the Grenadines. China, by contrast, has an embassy in every Caribbean country with which
it has diplomatic relations. U.S. Embassy in Barbados, the Eastern Caribbean, and the OECS,Countries We Serve; China’s Ministry of Foreign Affairs, Chinese Embassies in Latin America,
2014.

78
be large, they have an outsized impact on messages about China
in the region, as those who travel to China are the most likely toserve in roles as regional experts on China’s activities and influencein their home countries.44 As Dr. Ellis assessed, “The expectation of
more invitations in the future . . . , the desire not to be ‘ungrateful,’ orthe fear of losing access to such important information sources leads
recipients to self-censor their subsequent remarks about China on
topics of sensitivity to its government.” 45
China Pursues Media Influence
The main goal of China’s media engagement in Latin America
and the Caribbean is to promote favorable reporting on China
and stifle information it views as “anti-China narratives,” including anything that could point out failings of the CCP or criticize
its policies or actions. Thus far, China’s attempts to foster positive
perceptions through media influence have met with mixed success.46 Chinese state media operations are still less developed in
Latin America and the Caribbean than in Asia, Africa, or Europe,as the organizations struggle to attract large followings in the regional market mainly dominated by U.S. and European media.47
Xinhua, People’s Daily, and China Radio International nonethelessproduce both Spanish- and Portuguese-language content in theregion, and China Central Television (CCTV) hosts a free 24-hour
Spanish service, though it lacks a Portuguese version.48 Chinesestate media is often cited as an authoritative source on Chinese
affairs, and state media organs have established content-sharing
agreements in countries such as Brazil, Chile, and Venezuela toregularly republish content from Chinese state media in local
publications and broadcast it on local networks.49 China supplements these influence efforts by hosting trainings and events forjournalists and news agencies from the region geared toward impressing upon attendees a positive perception of China’s economic
and political model.* 50
Since 2020, China’s media outreach has focused on shaping
the region’s perception of the COVID-19 pandemic. Francisco Urdinez, associate professor at the Pontifical Catholic University ofChile, assessed in his testimony to the Commission that the pandemic has severely damaged China’s reputation among publics inthe region.51 In an attempt to reverse the damage, Chinese diplomats in the region not only retweeted positive coverage of China’s handling of the outbreak from Chinese state media outlets in
English and Spanish but also amplified the voices of local actors
with positive views of China and spread disinformation to attack* In 2018, China convened the China-Latin America and the Caribbean Media Forum, bringing
together 13 media outlets from China and over 100 Latin American news agencies. The same
year, China’s Ministry of Foreign Affairs established the China-Caribbean Press Centre, whichfacilitates travel exchanges for Caribbean journalists to China. In early 2021, mainstream media
outlets in Argentina, Brazil, Chile, Cuba, Peru, and Venezuela published reports echoing the CCP
messaging on China’s poverty reduction. House Foreign Affairs Committee Republicans, China
Regional Snapshot: South America, March 16, 2021; House Foreign Affairs Committee Republicans, China Regional Snapshot: The Caribbean, March 16, 2021; CCTV, “Mainstream Media in
Many Latin American Countries Report Intensively and Highly Evaluate China’s Anti-Poverty
Achievements” (拉美多国主流媒体密集报道并高度评价中国脱贫成就), March 1, 2021. Translation;
Xinhua, “Xinhua Calls for Deepening China-LatAm Media Cooperation,” November 20, 2018;
CCTV, “China-Caribbean Press Center Launched,” May 19, 2018.

79
China Pursues Media Influence—Continued
the United States.52 During an August 2020 virtual dialogue withrepresentatives from 15 Latin American media organizations on
the subject of COVID-19, China’s representatives called for increased content sharing and stressed the media’s role in sharing
the Chinese government’s so-called “effective measures” against
the virus with Latin American countries.* 53
Encouraging Authoritarian Trends
Chinese engagement in some Latin American and Caribbean
countries has exacerbated authoritarian trends and poor governance. In Venezuela, the authoritarian Maduro regime has
worked extensively with Chinese technology companies ZTE andChina National Electronics Import and Export Corporation † todevelop surveillance systems and a prototype social credit systemcalled the Fatherland Card.54 The system allows the Maduro regime access to a repository of Venezuelan citizens’ data and has
been used by the regime to track voting patterns, ration food andsupplies, monitor social media accounts, and even preferentiallydistribute COVID-19 vaccines throughout the country.55 Marking
China’s export of “digital authoritarianism” to the region, the system borrows from China’s emerging Corporate Social Credit System, a sweeping government-wide initiative to aggregate data on
legal entities to improve regulatory enforcement.56 Former leftist
populist governments in the region, such as the Evo Morales government in Bolivia (2006–2019) and the Rafael Correa government in Ecuador (2007–2017), also contracted with Chinese companies to develop and implement surveillance systems intended
to help them consolidate control over their populations.57 Whilein power, both governments undermined democratic institutions,attempted to silence media criticism, and were accused of corruption.58
Chinese loans have provided a critical economic lifeline to the
Maduro regime, and they also enabled the Morales and Correa
governments to consolidate control while eroding their countries’
democratic institutions. These governments are also among thelargest recipients of Chinese financing in the region.59 Unlikeinternational financial institutions (IFIs) like the International
Monetary Fund (IMF), Chinese lenders do not require recipientsto implement structural economic or governance reforms, such as
austerity measures.60 Instead, according to a study of 100 Chi* Chinese-language coverage of the event highlights remarks by media representatives fromfive of China’s comprehensive strategic partners, namely Argentina, Brazil, Chile, Peru, and Mexico. The Brazilian representative called for increased media cooperation with China, and the
Mexican representative highlighted the importance of China’s experience in fighting the virus for
Latin American countries. Xinhua, “Chinese and Latin American Media Launch Cloud Dialogue,
Media Personnel Join Hands to Fight the Epidemic and Overcome Difficult Times” (中拉媒体开展云端对话 媒体人携手抗疫克时艰), August 28, 2020. Translation.
† In November 2020, the U.S. Department of the Treasury sanctioned the China National Electronics Import and Export Corporation for supporting the Maduro regime’s efforts to undermine
Venezuela’s democracy, including its restriction of internet services, digital surveillance, and cyberoperations against political opponents. U.S. Department of the Treasury, Treasury Sanctions
CEIEC for Supporting the Illegitimate Maduro Regime’s Efforts to Undermine Venezuelan Democracy, November 30, 2020.

80
nese loan contracts published by the Center for Global Development, many Chinese loans include their own unique conditions
that protect China’s interests and give Chinese lenders benefits,
including access to resources through commodity-backed revenue
accounts.61 Chinese contracts also include strict confidentiality
clauses that restrict borrowers from even disclosing that somedebts exist, thereby exacerbating issues of transparency and poor
governance.62 (For more on China’s loans to the region, see “Bilateral Loans Provide China with Leverage over Debtor Countries”
later in this section.)
Between 2005 and 2020, China extended loans worth at least$62.2 billion to the Venezuelan Chavez and Maduro regimes, $17.4
billion to the Correa government in Ecuador, $3.4 billion to theMorales government in Bolivia, and $15.3 billion to the Kirchner
governments (2003–2015) in Argentina.63 In many cases, China
has acted as a lender of last resort for countries that have lostthe confidence of international investors.64 For example, after defaulting on $3.2 billion of government bonds in 2008, the Correa
government was cut off from international financial markets.65
Turning to Chinese policy bank financing as an alternative, theCorrea government received over $7 billion in Chinese loans between 2010 and 2012 alone.66 Argentina, which has defaulted on
its sovereign debt nine times, is the fourth-largest debtor to China
in the region.67 In testimony before the Commission, Mr. Aragão
suggested Argentina’s mounting debt to China gave China leverage to negotiate the construction of a Chinese-controlled space observation center on Argentine soil.68 (For more on China’s spaceobservation center in Argentina, see “China’s Military and Security
Engagement” later in this section.)
China’s Economic Strategy
China’s economic interests drive its engagement in Latin America
and the Caribbean as it seeks commodities and raw materials tofuel its economy while building markets for its companies and technologies. China’s economic strategy in the region began in the early
2000s with open market purchases of Latin American commodities,
and it has since diversified to incorporate strategic investments andfinancing that increase China’s control over entire supply chains. To
maintain growth, the region urgently needs financing for infrastructure, which China has been willing to provide, further cementing
its central position in some countries’ economies. While Caribbean
countries are not commodity exporters, China sees the subregion as
both a growing market for its surveillance technologies and an important location for infrastructure projects, such as ports. In deepening its economic leverage over the subregion, China also intends
to cultivate political support from a bloc of countries with voting
power at the UN.
Countries in the region see Chinese trade and investment as anopportunity for economic growth; however, the region’s institutions
have been ill equipped to effectively manage the boom in Chinese
economic activity over the last two decades. As a result, Chinese
economic engagement has facilitated a decline in environmental,social, and governance standards, with some local indigenous com-

81
munities and environmental organizations expressing opposition
to Chinese projects and investments. The benefits of trade with
China have also encouraged governments to focus on commodities
to promote economic growth at the expense of industrialization.
Amid a global pandemic and regional economic recession, theseforces may be amplified as countries increasingly rely on Chinese
trade and investment while disregarding long-term consequences,such as environmental degradation and damage to indigenous populations.
Trade with China Is Critical for Economies in the Region
As China’s domestic economy has expanded, its burgeoning demand for commodities has made it a critical trade partner for selectcommodity exporters in the region. In 2020, China’s goods trade with
Latin America and the Caribbean stood at just under $300 billion—
up 1,466 percent from $18.9 billion in 2002.69 The region’s goods
exports to China in 2020 were an estimated $135.6 billion, while
it imported an estimated $160 billion in goods from China.70 Latin
America and the Caribbean represented just 6.4 percent of China’s
global goods trade in 2020, yet China has been ranked the secondor third-largest trading partner for the region since 2011 and has
become an important trade partner for multiple economies.71
While the region occupies a fraction of China’s global trade, it isChina’s primary supplier for select commodities. For example, Brazilian soybeans and Chilean copper respectively supplied approximately 61 percent and 32 percent of China’s total global importsof those commodities between 2016 and 2020.72 During the sametime period, 67 percent of China’s imports from the region were inthree main commodity categories: agricultural goods (soybeans andoilseeds), energy (crude petroleum oil), and metals (copper ores andconcentrates, iron ores and concentrates, and refined copper) (seeFigure 2).73 When disaggregated by country, 84 percent of China’spurchases from the region originated from just four countries: Brazil(48 percent), Chile (17 percent), Mexico (10 percent), and Peru (9percent).74
Strong economic relationships with Latin American commodity
suppliers like Brazil, Chile, and Peru provide China with opportunities to divert its demand between trade partners should politicalor economic tensions arise. For example, in 2018 China reduced its
soybean purchases from the United States by $9.1 billion to $3.1
billion, a 74.5 percent drop compared to 2017 levels, in retaliation
for duties levied by the United States on Chinese goods.75 In thesame year, it increased its purchases from Brazil by $7.9 billion, or
37.9 percent year-on-year.76 Similarly, in 2020 China applied duties
on Australian wine after Australia called for an international investigation into the origins of COVID-19.77 China then expanded its
Chilean wine purchases, which increased by over 40 percent in thefirst quarter of 2021.78

82
Figure 2: Chinese Imports from Latin America and the Caribbean by
Commodity and Country, 2016–2020
Total Imports
Oil
15%

Other
33%

Soybeans
Argentina
10%$130 billion$744 billion
Iron &
Copper
34%

Soybeans
18%

Brazil87%

Crude OilIron and Copper
Other
7%

Colombia
17%

Other
6%

Peru
20%

$113 billion
Venezuela
20%

Other
3%

$252 billion
Brazil56%

Brazil
39%

Chile
35%

Note: Because 2020 economic data are skewed due to disruptions associated with the COVID-19
pandemic, this figure aggregates data between 2016 and 2020 to demonstrate trends in Chinese
trade with Latin America and the Caribbean over multiple years.
Source: United Nations, “UN Comtrade Database,” calculations by Rebecca Ray.

Like Chinese trade with the region, Chinese foreign direct investment (FDI) is concentrated in the energy, metals, transportation, andagriculture sectors, with Brazil, Peru, and Chile as primary destinations.79 Although the United States and European countries remain
the region’s top sources of investment, accounting for 82 percent of
FDI flows in 2019, FDI from China into Latin America and the Caribbean is on the rise.80 The majority of Chinese investments havebeen through mergers and acquisitions (M&A), and China’s sharein cross-border M&A in the region increased between the first andsecond half of the last decade from 12.5 percent to 17.7 percent.81
Over the same period, the share of European M&A transactions decreased, while it increased for North American companies.82 China’s
regional investment strategy has also matured and diversified, as
Chinese FDI is progressing beyond M&A to greenfield investmentsthat require greater local knowledge to build and operate new businesses. Chinese firms have also begun investing in the region’s finance, real estate, and technology sectors, though these sectors still
represent a small fraction of total Chinese FDI to the region (seeFigure 3).83

83
Figure 3: Cumulative Chinese FDI to Latin America and the Caribbean by
Sector, 2016–2020

Other
5%

Metals
20%

Agriculture
4%

Transport
6%$58 billion
Energy65%

Note: “Other” includes chemicals, finance, logistics, real estate, technology, and utilities. Because
2020 economic data are skewed due to disruptions associated with the COVID-19 pandemic, thisfigure aggregates data between 2016 and 2020 to demonstrate trends in Chinese investment in
Latin America and the Caribbean over multiple years.
Source: American Enterprise Institute, “China Global Investment Tracker,” 2021.

Bilateral Loans Provide China with Leverage over Debtor Countries
Two Chinese policy banks,* China Development Bank and theExport-Import Bank of China (China EXIM Bank), are key facilitators of Chinese engagement.84 Many of China’s loans to the region
have been tied to the use of Chinese companies and equipment.85
The primary recipients of Chinese policy bank lending are all major
oil or commodity exporters and include Venezuela ($62.2 billion, 45
percent), Brazil ($29.7 billion, 22 percent), and Ecuador ($18.4 billion, 13 percent), which alone account for 80 percent of all Chinese
policy bank lending to the region.86 Furthermore, China devoted
approximately 68 percent of its financing in Latin America and the
Caribbean to the energy sector alone.87 For Venezuela and Ecuador,
which have both been cut off from traditional financing at different
points in time, Chinese lending has exceeded total lending by the* China has three national state-owned policy banks: China Development Bank, Export-Import
Bank of China (China EXIM Bank), and Agricultural Development Bank of China. The policy
banks were established as part of a restructuring effort in 1994 to separate commercial and policy financing functions, with each bank charged with specific policy domains. For example, China
Development Bank was formed specifically to finance domestic and international development
projects, while the China EXIM Bank provides financial services for importers and exporters. For
more information on China’s banking sector, see Virgilio Bisio, “China’s Banking Sector Risks
and Implications for the United States,” U.S.-China Economic and Security Review Commission,
May 27, 2020.

84
World Bank, Inter-American Development Bank, and Development
Bank of Latin America.88
Chinese policy bank financing to the region has declined in recent years, while Chinese commercial financing * facilitates an array of Chinese nonstate enterprises’ engagement. According to theInter-American Dialogue’s China-Latin America Finance Database,between 2005 and 2020 Chinese policy banks provided about $137
billion in financing to the region; however, this lending peakedin 2010 at $35.7 billion, and it has significantly declined in recent years due to the political and economic crisis in China’s top
borrower, Venezuela.89 At the same time, however, Chinese commercial banks like the Industrial and Commercial Bank of China and the Bank of China have maintained a steady presence inthe region, providing commercial finance, trade finance, and retailbanking to Chinese companies, often in cooperation with other international banks.90 According to Margaret Myers, director of the
Asia and Latin America program at the Inter-American Dialogue,loans from Chinese policy banks were originally intended to facilitate market access for Chinese firms by linking financing to theuse of Chinese firms and equipment. Demand for these loans may
be declining, however, as Chinese companies have developed theirown extensive customer networks and positive reputations in theregion’s markets.91
For many countries in Latin America and the Caribbean, Chinese policy bank financing fills a gap when access to financing from
IFIs is unavailable due to host country corruption, poor economic
fundamentals, or weak project standards. While Beijing does not
attach governance and project feasibility standards to its loans as
IFIs do, Chinese sovereign loans to other countries include uniqueprovisions that protect China’s existing commercial interests andensure that China is paid before other creditors. The Center for
Global Development’s groundbreaking study of 100 Chinese loan
contracts revealed that these loans prioritize Chinese interests bycreating collateral arrangements, such as Chinese-controlled revenue accounts in which revenue from a debtor’s sale of commodities is deposited into an account controlled by China and acts as
collateral for the loan.92 The contracts also include the so-called“No Paris Club” clauses that keep Chinese debt out of collective
restructuring efforts among the Paris Club of bilateral lenders,†
thereby ensuring that Chinese debts are prioritized above otherbilateral debts and allowing China to freeride on multilateral debt
relief efforts.93* China has four primary state-owned commercial banks, including the Bank of China, China
Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China.
Here, “commercial banks”—as opposed to investment banks and policy banks—refers simply tobanks that accept deposits from individuals or corporations; make business, consumer, and mortgage loans; and provide checking account services. China’s commercial banks do not provide bilateral sovereign loans but rather support commercial enterprises. For more information on China’sbanking sector, see Virgilio Bisio, “China’s Banking Sector Risks and Implications for the UnitedStates,” U.S.-China Economic and Security Review Commission, May 27, 2020.
† The Paris Club is a group of 22 creditor nations that strive to coordinate workable solutions
to mounting debt problems among debtor nations. The 22 permanent members of the group are
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel,
Italy, Japan, Korea, Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Adam Hayes, “Paris Club,” Investopedia, April 15, 2021; Paris Club,“Permanent Members.”

85
In a pattern that holds across much of the developing world, Chinese bilateral lending to Latin America and the Caribbean createssignificant leverage for Beijing. Though there have been no cases ofChina seizing assets in the region to compensate for debt, sustained
debt pressure shapes countries’ long-term policies toward China.
Venezuela is highly exposed, with debt to China peaking at approximately 17 percent of gross domestic product (GDP) in 2014 before
slowly decreasing to approximately 11 percent in 2017 after China
stopped issuing it new loans in 2016.* 94 As of 2019, Venezuela owed
$66 billion in external public debt, with just under a third of thisdebt owed to China alone.95 Similarly, China is the top bilateral
lender to Ecuador and Jamaica, both of which owed China approximately 10 percent of their GDP in 2017.96 For small countries in the
Caribbean, such as Jamaica, which has only received $2.1 billion in
Chinese loans, this financing may have an outsized impact relative
to the size of debtor economies and could create excessive leverage
for Chinese interests.97 Notably, despite the acute financial pressures experienced throughout the region in the wake of COVID-19,
Chinese policy banks did not extend any new loans to countries in
Latin America or the Caribbean in 2020.98 By contrast, the World
Bank, Inter-American Development Bank, and Development Bankof Latin America respectively approved $7.8 billion, $21.6 billion,
and $14 billion in loans and financial support to countries in theregion in 2020.99
In Venezuela and Ecuador, this leverage is manifested by China’s
sustained access to discounted oil for in-kind repayments throughresource-backed loans. Although China’s resource-backed loans
have at times provided financing below market rates, in the cases of Venezuela and Ecuador, falling global oil prices forced bothcountries to dedicate larger volumes of oil production to repaying
Chinese loans.100 The Natural Resource Governance Institute, aU.S. nonprofit focused on sustainable development, asserts that resource-backed loans have been at the center of Venezuela’s public
debt crisis and have prompted the country to push for multiple payment extensions.101 Facing its own mounting public debt, Ecuador
negotiated a $4.2 billion IMF bailout in 2019 and another $6.5 IMF
loan in 2020.102
Chinese loans also potentially allow Beijing to influence borrowers’ domestic and foreign policies through cross-default clauses.
Cross-cancelation and cross-default clauses, standard in commercial
loans but more unusual in government-to-government lending, protect China’s existing loans by entitling Chinese lenders to terminate
and demand repayment when a borrower defaults or cancels a loan
from another lender.103 For example, in Argentina, China leveraged
a loan cross-default clause to successfully pressure the Argentine
government not to cancel the Chinese-financed Kirchner-Cepernic Dams Project.104 Because the loan for the project included across-default clause, China threatened to cut off financing to an* Chinese policy banks do not publish data on their sovereign lending, so third-party analyses track Chinese loans by triangulating open source information. Sebastian Horn, Carmen M.
Reinhart, and Christoph Trebesch manage one of the most comprehensive datasets on Chinese
loan contracts and debtor obligations, although it only accounts for Chinese loans through 2017.
Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch, “China’s Overseas Lending,” National Bureau of Economic Research, NBER Working Paper No. 26050, 2019.

86
other project, the Belgrano-Cargas Railway, should the Argentine
government cancel the dam.105 In their study of Chinese loan contracts, researchers at the Center for Global Development note that“using cross-defaults to link otherwise unrelated projects makes it
harder for the borrower to walk away from any of them, and gives
Chinese lenders as a group more bargaining power—and more policy influence.” 106
Chinese loan contracts also include policy change clauses thatallow China to cancel a loan if the debtor country undertakes policy changes “adverse to ‘any PRC [People’s Republic of China] entity’ in the borrowing country.” 107 In fact, the terms in one loan from
China Development Bank to Ecuador constrain Ecuador’s ability toenact domestic policies that may adversely impact Chinese interests. They stipulate that China Development Bank will consider
Ecuador to be in default, or failing to honor the terms of the debt
contract, if it “takes any action for the dissolution or disestablishment of a PRC entity or any action that would prevent a PRC
entity or its officers from carrying on all or substantial part of its
business or operations” or “takes any action, other than actions
having general effect in the Republic of Ecuador, which would disadvantage a PRC entity in carrying out its business or operationsin the Republic of Ecuador.” 108 Such clauses pressure Ecuador tomaintain positive bilateral relations with China, as a loan default
could trigger a range of punitive measures, such as cross-defaults
on other Chinese loans to Ecuador or mandatory early repaymentof the defaulted loan.
Chinese Engagement Promotes Dependence on Commodity Exports
Latin American and Caribbean economies actively seek Chinese
engagement. According to research published by the UN, the 2002–
2008 commodity boom, which was primarily driven by growing Chinese demand, prompted the prices for key commodity exports fromthe region like iron ore and zinc to increase by up to 153.6 and 147.6
percent, respectively.109 Chinese commodity demand is estimated tohave increased the region’s export earnings during the period by up
to $73 billion.110 Despite the fall in commodity prices precipitatedby the 2008 global financial crisis, China’s large-scale stimulus efforts helped maintain steady demand for Latin American and Caribbean exports and shielded the region’s economies from the worstof the global recession.111 Chinese economic engagement has also
increased employment throughout the region, and the International
Labor Organization estimates it has generated approximately 1.8
million net jobs between 1995 and 2016.112 The majority of thesejobs were low-skilled and concentrated in the agriculture, mining,and energy sectors (that is, sectors that serviced Chinese demandfor commodities).113 According to the UN Economic Commission
for Latin America and the Caribbean, China’s expanding economic
engagement also coincides with a decline in the proportion of theregion’s population living in extreme poverty—from 12 percent in2002 down to 4 percent in 2018.* 114* Extreme poverty is measured by the UN Economic Commission for Latin America and the
Caribbean as the number of people living on less than $1.25 per day. United Nations Economic
Commission for Latin America and the Caribbean, “Sustainable Development Goals Indicator

87
While Chinese economic engagement has brought significant
benefits to economies in the region, it also has been tied to aprocess of re-primarization. This is a phenomenon in which economies on the cusp of developing their manufacturing or service
industries revert to primary industry (e.g., natural resource extraction) as their predominant source of economic growth. Because China mainly imports commodities from Latin America andexports manufactured goods to the region, trade with China has
been associated with re-primarization in partner economies. Researchers at the Atlantic Council estimate that between 2002 and2015, the region’s industrial exports as a share of its total global
exports fell from approximately 93 percent to approximately 76
percent.115 By contrast, the share of raw materials in the region’sexport basket has been rising since the beginning of the commodity boom in 2001 when raw materials constituted nearly 23 percent of the region’s export basket.116 By 2018, raw materials constituted nearly 30 percent of the region’s exports to the world.117
Exacerbating this trend, Chinese financing and investment areconcentrated in extractive industries, which further encourages
governments to shift emphasis to these sectors at the expense ofindustrialization.
China May Help the Region’s Economies Weather the
COVID-19 Pandemic
China’s strong demand for Latin American commodities is
helping economies in the region manage the economic disruption caused by the COVID-19 pandemic. In testimony before theCommission, Ms. Myers explained that in the post-pandemic era,
economies in the region would also likely try to attract Chinese
investment to boost their recovery.118 The IMF estimates that theregion experienced a 7 percent GDP contraction in 2020, whilethe volume of the region’s exports also decreased by 26.1 percent between December 2019 and May 2020.119 Due to structural
weaknesses present before the pandemic, economists expect theregion to be the slowest among emerging economies to recover.120
China’s relatively swift economic recovery buoyed demand for
Latin American and Caribbean exports, and as in the aftermathof the 2008 global financial crisis, China may provide a balance
for economies in the region against external economic shocks andsharp reductions in U.S. demand for regional goods (see Figure 4).
For example, in June 2020 total Argentine, Brazilian, and Chilean exports to China increased by approximately 48 percent yearon-year from $7.5 billion to $11.1 billion.121 At the same time,as U.S. and European investors sold their assets in the region
amid the global economic downturn, Chinese investment through
M&A, particularly in the electricity distribution sector, increased
63 percent from $4.3 billion in 2019 to $7 billion in 2020.122

1.1.1 Proportion of Population Below the International Poverty Line, by Sex, Age, Employment
Status and Geographical Location (Urban/Rural),” May 27, 2021.

88
China May Help the Region’s Economies Weather the
COVID-19 Pandemic—Continued
Figure 4: Chinese and U.S. Imports from Select Latin American
Countries, 2000–2020(US$ billions)

Chile

Brazil
100

30

80

25
20

60

15

40

10

20
0

5
2000

2004

2008

2012

2016

2020

0

2000

2004

Peru

2012

2016

2020

2016

2020

Argentina
10

16

8

12

6

8

4

4
0

2008

2
2000

2004

2008

2012

2016

2020

0

2000

2004

2008

2012

Source: U.S. Census Bureau, Trade in Goods Brazil; U.S. Census Bureau, Trade inGoods Chile; U.S. Census Bureau, Trade in Goods Peru; U.S. Census Bureau, Trade inGoods Argentina; United Nations, “UN Comtrade Database.”

China’s Approach to Resource Access Is Evolving
While China’s economic engagement with Latin America beganwith a focus on open market commodity purchases, its strategy inthe region is maturing and diversifying. China now invests acrossentire supply chains, which allows it to exert greater control overindustries where it has a strategic interest in resource access ormarket building. China is also increasingly investing in regional
infrastructure, with an interest in improving production capacity
while decreasing the time and cost for shipping commodities backto China.
Latin American Minerals Support China’s Industrial Development
As China attempts to become a global leader in advanced manufacturing, access to minerals from around the world is an increasingly important component of its industrial policy. Latin America hassome of the world’s largest deposits of copper, iron ore, silver, lithium, and niobium, which are used to make electronic components,

89such as rechargeable batteries and semiconductors.123 Controllingthe supply chain for these technologies drives China’s investments
in Latin America’s mining sector.
Chinese investment in Latin America’s mining sector reveals apattern of vertical integration, with Chinese entities acquiring agreater share of value within individual mineral supply chains,
culminating with direct ownership over mines themselves.124 For
example, in the case of lithium, Chinese firms have expanded theirinvestments throughout the supply chain, which involves extraction,refining, and eventually manufacturing the mineral into technologies like lithium-ion batteries for electric vehicles. Latin America’s“Lithium Triangle,” which spans Argentina, Chile, and Bolivia, ishome to more than half of the world’s known lithium reserves andhas been a target of Chinese investment.125 Chinese companies like
Tianqi Lithium and Ganfeng Lithium have acquired major stakes in
production in Chile, financed new mine development in Argentina,
and signed an agreement to develop lithium production in Bolivia.126 With the addition of its investments in Australian lithium,
China’s global investments give it influence or control of over 59
percent of global lithium production.127 As China accumulates market power over the lithium supply chain, it also strengthens its ability to influence global supply and pricing.128
Local Communities Push Back against Chinese Mining
Investments
Some Chinese mining investments in Latin America have generated pushback in response to negative environmental and social impacts. The outcomes of local resistance, however, dependon the local rule of law and the will of governments to place restrictions on Chinese investors. In the case of the Chinese-invested Rio Blanco gold and silver mine in Ecuador, local indigenous
communities impacted by water pollution generated by the mine
successfully sued the Ecuadorian government for failing to provide the community with free and informed prior consultation on
the project and forced the Chinese company to suspend mining
operations in 2018.129 The Ecuadorian government opposed attempts to close the mine and appealed the decision in a constitutional court in 2020.130 Though there is little public information
available regarding the progress of the appeal at this time, inFebruary 2021 residents of the local area passed a referendum
to ban any new large-scale mining activities in five nearby watershed zones.131 While it will prevent future mining operationsin the area, the referendum will not impact the Rio Blanco mine.
In other cases, local communities have engaged in violence toprotest the environmental degradation caused by Chinese mining
projects. In one such example, between 2015 and 2016 community protests erupted against the Chinese state-owned enterprise(SOE) MMG Limited’s (MMG Ltd.) Las Bambas mine in Peru,
citing a lack of adequate prior consultation as well as negativeenvironmental impacts. The protests resulted in violent clashes
with Peruvian police that left at least four protesters dead.132
Though in 2019 Peru’s Environmental Assessment and Enforce-

90
Local Communities Push Back against Chinese Mining
Investments—Continued
ment Agency ordered MMG Ltd. to limit the adverse environmental effects of its activities, local communities had to endure theseenvironmental impacts for years before Peru’s government finally
acted on their complaints.133
China Invests in Power Distribution Assets to Build Markets
Beyond its open market purchases of Latin American fossil fuels, China has increasingly invested in building and acquiring Latin America’s electricity generation and distribution assets. Between
2005 and 2020, 61 percent of Chinese investments in the region
were devoted to the energy sector, with Chinese SOEs accounting
for the majority of investment.134 As the region’s electricity production cannot be exported to China, China’s acquisitions and greenfield investments in the sector are instead intended to build lucrative markets for its energy generation and distribution technologies,
such as solar panels.135 In testimony before the Commission, Rebecca Ray, senior academic researcher at Boston University’s Global
Development Policy Center, argued that Chinese electricity asset acquisitions introduce the risk that Chinese companies could use theirownership stakes to engage in anticompetitive behaviors, such as
self-dealing and price fixing.136 Chinese SOE Yangtze Power’s 2020
acquisition of Peru’s Luz del Sur electricity distribution company
illustrates these concerns, as Yangtze Power’s parent company, China Three Gorges, also has ownership over the Peruvian San Gabán
III and Chaglla hydropower plants, both upstream power-generation assets.137 To prevent collusion, Peru’s Ministry of Energy and
Mines stipulated that Luz del Sur must commit to purchasing power through a transparent and competitive bidding process.138
In Chile, the 2021 purchase by State Grid, a Chinese SOE, of a96 percent stake in Compañía General de Electricidad power utility
company, combined with State Grid’s prior acquisitions of multiple
other Chilean electricity distribution assets, resulted in State Grid
controlling approximately 57 percent of Chile’s electricity distribution.139 State Grid’s purchase prompted regulatory scrutiny fromthe country’s lawmakers, who expressed concern that a foreign state
entity could control a majority portion of a national strategic asset.140 Though it too was ultimately approved by Chile’s antitrust
authority, State Grid’s acquisition prompted legislators to consider abill to allow Chile’s Congress to block acquisitions of strategic assets
by foreign SOEs.* 141
While host country regulators reviewed both the Yangtze Powerand State Grid purchases for potential impacts on market competition, the acquisitions were never reviewed for risks to national
security. In fact, the majority of countries in Latin America and the
Caribbean lack mechanisms to review the national security impli* As of July 2021, the bill was still being debated within Chile’s Congress. A. Gonzolez, “Chamber of Deputies Cites Special Session to Analyze Purchase of CGE by Chinese State-Owned Company” (Cámara de Diputados cita sesión especial para analizar compra de CGE por parte deempresa estatal china), Emol, July 2, 2021. Translation.

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cations of inbound foreign investment.142 According to Dr. Ray, thisrepresents a serious institutional gap in Latin American countries’
ability to regulate the China investment boom, especially given China’s accumulating investments in critical sectors like energy thatare inextricably linked to a country’s national security.143
China Seeks Agricultural Resources amid Food Security Concerns
China also employs its vertically integrated approach to accessing Latin American agricultural resources, which help allay domestic food security concerns. Approximately half of China’s demand
for agricultural products from the region has been concentrated in
Brazilian soybeans, where Chinese purchases comprised about 73
percent of Brazil’s global soybean exports in 2020.144 Brazilian soybean producers have been the primary beneficiaries of U.S.-China
trade tensions, as China diverted much of its U.S. demand to Brazil
in 2018, although Chinese demand for U.S. soybeans has since rebounded after the signing of the U.S.-China Phase One trade agreement.145 China’s demand for Brazilian meat imports like beef andveal increased by 299 percent between 2017 and 2020 and has generated significant deforestation pressures in Brazil.146 According toresearch by Trase, an NGO focused on the commodity trade’s rolein deforestation, in 2017 approximately 40,500 hectares of Brazilian rainforest were at risk of deforestation due to mainland China
and Hong Kong’s demand for Brazilian beef alone.147 Beyond trade,major Chinese food companies are targeting acquisitions and investments along different portions of the agricultural supply chain, including production, processing, and storage, and have acquired vertically integrated agricultural operations like Brazil’s Fiagril, which
processes, markets, and transports grains.148
As part of China’s efforts to secure food resources, Chinese fishing boats have become primary offenders of illegal, unreported, andunregulated (IUU) fishing in Latin America and the Caribbean.149
China’s deep-water fishing fleet, which according to some estimates
includes over 17,000 ships, has been accused of illegally fishing incountries’ exclusive economic zones and protected maritime areas,
overfishing, catching protected species, and contributing to waterpollution.150 A recent study by U.S. NGO Oceana found that between July and August 2020, approximately 99 percent of ships suspected of IUU fishing around the Galapagos were Chinese.151 Likewise, separate investigations found that approximately 82 percentof ships engaging in IUU fishing in Chile’s Nazca-Desventuradas
protected area between 2018 and 2020 were Chinese.152
Countries in Latin America and the Caribbean have had difficulty
preventing IUU fishing because their navies lack adequate resources to monitor and patrol their territorial waters.153 As a result, inNovember 2020, the governments of Chile, Ecuador, Peru, and Colombia issued a joint statement condemning the “large fleet of foreign-flagged vessels” conducting IUU fishing near their territorial
waters and promised to “prevent, discourage, and jointly confront”
such activity.154 Chinese IUU fishing demonstrates the extent ofChina’s drive to capture the region’s resources and is a direct violation of countries’ territorial sovereignty. Such malign activities
also fundamentally infringe upon the region’s long-term economic

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welfare by depleting a critical natural resource and cost the region
about $2.7 billion in lost revenue annually.155
China Invests in Regional Infrastructure
To meet its infrastructure needs, Latin America and the Caribbean require additional investment of around 2.5 percent of regional
GDP annually, or $145 billion in 2019, according to multiple estimates aggregated by the Inter-American Development Bank.156 The
region’s lack of infrastructure has been a primary impediment toindustrialization, as Latin American and Caribbean countries havestruggled to develop regional supply chains.157 Intraregional trade,for example, constituted less than 15 percent of the region’s exports
in 2019.158 Latin American and Caribbean trade is anchored to larger external economies like the United States and China; however,incomplete and aging infrastructure increases the costs of transporting and exporting raw materials to these markets.159
According to Dr. Ray, Chinese financing has helped to fill the region’s infrastructure gap with investments spanning multiple sectors,
including surface transportation, ports, energy, mining, agriculture,and telecommunications.160 Between 2005 and 2020, approximately$25 billion or 18 percent of Chinese policy bank financing in Latin
America and the Caribbean has been allocated to infrastructure in
the region, while approximately 60 percent of Chinese greenfield
investments between 2011 and 2020 were in infrastructure.161 Mostof these investments are intended to facilitate China’s access to theregion’s resources by decreasing the logistical costs of transporting
commodities to export centers.162 For example, in 2013 China Development Bank extended a $2.1 billion loan to renovate portionsof Argentina’s Belgrano Cargas railway.163 As Argentina is China’s
second-largest regional supplier of soybeans after Brazil, the railway will support Chinese soy purchases by connecting Argentina’s
agricultural heartland to the coast.164 Because they are designed
to facilitate the region’s exports to China rather than its demandfor connectivity to support intraregional trade, China’s investments
may not fully address the infrastructure needs of the region.
Ports
Chinese investments in Latin American and Caribbean ports are
similarly intended to decrease the costs of shipping resources toChina. The Development Bank of Latin America estimates that between 2016 and 2040, the region will need approximately $55 billion
in investment to advance its competitiveness in the maritime andport sector and bridge a significant gap between freight demand andcurrent capacity.165 Chinese entities are involved in approximately
40 ongoing port operations or port projects in the region.166 This
investment may help to fill this gap and ultimately lower the timeand cost of shipping goods to China.
Chinese firms are involved at every stage of port developmentfrom new port construction and expansion to managing day-today operations. Chinese-developed ports in Latin America demonstrate the close ties between China’s commodity and logistics
interests. For example, China is working with Peru’s Volcan Mining Company to jointly develop the country’s $3 billion Chancay

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port.167 Although Caribbean countries are not commodity exporters, they are important logistics hubs due to their proximity to
the U.S. market and location at the confluence of maritime traderoutes.168 China has therefore been involved in numerous projects in the subregion, including ports in Cuba, the Bahamas, andJamaica.169
Telecommunications
While much of China’s infrastructure development in the region
is focused on commodity extraction, China is also heavily involvedin building out Latin American and Caribbean telecommunications infrastructure. Due to subsidies and government support fornational technology champions like Huawei and ZTE, China has
successfully marketed its technologies to the region as economically viable alternatives to technologies produced in Europe or theUnited States.170 As a result, Huawei has already become a leader
in the region’s mobile device market and is a top competitor tobuild out 5G infrastructure in Brazil, Chile, Colombia, and Mexico.171 By integrating Chinese technologies into the region’s digital
infrastructure, China is setting the stage for building long-termcommercial dependencies as the region’s market develops.172 As
firstcomers to the market for emerging technologies like 5G andsmart cities, Chinese telecommunications companies can begin tolock users into their suite of technology offerings to the exclusionof competitors. They are also in a unique position to shape standards in the region, which will dictate the long-term structure of
the region’s digital economy and influence which technologies areoperable within its infrastructure.173
Ms. Myers explained in her testimony that in addition to forming long-term commercial dependencies, China’s strategy is driven
by its desire to obtain user data from the region.174 (For more on
China’s emergent data governance regime, see Chapter 2, Section 1,“Year in Review: Economics and Trade.”) China has sold smart city
technologies to multiple governments, including Argentina, Bolivia,
the Dominican Republic, Ecuador, Guyana, and Venezuela.175 These
technologies include surveillance and facial recognition technologies
as well as integrated social tracking systems that access and aggregate significant volumes of citizen data.176 Due to China’s 2017 National Security Law, which obligates Chinese companies to give data
to the Chinese government if asked, the integration of Chinese technologies within the region’s telecommunications infrastructure anddigital economy also presents a security risk given the significant
quantities of sensitive data passing through such systems.177 While
the United States has repeatedly warned other countries about the
security risks inherent in using Chinese telecommunications equipment, Oliver Stuenkel, associate professor at the Fundação Getulio
Vargas School of International Relations, noted in his testimony to
the Commission that these warnings are perceived by countries in
the region as overtly political and therefore are largely ignored asdisingenuous.178 For many countries with emerging digital economies, the desire to advance quickly and affordably may ultimately
overshadow the security risks posed by Chinese technologies.

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Figure 5: Select Chinese Investments and Financing in Latin America andthe Caribbean, 2005–2020

LATIN AMERICAMEXICOSEE CARIBBEANINSET BELOW

BELIZE*GUATEMALA* HONDURAS*
EL SALVADOR NICARAGUA*VENEZUELACOSTA RICA PANAMACOLOMBIASURINAME

GUYANAECUADORBRAZILPERU
BOLIVIACOMPREHENSIVE STRATEGIC PARTNER

PARAGUAY*STRATEGIC PARTNERMININGFOSSIL FUELSURUGUAY

AGRICULTURE

ARGENTINA

ELECTRICITYCHILE

SURFACE TRANSPORTATION
PORTS

*

DIPLOMATICALLY RECOGNIZES TAIWANCARIBBEAN

BAHAMASCUBA

HAITI*DOMINICAN
REPUBLIC

JAMAICASAINT KITTS
AND NEVIS*ANTIGUA ANDBARBUDADOMINICASAINT VINCENT AND
THE GRENADINES*SAINT LUCIA*BARBADOS

GRENADATRINIDAD AND
TOBAGO

Source: Various.179

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China’s Economic Engagement Exacerbates Institutional
Weaknesses
Latin American and Caribbean governments and institutions lackthe capacity to adequately manage the deluge of Chinese financing
and investment to the region. Since the early 2000s, the rapid increase in Chinese economic engagement has been linked to environmental degradation and social conflict, despite ambitious reforms
enacted by numerous governments.180 Because Chinese creditors
like China Development Bank and China EXIM Bank do not impose the same lending standards as IFIs, Chinese finance has flowed
to sectors and projects with inherently higher environmental andsocial risks, and in some cases host governments have deliberately
lowered their standards to attract Chinese investment.181 In suchcases, Chinese investors and companies view it as the responsibilityof host governments to uphold their own environmental, social, andgovernance standards.182
The case of Ecuador’s Coca Codo Sinclair dam project illustrates
this phenomenon. The dam was financed in part with a $1.7 billion
loan from China EXIM Bank and was constructed by Chinese stateowned hydropower company, Sinohydro, between 2010 and 2016.183
Geologists warned that the dam, sitting at the base of an active
volcano, was vulnerable to earthquakes and could cause significant
environmental disruption to the surrounding ecosystem, and an independent review conducted by a Mexican government agency cast
doubt on the functionality of a dam in the area.184 Due to environmental and social risks outlined in initial feasibility studies, boththe World Bank and Inter-American Development Bank declined tofinance the Coca Codo Sinclair dam.185 Nevertheless, President Correa championed the project as having the potential to provide onethird of Ecuador’s electricity, and local government officials overlooked environmental, social, and labor regulations in order to speed
up the project timeline.186
According to the Ecuadorian company running the dam, as of2021 Sinohydro had to make over 7,000 repairs to the dam, while
erosion of the Coca River continued to damage its architecture.187
Due to faulty planning and construction, the dam has been unable to run at full capacity and has also contributed to Ecuador’s
mounting debt to China.188 Furthermore, international and Ecuadorian experts indicate that the dam may have caused severe
environmental degradation by altering the flow of the Coca River and causing an oil spill that harmed indigenous communities
downstream.189 Indigenous communities have since led protests
and launched lawsuits against the Ecuadorian government for
failing to protect their right to clean water and food in connection
with the spill.190 Demonstrating a broader regional trend of institutional weakness, the project’s outcome is partially the result of
Ecuador’s poor regulatory enforcement, as Ecuador’s government
deliberately bypassed its own regulations to complete the project.
It also highlights China’s willingness to finance projects that havebeen rejected by multilateral development banks for their poor
fundamentals, ultimately resulting in exacerbated environmental
and social challenges.

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China’s Military and Security Engagement
China’s military influence in the region has been relatively limited
but has gradually expanded in conjunction with China’s increasing
influence in certain Latin American and Caribbean countries overthe past decade. China has successfully used economic leverage toestablish a long-term, dual-use presence in Argentina in the form ofa satellite tracking facility operated by the PLA’s Strategic Support
Force. It is also deeply involved in the financing, construction, andoperation of other dual-use infrastructure, such as ports.
While China’s overt military presence remains limited mainly to
military diplomacy, a few exercises, port calls, and exchanges, the
PLA is cultivating relationships with militaries across the region.
Among China’s most consistent security partners have been isolated anti-U.S. regimes in Venezuela and Cuba, the former Correa
government in Ecuador, the former Morales government in Bolivia,
and the Kirchner governments in Argentina.191 Nevertheless, manyother countries, such as Peru, Brazil, Uruguay, Guyana, and Barbados, maintain some military engagement with both China and theUnited States.192 Even strongly U.S.-affiliated governments, such as
in Colombia and Chile, also cautiously interact with the PLA.193 In
testimony before the Commission, Cynthia Watson, dean of faculty and academic programs at the National War College, noted that
China has steadily increased its engagement with Colombia, one of
the United States’ closest defense partners in the region, throughsmall-scale meetings and military diplomacy.194
China Uses Economic Leverage to Enable Potential Military
Presence
The most prominent example of Chinese military presence in Latin America and the Caribbean is the PLA’s control of a space tracking station in Neuquén, Argentina.195 The station is China’s largest
such tracking base outside its own territory.196 In 2015, following
Argentina’s inability to pay off Chinese loans under the regime of
Cristina Fernandez de Kirchner, the Argentine parliament approved
the PLA’s construction of the base and agreed to lease it to China tax free for 50 years.197 Admiral Craig S. Faller, commander ofU.S. Southern Command, explained in June 2021 that Argentina’s
financial vulnerability meant it had very minimal room to negotiatewith China on the subject of the base.198 A PLA detachment under
China’s Strategic Support Force controls the base without Argentine
authorities having any access to or oversight of the facility.199 Although China claims the installation is intended for peaceful space
exploration, it possesses technology that could be used for espionage.200 Moreover, the Argentine government lacks an enforcement
mechanism to ensure its use is purely for civilian purposes.201
Another key concession China could use to further expand thepresence of its security services in the region is leveraged preferential access to Chinese-funded or -constructed ports.202 China is
deeply involved in the operation, construction, and financing of Latin American and Caribbean countries’ port infrastructure, as it isin many places around the world.203 Although there have not yet
been cases where China has used these investments to establish amilitary presence, some analysts warn the leverage from significant

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Chinese investment may position China to gain preferential accessor control over ports that could benefit its military.204
According to Dr. Berg’s testimony before the Commission, China is
engaged in “several dozen agreements to build or expand deep-water
ports” in the region that could potentially be converted for militaryuse.205 Admiral Faller has also repeatedly noted that China’s involvement in approximately 40 ongoing port operations and projects
in the region raises concerns for U.S. military leaders.206 He further
explained that along with China’s port projects in the region comes“an erosion of sovereignty and undermining of the security associated with critical infrastructure.” 207 To date, all of the Latin American
and Caribbean ports in the region with Chinese involvement havebeen built for commercial use but could have future military application.208 Admiral Faller expressed this concern in a press briefingin March 2021, warning that because of China’s strong state control,
even projects that begin as purely commercial can evolve to have“significant military application.” 209
Of particular concern is the potential for China to use its influence in ports surrounding critical chokepoints to develop exclusivity
or preferential access and disrupt the movement of U.S. commercial
and military ships.210 Chinese companies currently operate ports on
both sides of the Panama Canal,* a significant global chokepoint.211
A second area of concern is the Strait of Magellan, a natural sea
channel near the southernmost tip of Chile that provides passage
between the Atlantic and Pacific oceans. Mr. Aragão assessed in his
testimony that China could use the port of Punta Arenas in Chile
to establish a presence in this area, noting the Chinese government
has already expressed interest in using the port for Antarctic exploration.212 According to Admiral Faller, the port of Ushuaia in Argentina is another location where China’s commercial position could
provide China with strategic access to the Strait of Magellan.213
Recent reports also suggest China has engaged in talks with thegovernment of Argentina about potential Chinese participation in a
project to upgrade dock and logistics infrastructure at an Argentine
naval base in Ushuaia.214
China is also particularly involved in port development in the
Caribbean. China Harbor Engineering Company † has a regional* Since the late 1990s, the Hong Kong-based firm Hutchison has operated two main ports, Balboa and Cristobal, located on either end of the Panama Canal. The China Harbor Engineering
Company constructed Balboa port on the Pacific side in 2002. Mat Youkee, “The Panama Canal
Could Become the Center of the U.S.-China Trade War,” Foreign Policy, May 7, 2019; R. Evan
Ellis, “The Evolution of Panama-PRC Relations since Recognition, and Their Strategic Implications for the U.S. and the Region,” Global Americans, September 21, 2018; Hutchison Ports PPC,
“Learn about PPC”; BNAmericas, “Appeal Threatens U.S. $1Bn Panama Container Port,” January
30, 2018; Katherine Koleski and Alec Blivas, “China’s Engagement with Latin America and the
Caribbean,” U.S.-China Economic and Security Review Commission, October 17, 2017, 25; Global
Construction Review, “Chinese Firm Starts Work on $1Bn Panamanian Megaport,” June 12, 2017;
U.S. Senate Committee on Foreign Relations, Hearing on the Panama Canal and United States
Interest, June 16, 1998.
† China Harbor Engineering Company is a subsidiary of the SOE China Communications Construction Company (CCCC). In August 2020, the U.S. Department of Defense added CCCC to thelist of companies with ties to the PLA. In December 2020, the U.S. Department of Commerce
added CCCC to the Entity List for its role in illegal dredging activities in the South China Sea.
CCCC has also participated in projects at Gwadar Port in Pakistan and Hambantota Port in Sri
Lanka. U.S. Department of Commerce Bureau of Industry and Security, “Addition of Entities tothe Entity List, Revision of Entry on the Entity List, and Removal of Entities from the Entity
List,” Federal Register 85:246 (December 22, 2020); U.S. Department of Defense, DOD Releases
List of Additional Companies, in Accordance with Section 1237 of FY99 NDAA, August 28, 2020;
Shannon Tiezzi, “With Latest Sanctions, US Casts a Shadow over China’s Belt and Road,” Diplo-

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headquarters in Kingston, Jamaica, and active projects in almost
every major Caribbean country.215 China Merchant Port Holdings
possesses full ownership of the port in Kingston.216 According to Mr.
Aragão’s testimony before the Commission, China has also gained
priority access to the Santiago de Cuba port in Cuba in exchange
for China Communications Construction Bank’s financing the port’s
terminal expansion.217 The Caribbean occupies a strategically significant geographic position as a maritime gateway to the southeastern United States, and according to Ms. Myers, in the event of
a conflict with the United States, China could benefit from having
already established a presence in the location.218
PLA Engagement Builds Relationships
Military exercises, leadership visits, training, and professional
military education exchanges have further improved the PLA’s relationships with Latin American and Caribbean partner militaries.219
Senior PLA leaders conducted 215 visits with their counterparts
across all of Latin America and the Caribbean between 2002 and2019, prioritizing China’s comprehensive strategic partners andstrategic partners.220 The top four countries—Chile, Cuba, Brazil,
and Argentina—accounted for over half of the 215 interactions.221
As in Africa, China has established forums for high-level defense
exchanges with Latin American and Caribbean countries.222 China
held the first China-Latin America High-Level Defense Forum in2012 with representatives from Bolivia, Colombia, Cuba, Ecuador,
Peru, and Uruguay.223 At the fourth meeting in 2018,* China’s Ministry of Defense described the forum as an embodiment of “China’s
sincere desire to develop China-Latin America defense and military
relations.” 224 China held the first China-Caribbean-South PacificHigh-Level Defense Forum in Nanjing in 2013 with the stated intention of deepening understanding between the PLA and the militaries of Caribbean and South Pacific countries.225 At the fourth
meeting in Beijing in 2019, China’s defense minister indicated that
China sought to “deepen military exchanges and cooperation with
Caribbean countries . . . under the framework of the BRI.” 226
The PLA has also occasionally deployed small numbers of forces
to the region for exercises.227 PLA forces participated in a humanitarian assistance and disaster relief exercise with Colombia in 2012
and a jungle patrol competition in Brazil in 2016, but the PLA has
yet to conduct any exercise of significant force size in the region.228
Between 2002 and 2019, the PLA Navy conducted 28 port calls in
Latin American and Caribbean countries, prioritizing China’s comprehensive strategic partners and occasionally including limited minor exercises with each country visited.229 In 2013, for instance, two
PLA Navy missile frigates and a support ship participated in a joint
exercise with the Chilean navy.230 In 2011, 2015, and 2018, the PLA
hospital ship Peace Ark made three multi-stop visits of increasing
length to the region.231
mat, August 27, 2020; Alex Fang, “US Blacklists Belt and Road Builder for Role in South China
Sea,” Nikkei Asia, August 27, 2020.
* Latin American attendees at the fourth meeting included representatives from Bolivia, Brazil,
Chile, Costa Rica, Cuba, Mexico, Uruguay. and Venezuela. Qiao Nannan, “Fourth China-Latin
America High-Level Defense Forum” (第四届中拉高级防务论坛开幕), China’s Ministry of Defense,
October 29, 2018. Translation.

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Relationship building through professional military educationand training is another important component of China’s security
activities in the region.232 PLA personnel have attended training at
Brazil’s Peacekeeping Institute, participated in a special operations
course in Colombia, and attended a course on Command and General Staff hosted by the Chilean navy.233 The PLA has also participated in training at the Brazilian Jungle Warfare School to improve
its ability to operate in jungle environments like those found along
China’s southern periphery.234 China’s involvement in professional
military education in the region is also increasing.235 For example,
China has sponsored defense officials from nearly all countries in
the Caribbean basin with which it has diplomatic relations to attend
courses in China.236 China is also orienting some of its engagements
in competition with the United States by spreading disinformation
about the intentions of the U.S. military and even offering a course
to regional militaries that argues against the United States as amilitary partner of choice.237
Arms Sales and Space Cooperation Achieve Targeted
Dependencies and Reinforce Authoritarianism
Through arms sales and space technology sharing, China has
deepened dependencies that have commercially benefited Chinesecompanies and may strategically benefit the Chinese government.238
Many regional governments are attracted to China’s relatively inexpensive defense equipment and lack of institutional conditions.239
China’s biggest purchasers of arms in the region have been the
Chavez and Maduro regimes in Venezuela, the Morales government
in Bolivia, and the Kirchner governments in Argentina.240
Under the Chavez and Maduro regimes, China has delivered over$500 million worth of military equipment to Venezuela, including
light tanks, self-propelled artillery and infantry fighting vehicles,
Y-8 transport aircraft, K-8 combat aircraft equipped with air-to-air
missiles, and antitank missiles and antiship missiles.241 The Maduro regime has used Chinese armored vehicles to repress democratic protests and to obstruct the activities of Venezuelan Interim
President Juan Guaido and other elected members of the Venezuelan National Assembly.242 During Morales’ presidency in Bolivia
between 2006 and 2019, China sold the Bolivian military six K-8
combat aircraft worth $58 million and six helicopters worth over$100 million.243 It also donated 41 armored personnel vehicles tothe country.244 In Argentina during the presidency of now vice president Cristina Fernandez de Kirchner between 2007 and 2015, China
outfitted the Argentinian UN forces with four armored personnel
carriers worth $2.6 million.245 The current government of Alberto
Fernandez and Cristina Fernandez de Kirchner is considering purchasing JF-17 fighters from China, which would be the most advanced Chinese aircraft sold to the region.246
China’s most significant space cooperation initiatives in Latin
America and the Caribbean have mainly occurred with these same
governments.* China has helped to develop and launch at least 21* The notable exception is Brazil, China’s oldest strategic partner and space partner in theregion. China and Brazil signed a series of agreements to cooperate on satellite development
beginning in 1984 at a time when China’s own space capabilities were also still relatively underdeveloped. Under the resulting China-Brazil Earth Resources Satellite program, China’s relation-

100satellites for its top partners in the region, including 10 for Argentina, 6 for Brazil, 3 for Venezuela, and 1 each for Bolivia and Ecuador.247 Venezuela’s most recent satellite, which was launched in2017 during Maduro’s presidency when the economy was in a stateof collapse, will reportedly be used to aid security forces.248 The development of Bolivia’s satellite, which President Morales agreed topurchase in 2010 for $300 million, was majority financed by a loan
from China Development Bank and seen as a Chinese attempt tostrengthen ties with the Morales government.249 Although Bolivian
media expressed skepticism that the country, one of the poorest inSouth America, could pay back the loan to China for this satellite,
an additional satellite launch is already planned for 2022.250 Ecuador’s satellite launched in 2013 during the Correa Administration.251 In Argentina, shortly after Cristina Fernandez de Kirchner
returned to power as vice president in 2019, China and Argentina
resumed a wide range of space cooperation agreements that had
stalled under the previous administration.252 China launched ten
satellites for Argentina in 2020, and the two sides have agreed tocooperate on space vehicles and additional ground infrastructure tolaunch and control space missions.253 China has also played a significant role in constructing space ground control architecture andtraining space personnel for both Venezuela and Bolivia, potentiallygiving the Chinese government access to data and imaging captured
by or transmitted through their satellites.254
Finally, China engages with its comprehensive strategic partners
Argentina, Brazil, Chile, and Peru on a multilateral level throughthe Asia-Pacific Space Cooperation Organization (APSCO), a multilateral space organization with a headquarters in Beijing.255 Chinaholds considerable sway over APSCO’s institutional direction, andin 2015 the organization released a joint statement asserting compatibility between APSCO’s mission and BRI.* 256 Although none of
APSCO’s Latin American member states joined BRI individually before 2018, they all nonetheless supported APSCO’s affiliation with
BRI in 2015.257
Implications for the United States
China’s economic importance and targeted political influence encourage Latin American and Caribbean countries to make domestic
and foreign policy decisions that favor China while undermining democracies and free and open markets. As Dr. Ellis explained in his
testimony to the Commission, China’s influence allows it “to levership with Brazil more closely resembled peer-to-peer cooperation. This presents a stark contrast
to later space agreements after 2000 in which its superior technological capabilities and stronger
financial position have allowed China to hold considerably more leverage over its Latin American partners. Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between Latin
America and China,” Journal of Latin American Geography 17:2, (July 2018): 46–86, 58; China’s
Ministry of Foreign Affairs, China Policy Paper on Latin America and the Caribbean (中国对拉美
和加勒比政策文件), November 24, 2016. Translation.
* In 2015, an APSCO forum convened in Beijing under the title “The Belt and Road Initiativefor Facilitating Space Capabilities Building of the Asia-Pacific Countries.” The organization issued
a statement with unanimous support from members asserting “the objective of jointly building
a community of shared interests, responsibility, and destiny proposed by China’s ‘The Belt andRoad’ Strategy conforms to the mission of APSCO.” It further stated that “the Space-Based Integration Information Corridor concept proposed by China is consistent with the vision of thedevelopment and cooperation of APSCO and its Member States.” Julie Michelle Klinger, “A Brief
History of Outer Space Cooperation between Latin America and China,” Journal of Latin American Geography 17:2 (July 2018): 46–86, 63.

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age Latin America and the Caribbean in its battle to bend global
economic, financial, and political institutions to its advantage” andincreases its ability to rally opposition to international initiatives of
the United States.258 In exchange for promises of economic benefit,
governments are increasingly willing to accept Chinese restrictions
on their foreign policy decisions, including refraining from criticizing
China’s record on human rights, backing China’s initiatives within multilateral fora, supporting BRI, and forgoing interactions with
Taiwan. As Admiral Faller assessed, China is ultimately “trying tocreate clients, not friends.” 259
The attraction of immediate economic benefit from China encourages some governments in the region to compromise their own
standards for labor and environmental protections or invest in extractive sectors at the expense of higher-value-added activities. China’s economic leverage over the region ultimately facilitates its own
deepening economic interests while hindering countries’ abilities topreserve open and fair markets, undermining their long-term economic sustainability. Authoritarian regimes benefit from Chineseloans and the sale of surveillance and smart city technologies, whilesome have adopted elements of China’s techno-authoritarian governance model. As a result, the region’s commitment to both free andopen market principles and democratic values are at risk as China’s
engagement deepens.
The COVID-19 pandemic has amplified ongoing trends in China’s relationship with Latin America and the Caribbean. Countries
have become even more likely to turn to Chinese trade, investment,
and loans to boost their economic recoveries, while the promise ofChinese COVID-19 vaccines has in some cases created additional
leverage for China to attain its goals. Most countries in the region
lack institutions strong enough to balance the economic benefits ofengagement with China with the national security risks. As a result, some governments in the region are likely to continue deemphasizing long-term risks, such as declining environmental, social,and governance standards; re-primarization; and China’s expanding
influence over national assets like lithium mines and electricity distribution networks.
China’s expanding influence over mineral supply chains throughout Latin America has implications beyond countries’ growing dependence on China. In solidifying control over key inputs, China’s
government and companies are extending their hold on a host ofcritical technologies, such as lithium-ion batteries and semiconductors, which could harm U.S. competitiveness. The Biden Administration has highlighted the need to shore up U.S. supply chains forcritical technologies, many of which require the United States toimport minerals like lithium, copper, and niobium, some of which it
sources from Latin America.260
Through its security relationships with Latin American and Caribbean countries, China may be able to lay the groundwork fordeepening future cooperation in a region of particular strategic significance for the United States. China’s space observation station in
Argentina and construction of satellites for countries in the region
grant the PLA access to technology it could potentially use for espionage and to strengthen China’s leverage over individual countries.

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China’s deep involvement in financing, building, and operating theregion’s port infrastructure and its presence around the Panama
Canal may allow it to extract concessions from host governmentsfor preferential access. China has also made efforts to erode U.S. security partnerships in the region and increase Latin American and
Caribbean countries’ dependence on China.
Nevertheless, the United States retains strong relationships andhistorical ties with countries throughout the region. Many Latin
American and Caribbean governments and publics desire much
deeper U.S. engagement and are seeking to guard against risks fromtheir relationship with China. As Dr. Berg noted in his testimony to
the Commission, people in Latin America and the Caribbean want
to “try to shield their countries from some of the most corrosive
elements of . . . engagement [with China].” 261 Robust cultural, educational, and social ties between the United States and the region
through diaspora communities and proximate geography grant theUnited States important advantages that China cannot replicate.
U.S. partnerships with governments, regulators, and civil society
will have a key role to play in strengthening the region’s economies
and institutions, advancing U.S. interests, and limiting the negative
consequences of deepening Chinese engagement.

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ENDNOTES FOR SECTION 2
1. Margaret Myers, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
89–90; Ryan Berg, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 90.
2. Ryan Berg, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 90.
3. R. Evan Ellis, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
89; Margaret Myers, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
89–90; Luis Rubio, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 1; Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 4–5.
4. Margaret Myers and Ricardo Barrios, “How China Ranks Its Partners in LAC,”
Dialogue, February 3, 2021.
5. Margaret Myers and Ricardo Barrios, “How China Ranks Its Partners in LAC,”
Dialogue, February 3, 2021; Paul Nantulya, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China’s Strategic Aims in Africa,
May 8, 2020, 4; China Daily, “China-Argentina Ties at a Glance,” December 2, 2018;
Chile’s Ministry of Foreign Affairs, Chile and China Establish a Comprehensive Strategic Partnership, November 22, 2016; Xinhua, “China, Ecuador Lift Bilateral Ties toComprehensive Strategic Partnership,” China Military Online, November 17, 2016;
Xinhua, “China, Venezuela Lift Ties to Comprehensive Strategic Partnership,” July21, 2014; Xinhua, “China, Argentina Upgrade Ties to Comprehensive Strategic Partnership,” July 19, 2014; Feng Zhongping and Huang Jing, “China’s Strategic Partnership Diplomacy: Engaging with a Changing World,” European Strategic Partnership
Observatory, June 2014, 18; China’s Ministry of Foreign Affairs, China and Peru,
2014; Xinhua, “China, Mexico Enter Comprehensive Strategic Partnership,” China
Daily, June 5, 2013; Andina, “Peru, China Upgrade Ties to Comprehensive StrategicPartnership,” April 6, 2013; Xinhua, “China, Brazil Upgrade Ties to Strategic Level,”
China Daily, June 22, 2012; China’s Ministry of Foreign Affairs, China, Mexico Establish Strategic Partnership, December 13, 2003.
6. Juan Pablo Cardenal, “The Art of Making Friends: How the Chinese Communist Party Seduces Political Parties in Latin America,” Center for the Opening andDevelopment of Latin America, February 12, 2021, 16; Stockholm International Peace
Research Institute, “SIPRI Arms Transfer Database,” 2021; American EnterpriseInstitute, “China Global Investment Tracker,” 2021; United Nations, “UN Comtrade
Database.”; Rui C. Barbosa, “Long March 6 Lofts Ten Argentinian Satellites,” NASASpaceflight, November 6, 2020; Mark Stokes et al., “China’s Space and Counterspace
Capabilities and Activities,” Project 2049 Institute and Pointe Bello, prepared for the
U.S.-China Economic and Security Review Commission, March 30, 2020. 86; Xinhua,“New China-Brazil Earth Resource Satellite Sent into Space,” December 20, 2019;
Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between Latin
America and China,” Journal of Latin American Geography 17:2 (July 2018): 46–86,
62–63; Xinhua, “China Launches Remote Sensing Satellite for Venezuela,” October
9, 2017.
7. Xinhua, “Xi Spearheads Closer China-LatAm Cooperation for Common Prosperity,” November 12, 2019.
8. Margaret Myers and Ricardo Barrios, “How China Ranks Its Partners in LAC,”
Dialogue, February 3, 2021; CGTN, “China, Jamaica Lift Ties to Strategic Partnership,” November 5, 2019; Xinhua, “Xi Jinping Meets with Jamaica Prime Minister
Holness” (习近平会见牙买加总理霍尔尼斯), November 4, 2019. Translation; Xinhua,“Xi, Morales Hold Talks, Agree to Establish China-Bolivia Strategic Partnership,”June 19, 2018; China Daily, “China, Uruguay Establish Strategic Partnership,” October 19, 2016.
9. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5;
Andrew Wight, “China, Eyeing Bolivia’s Lithium Riches, Helps Country into Space,”
Sydney Morning Herald, February 21, 2018.
10. CGTN, “China, Jamaica Lift Ties to Strategic Partnership,” November 5, 2019.
11. Margaret Myers and Ricardo Barrios, “How China Ranks Its Partners in LAC,”
Dialogue, February 3, 2021.

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12. CCP Central Committee International Department, Song Tao Holds a Video
Call with Luiz Inacio Lula da Silva, Leader of Workers’ Party and Former Presidentof Brazil, July 30, 2021; CCP Central Committee International Department, Shen
Beili Attends Online Briefing on the Facts of a Series of Protests against the Cuban
Government, July 21, 2021; CCP Central Committee International Department, Shen
Beili Holds a Video Call with Diosdada Cabello, Deputy of the United Socialist Partyof Venezuela, June 29, 2021; CCP Central Committee International Department, Shen
Beili Holds a Video Call with Fitzgerald Hinds, Deputy Political Leader of PNM of
Trinidad and Tobago, June 10, 2021; CCP Central Committee International Department, CPC Listens to Briefing from Cuban Communist Party on Its 8th National
Congress of the Communist Party of Cuba, May 28, 2021; CCP Central Committee
International Department, Shen Beili Holds a Video Call with Luciano Bivar, President of Brazil’s Social Liberal Party, May 13, 2021; CCP Central Committee International Department, Song Tao Holds a Video Conference with Bharrat Jagdeo, General
Secretary of the People’s Progressive Party and Vice President of Guyana, May 11,2021; CCP Central Committee International Department, Song Tao Holds a Video
Call with Evo Morales, President of Movement for Socialism and Former Presidentof Bolivia, April 29, 2021; CCP Central Committee International Department, Shen
Beili Holds a Video Call with Cristina Alvarez Rodriguez, First Vice President ofArgentina’s Justicialist Party, April 23, 2021; CCP Central Committee International Department, Shen Beili Holds a Video Call with Bruno Araujo, President of theBrazilian Social Democratic Party, April 21, 2021; CCP Central Committee International Department, Shen Beili Holds a Video Call with Baleia Rossi, President of theBrazilian Democratic Movement, March 26, 2021; CCP Central Committee International Department, Shen Beili Holds a Video Call with Ciro Nogueira, President ofBrazil’s Progressive Party, March 19, 2021; CCP Central Committee International
Department, Shen Beili Holds a Video Call with Patricia Bullrich, President of the
Republican Proposal of Argentina, March 3, 2021; Juan Pablo Cardenal, “The Art
of Making Friends: How the Chinese Communist Party Seduces Political Parties in
Latin America,” Center for the Opening and Development of Latin America, February
12, 2021, 16; Margaret Myers and Ricardo Barrios, “How China Ranks Its Partners
in LAC,” Dialogue, February 3, 2021; China’s Foreign Ministry, China’s Relations with
Trinidad and Tobago (中国同特立尼达和多巴哥的关系), February 2021. Translation;
Autonomous University of Yucatán, “Confucius Institute” (Instituto Confucio), 2021.
Translation. https://institutoconfucio.uady.mx/#/inicioconfucio; Confucius Instituteat the University of Guyana, “Experience Chinese Culture,” 202; San Francisco University of Quito, “Confucius Institute San Francisco University of Quito” (Instituto
Confucio), 2021. Translation. https://www.usfq.edu.ec/es/instituto-confucio; São Paulo
State University, “Confucius Institute at UNESP” (Instituto Confúcio na UNESP),
Translation. http://institutoconfucio.unesp.br/; University of the West Indies at CaveHill, “Confucius Institute,” 2021; Ana María Campos, “Confucius Institute of the UES,a Training Alternative in Pandemic Times” (Instituto Confucio de la UES, Una Alternativa de Formación en Tiempos de Pandemia), El Universitario, June 5, 2020,
Translation; CCP Central Committee International Department, Song Tao Speaks
with Acting Director of Department of International Relations of the PCC Central
Committee on the Phone, April 3, 2020; Taiwan’s Ministry of Foreign Affairs, Diplomatic Allies, 2020; University of Buenos Aires, “UBA, Confucius” (UBA Confucio)
2020. Translation. https://institutoconfucio.edu.ar/; CCP Central Committee International Department, Song Tao Meets with Cadre Study Group of the DemocraticCenter of Colombia, December 16, 2019; CGTN, “China, Suriname Elevate Ties toStrategic Partnership of Cooperation,” November 27, 2019; Xinhua, “China and Suriname Announce the Establishment of Strategic Cooperative Partnership Relations” (中国和苏里南宣布建立战略合作伙伴关系), November 27, 2019. Translation; CCP Central Committee International Department, Li Jun Meets with Cadre Study Group of
Political Parties from Jamaica and Trinidad and Tobago, November 19, 2019; Daily Observer, “Antigua and Barbuda Launch First Ever Confucius Institute in Eastern Caribbean,” November 16, 2019; Xinhua, “Xi Spearheads Closer China-LatAm
Cooperation for Common Prosperity,” November 12, 2019; CGTN, “China, Jamaica
Lift Ties to Strategic Partnership,” November 5, 2019; Carmen Guevara, “Confucius
Institute Promotes Mandarin Language Learning” (Instituto Confucio Promueve el
Aprendizaje del Idioma Mandarín), University Weekly, December 12, 2018. Translation. https://launiversidad.up.ac.pa/node/326; China Daily, “China-Argentina Ties
at a Glance,” December 2, 2018; Yamai, ed., “Xi, Morales Hold Talks, Agree to Establish China-Bolivia Strategic Partnership,” Xinhua, June 19, 2018; University of theWest Indies at Mona, “New Confucius Institute for the UWI, Mona Campus,” May
25, 2018; Embassy of the People’s Republic of China in the Republic of Suriname,“First Confucius Institute in Suriname Officially Opened at Anton de Kom University

105
of Suriname,” February 20, 2017; University of the Bahamas, “Confucius Institute,”
2017; Chile Ministry of Foreign Affairs, Chile and China Establish a Comprehensive
Strategic Partnership, November 22, 2016; Xinhua, “China, Ecuador Lift Bilateral
Ties to Comprehensive Strategic Partnership,” China Military Online, November 8,
2016; China Daily, “China, Uruguay Establish Strategic Partnership,” October 19,
2016; Xinhua, “China, Brazil Upgrade Ties to Strategic Level,” China Daily, June22, 2016; University of the West Indies at St. Augustine, “The Confucius Institute at
the University of the West Indies, St. Augustine,” 2016; Xinhua, “China, Venezuela
Lift Ties to Comprehensive Strategic Partnership,” July 21, 2014; Xinhua, “China,
Argentina Upgrade Ties to Comprehensive Strategic Partnership,” July 19, 2014;
China’s Ministry of Foreign Affairs, China and Peru, 2014; Xinhua, “China, Mexico Enter Comprehensive Strategic Partnership,” June 5, 2013; Andina, “Peru, China Upgrade Ties to Comprehensive Strategic Partnership,” April 6, 2013; Hanban,“Confucius Institute/Classroom,” http://web.archive.org/web/20210101041525/http://
english.hanban.org/node_10971.htm; AidData, “First Confucius Institute in Bolivia
Opened at the University of San Simon,” https://china.aiddata.org/projects/39075;
Bolivarian University of Venezuela, “Confucius Institute,” (Instituto Confucio), Translation. https://web.archive.org/web/20210923213210/http://institutoconfucio.ubv.edu.
ve/main; Catholic University of Santa María, “UCSM Confucius Institute” (Instituto
Confucio), Translation. https://ucsm.edu.pe/instituto-confucio/; Jorge Tadeo Lozano University, “Confucius Institute” (Instituto Confucio), Translation. https://www.
utadeo.edu.co/es/micrositio/instituto-confucio; Pontifical Catholic University of Chile,“Confucius Institute UC” (Instituto Confucio UC), Translation. http://confucio.uc.cl/;
Santo Domingo Institute of Technology, “Confucius Institute” (Instituto Confucio),Translation. https://confucio.intec.edu.do/es/; University of Costa Rica, “Confucius
Institute University of Costa Rica,” (Instituto Confucio Universidad de Costa Rica),
Translation. http://institutoconfucio.ucr.ac.cr/; University of Havana, “The Confucius
Institute of the University of Havana Celebrates Its Tenth Anniversary” (El Instituto
Confucio de la Universidad de La Habana Celebra su Décimo Aniversario), November
19, 2021. Translation; University of the Republic Uruguay, “Confucius Institute of the
University of the Republic Uruguay.” https://udelar.edu.uy/confucio/.
13. Catherine Putz, “2020 Edition: Which Countries Are For or Against China’s
Xinjiang Policies?” Diplomat, October 9, 2020; Dave Lawler, “The 53 Countries Supporting China’s Crackdown on Hong Kong,” Axios, July 3, 2020; Catherine Putz,“Which Countries Are For or Against China’s Xinjiang Policies?” Diplomat, July 15,
2019; Wang Wen and Chen Xiaochen, “Who Supports China in the South China Sea
and Why,” Diplomat, July 27, 2016; China’s Ministry of Foreign Affairs, Ambassador
to Venezuela Zhao Bentang does the Work with Venezuelan Foreign Minister Roderiguez on the South China Sea Issue, (驻委内瑞拉大使赵本堂就南海问题做委外长罗德里格斯工作), May 11, 2016. Translation.
14. Wang Wen and Chen Xiaochen, “Who Supports China in the South China Sea
and Why,” Diplomat, July 27, 2016; China’s Ministry of Foreign Affairs, Ambassador
to Venezuela Zhao Bentang Does the Work with Venezuelan Foreign Minister Roderiguez on the South China Sea Issue, (驻委内瑞拉大使赵本堂就南海问题做委外长罗德里格斯工作), May 11, 2016. Translation.
15. Catherine Putz, “Which Countries Are For or Against China’s Xinjiang Policies?” Diplomat, July 15, 2019.
16. Catherine Putz, “2020 Edition: Which Countries Are For or Against China’s
Xinjiang Policies?” Diplomat, October 9, 2020.
17. Dave Lawler, “The 53 Countries Supporting China’s Crackdown on Hong Kong,”
Axios, July 3, 2020.
18. Xinhua, “Xi Eyes Closer Partnership with Trinidad and Tobago,” March 17,2021.
19. Fermin Koop, “Coronavirus Reshapes Belt and Road in Latin America,” Dialogo
Chino, July 30, 2020; China’s Ministry of Foreign Affairs, Wang Yi: The Belt and Road
Initiative Becomes New Opportunity for China-Latin America Cooperation, September
18, 2017.
20. Green Belt and Road Initiative Center, “Countries of the Belt and Road Initiative (BRI),” January 2021. https://green-bri.org/countries-of-the-belt-and-roadinitiative-bri/; Fermin Koop, “Coronavirus Reshapes Belt and Road in Latin America,” Dialogo Chino, July 30, 2020.
21. American Enterprise Institute, “China Global Investment Tracker,” 2021;Rebecca Ray, Zara C. Albright, and Kehan Wang, “China Latin America Economic Bulletin: 2021 Edition,” Boston University, 2021, 11–13.
22. American Enterprise Institute, “China Global Investment Tracker,” 2021.
23. Mitch Hayes, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May

106
20, 2021, 2; R. Evan Ellis, oral testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 8; Taiwan’s Ministry of Foreign Affairs, Diplomatic Allies, 2020; Shannon
Tiezzi, “Did China Just Break Its ‘Diplomatic Truce’ with Taiwan?” Diplomat, March
17, 2016.
24. R. Evan Ellis, oral testimony for the U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 8;
Margaret Myers, written testimony for the U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
7; Ryan Berg, written testimony for the U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
4; R. Evan Ellis, written testimony for the U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
12–13.
25. R. Evan Ellis, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 12–13.
26. Mitch Hayes, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
116; R. Evan Ellis, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 8; R.
Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 2,
12–13; Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 4;
Ernesto Londoño, “Paraguay’s ‘Life and Death’ Covid Crisis Gives China Diplomatic
Opening,” New York Times, April 16, 2021.
27. Frank Daniel, “Guatemalan President Says Graft Fighter Biased, Ahead ofHarris Visit,” Reuters, June 3, 2021.
28. Thiago de Aragão, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 10; Thiago de Aragão, oral testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 189.
29. Leo Schwartz, “Brazil Needs Vaccines. It Also Needs Huawei,” Rest of World,
March 25, 2021; Ernesto Londoño and Letícia Casado, “Brazil Needs Vaccines. China
Is Benefiting,” New York Times, March 15, 2021.
30. Samantha Pearson and Ryan Dube, “Brazil Embraces Chinese Covid-19 Vaccine as Cases Soar,” Wall Street Journal, January 8, 2021.
31. Mauricio Savarese, “Sao Paulo Authorities Plead with China to Release Vaccines,” Associated Press, May 12, 2021.
32. Juan Pablo Cardenal, “The Art of Making Friends: How the Chinese Communist Party Seduces Political Parties in Latin America,” Center for the Opening andDevelopment of Latin America, February 12, 2021, 8, 14; Linda Zhang and Ryan Berg,“An Overlooked Source of Chinese Influence in Latin America,” China Brief, February
11, 2021; Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s
Tools to Influence Latin America,” Council on Foreign Relations, 2020, 14.
33. China’s Ministry of Foreign Affairs, Join Hands across the Ocean in a New Era,
January 25, 2018.
34. Juan Pablo Cardenal, “The Art of Making Friends: How the Chinese Communist Party Seduces Political Parties in Latin America,” Center for the Opening andDevelopment of Latin America, February 12, 2021, 6–7; Claudia Trevisan, “Trade,
Investment, Technology, and Training Are China’s Tools to Influence Latin America,”
Council on Foreign Relations, 2020, 11–13; China’s Ministry of Foreign Affairs, China
Policy Paper on Latin America and the Caribbean (中国对拉美和加勒比政策文件), November 24, 2016. Translation; China’s Ministry of Foreign Affairs, China Policy Paper
on Latin America and the Caribbean (中国对拉丁美洲和加勒比政策文件), November 5,
2008. Translation.
35. Ryan Berg, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 5.
36. Margaret Myers, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 2–4; Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 3, 6; Margaret Myers, “Going Local: An Assessment of China’s Administrative

107
Level Activity in Latin America and the Caribbean,” Florida International University
and Inter-American Dialogue, November 2020.
37. R. Evan Ellis, “Understanding and Responding to Chinese Activities in Latin America and the Caribbean,” in Scott D. McDonald and Michael C. Burgoyne,
eds., China’s Global Influence, Perspectives and Recommendations, Daniel K. Inouye
Asia-Pacific Center for Security Studies and the Department of Defense Regional
Center, February 1, 2019, 142–159, 149; Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s Tools to Influence Latin America,” Council on Foreign Relations, 2020, 10–11; China’s Ministry of Foreign Affairs, China Policy Paper
on Latin America and the Caribbean (中国对拉美和加勒比政策文件), November 24,
2016. Translation; China’s Ministry of Foreign Affairs, China Policy Paper on Latin America and the Caribbean (中国对拉丁美洲和加勒比政策文件), November 5, 2008.
Translation.
38. Margaret Myers, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 5; China’s Ministry of Foreign Affairs, China Policy Paper on Latin America
and the Caribbean (中国对拉美和加勒比政策文件), November 24, 2016. Translation;
China’s Ministry of Foreign Affairs, China Policy Paper on Latin America and the
Caribbean (中国对拉丁美洲和加勒比政策文件), November 5, 2008. Translation.
39. Margaret Myers, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 4; Alex Joske, “Reorganizing the United Front Work Department: New Structures for a New Era of Diaspora and Religious Affairs Work,” Jamestown Foundation,
May 9, 2019.
40. Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s
Tools to Influence Latin America,” Council on Foreign Relations, 2020, 22–23; Hanban, “Confucius Institute/Classroom,” http://web.archive.org/web/20210101041525/
http://english.hanban.org/node_10971.htm.
41. Ryan Berg, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 5.
42. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
8; Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s Tools
to Influence Latin America,” Council on Foreign Relations, 2020, 11–12, 22.
43. China’s Ministry of Foreign Affairs, Join Hands across the Ocean in a New Era,
January 25, 2018.
44. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
8; Ryan Berg, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5.
45. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 8.
46. Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s
Tools to Influence Latin America,” Council on Foreign Relations, 2020, 15.
47. Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s
Tools to Influence Latin America,” Council on Foreign Relations, 2020, 16; Ricardo
Barrios, “China’s State Media in Latin America: Profile and Prospects,” Asian Dialogue, May 28, 2018.
48. Oliver Della Costa Stuenkel, written testimony for the U.S.-China Economic
and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 6; Ryan Berg, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on China in Latin America and the Caribbean,
May 20, 2021, 7; Ricardo Barrios, “China’s State Media in Latin America: Profile andProspects,” Asian Dialogue, May 28, 2018.
49. Ryan Berg, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 7; Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s
Tools to Influence Latin America,” Council on Foreign Relations, 2020, 17–18; Ricardo Barrios, “China’s State Media in Latin America: Profile and Prospects,” Asian
Dialogue, May 28, 2018; Luis A. Albarnoz and Peilei Ye, “Chinese Media ‘Going Out’in Spanish Speaking Countries: The Case of CGTN-Español,” Westminster Paper in
Communication and Culture, Westminster University Press, 2018.
50. Claudia Trevisan, “Trade, Investment, Technology, and Training Are China’s
Tools to Influence Latin America,” Council on Foreign Relations, 2020, 20–21.

108
51. Francisco Urdinez, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 10.
52. Parsifal D’Sola Alvardo, “China’s Public Diplomacy in Latin America and the
Caribbean–COVID-19 Edition,” SupChina, October 16, 2020.
53. Xinhua, “Chinese and Latin American Media Launch Cloud Dialogue, Media
Personnel Join Hands to Fight the Epidemic and Overcome Difficult Times” (中拉媒体开展云端对话 媒体人携手抗疫克时艰), August 28, 2020. Translation.
54. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 6.
55. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 6;
Nicolle Yapur and Alex Vasquez, “Venezuela Politicizes Vaccine Access Via State Loyalty Card,” Bloomberg, April 14, 2021; Alina Polyakova and Chris Meserole, “Exporting Digital Authoritarianism,” Brookings Institution, August 2019, 6; Laura Vidal,“Venezuelans Fear ‘Fatherland Card’ May Be a New Form of Social Control,” PublicRadio International, December 28, 2018; Angus Berwick, “How ZTE Helps Venezuela
Create China-Style Social Control,” Reuters, November 14, 2018.
56. Kendra Schaefer, “China’s Corporate Social Credit System,” Trivium China(prepared for the U.S.-China Economic and Security Review Commission), November
16, 2020; Alina Polyakova and Chris Meserole, “Exporting Digital Authoritarianism,”
Brookings Institution, August 2019, 6.
57. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 6.
58. José María León Cabrera, “Ecuador’s Former President Convicted on Corruption Charges,” New York Times, April 7, 2020; Charlotte Mitchell, “Bolivia: The End of
Evo Morales?” Al Jazeera, October 13, 2019; Oliver Della Costa Stuenkel, “Is Ecuador
a Model for Post-Populist Democratic Recovery?” Carnegie Endowment for International Peace, July 11, 2019; Human Rights Watch, “Bolivia: Events of 2018,” 2019;
José Miguel Vivanco, “Correa’s Clamp on the Media,” Human Rights Watch, July 11,
2016.
59. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
60. Thiago de Aragão, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 7; Paola Subacchi, “China Is Changing the Way Money Is Lent to Countries in
Need,” Nikkei Asia, May 24, 2021; Kevin P. Gallagher and Margaret Myers, “China
Latin America Finance Database,” Inter-American Dialogue, 2021.
61. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021.
62. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021, 4.
63. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
64. Francisco Urdinez, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 157; Kenneth Rapoza, “The Pandemic Blues: Ecuador Second Latin American
Nation to Default in 4 Weeks,” Forbes, April 21, 2021; Ryan Dube and Santiago Perez,“Argentina Defaults on Sovereign Debt amid Coronavirus Crisis,” Wall Street Journal,
May 22, 2020; Timothy J. Kehoe, Carlos Gustavo Machicado, and José Peres-Cajías,“The Monetary and Fiscal History of Bolivia, 1960–2017,” Becker Friedman Institute,
January 2019, 2; Ben Bartenstein, “Venezuela Defaults on Its Last Bond, Setting Up
Legal Showdown,” Bloomberg, October 28, 2019.
65. Micah Maidenberg and Ryan Dube, “IMF, Development Banks Agree to $10.2
Billion Bailout for Ecuador,” Wall Street Journal, February 21, 2019; Vivianne Rodrigues, “Ecuador Returning to Bond Market after 2008 Default,” Financial Times,
June 15, 2014; Financial Post, “How China Took Control of Ecuador’s Oil,” November
26, 2013.
66. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
67. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021; Ryan Dube and Santiago Pérez, “Argentina Defaults on Sovereign Debt amid Coronavirus Crisis,” Wall Street Journal, May 22, 2020.

109
68. Thiago de Aragão, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 15.
69. Rebecca Ray, Zara C. Albright, and Kehan Wang, “China Latin America Economic Bulletin: 2021 Edition,” Boston University, 2021, 7; World Integrated Trade
Solution, “Latin America & Caribbean Trade Balance, Exports and Imports by Country and Region 2002,” World Bank, July 7, 2021.
70. Rebecca Ray, Zara C. Albright, and Kehan Wang, “China Latin America Economic Bulletin: 2021 Edition,” Boston University, 2021, 7.
71. United Nations Conference on Trade and Development, “International Merchandise Trade,” June 8, 2021; Sergio Ley López and Salvador Suárez Zaizar, “Dealmaking with China amid Global Economic Uncertainty: Opportunities, Risks, andRecommendations for Latin America and the Caribbean,” Atlantic Council, December
16, 2020; Congressional Research Service, “China’s Engagement with Latin America
and the Caribbean,” November 12, 2020.
72. United Nations, “UN Comtrade Database.”
73. United Nations, “UN Comtrade Database”; calculations by Rebecca Ray.
74. United Nations, “UN Comtrade Database”; calculations by Rebecca Ray; Observatory of Economic Complexity, “Brazil,” 2021; Observatory of Economic Complexity,“Chile,” 2021; Observatory of Economic Complexity, “Peru,” 2021.
75. U.S. Census Bureau, USA Trade Online, October 5, 2021; Reuters, “China’s
2018 Soybean Imports from U.S. Hit Lowest since 2008,” January 24, 2019.
76. United Nations, “UN Comtrade Database.”; Reuters, “China’s 2018 Soybean Imports from U.S. Hit Lowest since 2008,” January 24, 2019.
77. Lidia Kelly, “Australia: Taking China to WTO over Wine Tariffs Enables Negotiations,” Reuters, June 20, 2021.
78. Natalie Wang, “Chilean Wine Exports to China Up by 40%,” Vino Joy News,May 14, 2021.
79. American Enterprise Institute, “China Global Investment Tracker,” 2021.
80. United Nations Economic Commission for Latin America and the Caribbean,“Foreign Direct Investment in Latin America and the Caribbean,” 2021, 87–93; United Nations Economic Commission for Latin America and the Caribbean, “Foreign
Direct Investment in Latin America and the Caribbean,” 2020; United Nations Conference on Trade and Development, “Foreign Investment in Latin America Expected
to Halve in 2020,” June 16, 2020; Rolando Avendano, Angel Melguizo, and Sean Miller, “Chinese FDI in Latin America: New Trends with Global Implications,” Atlantic
Council, June 2017.
81. United Nations Economic Commission for Latin America and the Caribbean,“Foreign Direct Investment in Latin America and the Caribbean,” 2020, 43, 44.
82. American Enterprise Institute, “China Global Investment Tracker,” 2021; United Nations Economic Commission for Latin America and the Caribbean, “Foreign
Direct Investment in Latin America and the Caribbean,” 2020, 43.
83. American Enterprise Institute, “China Global Investment Tracker,” 2021.
84. Rebecca Ray, Zara C. Albright, and Kehan Wang, “2020: A Point of Inflection in
the China-Latin America Relationship?” Boston University, February 22, 2021.
85. Margaret Myers, conversation with Commission staff, July 22, 2021.
86. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
87. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
88. Pablo Fleiss, “Multilateral Development Banks in Latin America,” Economic
Commission for Latin America and the Caribbean, 2021, 22; Kevin P. Gallagher andMargaret Myers, “China Latin America Finance Database,” Inter-American Dialogue,
2021; Pepe Zhang, “Belt and Road in Latin America: A Regional Game Changer?”
Atlantic Council, October 8, 2019.
89. Margaret Myers and Rebecca Ray, “Shifting Gears: Chinese Finance in LAC,
2020,” Inter-American Dialogue and Boston University Global Development Policy
Center, February 2021, 2; Kevin P. Gallagher and Margaret Myers, “China Latin
America Finance Database,” Inter-American Dialogue, 2021.
90. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021; Margaret Myers and Rebecca Ray, “Shifting
Gears: Chinese Finance in LAC, 2020,” Inter-American Dialogue and Boston University Global Development Policy Center, February 2021.
91. Margaret Myers, conversation with Commission staff, July 22, 2021.
92. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &110Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021.
93. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021, 6–7.
94. Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch, “China’s Overseas Lending,” National Bureau of Economic Research, 2019; Kevin P. Gallagher andMargaret Myers, “China Latin America Finance Database,” Inter-American Dialogue,
2021.
95. World Bank, “International Debt Statistics,” 2021; Jeremy Page,“China Counts the Costs of Its Big Bet on Venezuela,” Wall Street Journal, February
1, 2019.
96. Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch, “China’s Overseas Lending,” National Bureau of Economic Research, 2019; International Monetary
Fund, “Ecuador-Request for an Extended Arrangement under the Extended Fund
Facility,” October 5, 2020, 71; Planning Institute of Jamaica, Economic and Social
Survey Jamaica 2019: Overview, 2019, 9.
97. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
98. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,” Inter-American Dialogue, 2021.
99. World Bank, “The World Bank in Latin America and the Caribbean—Overview—Results,” October 9, 2020; Inter-American Development Bank, “IDB Group Approves Record $21.6 Billion in Lending in 2020,” December 21, 2020; Development
Bank of Latin America, “CAF Closes 2020 with All-time Loan Approval High,” January 4, 2021.
100. David Mihalyi, Aisha Adam, and Jyhjong Hwang, “Resource-Backed Loans:
Pitfalls and Potential,” Natural Resource Governance Institute, February, 2020.
101. David Mihalyi, Aisha Adam, and Jyhjong Hwang, “Resource-Backed Loans:
Pitfalls and Potential,” Natural Resource Governance Institute, February, 2020.
102. International Monetary Fund, “IMF Executive Board Approves US$4.2 Billion
Extended Fund Facility for Ecuador,” March 11, 2019; International Monetary Fund,“IMF Executive Board Approves 27-Month US$6.5 Billion Extended Fund Facility for
Ecuador,” September 30, 2020.
103. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021, 7, 37.
104. Juan Lucci, “Is It Possible to Say No to China? The Case of the Kirchner-Cepernic Dams in Argentine Patagonia,” Leadership Academy for Development.
105. Cristina Veiga, “Argentine NGO Denounces Chinese ‘Pressure’ to Build Dams,”
Dialogo Chino, March 16, 2017.
106. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021, 39.
107. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021, 37.
108. Anna Gelpern et al., “How China Lends: A Rare Look into 100 Debt Contracts
with Foreign Governments,” Center for Global Development, AidData at William &Mary, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics, March 31, 2021, 39.
109. Rhys Jenkins, “The ‘China Effect’ on Commodity Prices and Latin American
Export Earnings,” United Nations Economic Commission for Latin America and the
Caribbean, April 2011.
110. Rhys Jenkins, “The ‘China Effect’ on Commodity Prices and Latin American
Export Earnings,” United Nations Economic Commission for Latin America and the
Caribbean, April 2011.
111. Federal Reserve Bank of St. Louis, “Global Price Index of All Commodities,”
2021; Rebecca Ray, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
92; International Monetary Fund, “World Economic Outlook,” October 2012, 33–34.

111112. Enrique Dussel Peters and Ariel Armony, “Effects of China on the Quantity
and Quality of Jobs in Latin America and the Caribbean,” International Labor Organization, 2017.
113. Robert Soutar, “Latin American Workforce Swells by Two Million Thanks to
China,” Dialogo Chino, January 30, 2019.
114. United Nations Economic Commission for Latin America and the Caribbean,“Sustainable Development Goals Indicator 1.1.1 Proportion of Population Below theInternational Poverty Line, by Sex, Age, Employment Status and Geographical Location (Urban/Rural),” May 27, 2021.
115. Jorge Guajardo, Manuel Molano, and Dante Sica, “Industrial Development in
Latin America: What Is China’s Role?” Atlantic Council, 2016.
116. World Integrated Trade Solution, “Latin America & Caribbean Raw Materials
Export Product Share to World in % 1989–2018,” World Bank, June 10, 2021.
117. World Integrated Trade Solution, “Latin America & Caribbean Raw Materials
Export Product Share to World in % 1989–2018,” World Bank, June 10, 2021.
118. Margaret Myers, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
80, 85.
119. International Monetary Fund, “World Economic Outlook,” April 2021; Economic Commission for Latin America and the Caribbean, “The Effects of the Coronavirus Disease (COVID-19) Pandemic on International Trade and Logistics,” August
6, 2020, 2.
120. International Monetary Fund, “World Economic Outlook,” April 2021; Elijah
Oliveros-Rosen, “Economic Outlook Latin America Q2 2021: Despite Growth Picking
Up, Pre-Pandemic Weaknesses Remain,” S&P Global, March 25, 2021.
121. China General Administration of Customs via CEIC database.
122. Rebecca Ray and Pedro Henrique Batista Barbosa, “China-Latin American
Economic Bulletin, 2020,” Boston University, 2020, 1; Rebecca Ray, Zara C. Albright,
and Kehan Wang, “2020: A Point of Inflection in the China-Latin America Relationship?” Boston University, 2021, 12.
123. Ian Coles, “Latin America Mining: Some Trends,” Mayer Brown, September
29, 2020; Foreign Policy, “Mining the Future,” May 2019.
124. Foreign Policy, “Mining the Future,” May 2019, 2.
125. Elizabeth Gonzalez, “Explainer: Latin America’s Lithium Triangle,” Americas
Society/Council of the Americas, February 19, 2021.
126. Foreign Policy, “Mining the Future,” May 2019, 5–7; Stuart Burns, “Bolivia
Pivots Back to Socialism — What Does That Hold for Resource Extraction?” Metal
Miner, October 22, 2020.
127. Elizabeth Gonzalez, “Explainer: Latin America’s Lithium Triangle,” Americas
Society/Council of the Americas, February 19, 2021; Foreign Policy, “Mining the Future,” May 2019, 5.
128. Foreign Policy, “Mining the Future,” May 2019, 2; U.S. Department of Commerce, A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals, 2019, 8; U.S.-China Economic and Security Review Commission, Chapter 1,
Section 3, “China’s Strategic Aims in Africa,” in 2020 Annual Report to Congress,
November 2020, 136–199.
129. Luis Scungio, “China’s Global Mineral Rush,” Stichting Onderzoek Multinationale Ondernemingen, June 2021, 32.
130. Luis Scungio, “China’s Global Mineral Rush,” Stichting Onderzoek Multinationale Ondernemingen, June 2021, 32; Stephen Keuffner, “Proposal to Ban Big Mines Is
Put to a Vote in Southern Ecuador,” Bloomberg, February 4, 2021.
131. Cecilia Jamasmie, “Southern Ecuador’s Cuenca Bans Large-Scale Mining,”
Mining.com, February 19, 2021.
132. Luis Scungio, “China’s Global Mineral Rush,” Stichting Onderzoek Multinationale Ondernemingen, June 2021, 27.
133. Luis Scungio, “China’s Global Mineral Rush,” Stichting Onderzoek Multinationale Ondernemingen, June 2021, 29.
134. American Enterprise Institute, “China Global Investment Tracker,” 2021.
135. Institute of the Americas, “China Stakes Its Claim in Latin American Energy:
What It Means for the Region, the U.S., and Beijing,” February 2021, 5–8.
136. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5.
137. Sullivan and Cromwell LLP, “S&C Advises China Three Gorges-Led Consortium in $1.39 Billion Purchase of Chaglla Hydroelectric Plant in Peru,” May 10, 2019;
Zawya, “209.3 MW San Gaban III Hydroelectric Power Plant Project,” March 16,
2020; R. Evan Ellis, written testimony for U.S.-China Economic and Security Review

112Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
10.
138. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
5–6.
139. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 11; Reuters, “Chile Regulator Approves $3 Billion Chinese Takeover of Naturgy
Unit,” March 31, 2021.
140. Institute of the Americas, “China Stakes Its Claim in Latin American Energy:
What It Means for the Region, the U.S., and Beijing,” February 2021; Electricidad,“Chinese Attack on Chile’s Energy Pushes Deputies to Present Project to Regulate
Foreign Participation in Strategic Sectors,” (Arremetida china en la energía de Chile
empuja a diputados a presentar proyecto para reglar participación extranjera en sectores estratégicos), December 3, 2020. Translation.
141. Reuters, “Chile Regulator Approves $3 Billion Chinese Takeover of Naturgy
Unit,” March 31, 2021; A. Gonzolez, “Chamber of Deputies Cites Special Session to
Analyze Purchase of CGE by Chinese State-Owned Company” (Cámara de Diputados cita sesión especial para analizar compra de CGE por parte de empresa estatalchina), Emol, July 2, 2021. Translation.
142. Francisco Urdinez, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 152.
143. Rebecca Ray, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
152–153.
144. United Nations, “UN Comtrade Database”; World Bank, “China Product Exports and Imports to Brazil 2019,” 2021.
145. Reuters, “China’s 2018 Soybean Imports from U.S. Hit Lowest since 2008,”
January 24, 2019; Debbie Carlson, “The U.S. and Brazil are Vying to Meet China’s
Soybean Demand,” Reuters, March 22, 2021.
146. United Nations, “UN Comtrade Database.”147. Trase, “China’s Exposure to Environmental Risks from Brazilian Beef Imports,” June 2020, 6.
148. Margaret Myers, “China’s Agroindustrial Interests in Latin America,” AgriPulse, June 27, 2019; Dialogo Chino, “Mapping Chinese Interests in South American
Soy and Beef,” July 14, 2020.
149. Álvaro Etchegaray, “China’s Fishing in South American Waters Raises Questions, Fears,” SupChina, February 21, 2021.
150. R. Evan Ellis, “Do Latin American Waters Continue to Fall Prey to China’s
Fishing?” Indo-Pacific Defense Forum, November 27, 2020.
151. Oceana, “Oceana Finds 300 Chinese Vessels Pillaging the Galapagos for
Squid,” September 2020.
152. R. Evan Ellis, “Do Latin American Waters Continue to Fall Prey to China’s
Fishing?” Indo-Pacific Defense Forum, November 27, 2020.
153. Bethany Allen-Ebrahimian, “Exclusive: U.S. Urged to Join South America inFighting China Fishing,” Axios, March 23, 2021.
154. Chile Ministry of Foreign Affairs, Reported by Fishing Activities in International Waters near Jurisdictional Waters, November 4, 2020.
155. Statement of Admiral Craig S. Faller, Commander, United States Southern
Command, before the 117th Congress Senate Armed Services Committee, March 16,2021.
156. Eduardo Cavallo and Andrew Powell, “Building Opportunities for Growth in a
Challenging World,” Inter-American Development Bank, 2019, 68; World Bank, “Latin
America and Caribbean (GDP Current US$).”
157. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 4.
158. United Nations Conference on Trade and Development, “UNCTAD Handbookof Statistics 2020,” 2020, 20.
159. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5.
160. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5.
161. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
5. Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,”
Inter-American Dialogue, 2021.

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162. Margaret Myers, “China’s Agroindustrial Interests in Latin America,” AgriPulse, June 27, 2019.
163. Fermin Koop, “Chinese Rail Advances Slowly in Latin America,” Dialogo Chino, October 1, 2019.
164. Fermin Koop, “Chinese Rail Advances Slowly in Latin America,” Dialogo
Chino, October 1, 2019; Margaret Myers, “China’s Agroindustrial Interests in Latin
America,” AgriPulse, June 27, 2019; United Nations, “UN Comtrade Database.”165. Development Bank of Latin America, “Latin America Needs USD 55 Billion
by 2040 to Boost Maritime and Port Industry,” July 4, 2018.
166. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 10.
167. RWR Advisory Group, “China’s COSCO Urges Peru to Grant Special SEZ Status to Chancay Port,” November 13, 2020.
168. Daphne Ewing-Chow, “The Caribbean’s Share in the Global Cargo Industry Is
Growing Rapidly,” New York Times, May 21, 2019.
169. Carlos de Leon, “Chinese Ports and Docks in Latin America,” Alai, April 6,
2021.
170. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 13.
171. Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 4;
Ranine Awwad, “Serious Steps to Deploy 5G Networks in Colombia,” Inside Telecom,
July 9, 2020.
172. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 13–14.
173. Raymond R. Dua Jr., “The Rise of Chinese Technology in Latin America,”
Global Americans, August 12, 2020.
174. Margaret Myers, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
84.
175. House Foreign Affairs Committee Republicans, China Regional Snapshot: The
Caribbean, March 16, 2021; R. Evan Ellis, written testimony for U.S.-China Economic
and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021; Ryan Berg, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on China in Latin America and the Caribbean,
May 20, 2021, 6.
176. Angus Berwick, “How ZTE Helps Venezuela Create China-Style Social Control,” Reuters, November 14, 2018.
177. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 3.
178. Oliver Della Costa Stuenkel, written testimony for U.S.-China Economic andSecurity Review Commission, Hearing on China in Latin America and the Caribbean,
May 20, 2021, 7.
179. American Enterprise Institute, “China Global Investment Tracker,” 2021;
Kevin P. Gallagher and Margaret Myers, “China Latin America Finance Database,”
Inter-American Dialogue, 2021; CMA CGM Group, “CMA CGM Completes a First
Transaction Relating to the Sale of Eight Port Terminals to Terminal Link for USD
815 Million in Cash,” March 26, 2020; Dialogo Chino, “Mapping Chinese Interests
in South American Soy and Beef,” July 14, 2020; Jared Ward, “China’s Presence in
the Bahamas: A Greater Role after Hurricane Dorian?” China Brief 19:20 (November 2019); RWR Advisory Group, “China’s COSCO Urges Peru to Grant Special SEZ
Status to Chancay Port,” November 13, 2020; Michael Marray, “China Merchants
Port Holdings to Provide US$968 Million to Terminal Link Joint Venture,” Asset,
December 4, 2019; Reuters, “Petrobras Sells Peru Unit to PetroChina/CNPC for $2.6
Billion,” November 13, 2013.
180. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 8.
181. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
6–7; Margaret Myers, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 9.

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182. Rebecca Ray, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
6–8.
183. Genesis Lozano, “Ecuador’s China-Backed Hydropower Revolution,” China
Dialogue, August 21, 2019; Kevin P. Gallagher and Margaret Myers, “China Latin
America Finance Database,” Inter-American Dialogue, 2021.
184. Nicholas Casey and Clifford Krauss, “It Doesn’t Matter if Ecuador Can Afford This Dam. China Still Gets Paid,” New York Times, December 24, 2018; Genesis
Lozano, “Ecuador’s China-Backed Hydropower Revolution,” China Dialogue, August21, 2019.
185. Amy Juelsgaard, “The Relationship among Financial Institutions, Safeguards
and Hydroelectric Dams in the Amazon,” University of San Francisco, May 15, 2020.
186. Nicholas Casey and Clifford Krauss, “It Doesn’t Matter if Ecuador Can Afford
This Dam. China Still Gets Paid,” New York Times, December 24, 2018; Max Nathanson, “Damming or Damning the Amazon: Assessing Ecuador / China Cooperation,”
Mongabay, November 22, 2017.
187. Arturo Torres, “Award Reveals Unpublished Details of Coca Codo Sinclair Dispute” (Laudo revela detalles inéditos de la disputa por Coca Codo Sinclair), Primicias,
July 13, 2021. Translation.
188. Genesis Lozano, “Ecuador’s China-Backed Hydropower Revolution,” China Dialogue, August 21, 2019; Arturo Torres, “Award Reveals Unpublished Details of Coca
Codo Sinclair Dispute,” (Laudo revela detalles inéditos de la disputa por Coca Codo
Sinclair) Primicias, July 13, 2021. Translation.
189. Mercedes Alvaro, “Dam Implicated in Waterfall Collapse and Oil Spill,”
EcoAmericas, May 2020; Antonio Jose Paz Cardona, “Ecuador Races for Emergency
Infrastructure as River’s Collapse Threatens Dam,” Mongabay, August 11, 2020.
190. Vincent Ricci, “A Year after Ecuador Oil Spill, Indigenous Victims Await Justice, Reparations,” Mongabay, April 29, 2021.
191. R. Evan Ellis, “New Directions in the Deepening Chinese-Argentine Engagement,” Global Americans, July 30, 2021; R. Evan Ellis, “Chinese Security Engagementin Latin America,” Center for Strategic and International Studies, November 19, 2020,4.
192. R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center for
Strategic and International Studies, November 19, 2020, 6–8.
193. R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center for
Strategic and International Studies, November 19, 2020, 7.
194. Cynthia Watson, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
164.
195. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 17; Ryan Berg, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 5; Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between
Latin America and China,” Journal of Latin American Geography 17:2 (July 2018):
46–86, 47.
196. Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between
Latin America and China,” Journal of Latin American Geography 17:2 (July 2018):
46–86, 47.
197. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 15; R. Evan Ellis, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 6; Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between
Latin America and China,” Journal of Latin American Geography 17:2 (July 2018):
46–86, 47.
198. Admiral Craig S. Faller, “Near and Present Danger: SOUTHCOM Commander
ADM Faller on U.S.-China Strategic Competition in the Western Hemisphere,” Project2049 Institute, June 15, 2021.
199. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 15; Julie Michelle Klinger, “A Brief History of Outer Space Cooperation
between Latin America and China,” Journal of Latin American Geography 17:2 (July
2018): 46–86, 47; Cassandra Garrison, “China’s Military-Run Space Station in Argentina Is a ‘Black Box,’ ” Reuters, January 31, 2019; Robert I. Rotberg, “China in
Patagonia . . . and Space,” China-US Focus, April 27, 2017; Victor Robert Lee, “China
Builds Space-Monitoring Base in the Americas,” Diplomat, May 24, 2016; R. Evan

115
Ellis, “China-Latin America Military Engagement: Good Will, Good Business, andStrategic Position,” Strategic Studies Institute, August 25, 2011, 39.
200. Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
5; Thiago de Aragão, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 15.
201. Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
5; Thiago de Aragão, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
15; Cassandra Garrison, “Argentine Lawmakers Seek Greater Oversight of ChineseSpace Facility in Patagonia,” Reuters, March 29, 2019; Cassandra Garrison, “China’s
Military-Run Space Station in Argentina Is a ‘Black Box,’ ” Reuters, January 31, 2019;
Ernesto Londono, “From a Space Station in Argentina, China Expands Its Reach in
Latin America,” New York Times, July 28, 2018.
202. Chad Peltier, Tate Nurkin, and Sean O’Connor, “China’s Logistics Capabilities
for Expeditionary Operations,” Jane’s (prepared for the U.S.-China Economic and Security Review Commission), April 15, 2020, 38–39.
203. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 10; Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
5; Rasheed Griffith, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
13; Thiago de Aragão, written testimony for U.S.-China Economics and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 7–9; Craig S. Faller, oral testimony for U.S. House Armed Services Committee,
Full Committee Hearing: “National Security Challenges and U.S. Military Activity inNorth and South America,” April 14, 2021.
204. Thiago de Aragão, written testimony for U.S.-China Economics and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 8.
205. Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5.
206. Craig S. Faller, “Near and Present Danger: SOUTHCOM Commander ADM
Faller on U.S.-China Strategic Competition in the Western Hemisphere,” Project 2049
Institute, June 15, 2021. https://project2049.net/event/near-and-present-danger/; R.
Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 10;
U.S. House Armed Services Committee, Full Committee Hearing: “National Security
Challenges and U.S. Military Activity in North and South America,” April 14, 2021.
207. Craig S. Faller, “SOUTHCOM Commander ADM Faller on U.S. China Strategic Competition in the Western Hemisphere,” Project 2049 Institute, June 28, 2021, 2.
208. Thiago de Aragão, written testimony for U.S.-China Economics and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 7–8.
209. Craig S. Faller, “USNORTHCOM-USSOUTHCOM Joint Press Briefing,” U.S.
Department of Defense, March 16, 2021.
210. Thiago de Aragão, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 166, 190; Ryan Berg, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 58; Mat Youkee, “Panama the New Flashpoint in China’s Growing Presence in
Latin America,” Guardian, November 28, 2018.
211. Stew Magnuson, “Just In: U.S. Commander Alarmed as China Makes Inroadsin Americas,” National Defense, December 2, 2020; Katherine Koleski and Alec Blivas,“China’s Engagement with Latin America and the Caribbean,” U.S.-China Economic
and Security Review Commission, October 17, 2017, 25; Mat Youkee, “The Panama
Canal Could Become the Center of the U.S.-China Trade War,” Foreign Policy, May 7,
2019; R. Evan Ellis, “The Evolution of Panama-PRC Relations since Recognition, andTheir Strategic Implications for the U.S. and the Region,” Global Americans, September 21, 2018; Hutchison Ports PPC, “Learn about PPC.”
212. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 8, 166; Julieta Palcastre, “China Reaffirms Strategic Interest in Antarctica,”
Diálogo, November 27, 2019.

116
213. Craig S. Faller, “SOUTHCOM Commander ADM Faller on U.S. China Strategic Competition in the Western Hemisphere,” Project 2049 Institute, June 28, 2021,
2–3.
214. Ralph Espach, “A New Great Game Finds the South Atlantic,” War on theRocks, March 22, 2021; Juan Antonio Castro, “Influence of China in Argentina: Meeting with the Minister of Defense, Military Base and Training” (Influencia de China en
Argentina: reunión con el Ministro de Defensa, base militar y capacitaciones), Tierra
Pura, March 4, 2021. Translation.
215. Rasheed Griffith, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 13.
216. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 10.
217. Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May
20, 2021, 8.
218. R. Evan Ellis, “China’s Advance in the Caribbean,” Wilson Center, October
2020, 1; Rachel Oswald, “Caribbean Islands Becoming Hot Spots for Chinese Investment,” Roll Call, March 25, 2019.
219. R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center for
Strategic and International Studies, November 19, 2020, 2.
220. Center for the Study of Chinese Military Affairs, “Chinese Military Diplomacy
Database Version 3.0,” National Defense University, June 22, 2020.
221. Center for the Study of Chinese Military Affairs, “Chinese Military Diplomacy
Database Version 3.0,” National Defense University, June 22, 2020.
222. China’s State Council Information Office, China’s National Defense in the New
Era (新时代的中国国防), July 2019. Translation; Sina, “Zheng Weiping Meets with
Senior Military Officers and Police Officers from 13 Countries” (郑卫平会见13国高级军官警官), October 24, 2013. Translation; China’s Foreign Ministry, Assistant Foreign
Minister Zhang Kunsheng Gives Topical Lecture at the First China-Latin America
High-Level Defense Forum (外交部部长助理张昆生为第一届中国-拉美高级防务论坛作专题讲座), November 13, 2012. Translation.
223. China’s Foreign Ministry, Assistant Foreign Minister Zhang Kunsheng Gives
Topical Lecture at the First China-Latin America High-Level Defense Forum (外交部部长助理张昆生为第一届中国-拉美高级防务论坛作专题讲座), November 13, 2012. Translation.
224. Qiao Nannan, “Fourth China-Latin America High-Level Defense Forum” (第四届中拉高级防务论坛开幕), China’s Ministry of Defense, October 29, 2018. Translation.
225. Sina, “Zheng Weiping Meets with Senior Military Officers and Police Officers
from 13 Countries” (郑卫平会见13国高级军官警官), October 24, 2013. Translation.
226. Xinhua, “China to Deepen Military Cooperation with Caribbean Countries,
Pacific Island Countries: Defense Minister,” July 8, 2019; Xinhua, “Wei Fenghe Meets
Representatives from Each Country at the Fourth Caribbean South Pacific High-Level Defense Forum” (微风和会见第四届加勒比南太高级防务论坛各国代表), July 8, 2019.
Translation.
227. Center for the Study of Chinese Military Affairs, “Chinese Military Diplomacy
Database Version 3.0,” National Defense University, June 22, 2020.
228. Center for the Study of Chinese Military Affairs, “Chinese Military Diplomacy
Database Version 3.0,” National Defense University, June 22, 2020.
229. Center for the Study of Chinese Military Affairs, “Chinese Military Diplomacy
Database Version 3.0,” National Defense University, June 22, 2020.
230. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 3; R. Evan Ellis, “Chinese Advances in Chile,” Global American, March 2, 2021;
China’s Ministry of Foreign Affairs, China and Chile, 2014.
231. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 3.
232. Cynthia Watson, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
201; Ryan Berg, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 4.
233. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 3; Thiago de Aragão, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 8; R. Evan Ellis, “Chinese Advances in Chile,” Global Americans, March 2, 2021.

117234. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 3; R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center for
Strategic and International Studies, November 19, 2020, 8; Eden Blake, “Chinese
Military Seeks Jungle Warfare Training from Brazil,” IB Times, August 10, 2015.
235. Cynthia Watson, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021,
201; Craig S. Faller, oral testimony for the Senate Armed Services Committee, March
16, 2021.
236. R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center for
Strategic and International Studies, November 19, 2020, 8.
237. Lu Zhangliang, “U.S. Military Hub for Meddling in Central American Affairs”(美国干预中美洲局势的军事枢纽), China Military Online, December 3, 2020. Translation; Stew Magnuson, “Just In: U.S. Commander Alarmed as China Makes Inroads in
Americas,” National Defense, December 2, 2020.
238. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 4; R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center for
Strategic and International Studies, November 19, 2020, 2.
239. Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between
Latin America and China,” Journal of Latin American Geography 17:2 (July 2018):
46–86, 49.
240. Stockholm International Peace Research Institute, “SIPRI Arms Transfer Database,” 2021; R. Evan Ellis, “Chinese Security Engagement in Latin America,” Center
for Strategic and International Studies, November 19, 2020, 4.
241. House Foreign Affairs Committee Republicans, China Regional Snapshot:
South America, March 16, 2021; Stockholm International Peace Research Institute,“SIPRI Arms Transfer Database,” 2021.
242. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 5.
243. Stockholm International Peace Research Institute, “SIPRI Arms Transfer Database,” 2021.
244. Stockholm International Peace Research Institute, “SIPRI Arms Transfer Database,” 2021.
245. Stockholm International Peace Research Institute, “SIPRI Arms Transfer Database,” 2021.
246. R. Evan Ellis, “New Directions in the Deepening Chinese-Argentine Engagement,” Diálogo, July 30, 2021; R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the
Caribbean, May 20, 2021, 3, 5–7.
247. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 4; Xinhua, “China Sends 13 Satellites into Orbit with Single Rocket,” November 6, 2020; Rui C. Barbosa, “Long March 6 Lofts Ten Argentinian Satellites,” NASASpaceflight, November 6, 2020; Mark Stokes et al., “China’s Space and Counterspace
Capabilities and Activities,” Project 2049 Institute and Pointe Bello, prepared for the
U.S.-China Economic and Security Review Commission, March 30, 2020. 86; China’s
Ministry of Commerce, International Investment Cooperation Country Comparison(Regional) Guidebook: Bolivia, (对外投资合作国别 (地区) 指南: 玻利维亚), 2020, 13, 16,
30. Translation; Reuters, “China-Brazil Satellite Launched into Space to Monitor Amazon Rainforest,” December 20, 2019; Xinhua, “New China-Brazil Earth Resource
Satellite Sent into Space,” December 20, 2019; Xinhua, “China Launches Remote
Sensing Satellite for Venezuela,” October 9, 2017; Stephen Clark, “China Successfully
Launches Earth-Imaging Satellite for Venezuela,” Spaceflight Now, October 9, 2017;
Peter B. Selding, “China Launches Bolivia’s First Telecom Satellite,” Space News,
December 23, 2013; Phys, “Bolivia’s First Telecoms Satellite Launched from China,”
December 30, 2013; Stephen Clark, “Four Satellites Launched on China Long March
Rocket,” Spaceflight Now, April 26, 2013; Eduardo Garcia, “Bolivia, China Team Up
on Communications Satellite,” Reuters, April 1, 2010.
248. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20,
2021, 4; Stephen Clark, “China Successfully Launches Earth-Imaging Satellite for
Venezuela,” Spaceflight Now, October 9, 2017.
249. Andrew Wight, “China, Eyeing Bolivia’s Lithium Riches, Helps Country into
Space,” February 21, 2018; Peter B. Selding, “China Launches Bolivia’s First Telecom
Satellite,” Space News, December 23, 2013; Eduardo Garcia, “Bolivia, China Team Up
on Communications Satellite,” Reuters, April 1, 2010.

118
250. Phys, “Bolivia’s First Telecoms Satellite Launched from China,” December 30,
2013; Andrew Wight, “China, Eyeing Bolivia’s Lithium Riches, Helps Country into
Space,” February 21, 2018.
251. Stephen Clark, “Four Satellites Launched on China Long March Rocket,”Spaceflight Now, April 26, 2013.
252. Xinhua, “China Sends 13 Satellites into Orbit with Single Rocket,” November
6, 2020; Uku Goñi, “Argentina Election: Marci Out as Cristina Fernández de Kirchner
Returns to Office as VP,” Guardian, October 28, 2019.
253. ANI, “Chinese Space Contractor to Install New Satellite Ground Station inSouthern Argentina: Report,” May 29, 2021; Daniel Kuhn, “New Satellite Ground
Stations Set Up in China and Argentina,” Illinois News Live, May 29, 2021; Xinhua,“China Sends 13 Satellites into Orbit with Single Rocket,” November 6, 2020. Patrick Gillespie, “China and Argentina Resume Joint Venture for Space Exploration,”
Bloomberg, August 7, 2020.
254. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 4.
255. Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between
Latin America and China,” Journal of Latin American Geography 17:2 (July 2018):
46–86, 62–63.
256. Julie Michelle Klinger, “A Brief History of Outer Space Cooperation between
Latin America and China,” Journal of Latin American Geography 17:2 (July 2018):
46–86, 62–64.
257. Green Belt and Road Initiative Center, “Countries of the Belt and Road Initiative (BRI),” January 2021; Julie Michelle Klinger, “A Brief History of Outer Space
Cooperation between Latin America and China,” Journal of Latin American Geography 17:2 (July 2018): 46–86, 63.
258. R. Evan Ellis, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 4.
259. Craig S. Faller, “SOUTHCOM Commander ADM Faller on U.S. China Strategic Competition in the Western Hemisphere,” Project 2049 Institute, June 28, 2021, 3.
260. U.S. Department of Commerce, A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals, 2019, 8; U.S.-China Economic and Security Review
Commission, Chapter 1, Section 3, “China’s Strategic Aims in Africa,” in 2020 Annual
Report to Congress, November 2020, 136–199.
261. Ryan Berg, oral testimony for U.S.-China Economic and Security Review Commission, Hearing on China in Latin America and the Caribbean, May 20, 2021, 90.

CHAPTER 2
U.S.-CHINA ECONOMIC AND
TRADE RELATIONSSECTION 1: YEAR IN REVIEW:ECONOMICS AND TRADEKey Findings• Though China was the first among major economies to recoverfollowing the fallout from the novel coronavirus (COVID-19)
pandemic, topline growth figures mask an unbalanced and potentially unsustainable recovery. China’s short-term reboundrelied on government transfers to boost local spending andsupport firms, exacerbating the country’s substantial debt
load. The government’s approach failed to revive household
consumption.
• China’s economic rebound in 2020 into 2021 does not represent a fundamental departure from a decade-long slowdown
trend. The 14th Five-Year Plan (FYP) acknowledges underlying
structural problems, such as declining investment returns, thatprevent the economy from transitioning to a more sustainablemodel. China’s leaders believe they can address these challenges through more state-led technology development and bystrengthening, rather than loosening, the government’s control
over the economy.
• Escalating defaults by Chinese property developers show thechallenge regulators face in reining in the highly indebted sector. Cash-strapped developer Evergrande’s debt troubles havethe potential to trigger broader financial instability given Evergrande’s significant footprint within China’s economy, including
its connections to Chinese households, contractors and suppliersin the property sector, banks, and local government finance vehicles (LGFVs).
• Chinese policymakers seek a self-sufficient technology sector
that not only is under the Chinese Communist Party’s (CCP)
control but also plays a critical international role. In 2021, theChinese government expanded the breadth of its efforts to foster local technology champions, but it also initiated a range ofenforcement actions against major nonstate Chinese tech firms.
This crackdown is partly motivated by a desire for greater control of nonstate firms’ collection and storage of data, which thegovernment views as a strategic resource and national security
priority.
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• U.S.-China economic integration is strengthening in some areas
but weakening in others. Bilateral trade flows and U.S. portfolio
investment into China are increasing. Bilateral foreign direct
investment flows are down, but there is an increase in venture
capital, private equity, and other investments, and the types ofacquisition targets are changing. Despite ongoing political frictions and concerns about discriminatory treatment, many U.S.
companies remain committed to the Chinese market.
• The Biden Administration is building on the Trump Administration’s assertive approach to addressing China’s unfair economic
practices, threats to U.S. national security, and denial of humanrights by engaging U.S. allies and international institutions in
confronting Beijing. Despite tense rhetoric, China’s government
seeks to prevent commercial tensions with the United Statesfrom escalating in order to maintain economic stability, even as
both countries seek to strengthen supply chain security.
• China’s government is formalizing a legal and regulatory framework to counter foreign trade restrictions and sanctions, aimed
especially at U.S. export controls on Chinese companies and financial sanctions on Chinese individuals. The most sweeping ofthese new measures is the June 2021 Anti-Foreign Sanctions
Law, which prohibits companies operating in China from complying with foreign sanctions the Chinese government determines are “discriminatory.”
Introduction
In 2021, China’s economy continued to confront immediate disruption caused by the COVID-19 pandemic as well as long-term
challenges to economic dynamism and financial stability predating
the outbreak. Consumed with shoring up short-term growth andprojecting an image of strength on the eve of the CCP’s centennial,
China’s leadership resorted to a familiar playbook of government
support for industry. The resulting rebound deepened already acute
financial risks, prompting China’s leadership to taper stimulus by
the end of the first quarter in 2021. Despite the Chinese leadership’s
claim of spearheading global economic resurgence, it faces urgency
to identify new domestic drivers of growth, overcome mounting challenges through innovative breakthroughs, and reduce economic andtechnological dependency on global economic integration, particularly with the United States. China’s policy prescriptions to achievethese goals largely restate previous plans.
The CCP’s external economic relations in 2021 focused on using
China’s economic heft for economic gain and geopolitical leverageand formalizing methods of tit-for-tat retaliation for perceived diplomatic slights or threats to national security. China’s government
laid the legal foundation for stronger reciprocal action against U.S.
export controls and investment restrictions in 2021 while increasing
economic coercion against countries and companies that speak out
against its actions.
This section examines key developments and trends in China’s domestic economy, U.S.-China bilateral economic relations, and China’s
economic coercion. For analysis of the CCP’s worldview and policy
priorities at the centennial of its founding, see Chapter 1, Section 1,

121“The Chinese Communist Party’s Ambitions and Challenges at Its
Centennial.” China’s 14th FYP and Chinese policymakers’ growing
emphasis on achieving technological self-sufficiency are reviewed in
Chapter 2, Section 2, “The Chinese Communist Party’s Economic
and Technological Ambitions: Synthetic Biology, New Mobility, Cloud
Computing, and Digital Currency.” For analysis of the Chinese government’s increasing control over the corporate sector, see Chapter
2, Section 3, “The Chinese Government’s Evolving Control of the
Nonstate Sector.” Risks to U.S. national security interests posed bygreater financial integration with China are discussed in Chapter
2, Section 4, “U.S.-China Financial Connectivity and Risks to U.S.
National Security.”
China’s Domestic Recovery Slows as Economy Confronts
Long-Term Imbalances
China’s sharp economic contraction at the onset of the COVID-19
pandemic and quick recovery thereafter interrupted but has not altered the country’s long-term economic trajectory. For the last decade,
China’s gross domestic product (GDP) growth rate has been slowing
due to decreasing returns on investment and failure to generate
new drivers of growth. Although China’s government prioritized reducing the outsized contribution of manufacturing, infrastructure
investment, and property construction to GDP growth, these sectors
continue to dominate economic activity at the expense of household
consumption and the services sector. Debt-fueled recovery and economic decisions following COVID-19 have exacerbated these fundamental imbalances. China’s growth in the second half of 2020
into 2021 was primarily a result of central government transfers
to support continued spending by localities, even as fiscal revenue
contracted. This strategy propped up production but did not spur acorresponding self-sustaining recovery in consumption and services.
At China’s annual legislative session in March 2021, policymakers
shifted priorities from shoring up short-term recovery. Addressing
mounting risks from China’s significant debt buildup became the
new focus, and growth within China’s primary economic engines faltered. The central government has resumed efforts to “deleverage,”or reduce overall debt levels, and “de-risk,” or reduce informal channels to less creditworthy borrowers, targeting the property sector
and local governments.
China’s Economic Recovery Falters amid Growing Imbalances
After an early recovery, China’s economic growth moderated in the first half of 2021. According to official data * released by
China’s National Bureau of Statistics, China’s economy grew by 12.7
percent year-on-year in the first half of 2021, or 18.3 percent in thefirst quarter and 7.9 percent in the second quarter.1 Year-on-year
GDP growth, which measures economic output relative to the same
period in the preceding year, significantly overstates the actual per* Foreign economists, investors, and analysts remain skeptical about the reliability of China’s
official reported economic data. As a key metric in official performance evaluations, as well as
government legitimacy, economic data are highly politicized at all levels of government. For moreon the reliability of China’s GDP, see Iacob Koch-Weser, “The Reliability of China’s Economic
Data: An Analysis of National Output,” U.S.-China Economic and Security Review Commission,
January 28, 2013. For more on the reliability of China’s trade data, see U.S. Congressional Research Service, “What’s the Difference?—Comparing U.S. and Chinese Trade Data,” May 20, 2020.

122
formance of China’s economy. Unlike in most major economies, China’s government imposed strict quarantine measures following theonset of COVID-19, leading to an acute contraction during the firstquarter of 2020 but a quick recovery in the second quarter as lockdown measures were relaxed. By the fourth quarter of 2020, China
returned to pre-pandemic growth levels. The momentum of China’s
recovery largely abated by the first quarter of 2021, as demonstrated by low quarter-on-quarter GDP growth.* The year 2021 saw the
first contraction in factory activity since February 2020, with neworders, output, and exports all down amid production bottlenecks,
higher material costs, and electricity rationing.2
China’s traditional growth drivers slowed in the first halfof 2021 as the government curtailed stimulus. China’s economic recovery was driven chiefly by infrastructure construction, property investment, and export-oriented manufacturing. The former twosources of growth have slowed as the government reduced access toeasy credit from the beginning of 2021. This trend is likely to continue, as contractions in credit growth within China’s economy tend
to precipitate decreases in economic activity two to three quarters
later.3 Though China’s manufacturing output held strong throughthe first half of 2021, the outlook for the sector is similarly precarious. Its robust performance during 2020 owed in large part toChina’s early reopening compared to other economies, but in 2021
China faces higher input costs and increased competition from othermajor exporters.4• Infrastructure: Owing to lower fiscal expenditure and local government debt issuance, China’s overall infrastructure investment decreased for the first time since the outset of the pandemic in May 2021, falling 3.6 percent year-on-year.5 By Julyit had fallen over 10 percent year-on-year.6 In particular, country-wide fiscal spending on transportation projects such as highways and railroads declined 4.9 percent year-on-year by August
2021, reaching $109.5 billion (renminbi [RMB] 704.3 billion).† 7
To contain local government debt growth, China’s central government reduced the amount of “special purpose bonds” local
governments could issue to fund infrastructure projects, among
other long-term expenditures. China’s central government set
the special purpose bond quota at $567 billion (RMB 3.65 trillion) in 2021, down from $583 billion (RMB 3.75 trillion) in
2020, and by July local governments had only issued approximately 37 percent of their special purpose bond quota for theyear.8 By contrast, local governments had issued almost 65 percent of their special purpose bonds by the end of the first half of2020.9 The central government is also urging local governments
to reconsider carrying out potentially loss-making infrastruc* Seasonally adjusted quarter-on-quarter growth shows China’s economy grew only 0.4 percent
in Q1 2021 compared to 3.2 percent in Q4 2020, marking the lowest growth rate on record withthe exception of the pandemic shock in Q1 2020. China’s National Bureau of Statistics, National
Economy in the First Half Year Witnessed the Steady and Sound Growth Momentum Consolidated, July 15, 2021; Logan Wright and Allen Feng, “March/Q1 2021 Macro Data Recap,” RhodiumGroup, April 16, 2021, 2; Evelyn Chang, “China Says Its Economy Grew 18.3% in the First Quarter, Slightly Missing Expectations,” CBC, April 15, 2021.
† Unless noted otherwise, this section uses the following exchange rate throughout: $1 = RMB
6.43.

123
ture projects, particularly in the highly indebted rail sector.10
In the spring of 2021, two high-speed rail projects in Shaanxi
and Shandong provinces worth $20 billion (RMB 130 billion)
were halted owing to concerns about commercial viability andexcessive leverage.11• Property: A sharp slowdown in China’s property sector * weighed
on China’s economy in the first half of 2021, contributing to theflagging recovery. Due to stricter regulatory requirements ondevelopers’ financial conditions detailed below, growth of outstanding bank loans to the property sector slowed to 9.5 percent
year-on-year by the end of June 2021, compared to 17.1 percent
in June 2019.12 Investment in new real estate declined sharply
in third-tier cities as a result of both new regulations and population exodus.† 13 Though they are smaller and less wealthy,
China’s third-tier cities account for roughly the same volume ofproperty sales by floorspace as both first-and second-tier cities
combined.14 Slowing construction in these cities will therefore
weigh more heavily on the property sector, further weakening
overall economic growth.15 The impact of the new regulations
took longer to become evident in national home sales data due
to speculative investment in China’s major cities. The effect was
clear by August 2021, however, as the value of home sales declined 18.7 percent year-on-year.16• Export-oriented manufacturing: Industrial value added, an indicator for the amount China’s manufacturing and extractive
industries contribute to aggregate economic output, slowed consistently, declining from 14.1 percent year-on-year in March to
5.3 percent year-on-year by August 2021.17 The slowdown was
initially led by lower export demand and decreasing heavy vehicle production, a sign of flagging anticipated domestic construction.18 A global shortage in semiconductors used in automobiles
also contributed to reduced vehicle production in China. According to the China Association of Automobile Manufacturers,
passenger vehicle production declined 18.7 percent year-on-year
in August, “mostly affected by an insufficient supply of chips,”
though auto sales remained higher in 2021 than in the same
period the preceding year.19 Closures at Chinese ports in response to localized COVID-19 outbreaks and an ongoing global
shipping container shortage contributed to global shipping delays and slowing exports.20* Loans to the property sector include both individual mortgages and loans to developers ofcommercial real estate, residential real estate, and government-sponsored low-income housing.
People’s Bank of China Monetary Policy Analysis Group, Monetary Policy Implementation Report
for Third Quarter of 2021 (中国货币政策执行报告: 2020 年第三季度), November 26, 2020, 46.
Translation.
† Chinese cities are unofficially but widely grouped into four “tiers” based on population, affluence, and whether they are governed at a provincial level (e.g., Shanghai, Chongqing, Beijing,
and Tianjin are provincial-level municipalities), as provincial capitals, or at lower echelons ofadministrative hierarchy. For example, Shanghai is a first-tier city; Chengdu, the populous capitalof Sichuan Province and a regional hub in the southwest, is a second-tier city; Wenzhou, a prefecture-level port city and tourist destination on the coast of Zhejiang Province, is a third-tier city;and Xiangcheng, a county-level city in Henan Province famous foremost as the birthplace of thefirst president of the Republic of China, Yuan Shikai, is a fourth-tier city. Dorcas Wong, “China’s
City-Tier Classification: How Does It Work?” China Briefing, February 27, 2019.

124
An Illustration of Supply Chain Challenges:
Chinese Port Closures Impact Global Shipping
Localized COVID-19 outbreaks in major Chinese ports andthe Chinese government’s zero-tolerance approach to containing
them have contributed to protracted shipping delays and a steadyincrease in global shipping prices. For example, after numerous
cases of COVID-19 were identified at Yantian container port inShenzhen in May 2021, Chinese authorities temporarily haltedloading new export containers for six days, and the port operated at partial capacity from May 21 to June 24.21 As operations
resumed, terminal congestion led to delays of over 14 days, up
from a typical average wait time of a half day.22 Chinese ports
handle almost 30 percent of global shipping container throughput, or the greatest volume of containerized goods handled by asingle country globally as of 2019.23 Recurring closures at Chinese ports have consequently exacerbated already rising shipping
prices spurred by container shortages, lagging inventories, andrecovering global consumer demand.24 According to the logistics
company Freightos, as a result of the overall rise in global shipping costs, the costs of shipping goods from Asia to the U.S. east
and west coasts rose by 315 percent and 330 percent year-on-year,
respectively.25 The cost of shipping goods from China’s commodities suppliers in South America to Shanghai, the world’s largest
port, also rose by 443 percent.26
Delays and price increases for shipping routes between China
and foreign consumer markets such as the United States havealso contributed to mounting costs for businesses, and the rising cost of importing intermediate goods may be contributing to
upstream inflation for producers and retailers.27 Furthermore,since most shipping companies operate on futures contracts thatare negotiated annually, current price surges are absorbed into
long-term contracts, which will likely result in long-term priceincreases.28 Global shipping companies, however, have reported
record profits due to price surges. China’s state-owned COSCO
Shipping Holdings, for example, increased its net profit 32-foldfrom approximately $179 million to $5.8 billion in the first halfof 2021.29
Household consumption and services have failed to offset
the decline in traditional growth drivers. Driven by stimulus
policies that favored investment and producers as well as the rebound in U.S. consumption, China’s recovery in the second half of2020 left behind households and the services sector. Both showedtentative recovery in the first half of 2021, but neither are sufficient to power growth in place of investment and exports, and thecontraction in China’s overall GDP growth resulting from tapering
stimulus may undermine their initial recovery.
• Household consumption: After remaining virtually stagnant in
2020, China’s household consumption finally rebounded partway through the first quarter of 2021. Retail sales growth, a
key gauge of consumption, surged 34.2 percent year-on-year in125
March 2021 but decreased thereafter, with growth levels tapering to 17.7 percent in April, 12.1 percent by June, and 2.5 percent by August.30 Economists suggest that consumers remain
cautious regarding China’s recovery, and households’ propensity
to save rather than spend remains high due in part to slow
wage growth.31 Urban disposable income growth, a key driver ofconsumption, has not kept pace with China’s economic recovery,
growing 10 percent in the first half of 2021, or 2 percentage
points lower than GDP growth rate.32• Services sector: At 53 percent, the contribution of the services
sector * to GDP growth in the first half of 2021 was far below
its contribution before the pandemic: in the first half of 2019,it accounted for 60.3 percent of GDP growth.† 33 Services area key driver of urban employment in China, with demand forlabor-intensive services jobs among migrant workers increasing
as factory job availability decreased in the past.34 This trend islikely to repeat as global economies recover from the pandemic
and demand for Chinese exports slows. Slackening demand for
Chinese exports will limit manufacturing employment opportunities, while dampened household consumption will limit continued growth of the services sector.35
The consequences of uneven recovery are apparent in diverging inflation indicators for China’s producers versus
consumers. The producer price index, a benchmark for the rate at
which production input costs are increasing, grew sharply in 2021,
increasing 9.5 percent year-on-year by August.36 Surging producer
inflation primarily reflects increasing commodity prices, driven byextensive manufacturing and construction activity during the preceding year. Meanwhile, China’s consumer price index rose by only
0.8 percent year-on-year by August, after being in deflationary territory for the first two months of the year.38 Continued divergence of
producer prices and domestic consumer demand threatens China’s
recovery, as producers will either need to pass increased input costs
to domestic or international consumers or accept lower profit margins.39* China’s National Bureau of Statistics defines the services sector as comprising wholesale
and retail; transportation, storage and postal services; accommodation and catering; telecommunications, internet, and software; financial services; real estate, including leasing and businessservices, property management, real estate intermediary services, and leasing operations; scientific and technological research; water and environmental conservation and public facilities management; residential and repair services; education; healthcare and social work; culture, sports,
and entertainment; public administration, social security and civil society organizations; andinternational organizations. China National Bureau of Statistics Department of Management,
Regulation on the Division of the Three Sectors (三次产业划分规定), January 14, 2013. Translation;
China National Statistics Bureau, 4. Statistical System and Classification Standards, 四、统计制度及分类标准（ 17 ）, June 19, 2020. Translation.
† By comparison, services contributed 77.3 percent for the United States in 2019. High-income,manufacturing-dependent economies Japan, South Korea, and Germany all have services ratios
slightly below 70 percent. World Bank, “Services, Value Added (% of GDP)”; U.S. Central Intelligence Agency, “GDP—Composition, by Sector of Origin,” World Factbook.

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China’s Government Increases Economic Data
Censorship
To control the official narrative of its economic performance,
China’s government has increased censorship of economic reporting, including by journalists and nonstate information providers, such as economic consultancies and data services. Economic
censorship increases financial and commercial risk for countries,
entities, and individuals exposed to China who are unable to obtain accurate information on the performance of its economy. In
particular, China’s government has tried to contain unofficial estimates of inflation, seemingly to influence market dynamics, andunemployment, which is highly politically sensitive:• Inflation: After monthly producer inflation reached its highest
reported level since 2008 in May 2021, China’s main economicplanning agency and market regulator introduced new compliance requirements for commodity price index reporting.40
Analysts suggest the compliance requirements are aimed atbolstering the government’s ability to censor information that
could contribute to further price increases.41 Prior to modifying the requirements, China’s government reportedly censored industry research that reported price escalation, andit suspended a daily indicator on coal prices after the index
reported a sharp increase.42• Unemployment: At the height of China’s lockdown and travel restrictions in February 2020, the official unemployment
rate stood at 6.2 percent, versus roughly 4 percent reported
by China’s government for decades.43 In late April 2020, thebrokerage firm Zhongtai Securities estimated the number ofworkers who lost their jobs due to the pandemic may havealready exceeded 70 million, indicating an urban unemployment rate of at least 20.5 percent.* 44 The figure was quickly retracted after gaining attention online, and on May 1
Caixin business magazine reported that Zhongtai Securities
removed their research chief from his post following the report’s publication and censoring.45
Increased censorship of economic data and reporting compounds
longstanding practices by propaganda agencies and China’s national statistics bureau to paint a favorable picture of the economy in order to control market and societal responses to economic news. For media outlets, China’s government routinely issues
guidance ordering preemptive censorship of topics deemed politically sensitive, which can include reporting on adverse economic
conditions. For instance, following the U.S. imposition of tariffs on
Chinese goods in July 2018, the New York Times reported China’s
government forbade reporting on the impact of the tariffs in September 2018.46 The same government directive forbade coverageof local government debt risks, declining consumer confidence, or* At the end of 2019, China’s National Bureau of Statistics reported that urban employment
stood at 442.5 million, with an urban unemployment rate of 3.6 percent. China National Statistics Bureau, Zhang Yi: The Employment Situation Is Generally Stable (张毅: 就业形势总体稳定就业预期目标较好完成), January 19, 2020. Translation.

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China’s Government Increases Economic Data
Censorship—Continued
economic data suggesting the economy was slowing, among othertopics.47
As U.S. investors and financial services firms become more involved in China’s economy, they face the increasing risk of producing analysis or providing information the Chinese government
censors. For instance, according to testimony before the Commission by Rebecca Fair, CEO of data analytics firm Thresher, in late
July 2021 the Chinese government removed domestic discussionof U.S. investment managers Merrill Lynch and JP Morgan after
they reportedly issued warnings to their investors about the riskof investment in China due to the government’s unpredictability.* 48 In this case, censors quashed the narrative among domestic
netizens that Chinese government actions had introduced new orheightened risks to the Chinese market.49
Deleveraging and De-Risking Target Local Government andProperty Developers’ Debt
In shoring up short-term growth, China’s government increased the fiscal deficit and paused campaigns aimed at reducing overall debt levels and riskier forms of credit during2020. Despite being small by international standards, credit growthand fiscal support as part of China’s 2020 stimulus contributed tothe country’s already staggering debt load. At the end of 2020, China’s debt-to-GDP ratio reached 285 percent, compared to 258 percent in 2019, according to the World Bank.† 50 The ratio declined to
280 percent by the end of the first quarter of 2021, but only because
China’s GDP increased rather than because the absolute value ofChina’s debt decreased.51 China’s central government increased thefiscal deficit to a record 3.6 percent of GDP in 2020, and later reduced it to 3.2 percent in 2021 amid stronger fiscal revenues.‡ 52
A substantial portion of the debt growth was also fueledby laxer borrowing standards. In March 2020, the People’s Bankof China (PBOC) and several other agencies instructed creditors toextend loan repayment intervals and not to recognize loans with
* In order to shape domestic narratives, the Chinese government leverages both artificial intelligence and humans to moderate and generate content about the Chinese economy, domestic
and foreign markets, and domestic and foreign companies. Chinese censors shape narratives primarily by deleting, generating, and amplifying content on traditional and social media. Rebecca
Fair, written testimony for U.S.-China Economic and Security Review Commission, Hearing on
U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 1.
† The World Bank’s measure of debt includes the sum of domestic and external debt, including
household, non-financial corporate, and public sector debt. Corporate debt includes that of nonstate firms and SOEs, as well as local government financing vehicles, special platforms createdby local governments to issue debt on their behalf. World Bank Group, “Beyond the Recovery:
Charting a Green and Inclusive Growth Path,” China Economic Update (June 2021), 11.
‡ Increasing the annual budget deficit above 3 percent of GDP represents an important threshold for Chinese policymakers. Since China introduced economic reforms in 1978, the fiscal deficit-to-GDP ratio has mostly been below 3 percent and right at 3 percent during an economic
slowdown in 2016 and 2017. By comparison, the U.S. fiscal deficit for 2021 is projected to be
13.4 percent of GDP. Liao Qiaoyi, “China Could Lift Deficit-to-GDP to Highest on Record amid
COVID-19,” Global Times, April 19, 2020; Yawen Chen and Ryan Woo, “China Says Higher 2019
Budget Deficit Will Spur Growth, Won’t Open Floodgates,” Reuters, March 6, 2019; U.S. Congressional Budget Office, An Update to the Budget and Economic Outlook: 2021 to 2031, July 2021.

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missed payments as delinquent or downgrade the credit rating of borrowers.53 Additionally, in July 2020 China’s chief banking regulator
extended a year-end deadline on 2018 regulations meant to reduce
shadow banking, or off-balance-sheet lending, to avoid regulatory capital requirements.54 Banks and asset managers were granted until
the end of 2021 to comply with the new requirements.55 Even prior
to the pandemic, China’s government had already been easing off itsdeleveraging and de-risking campaigns following a sharp escalationin borrowing costs that threatened to dampen overall growth, particularly for China’s small- and medium-sized enterprises (SMEs).56
Local government expenditure to keep local businesses
operating was a key pillar of China’s post-pandemic recovery.57 To incentivize firms to retain employees, in February 2020
China’s central government cut and, in some cases, exempted firms’
contributions to social programs, including pension, unemployment,
and workers’ compensation, which are administered by local governments and amounted to $240 billion (RMB 1.54 trillion) fromFebruary through the end of 2020.58 In March 2020, the central government refunded small firms the payments they made toward unemployment insurance in 2019, provided those firms did not reduce
employment.59 Responding to central government guidance, many
local governments introduced other incentives to help businesses
weather the economic contraction.60 These included providing subsidies for purchasing teleworking equipment and services, allowing
corporate income tax deductions for other expenditures related to
COVID-19 prevention and control, and cutting a number of other taxes and administrative fees.61 Other fiscal incentives notablyaligned with China’s policy priorities. For instance, China’s government subsidized research and development costs for smaller firms
and granted substantial tax breaks for research and development
expenditure related to COVID-19 prevention and control.62
Because local governments’ fiscal revenues contracted substantially due to the economic slowdown and tax breaks forbusinesses, they borrowed heavily through both formal andinformal channels to meet their expenditure obligations. According to China’s Ministry of Finance, by July 2021 outstanding local government debt reached approximately $4.4 trillion (RMB 27.9
trillion), or 27 percent of GDP in 2020, up slightly from $4 trillion(RMB 25.6 trillion) or 25 percent of GDP at the end of 2020.63 The
actual amount of local government debt is likely much larger, however, due to “implicit debt” raised through LGFVs, special platforms
created by local governments to issue debt on their behalf.* 64 A
Chinese government-linked think tank estimated that by the endof 2020, local government implicit debt had reached approximately* Prior to 2015, municipal governments could not issue debt directly, with exception to a few
pilot programs authorized by China’s central government. Because local governments’ revenue
bases were often insufficient to meet their expenditure obligations, they used LGFVs to evadethese restrictions, a practice that has continued since China legalized municipal debt issuance in2015. China’s Ministry of Finance calls funding raised through LGFVs “implicit debt,” and it isexplicitly recognized as corporate debt rather than a government obligation, but investors often
treat LGFV bonds as backed by the government, creating moral hazard. Frank Tang, “China
Debt: State Council Says Local Governments Must ‘Tighten Their Belts’ and Cut Debt to Reduce
Financial Risks,” South China Morning Post, March 16, 2021; Zhiguo He, written testimony for
the U.S.-China Economic and Security Review Commission, Hearing on China’s Quest for Capital:
Motivations, Methods, and Implications, January 23, 2020, 6, 10.

129$2.3 trillion (RMB 14.8 trillion).65 This estimate would bring total
local government debt up to approximately $6.3 trillion (RMB 41
trillion) in 2020, or 40 percent of GDP, 15 percentage points higher
than the official figure.
China’s central government renewed efforts to rein in official and implicit local government debt, which ballooned in2020. In addition to reducing the annual quota for special purpose
bonds, or municipal debt local governments may issue to fund items
such as infrastructure projects, China’s government moved more
slowly to issue debt within the limits it set in 2021. In the first fourmonths of the year, local governments only sold or planned salesof special purpose bonds totaling $34.6 billion (RMB 222.7 billion),compared to $113.5 billion (RMB 729.6 billion) in the same period
in 2019 and $178.8 billion (RMB 1.15 trillion) in 2020.67 In April
2021, China’s State Council also issued a circular on budget management, attempting to curb implicit local government debt growthby holding local cadres personally accountable for “problematic” debt
raised during their terms, converting LGFVs into state-owned enterprises (SOEs) and stripping their municipal financing functions,and instructing LGFVs to restructure or declare bankruptcy if theycannot avoid default.68 Chinese analysts questioned the timetable
to convert LGFVs into regular companies, as well as the likelihood
China’s government would tolerate increasing LGFV defaults. One
analyst noted that defaults from a single city-level LGFV bond arelikely to cause refinancing problems for every LGFV in the entire
province regardless of their creditworthiness, a reflection of the potential financial turbulence China’s government faces in exercising
greater market discipline.69
Chinese policymakers are increasingly relying on tighterbanking oversight to remedy China’s highly leveraged realestate sector, which is also a target of Beijing’s de-risking efforts. Announced in late 2020, the Chinese government’s “three redlines” policy cuts off new bank loans to real estate developers that
do not meet certain prudential requirements. These requirements
include the following: (1) setting a ceiling for developers’ debt-toasset ratios at 70 percent, (2) setting net debt-to-equity ratios at
100 percent, and (3) capping short-term borrowing on par with cash
reserves.70 Economic research firm Rhodium Group analysts Logan
Wright and Allen Feng describe the policy as likely “the most important tightening policy targeting the property sector introduced inrecent years.” 71 They note that blanket requirements on developers’
capitalization impose financial discipline regardless of the sourceof funding, where previous attempts to rein in property sector debt
had focused narrowly on formal channels such as bank loans.72 The
effect of the three red lines policy has been apparent as developers’ property pipelines have begun to shrink. Between January andAugust 2021, the square footage of land area purchased for realestate development decreased by 10.2 percent relative to the same
period in 2020, while land prices also decreased by 6.2 percent amid
weakening new construction.73 The PBOC has also instructed banks
to strengthen due diligence screenings to ensure operating loans
made to businesses are not being used for real estate speculation.
At the same time, local governments are imposing tighter property

130purchasing restrictions, including requiring purchasers to hold realestate assets longer before reselling them.74 For example, new regulations in Hangzhou require owners to hold newly built homes soldthrough a lottery * for five years before reselling.75
Three Red Lines Policy Increases Potential for Property
Developer Defaults
China’s three red lines policy has threatened the survival of
multiple developers in China’s highly leveraged property sector.
For example, in September 2021 indebted property developer Evergrande announced it would delay payments on its investment
products, which it used to raise capital to address funding gaps
and pay back other creditors.76 By September 30, 2021, Evergrande missed $131 million in payments to its offshore bondholders, casting doubt that it could make another $162.4 million in
offshore bond payments due in October.† 77 By October 4, tradingin Evergrande’s shares had been suspended on the Hong Kong
Stock Exchange per Evergrande’s request.‡
According to its unaudited interim financial reports, Evergrande’s total liabilities reached $306 billion (RMB 1.97 trillion)
as of the end of June, of which $37.3 billion (RMB 240 billion) was
debt due within one year.78 Debt risks from Evergrande also extend beyond China’s domestic economy, as the developer accounts
for nearly 5 percent of offshore, dollar-denominated bonds from
Chinese issuers.79
Stricter rules on property developers’ capital adequacy have
hampered Evergrande and other developers’ abilities to raise cash
through new loans. Property development in China is a highly
leveraged business, with developers funding land purchases andhousing construction through loans, bonds, and deposits from homebuyers rather than revenue. Because China’s three red lines policy
restricts property developers’ ability to take on new debt, Evergrande and other developers have struggled to pay suppliers andcontractors, meet existing debt payments, and finance continued
expansion to raise more capital.80 The impact of the new regulations has been readily apparent in missed bond payments. Property developers accounted for bond defaults totaling roughly $8
billion (RMB 51.2 billion) from the beginning of 2021 to August,with more expected.81 For example, in October property developer
Fantasia Holdings Group Co. Ltd. failed to repay principal amounting to $206 million on its dollar-denominated offshore bonds.82* Because the number of potential buyers far exceeds the number of available housing units
in major Chinese cities, multiple cities have implemented score-based lottery systems in which
potential buyers are scored based on their ability to meet criteria including their current housing
status, historical payments into local social security, and prior home purchases. Potential homebuyers with the highest scores are then entered into a randomized lottery in which they may be
selected to purchase housing. Shanghai Metals Market, “Shanghai Xinfang Lottery Launches a
Points System to Give Priority to ‘Families without Houses,’ ” February 6, 2021.
† Evergrande’s creditors can trigger a default once its bond payments are 30 days past due.
Narayanan Somasundaram, “China Evergrande Misses Bond Payment Deadline,” Nikkei Asia,
September 24, 2021.
‡ Chinese state media reported that Hopson Development Holdings Limited (Hopson) planned
to purchase a 51 percent stake in Evergrande’s property services unit, Evergrande Property Services, prompting both Evergrande and Hopson to request a suspension in trading of their shares.
Hopson has not yet confirmed the acquisition. Tom Westbrook and Donny Kwok, “Evergrande
Eyeing $5 Bln Property Unit Sale; Rival Fantasia Misses Payment,” Reuters, October 4, 2021.

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While deleveraging, China’s government is attempting toallocate more credit and fiscal support to marginalized nonstate firms. China’s SMEs, which are far more likely to be nonstate firms, suffered disproportionately from the economic fallout
following COVID-19 as initial government stimulus policies favoredstate-dominated sectors. In spring 2021, China’s government took aseries of measures aimed at keeping SMEs afloat. Most constitute afamiliar playbook: local governments have slashed fees and taxes forsmaller businesses and in some cases offered tax breaks to property
owners who cut SMEs’ rents, while the PBOC has encouraged banks
to increase lending to SMEs, keep borrowing costs low for SMEs,
and extend loan forbearance granted in 2020 into 2021.83 These
policies expand upon many previous tax breaks and monetary benefits the Chinese government offered SMEs at the end of 2018 into
2019.84 A separate policy from several agencies—including China’s
Ministry of Industry and Information Technology, the primary ministry responsible for technology development—pledges state support
for SMEs in targeted industries that can help China meet its technological self-sufficiency goals under the 14th FYP.85 The continued
necessity of special support for SMEs in spite of China’s recovery
highlights the impediments to overcoming deeper structural changes that could support a more dynamic nonstate sector. Past efforts toachieve a balancing act in credit expansion—reining in debt growthwithin leveraged sectors while fostering it in others—have failed, as
Chinese regulators have been unable to block avenues for new loans
to be redirected toward speculation.86
CCP’s “Common Prosperity” Slogan Elevates Campaign
against Inequality
In an August 2021 speech highlighting “common prosperity,”
General Secretary of the CCP Xi Jinping signaled the Chinese
government’s increasing focus on addressing China’s income inequality. At a meeting of the Central Commission for Financial
and Economic Affairs, one of China’s top economic deliberation
bodies, General Secretary Xi said the CCP should focus on common prosperity while creating an “olive-shaped [income] distribution, where the middle is large and the two ends are small.” 87
General Secretary Xi said the CCP should “strengthen the regulation and adjustments of high income” and “fairly regulate excessive income.” 88 According to Chinese state media outlet Xinhua,
the meeting also indicated the need to expand the middle classwhile increasing earnings for low-income individuals.89
Concrete policy implications for common prosperity remain unclear. The August meeting emphasized the need for a “tertiary
distribution mechanism” consisting of “primary distribution” (allocation of wealth according to labor, capital, and other factors),“redistribution” (through taxation, social security, and transfer
payments), and “tertiary distribution” (charitable donations).90
The government has not yet announced major policy changes
in pursuit of common prosperity and Chinese policymakers andstate media have sought to reassure the business community that
common prosperity would not result in radical income redistribu-

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CCP’s “Common Prosperity” Slogan Elevates Campaign
against Inequality—Continued
tion. Despite this, Chinese regulators have already taken significant enforcement actions against high-income individuals, andnonstate companies have announced large charitable donationsin the name of common prosperity.
• On August 26, China’s State Tax Administration announced
it would crack down on tax evasion and increase supervisionof high-income individuals.91 The next day, the State Tax Administration announced over $2 billion (RMB 13 billion) in
tax fines on several corporations as well as a $46 million(RMB 300 million) fine on actress Zheng Shuang.92 An article in the state-backed tabloid Global Times commenting
on Zheng’s tax case noted, “Such supervision will be further
tightened with harsher punishments as China marches toward common prosperity.” 93• According to Bloomberg, by the end of August, seven of China’s wealthiest billionaires had already announced $5 billion
in charitable donations in 2021.94 Tech companies, which
remain subject to a government crackdown, have been particularly vocal in their donations. Since the August meeting,Tencent, Pinduoduo, and Alibaba have announced charitable donations that together total $24.8 billion (RMB 160
billion).95 Food delivery giant Meituan also pledged to pay
closer attention to the welfare and needs of its delivery drivers, with the company’s founder Wang Xing telling investors
common prosperity is “built into the genes” of the company.96
China’s 14th FYP Acknowledges Long-Term Challenges but
Does Not Offer New Solutions
China’s leadership is decreasing emphasis on quantitative
targets, looking to correct imbalances. The 14th FYP is a blueprint intended to guide China’s development for the 2021–2025 period, setting the stage for goals as far out as 2035 and 2049. Within
the 14th FYP, Chinese policymakers pledge to focus on transitioning
to “higher quality growth” in recognition of the consequences of China’s “growth at all costs” development model, such as acute environmental degradation and rising income inequality.97 In the annual
legislative session in March, China’s leaders set a more modest target of 6 percent GDP growth for 2021, and the 14th FYP itself deviates from previous plans by setting no topline GDP growth goals
and reducing the number of other economic targets.98 (For more on
the 14th FYP’s goals, see Chapter 2, Section 2, “The Chinese Communist Party’s Economic and Technological Ambitions: Synthetic
Biology, New Mobility, Cloud Computing, and Digital Currency.”)
Chinese policymakers have previously issued blueprints prioritizing
addressing economic imbalances and improving investment efficiency. They abandoned these goals, however, when faced with economic
turbulence or pushback from blocs of politically favored SOEs that
benefit from inefficient investment growth.99 Even as China’s lead-

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ership reiterated pledges to move away from its old model, China’s
lopsided post-pandemic recovery has exacerbated imbalances toshore up short-term growth.100
In practice, the 14th FYP revisits and solidifies self-sufficiency and technological breakthroughs as central pillars ofChina’s economic vision under the dual circulation strategy. Chinese leaders believe China should establish a self-sufficienteconomy, both in localizing entire supply chains and driving economic growth through domestic consumption. They have reframed thisapproach as the dual circulation strategy, first proposed by China’s
leadership in May 2020 to address weak global demand and strained
bilateral relations with the United States and later integrated into
the 14th FYP. According to the strategy, China’s economy would growprincipally by increasing domestic demand and reorienting Chinese
producers to cater to the local market rather than producing forexport.101 At the same time, it would reduce the risk of being cut
off from critical foreign technologies by strengthening supply chain
security.102 Neither emphasizing China’s domestic economy nor reducing dependence on foreign technology are new ideas, though thegoals bear new urgency for the CCP in what it views as an increasingly hostile and uncertain external environment.103 (For more on
dual circulation, see Chapter 1, Section 1, “China’s Ambitions andChallenges at the Chinese Communist Party’s Centennial.”)China’s leaders see technological breakthroughs as key toovercoming a host of economic challenges, including income
inequality and demographic change.104 The 14th FYP also reaffirms a vision of China’s role in the international economy in which
China establishes dominance by systematically reducing its dependence on international trade and investment to strengthen its own
security while increasing other countries’ dependence on Chinese
trade and investment to gain leverage. As discussed later in thissection, this vision is central to China’s objectives in its economic
relationship with the United States.
China’s Government Strengthens Control over Technology
and Data
In 2021, the Chinese government increased support to critical sectors to advance its technological self-sufficiency goals. At the sametime, it tightened regulatory oversight of data-intensive industries,
in some cases damaging the commercial performance of some of China’s most successful tech giants. The latter trend follows efforts by
the Chinese government to regulate data both as a strategic asset
and a potential national security risk, curb the nonstate financial
sector’s growth at the expense of state banks, and assert greater
political control over nonstate firms in general. The split approach ofsimultaneous support and scrutiny of tech firms reflects the CCP’s
hopes of promulgating a homegrown technology sector coupled withits deep suspicion of tech giants’ accumulation of power and wealth.
Ultimately, the Party seeks to retain control of both the technologies
and the companies themselves and views both state and nonstatetech firms as strategic assets to advance its policy objectives. (For an
in-depth assessment of China’s self-sufficiency drive, see Chapter 2,
Section 2, “The Chinese Communist Party’s Economic and Techno-

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logical Ambitions: Synthetic Biology, New Mobility, Cloud Computing, and Digital Currency.”)
Chinese Regulators Crack Down on Big Tech
In 2021, Chinese regulators took unprecedented action
against many of China’s top technology firms. The Chinese
government pursued these actions under the guise of productive reforms to address genuine problems in the industry, but the actions
provide the government with greater control. Companies such as
Alibaba and Tencent enjoy monopolistic control over large parts ofChina’s economy and collect valuable data on China’s population inexcess of what the Chinese government itself is currently able tocollect.105 Trivium China, a research consultancy, argues that theincreased scrutiny of technology firms comprises “three separate andsimultaneous campaigns” that share similar goals but involve different regulatory bodies and are motivated by distinct concerns: 106• Addressing systemic risks to China’s financial system: Concerned over the potentially destabilizing effects of tech firms’
expansion into the financial sector, China’s regulators, led by
the PBOC, have imposed stricter regulations on fintech firms.
Ant Financial (Ant), an Alibaba affiliate, was the first major fintech company to run afoul of Chinese regulators. In November
2020, the government halted Ant’s initial public offering (IPO)
days before it was set to occur.107 Regulators were in part actingout of concern that the scope of Ant’s microlending business,
which was previously not subject to the same standards as banklending, posed a systemic threat to China’s financial system.108
In April 2021, Ant released a statement outlining a restructuring plan it had developed in coordination with China’s financial
regulators, including conversion to a financial holding company,
subjecting Ant to stricter capital requirements similar to those
imposed on banks.109 Soon after Ant’s announcement, regulators ordered 13 tech firms with financial services operations, including industry leaders Tencent, JD, Baidu, and ByteDance, tostop the “disorderly expansion of capital” 110 and to comply withrequirements similar to those in Ant’s restructuring plan.111
While an announcement issued by the PBOC after the meeting
did not set a deadline for the 13 tech firms to comply with therectification requirements, Chinese business magazine Caixin
reported in May that regulators had ordered Tencent to establish a financial holding company for its finance operations.112• Addressing anticompetitive behavior by tech firms: In 2021, theState Administration for Market Regulation (SAMR), China’s
antitrust enforcer, launched a campaign against Chinese techfirms’ anticompetitive practices. In February, SAMR issued aset of guidelines aimed at addressing different types of anticompetitive behavior among platform firms, including price fixing,
restricting sales, or selling below cost in order to squeeze out
competitors.113 In April, SAMR announced a record fine of $2.8
billion (RMB 18.2 billion) on e-commerce giant Alibaba for its
practice of forcing merchants to pick Alibaba as their exclusive
distribution channel. This practice, known as “pick one of two,”is prohibited under the February SAMR guidelines.114 In Au-

135
gust, SAMR released draft regulations prohibiting additional
types of anticompetitive behavior, including posting fake product reviews and using technology to disrupt consumers’ ability
to use rival platforms.115 In October, following a months-long
investigation, SAMR fined food-delivery firm Meituan for $535
million (RMB 3.4 billion) on the basis of antitrust violations
similar to those of Alibaba.116 SAMR’s heightened and high-profile enforcement actions against Chinese firms mark a change
from China’s past antitrust practice, which has historically focused on preventing foreign firms from amassing substantial
market influence.117• Restricting tech firms’ collection and transfer of data: During2021, Chinese policymakers increased the government’s oversight of the collection and storage of data by foreign and domestic nonstate firms. The July investigation into Chinese
ride-sharing giant Didi Chuxing (Didi) following its IPO on the
New York Stock Exchange, as well as two other Chinese techcompanies that had recently listed on U.S. exchanges, epitomizes this trend. (For more on the investigation into Didi, see
the textbox “Beijing’s Scrutiny of Chinese Companies Listed
Overseas Highlights U.S. Investor Risks” later in this section.)
For the CCP, the global expansion of China’s tech firms offers
advantages but also poses a potential risk to the CCP as companies become subject to foreign regulatory provisions, which
often include higher transparency requirements.118 Chinese
regulators have continued to increase scrutiny of foreign listings. After launching the investigation into Didi, China’s StateCouncil announced it would tighten regulations on a range of
securities activities, including listing abroad.119 These regulations could stop the use of variable interest entities, a regulatory loophole used by many Chinese tech firms to list on U.S.
exchanges.* Separately, in July the Cyberspace Administrationof China published draft rules requiring any Chinese company with user data of more than one million users to completea review with the Cybersecurity Review Office before listing
abroad.120 In August, Reuters reported that Chinese regulators
are contemplating requiring Chinese firms seeking foreign listings to hand over management of their data to third-party Chinese information security firms.121 Such a requirement would
allow the information security firms, likely to be backed by China’s government, to monitor Chinese companies’ data.122 This
could limit the ability of Chinese firms to transfer data overseas
while increasing the Chinese government’s access to and control of data. The Chinese government’s efforts to gain control
over data are leading it to assume greater ownership stakes innonstate firms.† In September, Bloomberg reported the Beijing* China’s government legally prohibits foreign direct investment in certain industries, including
many high-tech sectors, and maintains strict controls on foreign exchange and capital flows. To
circumvent these restrictions, mainland Chinese companies interested in raising funds on U.S.
exchanges create offshore corporate entities for foreign investment using a complex structure
called a variable interest entity (VIE). For a more in-depth explanation of VIEs and associatedrisks, see U.S.-China Economic and Security Review Commission, 2019 Annual Report to Congress, 176–177.
† On April 30, 2021, ByteDance sold a 1 percent equity stake and gave a board seat to Wangtou
Zhongwen (Beijing) Technology, which is owned by the China Internet Investment Fund (con-136
municipal government had proposed an investment that could
potentially give SOEs a seat on Didi’s board and veto powerover important corporate decisions.123
The CCP’s Push for Domestic and International Data Control
In June 2021, the National People’s Congress passed theData Security Law, the first comprehensive piece of data
security legislation in China. The law contains several significant provisions, including restrictions on transferring data outsideof China and a requirement that handlers of data “cooperate” with
Chinese public security forces.124 The Data Security Law applies toall domestic and foreign organizations handling data in China. The
law broadly extends liability to overseas data handling activities
that cause “harm to the national security, the public interest, or the
lawful rights and interests of individuals or organizations” of China,
which are otherwise not specified.125 Many of these provisions in
the Data Security Law build on or reinforce requirements of other
Chinese laws, such as the 2017 National Intelligence Law and the2017 Cybersecurity Law.126 The Chinese government is developing
more specific regulations and standards in sectors of particular concern. In May 2021, Tesla announced that all data from cars sold in
China would be stored locally in a new data center, following therelease of a draft standard for automobile data.127
While some of China’s protections on data appear similar
to those in other countries, they are generally more restrictive. The National People’s Congress has also completed China’s
Personal Information Protection Law, effective November 2021.128
The law contains many protections against the collection of personal
information by nonstate companies, similar to those of the General
Data Protection Regulation (GDPR), the EU’s data protection law.129
Compared with the GDPR, however, China’s Personal Information
Protection Law is wider-ranging and includes potentially more restrictive requirements on cross-border data transfer. Like the GDPR,
the law would allow organizations to transfer personal informationcollected in China overseas for “business reasons.” Where the GDPR
prescribes clear criteria for such transfers, however, the Personal
Information Protection Law does not define the term and mandates
that such transfers must pass a security assessment.130 The GDPR’s
requirements for cross-border transfer are generally less obstructive
and do not require a government-operated security assessment foreach instance of cross-border information transfer, instead operatingon the basis of agreements or contracts at a national or company
level.131 China’s Personal Information Protection Law also applies
to all individuals inside China, including foreign nationals, meaningthat organizations outside of China must still meet specific technical requirements to process data of foreign nationals residing in
China.132 While the GDPR similarly applies to data of all EU restrolled by the Cyberspace Administration of China and the Ministry of Finance), China MediaGroup, and Beijing Municipality Cultural Investment Development Group. The deal granted the
CCP greater supervision and control over ByteDance’s domestic social media platforms, Douyin
and Toutiao, but not TikTok, a subsidiary of an offshore ByteDance entity. For more backgroundon the sale, see Chapter 2, Section 3, “The Chinese Government’s Evolving Control of the Nonstate Sector.” Juro Osawa and Shai Oster, “Beijing Tightens Grip on ByteDance by Quietly Taking
Stake, China Board Seat,” Information, August 16, 2021.

137
idents, China’s already strict technical requirements carry greater
compliance burdens for organizations outside of China.133
The laws support China’s promotion of cybersovereignty, inwhich cyberspace, data, and networks are regarded as sovereign territory subject to local laws of individual countries.
China’s development of its data governance regime is also part ofa broader pattern of CCP attempts to influence global data governance norms. The Data Security Law says the Chinese government
intends to create a domestic standardization system for data andparticipate in “formulation of international rules and standards.” 134
In September 2020, Chinese Foreign Minister Wang Yi presented a
Global Initiative on Data Security, which Foreign Ministry spokesman Zhao Lijian characterized as “contributing China’s wisdom tointernational rules-making” for data.135 The initiative urges countries not to weaponize the use of data while also encouraging cybersovereignty and local data storage—a policy that has raised concerns among human rights experts as well as U.S. tech firms.136
China Expands Lawfare to Respond to Foreign Sanctions
In late 2020 and 2021, the Chinese government developed a legal
and regulatory framework to counter foreign restrictions on Chinesecompanies and individuals. A central objective in China’s expanding legal arsenal is to impose costs on foreign companies that limit
technology exports to China in compliance with U.S. restrictions.
General Secretary Xi emphasized the need to rely on lawfare in thebuildup to the Party’s centennial, saying, “We must use the law as
a weapon and occupy the moral high ground of the rule of law.” 137
This expanded set of tools focuses on broadly defined “national security and interests” and “national security with Chinese characteristics,” which covers military, political, economic, and “development
security.” 138 The laws and measures adopted to achieve this visionof national security target companies, organizations, nongovernmental organizations, think tanks, and the family members or affiliates
of any such persons inside or outside of China whose actions orstatements run contrary to the CCP’s interests (see Table 1).
Where China’s government had already pursued retaliation against foreign critics, it has now formalized tools andpunishments. For instance, between July and August 2020, the
CCP sanctioned 11 U.S. lawmakers and nongovernmental organization leaders critical of repression in Hong Kong but did not clarify
the scope of these sanctions.* Even as China’s Anti-Foreign Sanctions Law was under development, the CCP moved ahead with visa
sanctions on a range of individuals in the United States and Europe,
many of whom criticized the Chinese government’s treatment of Uyghurs. In January 2021, China sanctioned 28 members of the Trump
Administration just after they left office, including former Secretary of State Mike Pompeo.139 In July 2021, in retaliation for the* Sanctioned individuals included U.S. Senators Tom Cotton (R-AK), Josh Hawley (R-MO), Marco Rubio (R-FL), and Pat Toomey (R-PA); U.S. Representative Chris Smith (R-NJ); Carl Gershman(then National Endowment for Democracy President); Derek Mitchell (National Democratic Institute President); Kenneth Roth (Human Rights Watch Executive Director); Daniel Twining (International Republican Institute President); and Michael Abramowitz (Freedom House President).
Eva Dou and Anna Fifeld, “China Puts Sanctions on U.S. Lawmakers, NGO Chiefs, in Tit-for-Tat
Retaliation,” Washington Post, August 10, 2020.

138
Table 1: Select Chinese Measures Enacted or Introduced in 2020–2021
Title

Purpose

Date

Export Control Law

Regulates dual-use technology and codifies
license regime for sensitive products, services, and other transfers.

Effective
December
2020

Measures for
Blocking Improper
Extraterritorial Application of Foreign
Laws and Measures

Creates authority for China’s government
to block implementation of secondary sanctions and prohibit compliance with someforeign laws and measures.

Effective
January
2021

Measures for
Security Review of
Foreign Investment

Establishes security review process for all
inbound foreign investment.

Effective
January2021

Anti-Foreign Sanctions Law

Creates legal tool for reciprocating against
foreign sanctions and authority to impose
retaliatory sanctions on a wide variety oftargets, along with family members andaffiliates.

Effective
June 2021

Data Security Law

Establishes system of data classificationand obligations for organizations handling
data, including security requirements andassessments for its protection, collection,use, and transfer internally and overseas.

Effective
September2021

Personal Information Protection Law

Establishes rights to personal information
for all individuals in China and obligations
for organizations handling personal information for its protection, collection, use,
and transfer internally and overseas.

Effective
November
2021

Several Provisions
on the Managementof Automobile Data
Security (Draft)

Outlines obligations for organizations on
the collection, protection, sharing, and useof data collected by automobiles.

Introduced
May 2021

Cybersecurity
Review Measures(Draft)Outlines security review procedures for operators of critical information infrastructure
and organizations handling data sensitive
to national security, including IPOs andorganizations handling data of more than
one million users.*

Introduced
July 2020

Opinions on Strictly
Cracking Down
on Illegal Securities-Related Activity
in Accordance withLaw

Calls for stronger supervision and enforcement of cross-border listings, including improvement of laws and regulations related
to data security, transfer, and management
involved in such listings.

Introduced
July 2021

Internet Information Service Algorithmic Recommendation Management
Provisions (Draft)

Establishes new security, privacy, and content
management rules for internet services that
rely on algorithmic recommendations. Providers allow consumers greater control to enable
or disable algorithmic recommendations.

Introduced
August 2021

Blocking and Retaliation

Data GovernanceSource: Compiled by Commission Staff.
* The Cybersecurity Administration of China released a new draft of the Cybersecurity Review
Measures in July 2021 but added several amendments to the draft later that month, including
the one million user threshold.

139
Biden Administration’s joint Hong Kong Business Advisory, Beijing
announced its sixth set of sanctions against U.S. individuals andorganizations this year. The list named those who have long stoodby Hong Kong in defense of human rights and democracy, including
the Chairman of this Commission.*
The Chinese government’s economic and trade-related
rules create broad new authorities and restrictive processes
with little to no redressability. Many provisions relating to tradeand investment, such as those in the Measures for Security Review
of Foreign Investment, are focused on “key technologies and otherimportant sectors,” but the rules do not provide clear definitions ofthese terms. These laws also provide regulators and enforcement
agencies with broad powers to assess foreign entities and transactions, such as potentially intrusive security reviews for foreign investors, or to erect new temporary restriction mechanisms without
specification of standards or processes. Many of these laws also lack
any recourse mechanism for parties that object to or find fault withan agency’s judgment. For example, China’s Export Control Law, released in October 2020 after three years of drafting, introduces a“temporary license” scheme that would give agencies authority toprohibit exports for at least two years, regardless of the end user.140 Chinese authorities could weaponize this mechanism to cut off
countries from critical inputs such as rare earth minerals, for which
China currently dominates production.
Released in January 2021, the Measures for Security Review of Foreign Investment require a broad range of inboundinvestments to China across several sectors to undergo a security review. A joint office under China’s National Development
and Reform Commission and the Ministry of Commerce conducts
the review, but the measures provide neither a rubric or standards
for passing or failing the review, nor any redress for rejected investors.141 Furthermore, the Chinese review will be mandatory rather than voluntary and potentially apply to a broad set of inboundtransactions.142 With its vague definitions and potentially arbitrary
rejection or delay of investments, China’s foreign investment review
could be used to retaliate against companies or coerce countries
with companies seeking to invest in China.143
Chinese lawmakers have added more legal tools to directly
counter U.S. policies with “reciprocal measures,” which aresusceptible to abuse and arbitrary application. The Export Control Law provides agencies with explicit authorization to “take reciprocal measures” against foreign “abuses” of export control rules. The
law also gives Chinese export control authorities the right to investigate entities outside of China that either violate the law’s provisions
or hinder China’s nonproliferation and related international obligations.144 In January 2021, the Ministry of Commerce also issued Mea* Sanctioned individuals included Wilbur Ross (former Secretary of Commerce), Carolyn Bartholomew (U.S.-China Economic and Security Review Commission Chairman for the 2021 Annual
Report Cycle), Jonathan Stivers (former Staff Director of Congressional-Executive Commission
on China), DoYun Kim (National Democratic Institute International Affairs staff), Adam Joseph
King (International Republican Institute senior program manager), and Sophie Richardson (Human Rights Watch China Director). Ben Hooper, “China Announces Sanctions Against Wilbur
Ross, Six Others in U.S.,” UPI, July 24, 2021.

140sures for Blocking Improper Extraterritorial Application of Foreign
Laws and Measures to protect Chinese entities from foreign measuresor laws designed to inhibit China’s economic and trade activities. The
measures allow relevant Chinese authorities to issue a “prohibition
order” to nullify the relevant extraterritorial foreign measures thatwould obstruct Chinese economic, trade, or related activities.145 Chinese lawmakers are also developing a legal framework for countering
foreign data security or personal information protection restrictions.
Both China’s new Data Security Law, passed in June 2021, and Personal Information Protection Law, passed in August 2021, establish
the Chinese government’s authority to enact reciprocal restrictions
against any foreign country that targets China.146
In 2021, the Chinese government introduced its Anti-Foreign
Sanctions Law to target a wider range of threats beyond tradeand investment restrictions. Scholars of China’s legal system believe
the primary purpose of the Anti-Foreign Sanctions Law is to formalize
China’s sanctions process as well as prohibit all companies operating in
China from complying with foreign sanctions.147 The scope of punishable entities under the law is exceptionally broad. It targets “persons
or organizations that directly or indirectly participate in the drafting,decision-making, or implementation of the discriminatory restrictive
measures.” 148 The law also extends potential retaliation to family
members, associates, and affiliated organizations of any such person ororganization identified with China-directed sanctions.* 149 In particular,
the law puts foreign companies operating in China in an even more
precarious position as they navigate bilateral tensions and compliancewith conflicting legal regimes.150 The law also provides for the Chinese
government to retaliate against those with “conduct endangering ournation’s sovereignty, security, or development interests.” 151 Along withpunishing companies that comply with foreign sanctions, the Anti-Foreign Sanctions Law provides that the government may sue violatingcompanies for any related compensation loss.152 For instance, a Chinese supplier placed on the Entity List could sue a foreign purchaser
in Chinese court for canceling a contract in compliance with U.S. law.
U.S.-China Commercial Ties Deepen despite Continued
Friction
Even as Washington and Beijing work to reduce economic interdependence, bilateral trade is returning to pre-tariff levels and U.S.
capital flows to China are on the rise, weaving the two economies
closer together. The Biden Administration is consolidating a complex mix of the Trump Administration’s policy initiatives to defend
against China’s unfair economic policies and threats to U.S. national security. The Biden Administration has signaled that its priorities are to secure U.S. supply chains, boost U.S. competitiveness,and coordinate with U.S. allies and partners. China’s government isseeking to mitigate its vulnerability to foreign economies and legal
systems, particularly U.S. actions, while deepening other countries’
economic dependence on China. The Chinese government’s crack* Under Article 6 of the Anti-Foreign Sanctions Law, punishments for violators include, but are
not limited to, denial or cancelation of visas, deportation, asset seizure or freezing, and prohibition or restriction on transactions. “Countermeasures” may include any of the punishments under
Article 6 of the law but are otherwise not defined and may be broader in practical implementation. China Law Translate, “Law of the PRC on Countering Foreign Sanctions,” June 10, 2021.

141
down on Chinese tech firms listed on U.S. exchanges led to billionsof dollars of losses for U.S. investors and on U.S. capital markets.
Overview of U.S.-China Commercial Ties in 2021
The bilateral trade imbalance is returning to pre-tariff levels. According to Chad Bown, senior fellow at the Peterson Institutefor International Economics, in the first eight months of 2021 Chinesepurchases of U.S. products covered under the Phase One Economic
and Trade Agreement * stood at $89.4 billion, accounting for 69 percent of a year-to-date prorated target of $129.9 billion.† 153 Despite
China’s purchase commitments made under the Phase One agreement, year-to-date the U.S. goods deficit with China has continued
to grow, nearing levels last seen before the U.S. government imposed
tariffs on Chinese imports in 2018 (see Figure 1). The resurgence ofthe deficit in 2021 is attributable to recoveries in both U.S. consumption and Chinese production following sharp contractions throughout
2020 due to the COVID-19 pandemic.154 In the first eight months of2021, the U.S. trade deficit with China reached $219 billion, up 13.4
percent year-on-year.155 U.S. goods exports to China in the first eightmonths jumped 35.2 percent year-on-year to reach $94.1 billion.156
U.S. imports from China also continued to climb in the same period,
reaching $313 billion, a year-on-year increase of 13.4 percent.157 (The
Chinese government’s Phase One commitments and compliance status are summarized in the Addendum.)
Figure 1: U.S. Bilateral Trade with China, January 2017–August 2021
$60

US$ billions

$40
$20
$0
-$20
-$40
-$60

J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A
2017

2018
Exports

2019
Imports

2020

2021

Balance

Source: U.S. Census Bureau, Trade in Goods with China, October 5, 2021.

* The “Phase One” agreement was signed on January 15, 2020, and formed part of an effort
to resolve trade tensions ongoing since March 2018, when the U.S. Trade Representative published its Section 301 investigation into China’s unfair trade practices related to forced technology transfer, intellectual property theft, and innovation. For more on the Phase One agreement,see U.S.-China Economic and Security Review Commission, The U.S.-China “Phase One” Deal: A
Backgrounder, February 4, 2020.
† As part of its Phase One trade deal commitments, China pledged to increase purchases ofparticular U.S. “manufactured goods, agricultural goods, energy products, and services,” whereby
purchase amounts “exceed the corresponding 2017 baseline amount by no less than $200 billion.”
Research by Chad Bown, senior fellow at Peterson Institute for International Economics, tracks
China’s purchases of U.S. goods covered by the agreement and compares them to annual targets
prorated on a monthly basis. For more on the methodology, see Chad Bown, “U.S.-China Phase
One Tracker: China’s Purchases of U.S. Goods,” Peterson Institute for International Economics,
September 27, 2021.

142
U.S. information and communications technology (ICT)
product imports led the U.S. trade deficit in advanced technology products (ATP) * with China in 2021. In the second
quarter of 2021, the U.S. trade deficit in ATP with China narrowed
5 percent year-on-year to $24.6 billion, a record low in the quarterly
deficit.158 ICT products continued to constitute the vast majorityof U.S. ATP imports from China in the second quarter of 2021.159
Excluding ICT products, the United States had a $6 billion surplus
in ATP with China, up 12.6 percent from the previous quarter ($5.3
billion).160
While bilateral foreign direct investment (FDI) flows continue to decline, portfolio investment flows are strengthening. According to data compiled by Rhodium Group, FDI flows between the United States and China fell to an 11-year low of $15.9
billion in 2020.161 Portfolio investment flows, on the other hand, areincreasing and vastly outpacing FDI. U.S. investors held as much as$1.2 trillion in equity and debt securities issued by Chinese entities
at the end of 2020, up 57.5 percent from $765 billion in 2017, while
Chinese holdings of U.S. securities reached $2.1 trillion at the endof 2020.162 (For more on U.S. investor participation and interest in
China’s financial markets, see Chapter 2, Section 4, “U.S.-China Financial Connectivity and Risks to U.S. National Security.”)
Beijing’s Scrutiny of Chinese Companies Listed Overseas
Increases U.S. Investor Risks
Chinese regulators’ investigations into Didi Chuxing in July
2021 and elevated scrutiny of Chinese nonstate tech and education companies listed overseas underscored the distinct politicalrisks posed by U.S.-listed Chinese companies to U.S. investors. A
Cyberspace Administration of China (CAC) probe into Didi’s data
security practices days after its IPO on the New York Stock Exchange saw the company’s share price plummet nearly 20 percent
from $15.53 on July 2 to $12.49 on July 6, prompting shareholder
lawsuits and calls for a U.S. Securities and Exchange Commission(SEC) investigation.163 CAC’s scrutiny of Didi was followed by
the joint issuance of the Opinions on Strictly Cracking Down on
Illegal Securities Activity in Accordance with Law by the General
Office of the CCP Central Committee and State Council.164 The
opinions pledge to strengthen oversight of Chinese companies issuing securities overseas by, among other things, enhancing data
security protection and oversight of cross-border data flows.165
The Chinese government’s focus on data security for overseas-listed firms is underlined in separate draft CAC draft rules requiring
mandatory review for any company collecting personal information of more than one million users prior to listing abroad.166
While the opinions do not directly address Chinese companies’
use of the variable interest entity (VIE) † structure to list over* Advanced technology products are a broad range of high-technology goods, including advanced
elements of the computer and electronic parts industry, biotechnology, aerospace, and nuclear
technology. U.S. Census Bureau, Advanced Technology Product Code Descriptions, September 10,
2021.
† U.S.-listed Chinese firms most attractive to investors operate in high-growth sectors such astechnology, e-commerce, and telecommunications. Because these sectors are deemed sensitive by

143
Beijing’s Scrutiny of Chinese Companies Listed Overseas
Increases U.S. Investor Risks—Continued
seas, such firms may encounter more scrutiny moving forward.
For example, legal experts note there may be rules requiring
VIE-structured firms to obtain approval from Chinese regulators before additional stock issuance.167 As Chinese regulatory
constraints on U.S.-listed Chinese companies rise, the value ofU.S. investor holdings of such companies may decline.168 On July
24, China’s State Council unveiled rules that would, among other things, ban China’s private education companies from making
profits and prohibit them from raising new foreign capital by using a VIE structure.169 As a result of the Chinese government’s
regulatory actions, U.S.-listed Chinese companies lost around$400 billion in value in July 2021.170 On September 20, the SEC
issued an investor bulletin warning U.S. investors about the risks
of investing in Chinese VIEs.171 The SEC had previously directed
SEC staff to ensure Chinese VIEs provide more robust disclosurein their filings.*
While there were 248 Chinese companies listed on U.S. exchanges with a total market capitalization of $2.1 trillion as of
May 5, 2021, this number does not reflect the value of U.S. investor holdings of U.S.-listed Chinese companies.172 This is because
U.S. investors in U.S.-listed Chinese companies are only minority
investors.
China remains a priority market for U.S. companies despite rising concerns about China’s business environment andheightening political tensions. According to the 2021 American
Chamber of Commerce in China (AmCham China) Business Climate
Survey, nearly 85 percent of respondents are not considering relocating manufacturing or sourcing from China.† 173 Despite this deep commitment to the Chinese market, respondents indicate rising concern
about China’s business environment. For example, concerns aboutdata security and increasing Chinese protectionism ranked as AmCham China member companies’ fifth- and seventh-highest concerns,
respectively, after being unranked in the previous year.174 For the first
the Chinese government, direct foreign ownership in them is restricted. Chinese firms thus use
VIE structures to circumvent these restrictions and raise capital in overseas financial markets.
These structures create effective foreign ownership of the company through an abstract mix oflegal contracts and equity ownership while still loosely complying with Chinese foreign ownership laws. For more on the risks associated with VIE structures, see U.S.-China Economic andSecurity Review Commission, Chapter 3, Section 1, “U.S.-China Commercial Relations,” in 2019
Annual Report to Congress, November 2019, 175–179; Kevin Rosier, “The Risks of China’s Internet Companies on U.S. Stock Exchanges,” U.S.-China Economic and Security Review Commission,
September 12, 2014.
* SEC staff have been directed to ensure a Chinese VIE discloses a number of factors, including
whether it faces “uncertainty about future actions by the government of China that could significantly affect the operating company’s financial performance and the enforceability of the contractual arrangements,” whether the VIE received or was denied permission from China’s authorities
to list in the United States, and detailed information on the financial relationship between the
China-based company and its VIE. Gary Gensler, “Statement on Investor Protection Related toRecent Developments in China,” U.S. Securities and Exchange Commission, July 30, 2021.
† The 2021 AmCham China Business Climate Survey was completed by 345 U.S. companies
operating in China from October 21 to November 23, 2020. Grady McGregor, “The Outlook of
U.S. Firms in China Changed Dramatically after Biden’s Election,” Fortune, March 9, 2021; John
Liu and Yujing Liu, “U.S. Firms in China See Growth, Improved Ties after Pandemic,” Bloomberg,
March 8, 2021.

144
time in the survey’s history, member companies identified rising tensions in U.S.-China relations as the top challenge to doing businessin China, up from the third spot in 2020.* 175 According to AmCham
China Chairman Greg Gilligan, friction in the bilateral relationshipis resulting in discriminatory treatment for U.S. companies, with local
Chinese government officials “offer[ing] preference to domestic industry,” though public reports of such unfair treatment are unavailable.176
AmCham China member companies also worry about the prospect ofconsumer boycotts against them should they speak out about China’s
policy choices.177 In March 2021, Swedish apparel retailer H&M andother foreign brands were met with an online backlash from Chinese
consumers following reports the companies had voiced concern about
forced labor in China’s Xinjiang Province.178
Biden Administration Maintains Pressure on China
In a speech outlining the Biden Administration’s foreign policy,
U.S. Secretary of State Antony Blinken noted the U.S. relationshipwith China “will be competitive when it should be, collaborative
when it can be, and adversarial when it must be.” 179 The Biden Administration has identified the Chinese government’s disregard for
democratic values in Hong Kong, abuse of human rights in Xinjiang,
intimidation of Taiwan, cyberattacks on the United States, and economic coercion toward U.S. allies as key priorities to manage in thebilateral relationship.180 While the Biden Administration has highlighted the same challenges in the U.S.-China relationship as the
Trump Administration did, its frequent engagement with U.S. allies
and international institutions points to a focus on multilateralism
as a means of confronting Beijing.
The Biden Administration is continuing heightened use ofexport controls and financial sanctions to respond to Chinese threats to U.S. interests. A defining feature of the Trump
Administration’s approach to addressing China’s unfair trade andhuman rights practices was the use of unilateral restrictions to prevent the flow of U.S. technology to Chinese military end users, entities engaged in human rights abuses, and companies supporting
China’s extraterritorial land reclamation efforts. Additionally, theTrump Administration introduced financial sanctions on key officials responsible for repressing civil liberties in Hong Kong. The
Biden Administration appears to be continuing both trends. On July
9, 2021, the Bureau of Industry and Security at the U.S. Departmentof Commerce announced the addition of 14 Chinese companies to its
Entity List due to their role in enabling the Chinese government’s
repression in Xinjiang.181 The Bureau of Industry and Security also
placed export controls on seven Chinese supercomputer developers in April 2021, citing the entities’ involvement in China’s efforts
to develop nuclear and other advanced military weapons.182 Sep* “Rising tensions in U.S.-China relations” first appeared as a business challenge in the 2018
AmCham China Business Climate Survey, when 45 percent of respondents ranked it as thethird-highest challenge. 45 and 41 percent of AmCham China member companies continued torank it as the third-highest business challenge in both the 2019 and 2020 Business Climate Surveys, respectively. In the 2021 Business Climate Survey, 78 percent of AmCham China member
companies ranked it as the top challenge to doing business. AmCham China, 2020 China Business Climate Survey Report, March 2020, 51; AmCham China, 2019 American Business in China
White Paper, April 2019, 8.

145arately, while visiting Japan and South Korea, Secretary Blinken
announced sanctions for financial institutions that conduct transactions with 24 Chinese and Hong Kong officials per the Hong Kong
Autonomy Act on March 17, 2021.183
Escalating trade frictions, intensifying U.S.-China technological competition, and the outbreak of the COVID-19
pandemic catalyzed U.S. efforts to address supply chain
vulnerabilities vis-à-vis China. Executive orders issued by thenPresident Donald Trump resulted in, among other actions, preliminary studies into U.S. dependence on China for critical minerals
and pharmaceuticals and the removal of Chinese firms from U.S.
telecommunications networks.* The Biden Administration’s actionsin 2021 underline a continued focus on mitigating the risks of bilateral economic interdependence in select sectors and heightening U.S. capabilities in others to better compete with China economically. On June 8, 2021, the Biden Administration released a
250-page report assessing supply chain risks and vulnerabilities insemiconductor manufacturing, large-capacity batteries, critical materials and minerals, and pharmaceuticals and active pharmaceutical ingredients.† 184 The United States relies on imports and faces
risks of supply chain disruption across all four product categories,
with China either dominating large portions of their supply chain(e.g., critical materials and minerals, pharmaceuticals, and active
pharmaceutical ingredients) or seeking to secure global leadership(e.g., semiconductors, large-capacity batteries). The review builds on
initial investigations undertaken by the Trump Administration andprioritizes reshoring production to the United States to bolster U.S.
economic competitiveness. The report is also notable in signaling theuse of trade enforcement actions to defend against China’s unfair
economic practices. For example, a U.S. Trade Representative-led“trade strike force” aims to coordinate unilateral and multilateralenforcement actions against unfair foreign trade practices harming
U.S. supply chains and ensure “supply chain resilience [is] incorporated into the U.S. trade policy approach towards China.” 185 Separately, as part of a comprehensive review of U.S. supply chains, theBiden Administration indicated the Department of Commerce will
explore whether to initiate a Section 232 investigation ‡ into the* For example, former President Trump’s Executive Order 13953 on Addressing the Threat tothe Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries andSupporting the Domestic Mining and Processing Industries and Executive Order 13944 on Combating Public Health Emergencies and Strengthening National Security by Ensuring Essential
Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States sought
to further investigate and rectify U.S. productive gaps in critical minerals and pharmaceuticalproducts, respectively. Executive Office of the President, “Addressing the Threat to the Domestic
Supply Chain from Reliance on Critical Minerals from Foreign Adversaries and Supporting theDomestic Mining and Processing Industries,” Federal Register 85:193 (September 30, 2020); Executive Office of the President, “Combating Public Health Emergencies and Strengthening National
Security by Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are
Made in the United States,” Federal Register 85:158 (August 6, 2020).
† The report compiled individual reviews by the Department of Commerce on semiconductor
manufacturing and advanced packaging, Department of Energy on large-capacity batteries, Department of Defense on critical materials and minerals, and Department of Health and Human
Services on pharmaceuticals and active pharmaceutical ingredients. The reviews were completed
pursuant to Executive Order 14017, America’s Supply Chains, which also mandates a separate
one-year review of the overall resilience of the defense, healthcare, technology, energy, transport,
and agricultural sectors. White House, Executive Order on America’s Supply Chains, February
24, 2021.
‡ Under Section 232 of the Trade Expansion Act of 1962, the Department of Commerce caninvestigate any product to determine whether it “is being imported into the United States in146national security impact of neodymium magnets used in automotive
and electric vehicle motors and industrial applications and sourced
chiefly from China.186
The U.S. government is continuing to work to ensure U.S.
telecommunications networks are free from Chinese technology providers. On March 17, the Department of Commerce
announced it had served subpoenas on “multiple Chinese companies
that provide ICT services in the United States,” without specifying
which firms were targeted.187 The move was completed pursuant toformer President Trump’s Executive Order 13873: Securing the Information and Communications Technology Services Supply Chain,
for which the Department of Commerce issued implementing rules
in January 2021.188 Separately, the Federal Communications Commission published a new list of ICT equipment and services “deemed
to pose an unacceptable risk to the national security of the UnitedStates or the security and safety of United States persons.” * The list
identified five Chinese companies—Huawei, ZTE, Hytera Communications, Hikvision Digital Technology, and Dahua Technology—asposing such a risk.189
The U.S. government pursues unilateral action and multilateral coordination. The Biden Administration’s emerging multilateralism capitalizes upon shared values to rally allies and partners against Chinese domestic abuses like forced labor in Xinjiang
while building alliances to address more pragmatic concerns suchas strategic competition in the technology sector and supply chain
security.
• Coercion and human rights: In March 2021, the U.S. Office ofForeign Assets Control, in conjunction with authorities in the
United Kingdom (UK), EU, and Canada, sanctioned a number ofChinese officials for their involvement in human rights abusesin Xinjiang.190 The United States has also released separate
joint statements with Japan and the Group of Seven (G7) † reflecting common opposition to China’s antidemocratic and coercive policies. The statements condemned Beijing’s human rights
abuses in Xinjiang, repression of Tibetans, stifling of democracy
in Hong Kong, and aggression in the Taiwan Strait and South
China Sea, as well as economic coercion applied to countries
speaking out against Chinese policies.191• COVID-19 assistance and relief: In March 2021, Quadrilateral
Security Dialogue (Quad) ‡ members the United States, Japan,such quantities or under such circumstances as to threaten to impair the national security” of theUnited States. If the Department of Commerce finds imports impair or threaten to impair U.S.
national security, the president may impose tariffs or quotas to adjust imports. In March 2018,
then President Trump imposed 10 percent and 25 percent tariffs on aluminum and steel imports,
respectively, including those from China, as a result of a Section 232 investigation undertaken by
the Department of Commerce. Rachel E. Fefer et al., “Section 232 Investigations: Overview andIssues for Congress,” Congressional Research Service, May 18, 2021.
* This list was developed pursuant to Section 2(a) of the Secure and Trusted Communications
Networks Act of 2019, which became law in March 2020.
† The G7 consists of seven democratic advanced economies: Canada, France, Germany, Italy,
Japan, the UK, and the United States. The countries’ heads of state as well as representatives
from the EU meet annually to discuss economic policies and issues of global governance. The UK
hosted the 2021 G7 Summit in June. Sophie Morris, “What Is the G7? 2021 Summit Sees Boris
Johnson Host Biden, Macron and Others in Cornwall,” Sky News, June 6, 2021.
‡ The Quadrilateral Security Dialogue is an informal alliance among democracies Japan, Australia, India, and the United States that supports their coordination on a range of issues of147
India, and Australia announced the Quad Vaccine Partnership.
The Quad intends to expand vaccine manufacturing capacity
in India and deliver at least one billion vaccine doses to Indo-Pacific countries by the end of 2022.192 The partnership willseek to counter China’s global vaccine diplomacy, which uses
vaccines as leverage to accomplish political objectives in recipient countries.
• Technology competition and cybersecurity: In June 2021, theUnited States and the EU launched the U.S.-EU Trade and Technology Council, which will likely focus on combatting China’s
domination of components of vital technology supply chains andits drive to shape global standards for emerging technologies.193
Additionally, in July 2021 the Biden Administration in coordination with allies in NATO, the EU, Australia, the UK, Canada, Japan, and New Zealand condemned China’s state-sponsored hack of Microsoft Exchange email server software as well
as China’s broader cyberespionage activities targeting governments, political organizations, and key industries.194
U.S.-China Climate Cooperation Complicated byBilateral Tensions
Climate change has emerged as a potential area for U.S.-China
cooperation, though China’s attempts to condition deeper cooperation on U.S. compliance with its geopolitical objectives may
derail incipient collaboration. After both parties signed a jointstatement in April 2021 affirming their commitment to cooperation on climate, Foreign Minister Wang indicated that “smoothcooperation” would only be possible if the United States “no longer interferes in China’s internal affairs,” a blanket term usedby China’s government to condemn international criticism of its
policies in Xinjiang and Hong Kong as well as its claims over Taiwan and the South China Sea.195 Competition over leadership inclean energy technology will likely further complicate U.S.-China
climate cooperation. Reflecting this point, Secretary Blinken said,“It’s difficult to imagine the United States winning the long-term
strategic competition with China if we cannot lead the renewableenergy revolution.” 196 At present, China is a market leader in the
sector, and accounts for eight of the top ten solar companies globally, for example.197 China also dominates world supply chains forcomponents used in clean energy technologies, including refining
critical minerals such as lithium, rare earth minerals, and copper.198 The Biden Administration’s 100-day supply chain review
pursuant to Executive Order 14017 investigated large-capacity
batteries and critical minerals and ultimately issued recommendations for reshoring production of renewable energy supply chain
components to the United States.199

mutual interest, including regional security, economic growth, climate change, and global health.
Sumitha Narayanan Kutty and Rajesh Basrur, “The Quad: What It Is—And What It Is Not,”
Diplomat, March 24, 2021; White House, Quad Leaders’ Joint Statement: “The Spirit of the Quad,”
March 12, 2021.

148
China Seeks to Project Strength but Preserve Bilateral Economic
Relations
To maintain economic stability without appearing conciliatory, the CCP continues to enlist U.S. business to advocate
for easing commercial tensions. Even as China’s government
emphasizes the importance of the domestic economy to drive growth,strong exports to the United States during 2020 and 2021 underscore the mutual dependence between the Chinese and U.S. economies. China’s government has consequently tried to forestall further
deterioration of commercial ties with the United States, but without
moderating its stance on Xinjiang, Hong Kong, or other self-declared“internal affairs.” Two resulting patterns have emerged in China’s
approach to the United States in 2021.
• Proportional but not escalatory policy and rhetoric: Ryan Hass,
China expert at the Brookings Institution, observes that in thelead-up to the conclusion of the Phase One Trade Agreement inJanuary 2020, China’s leadership was calibrated and at times
even conciliatory in response to U.S. policy action toward China.200 Even as relations soured further following the outbreakof COVID-19, China’s tit-for-tat exchanges with the UnitedStates have remained proportional, for instance closing the U.S.
embassy in Chengdu in response to the U.S. closure of China’s
embassy in Houston for alleged involvement in stealing scientific research.201 By contrast, China’s retaliatory actions against
U.S. allies and partners have been unrestrained and escalatory,
described further under “Coercion in China’s Global Economic
Relations” below.
• Courting U.S. businesses to safeguard commercial ties: China’s
government applies pressure on the United States, touting theopenness and strength of China’s economy and engaging U.S.
companies, investors, and lobbyists to advocate for smooth commercial relations. China hosted a number of prominent business leaders at the April 2021 Boao Forum, an annual economic
conference likened to a Chinese version of the World Economic
Forum. According to the forum’s General Secretary Li Baodong,
U.S. executives from Goldman Sachs, Qualcomm, and asset
manager Bridgewater Associates, along with former U.S. Treasury Secretary Henry Paulson, attended a closed-door meetingwith Chinese officials to discuss how to defuse trade frictions.202
Chinese tech firms have also expanded their lobbying presencein Washington, while Wall Street remains eager to maintainsmooth commercial ties as China’s government opens its financial services sector to foreign investment.203
China’s government is simultaneously attempting to decrease its dependence on the United States while increasing
the rest of the world’s dependence on China. A key element ofChina’s bid to secure supply chains is to increase its role in higher-value supply chains even as it reduces its reliance on foreign
inputs. Matt Pottinger, distinguished visiting fellow at the Hoover
Institution and former deputy national security adviser, called thisstrategy “offensive decoupling” or a “one-way decoupling” in testimony before the Commission, noting that China aims to use econom-

149
ic leverage to advance geopolitical goals.204 As part of its effort tostrengthen “one-way” economic integration while reducing exposure
to the United States, China’s government has pursued increased
multilateral cooperation in late 2020 and 2021, intending to expand its regional influence and undermine transatlantic cooperation
against China, among other blocs of allied resistance.
• China-Southeast Asia trade pact: In November 2020, China, the 10
ASEAN countries, South Korea, Australia, New Zealand, and Japan finalized the Regional Comprehensive Economic Partnership(RCEP). Still requiring ratification from its 15 signatories before
going into effect, the trade agreement largely codifies existing tariff schedules but reduces barriers to intraregional production.205
In increasing the ease with which RCEP signatories can transshipintermediary goods, RCEP will likely strengthen supply chain integration between Southeast Asian countries and China, further
deepening the region’s economic dependence on China.206• China-EU investment agreement: Additionally, China and theEU finalized the Comprehensive Agreement on Investment(CAI) at the end of 2020. China seemingly agreed to concessions after the CAI had been in discussion for seven years and
35 rounds of talks to conclude the agreement ahead of President
Joe Biden’s inauguration.207 The future of the CAI remains indoubt, however, since the EU Parliament refused to ratify itafter China imposed sanctions on European officials and academics, described in the following section.208• China’s application to join transpacific trade pact: In September
2021, China’s Ministry of Commerce submitted a formal application to join the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP).* 209 Beijing’s application followed the announcement of AUKUS, a trilateral security
pact between Australia, the UK, and the United States,† though
General Secretary Xi had signaled interest in joining CPTPP
in November 2020.210 Geopolitical frictions between China and
CPTPP signatories as well as Beijing’s distortive economic practices are likely to frustrate Beijing’s bid to join the trade pact.
Coercion in China’s Global Economic Relations
In 2020 and 2021, China’s government significantly expanded its
use of economic coercion to punish critics and compel behavior it desires from foreign countries and firms. Though it has long used access* The CPTPP is a free trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam signed in March 2018 and enteredinto force for all signatories by September 2021. CPTPP signatories began accession negotiations
with the UK in June 2021. Australian Government Department of Foreign Affairs and Trade,
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), 2021.
† AUKUS was announced on September 15, 2021. Under the pact, the United States, the UK,
and Australia agreed to hold consultations over 18 months to determine how to best build a
new nuclear-powered submarine fleet for Australia. The three countries also intend to deepen
cooperation on a range of other security and defense priorities, including strengthening joint capabilities and interoperability in cyber, artificial intelligence, quantum technologies, and additional underseas capabilities. Michael Clarke, “The AUKUS Nuclear Submarine Deal: Unanswered
Questions,” Diplomat, September 22, 2021; U.S. Department of State, Secretary Antony J. Blinken,
Secretary of Defense Lloyd Austin, Australian Foreign Minister Marise Payne, and Australian
Defence Minister Peter Dutton at a Joint Press Availability, September 16, 2021; White House,“Remarks by President Biden, Prime Minister Morrison of Australia, and Prime Minister Johnsonof the United Kingdom Announcing the Creation of AUKUS,” September 15, 2021.

150
to China’s domestic market and other forms of economic leverageas both a stick and a carrot, China’s government is increasing thefrequency and breadth of its coercive tactics, as well as the variety
of issues that trigger retaliation. For instance, ostensibly nonstate
firms, particularly Chinese e-commerce companies, have removed
foreign firms from their platforms for raising concerns over forcedlabor in Xinjiang’s cotton and textile industry.* 211 Chinese consumers are boycotting even more foreign firms for the same reason.212
Additionally, where in the past China retaliated on matters it terms“core interests,” such as the status of Taiwan, China’s government is
now acting when countries move against its economic interests, suchas excluding Huawei from their telecommunications networks. Asidefrom heightened retaliation, in 2021 China’s government mounted
a pressure campaign against countries around the world to defer
to China’s geopolitical priorities in exchange for access to its indigenously developed COVID-19 vaccines. China’s use of inducements
to influence domestic policy decisions in South American countries
reflects a growing tendency to attempt to intervene in other countries’ affairs.
China Increases the Scope and Frequency of Economic
Retaliation
Following Australia’s support for an independent inquiry
into China’s handling of the early stages of COVID-19, China
imposed import bans on multiple Australian products. Initially, China’s trade restrictions targeted agricultural products, including wine, barley, and beef, but later extended to a ban on coal.† 213
Prior to the ban, which has not been officially acknowledged by the
CCP, China was Australia’s second-largest export market for coal,accounting for 21 percent of Australian coal exports in 2020.214 Following the ban, Australian coal producers have been able to divert
shipments to other countries, most notably Brazil and India.215
Consequently, the impact on Australian coal producers appears tohave been minimal, with the Australian government reporting thatthe overall value of Australia’s global coal exports rose 12.7 percent year-on-year in June 2021.216 Furthermore, the overall volume
of Australian exports to China has remained relatively unchanged,with strong sales of iron ore. Beijing has refrained from placing
trade restrictions on Australian iron ore, for which there are no* The Trump Administration banned U.S. imports of cotton and tomatoes from Xinjiang on
January 13, 2021, due to forced labor concerns. On June 24, the Biden Administration announced
a withhold release order on U.S. imports of solar panel materials from Xinjiang-based metal
producer Hoshine Silicon Industry over forced labor concerns. According to the U.S. Departmentof Labor, artificial flowers, bricks, Christmas decorations, coal, cotton, electronics, fireworks, fish,
footwear, garments, gloves, nails, toys, hair products, polysilicon, textiles, thread and yarn, andtomato products are all produced in China using forced labor. The last five categories, in particular, are produced using forced labor from Muslim minorities, including Uyghurs. Bernreuter
Research, “What the U.S. Ban on Hoshine Silicon Means for the PV Industry,” June 25, 2021; Ana
Swanson, “U.S. Bans All Cotton and Tomatoes from Xinjiang Region of China,” New York Times,
January 13, 2021; U.S. Department of Labor International Bureau of Labor Affairs, Against Their
Will: The Situation in Xinjiang.
† The specific trade restrictions have varied by product. For instance, Beijing placed duties of
80.5 percent on Australian barley and up to 218 percent on Australian wine after antidumping
investigations. Chinese authorities suspended imports from several Australian beef producers forwhat they claimed were health and labeling problems. Saheli Roy Choudhury, “Australia Weighs
Taking China to the WTO Again—This Time for a Dispute over Wine,” CNBC, June 2, 2021;
Saheli Roy Choudhury, “Here’s a List of the Australian Exports Hit by Restrictions in China,”
CNBC, December 17, 2020.

151
readily available substitutes.217 Meanwhile, the coal ban has contributed to rising coal prices in China, as prices for both domestic
and other foreign sources of coal have risen.218 The ban has also exacerbated domestic coal supply constraints. In June, coal shortagesin Guangdong Province led factories in several cities to ration theiruse of electricity.219
Chinese economic coercion against European politicalbodies, individual governments, companies, and individuals rose significantly in 2021. The escalation occurred in tandemwith Chinese trade negotiators working with the EU to finalize thetext of the CAI. The most prominent of these actions was the Chinese government’s March 2021 announcement of sanctions against
ten European individuals in government and academia, along withfour European organizations, including the Mercator Institute for
China Studies.220 Rather than pressure the EU into ratification, the
CCP’s economic coercion tactics have instead stalled the possibilityof progress on the bilateral investment deal. The European Parliament committed to cease talks on the CAI and the possibility of
ratification until China lifted sanctions.221 The latest example ofcountry-specific retaliation involves the Chinese government recalling its ambassador to Lithuania in early August 2021 after the Lithuanian government announced it would allow Taiwan to set up a defacto embassy in July.* China then demanded Lithuania recall its
ambassador to China, and the following week it unofficially ordereda halt to direct freight rail from China to the Balkan country.222
Lithuanian food producers and agricultural exporters also reported
that the Chinese government had refused or halted renewal of theirexport permits, alleging the presence of pests and crop diseases.223
The economic impact for Lithuania is likely to be insubstantial, as
importers can still acquire Chinese goods through indirect routes
and Lithuania’s total trade volume with China is relatively low.224(For more background on these sanctions, see Chapter 3, Section 1,“Year in Review: Security, Politics, and Foreign Affairs.”)
Increasingly sensitive to commentary on the CCP’s actionsin Xinjiang, the Chinese government has not spared foreign
private companies from retaliation. In March 2021, Chinesesocial media and state media rediscovered statements from Swedish fast fashion giant H&M, German sportswear company Adidas,
and several other foreign brands on avoiding sourcing cotton fromXinjiang.† 225 Chinese social media platforms teemed with outrageover the companies’ statements and state television networks called
for boycotts of the brands.226 Tmall, China’s largest business-to-consumer e-commerce platform, removed H&M from its website, andH&M reported a 23 percent drop or $74 million loss in sales in Q2
2021.227 H&M released a statement at the end of March that did not* Taiwan maintains “representative offices” that function as de facto embassies in many European countries, but these are generally called “Taipei representative offices” in deference to China’s claim that Taiwan is part of its sovereign territory. By contrast, Taiwan’s office in Lithuania
will be called a “Taiwan representative office.” Reid Standish, “Beijing’s Spat with Lithuania Sets
the Stage for Shaky New Era of Europe-China Ties,” Radio Free Europe Radio Liberty, August17, 2021.
† These companies also participate in the Better Cotton Initiative, a nonprofit focused on sustainable and ethical cotton production that referenced forced labor abuses in Xinjiang throughout
2020. Better Cotton Initiative, “Task Force on Forced Labour and Decent Work,” January 2021.

152
explicitly mention Xinjiang or cotton but reiterated commitments toboth “responsible sourcing” and the Chinese market.228 While Adidas remained available on Tmall, its sales in April 2021 dropped
78 percent year-on-year.229 Adidas did not release a statement andneither company has issued an apology or restarted sourcing of Xinjiang cotton, as the Chinese media mob had demanded. The Chinese
government has indicated it will use other administrative means,such as product labeling requirements and safety warnings, to limit
market access for foreign companies critical of the CCP’s actions.
The CCP has also demonstrated a willingness to apply
economic coercion on behalf of its national champions. In
response to Sweden’s ban on Huawei equipment incorporation in
the country’s 5G infrastructure, the CCP has threatened Swedishcompany Ericsson with exclusion from the Chinese market.230 Ericsson is a top competitor of Huawei in 5G equipment, but in Q2
2021, revenue in China declined for the first time in three years
with a sharp decrease of 63.4 percent.231 Chinese negotiators had
previously attempted to insert language into the CAI on penalizing
EU member states for banning Huawei from 5G networks and madevague threats to the UK when UK Prime Minister Boris Johnson
announced a similar prohibition on Huawei.232 Despite this increasing political risk, a 2021 business outlook survey conducted by theEuropean Chamber of Commerce in China reported that European
firms are nonetheless “committed to the China market now morethan ever.” 233

Beijing committed to increasepurchases of U.S. goods by at least$200 billion over 2017 levels over
two years: $76.7 billion in 2020 and$123.3 billion in 2021.

The agreement included changes toaddress longstanding concerns over
China’s administration of the IP lifecycle: patenting, licensing, and civil
and criminal enforcement. The agreement required China to establish
an action plan to deter IP theft andcounterfeiting, as well as to enforce
court judgments. Other IP provisions
aim to create a level playing field forforeign firms and ensure stronger IP
protection in valuable markets suchas pharmaceuticals.

The agreement prohibits China
from conditioning market access ontransfer of technology—reiterating acommitment China made in its 2001
WTO accession protocol—and directing overseas investment with theexplicit aim of acquiring technology
to fulfill industrial policy goals.237

Address Intellectual Property (IP)Violations

Eliminate Forced
Technology Transfer

Commitment Target

Purchase Targets

Phase One
Commitment

The agreement includes no monitoring guidelines, enforcement mechanisms, deadlines, or targets.

On April 20, 2020, the China National Intellectual Property Administration (CNIPA) released a 2020–2021
plan to implement guidance on
strengthening IP protection.
From October 2020 to January 2021,
China amended its Patent Law,
Copyright Law, and Criminal Law,leading some rightsholders to report
some degree of improvement in IP
enforcement.

As of August 2021, Chinese importsof U.S. goods stood at 69 percent($89.4 billion) of a prorated $129.9
billion target.

Interim Result

The agreement lacks metrics to evaluate Beijing’s compliance. Chinese
law already prohibits conditioning
regulatory approvals on technology
transfer, but requests continue. U.S.
companies are reluctant to comeforward in cases of forced technology
transfer for fear of reprisal.

China legal expert Mark Cohen
noted that while the CNIPA guidance appears to reflect the Phase
One agreement in its timetables anddelegation of responsibility, CNIPA isadministratively subordinate to theState Administration of Market Regulation and may lack the authority
to implement the plan.235 Local-level
implementation is an additional
concern, as amendments to national laws governing IP rights do notnecessarily create binding obligations
at the provincial and lower levels ofgovernment in China.236

Beijing has leveraged SOEs for someof the purchases, raising concernsthat it is using the agreement tostrengthen government actors in theeconomy.234

Outstanding Concerns

Addendum: China’s Phase One Trade Agreement Commitments and Compliance Status

153

China agreed to permit the import ofbeef, pork, and processed meat thatpasses inspection by the U.S. Foodand Drug Administration Food Safety
and Inspection Service. Beijing also
committed to reduce the review andapproval period for genetically modified products to “no more than 24
months,” down from the prior approval period of five to seven years.

Increase Agricultural Market AccessAccording to former trade negotiator
Darci Vetter, provisions on U.S. meat,
poultry, and specialty dairy products
appeared promising in terms of increasing market access. The deal text
also pledged to reduce burdensome
registration, licensing, and bureaucratic processes for U.S. agricultural
exporters.240

In 2020, China committed to allow
U.S. credit ratings agencies to acquire majority ownership in existing joint ventures and review U.S.
companies’ applications for credit
rating services for onshore securities. In 2021, China approved U.S.
firms owning a majority stake in
wealth management joint venturesand having sole ownership over fundmanagement companies.* 238

Interim Result

Trade association BIO expressed
continuing concerns regarding U.S.
biotech developers’ lengthy wait for
product approvals, as Chinese regulators will not begin the approvals
process until U.S. regulators havecompleted their review.241

Many of Beijing’s financial services
commitments are restatements orminor improvements on pledges inprogress.
U.S. financial services firms report
licensing requirements can be excessively onerous, hindering entry intoand expansion within the Chinese
market.239

Outstanding Concerns* Four U.S. financial services firms have received the Chinese government’s approval to establish wealth management and/or mutual fund businesses. In May
2021, BlackRock and Goldman Sachs received regulatory approval to establish majority-owned wealth management joint ventures. In September 2021, the China
Securities Regulatory Commission approved Neuberger Berman Group to establish a wholly owned mutual fund business. The green light for Neuberger Berman
Group followed similar approvals for U.S asset managers Fidelity and BlackRock to establish wholly owned China mutual fund businesses in August 2021 andAugust 2020, respectively. Yue Yue and Tang Ziyi, “China Awards Wholly Owned Mutual Fund License to Third Foreign Firm” Caixin, September 27, 2021; Yue Yueand Han Wei, “Fidelity Cleared to Open Its Own China Mutual Fund Business,” Caixin, August 7, 2021; Charlie Zhu and Jun Luo, “Goldman Forms Wealth Venturewith China’s Largest Bank,” Bloomberg, May 25, 2021.

Source: Compiled by Commission staff.

China agreed to remove investment
restrictions, reduce regulation, andreview pending license applicationsof U.S. companies in its domesticbanking, credit rating, electronic payments, asset management, insurance,and securities industries.

Commitment Target

Liberalize Financial
Services

Phase One
Commitment

Addendum: China’s Phase One Trade Agreement Commitments and Compliance Status—Continued

154

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ENDNOTES FOR SECTION 1
1. China’s National Bureau of Statistics via CEIC database.
2. Trading Economics, “China NBS Manufacturing PMI,” September 30, 2021; Matt
Farer, “China’s Factory Activity on Shock Slowdown as Energy Crisis Hits Home,”
Guardian, September 30, 2021.
3. Logan Wright and Allen Feng, “June/Q2 2021 Macro Data Recap,” RhodiumGroup, July 15, 2021.
4. Logan Wright and Allen Feng, “June/Q2 2021 Macro Data Recap,” RhodiumGroup, July 15, 2021; Gabriel Crossley and Stella Qiu, “China’s Robust Exports,
Surging Imports Boost Economic Recovery; Outlook Still Challenging,” Reuters, April
13, 2021.
5. Tom Mitchell, “China GDP: Five Things to Keep an Eye One,” Financial Times,
July 13, 2021.
6. Bloomberg, “China’s Slow Bond Sales Will Delay Infrastructure Boost,” August19, 2021.
7. China’s Ministry of Finance, Fiscal Revenue and Expenditure Situation in August 2021 (2021年8月财政收支情况), September 17, 2021. Translation.
8. Sina Finance, “The Local Government Will Reserve Part of the Special Bond
Quota for Issuance in December, and the Quota Will Remain at a Relatively HighLevel Next Year” (地方将预留部分专项债额度12月发行 明年额度将保持较高水平), August 10, 2021. Translation; Reuters, “China Aug New Local Special Bond Issuance at
488.4 Bln Yuan,” September 26, 2021.
9. ICBC Standard Bank, “China Macro Outlook: Returning to Potential Growth,”
October 2020, 16.
10. Amanda Lee, “China’s Slowing Railway Investment Contributing to Signs that
Economic Growth Is Losing Steam, Analysts Say,” South China Morning Post, June22, 2021.
11. Bai Yujie and Yang Ge, “As Debt Mounts, Beijing Puts Brakes on Two HighSpeed Rail Projects,” Caixin, April 26, 2021.
12. Xinhua, “ ‘Two Increases and One Decrease’ Has Profound Meaning; Examining
China’s Economic Potential from the Flow of Capital” (“两增一降”有深意——从资金
流向看中国经济潜力), July 14, 2021. Translation; Yicai, “Central Bank: Outstanding
Mortgage Loans Growth Decreases 17.3 Percent Y-o-Y at the End of Q2” (央行: 二季
度末个人住房贷款余额同比增速降至17.3%), July 6, 2019. Translation.
13. Allen Feng and Logan Wright, “ ‘Three Red Lines’ Restrain Major Developers,”
Rhodium Group, June 21, 2021, 4.
14. Allen Feng and Logan Wright, “Property Markets Chartbook, June 2021,” Rhodium Group, June 28, 2021, 6; Allen Feng and Logan Wright, “ ‘Three Red Lines’
Restrain Major Developers,” Rhodium Group, June 21, 2021, 4.
15. Allen Feng and Logan Wright, “ ‘Three Red Lines’ Restrain Major Developers,”
Rhodium Group, June 21, 2021, 4.
16. China National Statistics Bureau, National Real Estate Development Investment Increased by 10.9% from January to August 2021, (2021年1—8月份全国房地产开发投资增长10.9%), September 15, 2021. Translation; China National Statistics Bureau, National Real Estate Development Investment Increased by 12.7% from January to July 2021, (2021年1—7月份全国房地产开发投资增长10.9%), August 16, 2021.
Translation; China National Statistics Bureau, National Real Estate Development
Investment and Sales Situation from January to August 2020, (2020年1—8月份全国
房地产开发投资和销售情况), September 15, 2020. Translation; China National Statistics Bureau, National Real Estate Development Investment and Sales Situationfrom January to July 2020, (2020年1—7月份全国房地产开发投资和销售情况), August
14, 2020. Translation.
17. China National Statistics Bureau, 4. Statistical System and Classification
Standards 四、统计制度及分类标准 (17), June 19, 2020. Translation.
18. China National Statistics Bureau, Industrial Value Added Grew By 5.3% inAugust 2021, (2021年8月份规模以上工业增加值增长5.3%), September 15, 2021. Translation; Brenda Goh, “Construction Machine Makers Brace for Weaker China Sales As
Economy Slows,” Reuters, November 28, 2018; Orange Wang, “China Export GrowthSlows Sharply in July as Favourable Base Effect from Year Earlier Fades,” South
China Morning Post, August 7, 2021.
19. China Association of Automobile Manufacturers, “Production of Automobiles inAugust 2021,” September 13, 2021; Joe McDonald, “China’s Auto Sales Up 27 Percent
in 2021, but Hurt by Chip Shortage,” AP News, July 9, 2021.
20. Bloomberg, “China Export Volume Seen Falling in August amid Port Congestion,” August 20, 2021.

156
21. Katherine Si, “Yantian Port to Resume Full Operations on 24 June,” Maritime
Executive, June 23, 2021; Keith Bradsher, “Chinese Port Difficulties amid a COVID
Outbreak Further Snarl Global Trade,” New York Times, June 21, 2021.
22. Weizhen Tan, “Another Shipping Crisis Looms on COVID Fears in Southern
China,” CNBC, June 14, 2021.
23. Center for Strategic and International Studies, “How Is China Influencing
Global Maritime Connectivity?” 2021.
24. Freightos, “Global Freight Prices Soaring due to Container Shortages,” August24, 2021.
25. Frieghtos, “Shipping & Freight Cost Increases, Freight Capacity, and Shipping
Container Shortage [2021],” October 10, 2021.
26. United Nations Conference on Trade and Development, “Shipping during
COVID-19: Why Container Freight Rates Have Surged,” April 23, 2021; Shipa
Freight, “Largest Ports in the World,” April 4, 2021.
27. U.S. Federal Reserve, Minutes of the Federal Open Market Committee, September 21–22, 2021, 4, 6.
28. Henry Ren, “Higher Shipping Costs Are Here to Stay, Sparking Price Increases,” Bloomberg, April 12, 2021; Nicolás Rivero, “Retailers Are Locking in Expensive
Shipping Contracts That Will Likely Outlast the Pandemic,” QZ, October 4, 2021.
29. Kenji Kawase, “Chinese Shipping Profits Surge across Industry on Capacity
Squeeze,” Nikkei, September 1, 2021.
30. China National Bureau of Statistics, Total Retail Sales of Consumer Goods Increases by 2.5% in August 2021, (2021年8月份社会消费品零售总额增长2.5%) September
15, 2021. Translation.
31. Jonathan Cheng, “China’s Economic Growth Moderates as Consumers Stay
Cautious,” Wall Street Journal, June 16, 2021.
32. China’s National Bureau of Statistics, National Economy in the First Half Year
Witnessed the Steady and Sound Growth Momentum Consolidated, July 15, 2021;
Grady McGregor, “Behind China’s Eye-Popping 18.3% Q1 GDP Growth, Parts of Its
Recovery Are Losing Steam,” Fortune, April 16, 2021; Yan Nee Lee, “China’s Uneven
Recovery from Covid Has Been ‘Understated,’ Says S&P Economist,” CNBC, March
10, 2021.
33. China’s National Bureau of Statistics, Du Xishuang: The Service Sector Economy Continues to Stabilize and Recover toward a Good Trend (杜希双：服务业经济延续稳定恢复向好态势), July 16, 2021. Translation; China’s National Bureau of Statistics, Du Xishuang: China’s Services Sector Was Stable for the First Half of the Year:
Statistics Bureau Chief Explains Half Year Report (杜希双: 上半年我国服务业运行平
稳——国家统计局司局长解读“半年报”), July 16, 2021. Translation.
34. Siddharth Verma, “Is China Growing Services Sector at Expense of Manufacturing?” Industry Week, July 21, 2016.
35. Logan Wright and Allen Feng, “March/Q1 2021 Macro Data Recap,” RhodiumGroup, April 16, 2021, 3.
36. China’s National Bureau of Statistics, Dong Lijuan, Senior Statistician of theCity Department of the National Bureau of Statistics, Interprets the CPI and PPI
Data in August 2021, (国家统计局城市司高级统计师董莉娟解读2021年8月份CPI和PPI数据) September 9, 2021. Translation.
37. Michael Lelyveld, “China Blocks Reporting on Commodity Prices,” Radio Free
Asia, July 2, 2021.
38. Logan Wright and Allen Feng, “June/Q2 2021 Macro Data Recap,” RhodiumGroup, July 15, 2021; Trivium China, “Budding Inflation Concerns,” China Markets
Dispatch, April 9, 2021; China’s National Bureau of Statistics, Dong Lijuan, Senior
Statistician of the City Department of the National Bureau of Statistics, Interprets the
CPI and PPI Data in August 2021, (国家统计局城市司高级统计师董莉娟解读2021年8月
份CPI和PPI数据) September 9, 2021. Translation.
39. Keith Bradsher, “China’s Growth Slows as Pandemic Fears Persist,” New YorkTimes, July 14, 2021.
40. Michael Lelyveld, “China Blocks Reporting on Commodity Prices,” Radio Free
Asia, July 2, 2021.
41. Michael Lelyveld, “China Blocks Reporting on Commodity Prices,” Radio Free
Asia, July 2, 2021.
42. Michael Lelyveld, “China Blocks Reporting on Commodity Prices,” Radio Free
Asia, July 2, 2021.
43. China National Bureau of Statistics, “Urban Surveyed Unemployment Rate(%).”; Martin Hart-Landsberg, “China Has an Unemployment Problem,” Monthly Review Online, March 14, 2019; Laurent Belsie, “Official Statistics Understate Chinese
Unemployment Rate,” National Bureau of Economics Research Digest (October 2015).

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44. Bloomberg News, “China Brokerage Retracts Estimate that Real Jobless Level
Is 20%,” April 27, 2020.
45. Caixin, “Zhongtai Securities Removes Research Chief after Controversial Report,” May 1, 2020; Bloomberg News, “China Brokerage Retracts Estimate that Real
Jobless Level Is 20%,” April 27, 2020.
46. Sui-Lee Wee and Li Yuan, “China Censors Bad Economic News amid Signs of
Slower Growth,” New York Times, September 28, 2018.
47. Sui-Lee Wee and Li Yuan, “China Censors Bad Economic News amid Signs of
Slower Growth,” New York Times, September 28, 2018.
48. Rebecca Fair, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021, 7.
49. Rebecca Fair, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021, 7.
50. World Bank Group, “Beyond the Recovery: Charting a Green and Inclusive
Growth Path,” China Economic Update (June 2021), 30.
51. Amanda Lee, “China’s Retail ‘Coma’ Set to Weigh on Economic Growth amid
Increasingly Tight Credit Controls,” South China Morning Post, June 29, 2021.
52. World Bank Group, “Beyond the Recovery: Charting a Green and Inclusive
Growth Path,” China Economic Update, June 2021, 27.
53. Mayer Brown, “Government Responses to COVID-19 in Asia: Effect on Lending
Arrangements.”
54. Manqi Xie, “China Banks May Still Have RMB3 Trillion in Shadow Assets by
Year-End Deadline,” S&P Global Ratings, April 26, 2021.
55. Manqi Xie, “China Banks May Still Have RMB3 Trillion in Shadow Assets by
Year-End Deadline,” S&P Global Ratings, April 26, 2021; Frank Tang, “China Estimates Shadow Banking Worth US$12.9 Trillion as It Moves to Clean Up High-Risk
Sector,” South China Morning Post, December 7, 2020.
56. Houze Song, “Macro Outlook 1Q2020: Economy Stabilized, but Recovery WillBe Weak,” MacroPolo, January 15, 2020.
57. KPMG, “China: Government and Institution Measures in Response to
COVID-19,” June 17, 2020; Tianlei Huang and Nicholas R. Lardy, “China’s Fiscal
Stimulus Is Good News, but Will It Be Enough?” Peterson Institute of International
Economics, May 20, 2020.
58. Li Jie, “Social Insurance Payments Reduced by 1.54 Trillion RMB for the Year”(社保全年减费1.54万亿元), People’s Daily, January 27, 2021. Translation; KPMG,“China: Government and Institution Measures in Response to COVID-19,” June17, 2020. KPMG, “China: Tax Developments in Response to COVID-19,” June 10,2020. https://web.archive.org/web/20211006071119/https://home.kpmg/xx/en/home/insights/2020/04/china-tax-developments-in-response-to-covid-19.html; Nicholas R.
Lardy and Tianlei Huang, “China’s Economic Recovery Strategy Faces Challenges,”Peterson Institute of International Economics, March 20, 2020.
59. Tianlei Huang, “China’s Economic Recovery Strategy Faces Challenges,” Peterson Institute of International Economics, March 20, 2020; KPMG, “China: Tax Developments in Response to COVID-19,” June 10, 2020.
60. KPMG, “China: Government and Institution Measures in Response to
COVID-19,” June 17, 2020.
61. KPMG, “China: Government and Institution Measures in Response to
COVID-19,” June 17, 2020.
62. KPMG, “China: Tax Developments in Response to COVID-19,” June 10, 2020.
63. Xinhua, “China Issues 895.1 Bln Yuan in Local Gov’t Bonds in Q1,” April 24,
2021; China National Statistics Bureau, Statistical Communiqué of the People’s Republic of China on the 2020 National Economic and Social Development, February
28, 2021; China Ministry of Finance, December 2020 Local Government Debt Issuance and Outstanding Debt Situation (2020年12月地方政府债券发行和债务余额情况),January 26, 2021. Translation; China Ministry of Finance, Local Government Bond
Issuance and Debt Balance in July 2021, (2021年7月地方政府债券发行和债务余额情况),August 25, 2021. Translation.
64. Xinhua, “China Issues 895.1 Bln Yuan in Local Gov’t Bonds in Q1,” April 24,
2021; Frank Tang, “China’s ‘Problematic’ Local Debt in the Spotlight as It Begins
Scaling Back Coronavirus Stimulus,” South China Morning Post, April 29, 2021.
65. Bloomberg, “China’s $2.3 Trillion Hidden Debt Could Climb Even Further,”
March 23, 2021.
66. Bloomberg, “China’s $2.3 Trillion Hidden Debt Could Climb Even Further,”
March 23, 2021.
67. Trivium China, “The User Data Henhouse,” April 28, 2021.

158
68. Chen Yikan, “China Expects Failing Local Gov’t Financing Vehicles to Restructure or Go Bust,” Yicai, April 14, 2021; State Council of the People’s Republic ofChina, State Council Opinions on Further Deepening Budget Management System
Reform (国务院关于进一步深化预算管理制度改革的意见) April 13, 2021. Translation.
69. Chen Yikan, “China Expects Failing Local Gov’t Financing Vehicles to Restructure or Go Bust,” Yicai, April 14, 2021; Yang Zhijing “State Council: Bankruptcy Reorganization or Liquidation Must Be Implemented in Accordance with the Law for
Financing Platforms That Have Lost Their Liquidity” (国务院：对失去清偿能力的融资
平台要依法实施破产重整或清算), 21st Century Business Herald, April 13, 2021. Translation.
70. Pearl Liu, “Chinese Developers Face Potential Price War in Second Half amid
Glut as State Issues ‘Red Lines’ in Deleveraging Campaign,” South China Morning
Post, September 2, 2020.
71. Allen Feng and Logan Wright, “ ‘Three Red Lines’ Restrain Major Developers,”
Rhodium Group, June 21, 2021, 1.
72. Allen Feng and Logan Wright, “ ‘Three Red Lines’ Restrain Major Developers,”
Rhodium Group, June 21, 2021, 1.
73. Allen Feng and Logan Wright, “ ‘Three Red Lines’ Restrain Major Developers,”
Rhodium Group, June 21, 2021, 1, 4; Allen Feng and Logan Wright, “July 2021 Macro
Data Recap,” Rhodium Group, August 16, 2021; China National Bureau of Statistics, National Real Estate Development Investment Increased by 10.9% from January
to August 2021, (2021年1—8月份全国房地产开发投资增长10.9%) September 15, 2021.
Translation.
74. Logan Wright and Allen Feng, “Property Market Chartbook, April 2021,” Rhodium Group, April 27, 2021.
75. Niu Mujiangqu and Denise Jia, “Hangzhou Bans Resale of Hot New Houses for
5 Years,” Caixin Global, January 28, 2021.
76. Sun Yu, Ryan McMorrow, and Sherry Fei Ju, “Evergrande Used Retail Financial Investments to Plug Funding Gaps,” Financial Times, September 21, 2021.
77. Andrew Galbraith, Xiao Han, and Clare Jim, “Evergrande Misses Second Offshore Bond Payment,” Reuters, September 30, 2021.
78. People’s Economic Observer, “Evergrande Group Refuses to Pay! The Real Estate Industry Has Ushered In a Major Reshuffle, and Paint Companies Are Facinga ‘Cutting Ceiling’ ” 恒大集团拒付! 房地产行业迎来大洗牌, 涂料企业面临“削顶之灾,September 10, 2021. Translation; China Evergrande Group, “Announcement of Unaudited Interim Results for the Six Months Ended 30 June 2021,” 5.
79. Rebecca Choong Wilkins and Ailing Tan, “Evergrande Fears Send Stress in
China’s Bond Market to New High,” Bloomberg, August 12, 2021. https://doc.irasia.
com/listco/hk/evergrande/interim/2021/intrep.pdf.
80. Trivium China, “Evergrande on Notice,” China Markets Dispatch, August 20,
2021; Thomas Hale, “China’s Regulators Order Evergrande to Resolves Debt Issues,”
Financial Times, August 19, 2021.
81. Bian Jing, “Focus: Evergrande Is Faltering, Citing Concerns About China’s
Credit Contraction” (焦点: 恒大摇摇欲坠引中国信用收缩担忧 但 “永煤之殇” 料难重现), Reuters, September 27, 2021. Translation.
82. Wang Jing and Denise Jia, “Developer Fantasia Holdings Defaults on $206 Million Note,” Caixin Global, October 7, 2021; Trivium China, “Dealing with Developer
Defaults,” China Markets Dispatch, August 13, 2021.
83. Xinhua, “China’s Central Bank Emphasizes Support for Small Business,” July
5, 2021; Global Times, “International MSMEs Day: China Vows More Support for
Small Businesses,” June 27, 2021; China Briefing, “China’s Support Policies for Businesses under COVID-19: A Comprehensive List,” July 3, 2020.
84. Han Wei, “China’s Cabinet Unveils $29 Billion in Annual Tax Cuts for Small
Firms,” Caixin, January 10, 2019; Reuters, “China Pushes Credit Support for Private
Firms,” November 8, 2019; Xinhua, “Xi Jinping Hosts a Symposium on the Private
Sector,” November 1, 2018. Translation.
85. Global Times, “China to Develop 10,000 ‘Little Giants’ in Push for Advanced
Manufacturing,” July 5, 2021.
86. Xu Gao, “Opinion: China Needs to Ease Up on Deleveraging,” Caixin, January
25, 2019.
87. Trivium China, “Soaking the Rich,” China Markets Dispatch, August 18, 2021.
88. Trivium China, “Soaking the Rich,” China Markets Dispatch, August 18, 2021.
89. Xinhua, “Xi Stresses Promoting Common Prosperity amid High-Quality Development, Forestalling Major Financial Risks,” August 18, 2021.
90. Xinhua, “Xi Stresses Promoting Common Prosperity amid High-Quality Development, Forestalling Major Financial Risks,” August 18, 2021.

159
91. Bloomberg, “Chinese Authorities Investigating Tax Evasion among High Earners,” August 26, 2021.
92. Jesse Turland, “China’s ‘Common Prosperity’ Puts Tax-Dodging Celebrities on
Notice,” Diplomat, August 30, 2021.
93. Zhang Hui, “$46 Million Fine on Actress Zheng Shuang’s Tax Fraud in Line
with Common Prosperity Goal as China Tightens Regulation on Tainted Celebrities,”
Global Times, August 27, 2021.
94. Alex Millson and Tom Hancock, “How China’s ‘Common Prosperity’ Drive Will
Redistribute the Wealth,” Bloomberg, August 31, 2021.
95. Frances Yoon, “Alibaba Pledges $15.5 Billion as Chinese Companies Extol Beijing’s ‘Common Prosperity’ Push,” Wall Street Journal, September 3, 2021; Hudson
Lockett, “Pinduoduo Shares Jump 22% after Pledge to Donate Profits,” Financial
Times, August 25, 2021; Josh Ye and Iris Deng, “Tencent Earmarks US$7.7 Billion for‘Common Prosperity’ to Answer Xi Jinping’s Call for Equality,” South China Morning
Post, August 19, 2021.
96. Edward White, “Meituan Chief Adopts Xi Jinping’s Wealth Redistribution
Rhetoric,” Financial Times, August 30, 2021. Coco Liu, “Meituan Shrugs Off Antriturst Probe as Sales Beat Estimates,” Bloomberg, August 30, 2021.
97. Zhang Xiaodong, “New Changes to Draft Outline of China’s 14th Five Year
Plan,” People’s Daily, March 11, 2021.
98. Xinhua, “China Targets GDP Growth of over 6 Pct in 2021, Revs Up Modernization Drive,” Marche 5, 2021.
99. Xu Gao, “Opinion: China Needs to Ease Up on Deleveraging,” Caixin, January 25, 2019; Orange Wang, “Beijing’s Tilt towards State-Owned Enterprises Raises
Doubts about Future of Private Sector in Chinese Economy,” South China Morning
Post, September 21, 2018; Li Yuan, “Private Businesses Built Modern China. Now theGovernment Is Pushing Back,” New York Times, October 3, 2018.
100. Nathaniel Taplin, “China’s Economy Is Still Dependent on Housing and Exports,” Wall Street Journal, April 13, 2021.
101. Jude Blanchette and Andrew Polk, “Dual Circulation and China’s New Hedged
Integration Strategy,” Center for Strategic and International Studies, August 24, 2020.
102. Zhang Xueliang and Yang Chaoyuan, “Accelerate Formation of a New Development Model by Mutual Implementation of Domestic and International a Dual-Circulation Economy (加快形成国内国际双循环相互促进的新发展格局),” Guangming Daily,
July 7 2020. Translation.
103. Yuen Yuen Ang, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations at the Chinese Communist Party’s
Centennial, January 28, 2021, 7–8.
104. Wang Qing, “Golden Credit Ratings’ Wang Qing: Dual Circulation Is the Common Thread Running through the 14th Five-Year Plan” (东方金诚王青：双循环是贯穿“十四五”规划的一条主线), Sina Finance, March 24, 2021. Translation.
105. Lingling Wei, “China’s New Power Play: More Control of Tech Companies’
Troves of Data,” Wall Street Journal, June 12, 2021; Xinhua, “Xi Jinping: Promote
the Standardized, Healthy, and Sustainable Development of the Platform Economy,
Incorporate Carbon Peaks and Carbon Neutrality into the Overall Layout of Ecological Civilization Construction” (习近平：推动平台经济规范健康持续发展把碳达峰碳中和纳入生态文明建设整体布局), March 16, 2021. Translation.
106. Trivium China, “Deep Dive: China’s Triple Tech Crackdown,” July 2, 2021.
107. Jing Yang and Lingling Wei, “China’s President Xi Jinping Personally Scuttled Jack Ma’s Ant IPO,” Wall Street Journal, November 12, 2020.
108. George Calhoun, “Why China Stopped the Ant Group’s IPO (Part 2): Ant’s
Dangerous Business Model,” Forbes, November 16, 2020.
109. Reuters, “Factbox: Ant Group to Overhaul Business as Beijing Clamps Down,”
April 12, 2021.
110. Pearl Liu, “Beijing Summons Online Financial Platforms and Warns over Unfair Market Practices,” South China Morning Post, April 29, 2021; Hu Yue and Han
Wei, “China Orders 13 Tech Companies to Overhaul Finance Operations,” Caixin,
April 30, 2021.
111. Alex Fang and Yifan Yu, “Chinese Regulators Summon Fintech Giants Including Tencent and ByteDance,” Nikkei Asia, April 30, 2021.
112. Zhang Yuzhe, Hu Yue, and Luo Meihan, “Exclusive: Tencent Ordered to Set
Up Financial Holding Company,” Caixin, May 26, 2021; People’s Bank of China, Financial Regulators Jointly Interview Several Internet Platforms Engaged in Financial Services (金融管理部门联合约谈部分从事金融业务的网络平台企业), April 29, 2021.
Translation.
113. Bloomberg, “China Finalizes Internet Antitrust Rules in Just Three Months,”
February 7, 2021; China’s State Administration for Market Regulation, State Coun-160
cil Anti-Monopoly Committee’s Anti-Monopoly Guidelines for the Platform Economy
Sector (国务院反垄断委员会关于平台经济领域的反垄断指南), February 7, 2021. Translation.
114. Matthew Walsh, Qian Tong, and Yuan Ruiyang, “Update: Alibaba Fined $2.8
Billion in Landmark China Antitrust Ruling,” Caixin, April 10, 2021; Raymond
Zhong, “China Fines Alibaba $2.8 Billion in Landmark Antitrust Case,” New YorkTimes, April 9, 2021.
115. China’s State Administration for Market Regulation, Provisions on Prohibited
Acts of Unfair Online Competition (Draft for Solicitation of Comments) 禁止网络不正当竞争行为规定 (公开征求意见稿), August 17, 2021. Translation.
116. Ryan McMorrow and Eleanor Olcott, “Meituan Fined $530 Million for Antitrust Abuse,” Financial Times, October 8, 2021; Keith Zhai, “China’s Antitrust
Regulator Planning to Fine Meituan about $1 Billion,” Wall Street Journal, August
6, 2021; People’s Bank of China, Financial Management Departments Interviewed
Some Online Platform Companies Engaged in Financial Business (金融管理部门联合约谈部分从事金融业务的网络平台企业), April 29, 2021. Translation.
117. Stephanie Yang, “China’s Tech Clampdown Is Spreading Like Wildfire,” WallStreet Journal, June 6, 2021.
118. Bloomberg, “China’s Didi Crackdown Is All about Controlling Big Data,” July8, 2021.
119. Keith Zhai and Jing Yang, “China Targets Firms Listed Overseas after
Launching Didi Probe,” Wall Street Journal, July 6, 2021; Xinhua, “China to Severely
Punish Illegal Activities in Securities Market,” July 6, 2021.
120. Cyberspace Administration of China, Cyberspace Administration of China’s‘Cybersecurity Review Measures’ (Revised Draft for Solicitation of Comments), July
10, 2021.
121. Julie Zhu and Scott Murdoch, “China Eyes Pushing U.S. IPO-Bound Firms to
Hand Over Data Control-Sources,” Reuters, August 20, 2021.
122. Julie Zhu and Scott Murdoch, “China Eyes Pushing U.S. IPO-Bound Firms to
Hand Over Data Control-Sources,” Reuters, August 20, 2021.
123. Bloomberg, “City of Beijing Said to Seek Taking Didi under State Control,”September 4, 2021.
124. China Law Translate, “Data Security Law (China),” 2021, Article 36.
125. China Law Translate, “Data Security Law (China),” 2021, Article 36.
126. Murray Scot Tanner, “Beijing’s New National Intelligence Law: From Defense
to Offense,” Lawfare, July 20, 2017.
127. Trefor Moss, “Tesla to Store China Data Locally in New Data Center,” WallStreet Journal, May 26, 2021.
128. Rogier Creemers and Graham Webster, “Translation: Personal Information
Protection Law of the People’s Republic of China (Effective Nov. 1, 2021),” DigiChina,
August 20, 2021.
129. Alexander Chipman Koty, “Personal Data Regulation in China: Personal Information Protection Law, Other Rules Amended,” China Briefing, May 13, 2021.
130. Rogier Creemers and Graham Webster, “Translation: Personal Information
Protection Law of the People’s Republic of China (Effective Nov. 1, 2021),” DigiChina,
August 20, 2021; Ken Dai and Jet Deng, “China’s GDPR Is Coming: Are You Ready?
Exploring the Upcoming China’s Draft Personal Information Protection Law Topic
One - Scope of Application,” JD Supra, March 11, 2021.
131. Detlev Gabel and Tim Hickman, “Chapter 13: Cross-Border Data Transfers—
Unlocking the EU General Data Protection Regulation,” White & Case, April 5, 2019.
132. Rogier Creemers and Graham Webster, “Translation: Personal Information
Protection Law of the People’s Republic of China (Effective Nov. 1, 2021),” DigiChina,
August 20, 2021.
133. Xu Ke et al., “Analyzing China’s PIPL and How It Compares to the EU’s
GDPR,” International Association of Privacy Professionals, August 24, 2021.
134. Graham Webster, “Translation: Data Security Law of the People’s Republic ofChina,” DigiChina, June 29, 2021.
135. Shannon Tiezzi, “China’s Bid to Write the Global Rules on Data Security,”
Diplomat, September 10, 2020.
136. Shannon Tiezzi, “China’s Bid to Write the Global Rules on Data Security,”
Diplomat, September 10, 2020.
137. Katja Drinhausen and Helena Legarda, “China’s Anti-Foreign Sanctions Law:
A Warning to the World,” Mercator Institute for China Studies, June 24, 2021.
138. CCTV, “[Video] During the 26th Collective Study Session of the Political Bureau of the Central Committee, Xi Jinping Emphasized That We Should Adhere to
System Thinking to Build a Big Security Pattern and Provide a Strong Guarantee
for Building a Modern Socialist Country ([视频]习近平在中央政治局第二十六次集体学

161习时强调 坚持系统思维构建大安全格局 为建设社会主义现代化国家提供坚强保障),” December 21, 2020. Translation.
139. Rachel Treisman, “China Slaps Sanctions on 28 Trump Administration Officials, Including Mike Pompeo,” NPR, January 20, 2021.
140. Covington and Burling, “PRC Export Control Law (中华人民共和国出口管制法),” October 2020, 4.
141. Baker & McKenzie, “Measures for Security Review of Foreign Investments,”
December 19, 2020.
142. Baker & McKenzie, “Measures for Security Review of Foreign Investments,”
December 19, 2020.
143. Lester Ross, Kenneth Zhou, and Tinting Liu, “China’s New Foreign Investment Security Review Measures,” December 22, 2020.
144. Covington and Burling, “PRC Export Control Law (中华人民共和国出口管制法),” October 2020, 17.
145. Sofia Baruzzi, “China Promulgates New Extraterritorial Jurisdiction Measures,” February 8, 2021.
146. Rogier Creemers and Graham Webster, “Translation: Personal Information
Protection Law of the People’s Republic of China (Effective Nov. 1, 2021),” DigiChina,
August 20, 2021.
147. Zachary Torrey, “China’s Anti-Foreign Sanctions Law: Concerns and Uncertainty Abound,” SupChina, July 2, 2021; Katja Drinhausen and Helena Legarda,“China’s Anti-Foreign Sanctions Law: A Warning to the World,” Mercator Institute for
China Studies, June 24, 2021.
148. China Law Translate, “Law of the PRC on Countering Foreign Sanctions,”
June 10, 2021.
149. China Law Translate, “Law of the PRC on Countering Foreign Sanctions,”
June 10, 2021.
150. Narayanan Soma Sundaram, “China Anti-Sanctions Law to Put Squeeze on
Foreign Companies,” Nikkei Asia, June 11, 2021.
151. China Law Translate, “Law of the PRC on Countering Foreign Sanctions,”
June 10, 2021.
152. Julian Ku (@julianku), “The other thing the new law does is prohibit any
companies operating in China from complying with EU or U.S. sanctions and expose
them to civil lawsuits for damages caused by such compliance. E.g. the XPCC couldsue HM, etc.” Twitter, June 10, 2021, 11:31 a.m.
153. U.S. Census Bureau, Trade in Goods with China, October 5, 2021.
154. Yuka Hayashi, “U.S. Trade Deficit Widened in May as Economic ReboundFueled Demand for Imports,” Wall Street Journal, July 2, 2021; Tang Ziyi, “China’s
Manufacturing Expands at Fastest Pace in Five Months, Caixin PMI Shows,” Caixin,
June 1, 2021; Ben Thompson and Dan Wang, “An Interview with Dan Wang about
China, the U.S., and Technology,” Stratechery, April 1, 2021.
155. U.S. Census Bureau, Trade in Goods with China, October 5, 2021.
156. U.S. Census Bureau, Trade in Goods with China, October 5, 2021.
157. U.S. Census Bureau, Trade in Goods with China, October 5, 2021.
158. U.S. Census Bureau, FT900: U.S. International Trade in Goods and Services,
October 5, 2021.
159. U.S. Census Bureau, FT900: U.S. International Trade in Goods and Services,
October 5, 2021.
160. U.S. Census Bureau, FT900: U.S. International Trade in Goods and Services,
October 5, 2021.
161. Thilo Hanemann et al., “Two-Way Street: 2021 Update U.S.-China Investment
Trends,” Rhodium Group, May 2021, 9.
162. Adam Lysenko et al., “U.S.-China Financial Investment: Current Scope andFuture Potential,” Rhodium Group, January 2021, 12, 15; Antonio Coppola et al.,“Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing
and Tax Havens,” Global Capital Allocation Project, December 2020.
163. Kiran Stacey and James Politi, “Senators Call on U.S. Securities Regulator toInvestigate Didi IPO,” Wall Street Journal, July 8, 2021; Xie Yu, Elaine Yu, and Jing
Yang, “Didi Shares Plunge as China’s Probes of U.S.-Listed Firms Jolt Investors,”
Wall Street Journal, July 6, 2021; Tracy Qu and Zhou Xin, “China Takes Didi off
App Stores Two Days after Beijing Announces Cybersecurity Review,” South China
Morning Post, July 4, 2021.
164. State Council of the People’s Republic of China, The General Office of the Central Committee of the Chinese Communist Party and the General Office of the StateCouncil of the People’s Republic of China Jointly Issued the “Opinions on Strictly
Cracking Down on Illegal Securities Activity in Accordance with Law” (中共中央办公162
厅 国务院办公厅印发《关于依法从严打击证券违法活动的意见》), July 6, 2021. Translation.
165. State Council of the People’s Republic of China, The General Office of the Central Committee of the Chinese Communist Party and the General Office of the StateCouncil of the People’s Republic of China Jointly Issued the “Opinions on Strictly
Cracking Down on Illegal Securities Activity in Accordance with Law” (中共中央办公厅 国务院办公厅印发《关于依法从严打击证券违法活动的意见》), July 6, 2021. Translation.
166. Cyberspace Administration of China, Cyberspace Administration of China’s‘Cybersecurity Review Measures’ (Revised Draft for Solicitation of Comments), July
10, 2021. Translation.
167. Lester Ross, Kenneth Zhou, and Tingting Liu, “China Tightens Control overOverseas Securities Listings in Name of Data Security,” Wilmer Hale, July 12, 2021.
168. Lester Ross, Kenneth Zhou, and Tingting Liu, “China Tightens Control overOverseas Securities Listings in Name of Data Security,” Wilmer Hale, July 12, 2021.
169. Bloomberg, “Why China Is Cracking Down Now On After-School Tutors,” July26, 2021.
170. Juliet Chung, Justin Bear, and Dawn Lim, “Investors Lost Hundreds of Billions on China in July,” Wall Street Journal, July 30, 2021.
171. U.S. Securities and Exchange Commission, Investor Bulletin: U.S.-Listed Chinese Companies Operating Chinese Businesses through a VIE Structure, September
20, 2021.
172. U.S.-China Economic and Security Review Commission, Chinese Companies
Listed on Major U.S. Stock Exchanges, May 5, 2021.
173. AmCham China, “American Business in China White Paper,” May 2021, 12.
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Says,” Bloomberg, May 10, 2021.
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3, 2021.
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187. Jodi Xu Klein and Robert Delaney, “Chinese Communications Firms in the
U.S. Face More Pressure under Biden Administration,” South China Morning Post,
March 18, 2021.
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189. Federal Communications Commission, Public Safety and Homeland Security
Bureau Announces Publication of the List of Equipment and Services Covered by
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190. Alexandra Melia et al., “EU, UK, U.S. and Canada Announce Coordinated Xinjiang Sanctions,” March 25, 2021; U.S. Department of the Treasury, Treasury Sanc-

163
tions Chinese Government Officials in Connection with Serious Human Rights Abusein Xinjiang, March 22, 2021.
191. United Kingdom Foreign, Commonwealth, and Development Office, G7 Foreign and Development Ministers’ Meeting: Communiqué, May 5, 2021; White House,
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192. White House, Fact Sheet: Quad Summit, March 12, 2021; Ryan Heath, “U.S.
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193. European Commission, “EU-U.S. Launch Trade and Technology Council to
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194. Eric Tucker, “Microsoft Exchange Hack Caused by China, U.S. and Allies Say,”
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195. Somini Sengupta, “Biden’s Climate Summit Sets Up a Bigger Test of American Power,” New York Times, April 23, 2021.
196. Tim McDonnell, “The U.S. Needs to Choose Its Climate Battles with China
Carefully,” Quartz, April 21, 2021.
197. Katharina Buchholz, “China Dominates All Steps of Solar Panel Production,”
Statista, April 21, 2021; Kenneth Rapoza, “How China’s Solar Industry Is Set Up to
Be the New Green OPEC,” Forbes, March 14, 2021.
198. Tim McDonnell, “The U.S. Needs to Choose Its Climate Battles with China
Carefully,” Quartz, April 21, 2021; Bloomberg, “China Dominates the Lithium-Ion
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199. White House, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews under Executive
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200. Ryan Hass, “How China is Responding to Escalating Strategic Competition
with the United States,” China Leadership Monitor, March 1, 2021.
201. Edward Wong, Lara Jakes, and Steven Lee Myers, “U.S. Orders China to Close
Houston Consulate, Citing Efforts to Steal Trade Secrets,” New York Times, July 22,
2020.
202. Bloomberg, “Zhou Warns of Stimulus Cost; Xi Urges Cooperation: Boao Update,” April 20, 2021.
203. Caitlin Oprysko, “Embattled Chinese Firms Add Lobbying Help,” Politico, July
7, 2021; Lingling Wei, Bob Davis, and Dawn Lim, “China Has One Powerful Friend
Left in the U.S.: Wall Street,” Wall Street Journal, December 2, 2020.
204. Matt Pottinger, oral testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans and Metrics ofSuccess, April 15, 2021, 52–53.
205. James Pearson, “Explainer: What Happens Now the RCEP Trade Deal Has
Been Signed?” Reuters, November 16, 2020.
206. Joshua Kurlantzick, “The RCEP Signing and Its Implications,” Council on
Foreign Relations, November 16, 2020; Keith Bradsher and Ana Swanson, “China-Led
Trade Pact Is Signed, in Challenge to U.S.,” New York Times, November 15, 2020.
207. Theresa Fallon, “The Strategic Implications of the China-EU Investment
Deal,” Diplomat, January 4, 2021; Jim Brunsden, Mehreen Khan, and Michael Peel,“EU and China Agree New Investment Treaty,” Financial Times, December 30, 2020.
208. Ryan Hass, “How China Is Responding to Escalating Strategic Competition
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Deal? What Next for China-EU Investment Pact and Why It May Fail,” South China
Morning Post, January 5, 2021; Stuart Lau, “Hong Kong Arrests Threaten Passage
of EU-China Investment Deal, European Parliament Members Say,” South China
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209. China’s Ministry of Commerce, China Formally Applies to Join the CPTPP(中方正式提出申请加入《全面与进步跨太平洋伙伴关系协定》(CPTPP)), September 16,
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210. Katsuji Nakazawa, “Analysis: China’s TPP Bid Follows Carefully Scripted
300-Day Plan,” Nikkei Asia, September 23, 2021; Finbarr Bermingham, “China’s Interest in Pacific Trade Deal Sets Stage for New U.S. Showdown After Xi Jinping Ups
the Ante,” South China Morning Post, November 25, 2020.
211. Tim McDonald, “Can Western Brands Recover from Consumer Backlash in
China?” BBC, April 25, 2021; Rita Liao, “H&M Remove from Chinese Apps over Xinjiang Cotton Ban,” Tech Crunch, March 24, 2021.
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164
213. Rory Simington, “Australian Coal Exports Bounce Back from China’s Ban,”
Wood Mackenzie, March 4, 2021.
214. Su-Lin Tan, “China-Australia Relations: U.S. Coal Continues to Fill Void Leftby Ban on Australian Exports, Canberra Report Says,” South China Morning Post,
June 30, 2021; Damien Cave, “China Battles the World’s Biggest Coal Exporter, andCoal Is Losing,” New York Times, March 16, 2021.
215. Rory Simington, “Australian Coal Exports Bounce Back from China’s Ban,”
Wood Mackenzie, March 4, 2021.
216. Australia’s Department of Foreign Affairs and Trade, Trade Statistical Pivot
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217. Sohrab Darabshaw, “Trade Tensions Persist, but China Still Needs Australian
Iron Ore,” Metal Miner, June 22, 2021.
218. Clyde Russell, “Column: China Is Paying a High Price for Its Ban on Australian Coal,” Reuters, April 9, 2021.
219. Su-Lin Tan, “China Weighs Price Caps on Coal as Supply Shortage Sends
Energy Prices Soaring,” South China Morning Post, June 9, 2021.
220. Reuters, “China Hits Back at EU with Sanctions on 10 People, Four Entities
over Xinjiang,” March 22, 2021.
221. European Parliament, “MEPs Refuse Any Agreement with China Whilst Sanctions Are in Place,” May 20, 2021.
222. Finbarr Bermingham, “China Halts Rail Freight to Lithuania as Feud Deepens over Taiwan,” South China Morning Post, August 18, 2021.
223. Chen Yunyu, “China Expands Retaliation Against Lithuania, Canceling Agricultural and Livestock Negotiations” (中國擴大報復立陶宛 砍單、取消農畜談判), Central News Agency, August 23, 2021. Translation.
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228. H&M Group, “Statement on H&M in China,” March 31, 2021.
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230. Supantha Mukherjee, “Ericsson’s China Ambitions in Jeopardy over Sweden’s
Huawei,” Reuters, May 19, 2021.
231. Richard Milne, “Ericsson Warns of China Retaliation Following Sweden’s Huawei Ban,” Financial Times, July 16, 2021.
232. Finbarr Bermingham, “EU-China Investment Treaty: Top European Negotiator Maria Martin-Prat Defends Forced-Labour Provisions amid Criticism,” South
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233. European Chamber of Commerce in China, “Business Confidence Survey
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234. Chad P. Bown and Mary E. Lovely, “Trump’s Phase One Deal Relies on China’s State-Owned Enterprises,” Peterson Institute for International Economics.
235. Mark Cohen, “Is It in There—CNIPA’s ‘Phase 1’ IP Action Plan?” China IPR
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236. Mark Cohen, “Bureaucracy and Politics in Recent SAMR Legislation,” China
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237. World Trade Organization, “Protocol of Accession of the People’s Republic ofChina,” November 10, 2001.
238. Quentin Webb, “BlackRock Gets Green Light to Start Offering Mutual Funds
in China,” Wall Street Journal, June 11, 2021.
239. John Liu et al., “Shock and Tears: Behind Vanguard’s Retreat from the China
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Their Casino Reputation,” March 20, 2021.
240. Chad Bown and Soumaya Keynes, Trade Talks Podcast, “Trade Talks Episode
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241. Connor McKoy, “China and Biotech: What’s the Deal?’ BIO, January 23, 2020.

SECTION 2: THE CHINESE COMMUNISTPARTY’S ECONOMIC AND TECHNOLOGICALAMBITIONS: SYNTHETIC BIOLOGY, NEW
MOBILITY, CLOUD COMPUTING, AND DIGITALCURRENCY
Key Findings• The Chinese Communist Party (CCP) views achieving technological self-sufficiency as essential for both economic growth andpolitical survival. China’s leaders believe they can rely on thedomestic development of emerging technologies not only to address long-term structural challenges such as falling productivity growth, demographic decline, and environmental degradation
but also to strengthen Party control and stability while reducing dependency on foreign technology and products.
• Under General Secretary of the CCP Xi Jinping, the Party has
increased its control over China’s economy in ways that havefurther enhanced the links between China’s state and nonstate
sectors. The CCP believes state control rather than economic
liberalization is essential to achieving economic growth while
maintaining political stability.
• To achieve dominance in emerging technologies like cloud computing, synthetic biology, and new mobility, Chinese policymakers are relying on extensive subsidization and other tactics
similar to those previously used for industries such as shipping, telecommunications, and conventional vehicles. With few
internationally accepted standards or rules, Chinese companies
and other entities are actively shaping standards in collecting,protecting, and governing data. Chinese efforts to build technological capacity could have lasting negative consequences forthe future of U.S. technological leadership.
• The CCP is working to establish China as a global leader insynthetic biology, motivated by the prospective economic benefits and also the potential for synthetic biology to mitigate
structural problems such as deficiencies in China’s healthcare
system and scarce natural resources. The United States leads
in most applications of synthetic biology, but Chinese synthetic
biology firms receive generous state subsidies and have begun
supplementing domestic genomic data collection with international collection efforts.
• With its advancements in new mobility, China is positioned tocontest U.S. leadership in various technologies. The Chinese
government has prioritized development of new energy vehicle(NEV) technology through extensive subsidies and protection(165)166
ist policies while capturing every stage of the supply chain for
NEV batteries. In autonomous and connected vehicles, global
competition is increasing as Chinese companies are engaged inpursuit of international markets.
• U.S. global dominance in cloud computing may be challenged
by Chinese competitors in developing markets. Chinese cloudcomputing companies have thrived in a protected home market
and with few exceptions can operate freely in the United States
while U.S. companies face barriers in China. Protecting its cloudcomputing sector to control information and data flows is a national security priority for China as well as a strategic imperative to support other key emerging technologies such as new
mobility, artificial intelligence (AI), biotechnology, smart cities,
and big data applications.
• China leads among major economies in the development of acentral bank digital currency. The CCP’s promotion of a digital renminbi (RMB) is motivated by several factors, including adesire to increase control and surveillance of financial transactions by state and nonstate companies, foreign firms operatingin China, and individuals. China’s digital RMB does not present
an immediate challenge to the U.S.-led global financial system,
but in the long term it could undermine the status of the U.S.
dollar and efficacy of U.S. financial sanctions.
Recommendations
The Commission recommends:• Congress direct the U.S. Department of Energy, in coordination
with the National Institute of Standards and Technology andother relevant agencies, to produce a report and research plan
outlining a project for the collection and sequencing of nonhuman genomic data, analogous to the Human Genome Project.
Such a plan shall include:○ A description of the types of nonhuman genomic data to becollected and sequenced;○ An explanation of research value and commercial applications
from collecting and sequencing such data;○ The designation of an existing Department of Energy National Laboratory to coordinate the project and award grants to
U.S. universities and private companies in furtherance of the
project’s goals;○ A description of ethical considerations and processes forstakeholder engagement; and○ Articulation of the National Institute of Standards and Technology’s role to: Codify technical standards related to the project;
 Share and protect data collected during the project; and Engage with the public and international partners on the
project’s findings.

167• Congress direct the National Institute of Standards and Technology, in coordination with the National Institutes of Health,
the U.S. Patent and Trade Office, the Department of Energy, andthe Department of State, to establish a model framework for theprotection, collection, and commercialization of nonhuman genomic data. The framework should seek to establish principles
on intellectual property rights for the countries of origin of the
genomic data. This framework should also be used in international outreach regarding protection of national biotechnology
assets and Chinese predatory collection of data.
• Congress request a report from the Administration regarding
data servicing operations owned by Chinese firms. Such a report shall include:○ Whether such firms are operating in the United States, whatlaws and regulations may apply to such operations and services, and what cloud computing services are offered or provided to U.S. persons;○ Whether Chinese cloud computing providers are engaged inany joint ventures or servicing arrangements with U.S. firms
and the nature of such operations;○ Whether consumers of these services have access to prominently identified information regarding the ownership of suchcloud computing services;○ Whether U.S. firms can operate freely in the People’s Republicof China (PRC) and what, if any, restrictions might apply totheir services and operations;○ Where Chinese-owned firms may be providing equipment
or services for the provision of cloud computing support inthird-country markets and whether the market share of Chinese-owned firms in those markets may limit, in any way, theability of U.S.-owned firms to operate independently of suchoperations; and○ What support the Chinese government may be providing tocloud computing firms in terms of equipment and services
that may act as a subsidy for such operations.
• Congress consider legislation requiring that the U.S. Departmentof Transportation, in consultation with the U.S. Departmentsof Commerce, Energy, and Defense, and law enforcement authorities, develop regulations limiting access for Chinese-owned
firms developing autonomous vehicle capabilities to protect U.S.
national and economic security interests. In preparing such regulations, the authorities should consider the extent to which the
Chinese government limits access of U.S. firms for similar uses.
Specific attention should be given to data collection activities
that may advance the interests of the Chinese military or intelligence agencies. In addition, such legislation shall address any
need to protect the data utilized and collected by autonomousvehicles produced and/or serviced by Chinese-owned firms.
• The committees of relevant jurisdiction in the House and Senate investigate and hold hearings with a view toward consider-168
ing legislation on the operations of China’s Blockchain-Based
Service Network, with particular attention to its operationsin the United States and participation of U.S. companies inbuilding out the network. Such investigation should look at thegoals of the network in developing blockchain infrastructure
and whether the involvement of the Chinese government andChinese state-owned entities may put at risk any U.S. economic
and national security interests.
• Congress consider legislation to create the authority to screen
the offshoring of critical supply chains and production capabilities to the PRC to protect U.S. national and economic security
interests and to define the scope of such supply chains and production capabilities. This would include screening related outbound investment by U.S. entities. Such legislation would direct
the secretaries of defense and commerce, along with the U.S.
Trade Representative, to develop procedures to evaluate existing and proposed supply relationships with the PRC and identify whether critical U.S. interests are being adversely affected,
including the loss of domestic production capacity and capabilities. The legislation would authorize the president to take appropriate action, including prohibiting supply relationships or
certain transactions to protect U.S. national security.
Introduction
In the 14th Five-Year Plan (FYP) * (2021–2025), the CCP articulates a vision for economic prosperity that ensures social stability and its paramount control while promoting a “modern socialist
country.” 1 While the 14th FYP builds on policy ambitions previously
articulated by the Chinese government, one of its most significant
changes is that it drops precise numerical growth targets. Instead,
mounting socioeconomic challenges—from pollution to rising income inequality—are critical factors in motivating the CCP’s focus
on delivering quality-of-life improvements. The 14th FYP also looks
beyond its five-year remit to longer-term objectives, framing the2021–2025 period as the latest stage in a longer economic and social
development project mapped out to both 2035 and 2049. † 2
At the same time that it articulates an ambitious growth agenda,
the CCP acknowledges overwhelming domestic obstacles. Achieving
indigenous technological breakthroughs is a particularly urgent challenge, driven by the CCP’s perception that state-led innovation is an
essential part of redirecting the market to fulfill political objectives
and subsequently strengthen CCP security. As pressure from the international community around China’s practices increases, China’s
policymakers are looking to assert greater control over the economy,
shield its companies from foreign backlash, and direct investment
toward high-priority needs such as food security and healthcare. To
achieve these objectives, the CCP is rolling out a framework of in* FYPs are economic policy blueprints that enumerate the Party’s objectives and priorities
during the ascribed time period. FYPs historically have centered on production targets or othernumerical targets, rooted in the command economy of the Soviet Union and inherited by otherCommunist regimes. Economist, “What Is China’s Five-Year Plan?” March 4, 2021.
† The CCP regards 2049 with particular importance as the year will mark the centennial of thefounding of the People’s Republic of China. Evelyn Cheng, “Xi at Communist Party Anniversary:
China Won’t Accept ‘Sanctimonious Preaching’ from Others,” CNBC, July 1, 2021.

169
centives to reward companies that follow government guidance andpunish those that stray from it.
This section begins with a discussion of CCP economic policymaking, including its growing emphasis on achieving technologicalself-sufficiency while it assumes further control of key industries forboth state and nonstate firms. It then examines the CCP’s strategies—including plans for international expansion—around three ofmany sectors the CCP views as crucial to China’s economic future:synthetic biology, new mobility, and cloud computing. Finally, it examines the CCP’s recent efforts to promote a sovereign digital currency and its reasons for doing so, which include economic as well as
domestic and geopolitical motivations. The section draws from theCommission’s April 2021 hearing on “An Assessment of the CCP’s
Economic Ambitions, Plans, and Metrics of Success,” the Commission’s staff and contracted research, consultations with policy experts, and open source research and analysis.
Plotting Economic Innovation to 2025
At the start of 2021, China was ahead of the world in post-pandemic recovery while also looking ahead to key CCP milestones. Foreign criticism and pushback against the CCP’s policies and practices, along with growing domestic challenges, clouded the outlook for2021 and helped to strengthen the internal push for self-sufficiency.
Demographic decline, environmental degradation, income inequality, and a growing debt burden remain pressing challenges to China’s economic growth and social stability while inherently testing
CCP control. (For more on these challenges, see Chapter 1, Section
1, “The Chinese Communist Party’s Ambitions and Challenges at
Its Centennial.”) Chinese policymakers formulated the 14th FYP inview of near-term difficulties and their ability to deliver on longterm guarantees of CCP economic management. While these considerations did not drive a departure from previous economic planningand tools, they did push the CCP into a deeper reassessment ofChina’s links to the global economy. In addition to its domestic objectives for technology, the CCP wants to gain international leadership in key technologies to both promote Chinese companies abroad
and benefit from controlling the path of global innovation. The 14th
FYP outlines the CCP’s strengthened commitment to a top-down
approach and strategy for realigning China’s economic relationships
to insulate against disruptions from foreign policies and other external shocks.
The 14th FYP also illustrates the CCP’s view that technologicalupgrades will solve its slowing productivity growth, a problem
that has weighed on China’s economy for over a decade. Loren
Brandt, Noranda chair of economics at the University of Toronto,
argues that China’s productivity growth was once driven by anabundant supply of labor and strong performance of the nonstate
sector, but it has been on the decline since 2007.3 In testimony
before the Commission, Dr. Brandt attributed the decline to increased state direction and a departure from government policies of the 1990s and 2000s that enabled the nonstate sector of
the economy to flourish.4 During that period, government policies
lowered barriers to firm entry and allowed labor to move from170
agriculture to industrial sectors, where workers gained skills andtraining. Over the last 15 years, the state’s hold on capital- andskill-intensive industries tightened. Education and skills among
the workforce also did not progress enough to meet the demandof new high-tech industries.5 According to Dr. Brandt, the Chinese government’s return to a top-down approach has only exacerbated the drag on productivity, but the CCP sees a top-down
approach as a necessity to direct resources into technologies thatcan boost productivity growth.6
The CCP Seeks Supply Chain Security
China’s decades-long drive for self-sufficiency has intensified in
the wake of extensive U.S. actions to limit access to technology byproblematic Chinese companies. The U.S. export control regime, forexample, not only affects the flow of goods from the United States
to target countries but also extends to third countries’ exports ofgoods that contain U.S. content. In other words, U.S. controls limit
the ability of third countries to send controlled technology to certain end users. Since 2018, the Department of Commerce has added
nearly 250 Chinese companies and research institutes to its Entity List. 7 Ling Chen, professor of political economy at the Johns
Hopkins School of Advanced International Studies, testified that for
Chinese tech companies targeted by U.S. sanctions, “their success or
failure was interpreted [by the Chinese government] as a matter ofnational survival.” 8
Weakening global demand coupled with greater global scrutiny of China’s companies has prompted Chinese policymakers tofocus on supply chain security. Even prior to the novel coronavirus (COVID-19) pandemic, China’s government was seeking toinsulate China’s supply chains from all manner of shocks, suchas a sudden drop in foreign demand, constraints on logistics andtransportation, or foreign laws and regulations seeking to block
the flow of goods and services. Recognition of these vulnerabilities
has been a key driver of China’s dual circulation strategy, whichaims to reduce dependence on solely export-led growth, and increasing domestic consumption while increasing foreign relianceon China. (For more on dual circulation, see Chapter 1, Section
1, “The Chinese Communist Party’s Ambitions and Challenges at
Its Centennial.”)For the central government, securing supply chains means not
only reducing vulnerabilities with respect to foreign sources but also
increasing China’s role in higher-value supply chains. Matt Pottinger, distinguished visiting fellow at the Hoover Institution and former deputy national security adviser, called China’s approach “offensive decoupling,” or a “one-way decoupling,” because it seeks toincrease global dependencies on Chinese products while also onshoring production in key sectors.9 In testimony before the Commission,
Mr. Pottinger also defined offensive decoupling as the CCP seeking
to decouple on its own terms and use economic leverage for political goals.10 These actions and the underlying strategy demonstrate
what the CCP views as a broad definition of security and its heightened sense of vulnerability.

171
The 14th Five-Year Plan Places Self-Sufficiency at the Core of
China’s Development
The 14th FYP comes at a critical time as Chinese policymakers
seek to respond to long-standing domestic economic challenges,
manage post-COVID-19 recovery, and mitigate mounting international criticism. Released in the same year as the CCP’s centennial
anniversary, the 14th FYP reflects the CCP’s desire to show thatits leadership is essential for sustaining a robust economy while
concealing or shoring up many negative spillovers of the CCP’s approach. One such spillover effect is growing income inequality. Notably, the 14th FYP looks far beyond 2025 to 2035, which is when the
country’s policymakers envision that China will effectively modernize in key areas and overcome various forms of economic inequality.
The 2021–2025 period is also viewed as the beginning of the next
great phase of development toward 2049, which will mark the centennial of the founding of the People’s Republic of China.11 According to General Secretary Xi, China has achieved the 13th FYP’s goalof a “moderately prosperous society.” 12 The national vision for the
14th FYP is to become a “modern socialist country,” a concept that
General Secretary Xi outlined in 2017 to include expansion of the
middle class and reduction of income inequality.13 (For more on thisconcept, see Chapter 1, Section 1, “The Chinese Communist Party’s
Ambitions and Challenges at Its Centennial.”)The policy goals of the 14th FYP remain similar to past plans interms of core content and direction, but the plan demonstrates adistinct shift in messaging and tone. Income growth is not presented as an underlying guarantee of the plan, while overall economic
growth serves as a means to maintaining Party control and stability
over the long term. Chinese policymakers are shifting their narrative emphasis from discrete numerical targets to focus on what
they call “high-quality growth.” Chinese officials use this term toacknowledge some of the negative effects of a growth-at-all-costs
approach, such as environmental degradation, poor healthcare, andincome inequality. For the CCP, high-quality growth is an essential
component of ensuring social stability. The CCP must assure Chinese citizens that there are still opportunities in the economy andthat the Chinese people can rely on the CCP for a robust social
safety net. In the past, Chinese policymakers frequently mentioned
the need for quality-of-life improvements, but the 14th FYP is thefirst plan to focus on qualitative rather than quantitative targets,
according to Hu Zucai, deputy director of China’s National Development and Reform Commission.14 Accordingly, the 14th FYP is also
the first plan that does not incorporate a gross domestic product(GDP) growth target for the concluding year of the plan.
Instead of precise numerical targets, the 14th FYP is more focused than previous plans on qualitative assessments to fulfill
basic needs of childcare and education, healthcare, eldercare, andemployment.15 Chinese state media have noted that the qualitative growth approach is appropriate for current uncertainty andwould “help China respond to various risks and challenges in amore active and flexible way.” 16 This emphasis on quality of life
provides Chinese government agencies a broad runway to completea smaller set of goals and performance indicators. In contrast to172
previous plans, the 14th FYP also introduces new metrics of economic success such as food security and energy security, whichhave gained importance in the face of an increasingly dire setof demographic and environmental circumstances. Chinese planners hope innovation in areas like agricultural biotechnology andrenewable energies will ensure that key quality-of-life goals canbe achieved through enhancing China’s domestic capabilities andgreater self-sufficiency.
The specific areas of emphasis identified for innovation in the
14th FYP are largely consistent with the Made in China 2025 policy,
first introduced in 2015 (see Table 1). Chinese policymakers continue to prioritize advancements in the same sectors, including AI, newmaterials, advanced manufacturing, aerospace, and agricultural machinery. While featured in previous plans, the 14th FYP emphasizes
the linkage between innovation, development, and security to intentionally de-emphasize growth objectives. Innovation is viewed as
an enabler for many other sectors that will support Chinese growthand help the government mitigate domestic and international challenges. For instance, innovations like AI and synthetic biology will
improve healthcare while smart manufacturing will maximize value-added productivity gains.
Table 1: China’s Key Technology and Sectoral Targets Comparison
Made in China 2025

14th FYP

Next Generation IT Integrated
Circuits

Quantum Information
Integrated Circuits
Beidou * Navigation Satellite System

High-End Computerized
Machines and Robots

Major Technical Equipment
Smart Manufacturing and Robotics

Space and Aviation

Space and Aviation
Airplane Engines and Gas Turbines

Maritime Equipment and HighTech Ships

Ships and Maritime Equipment

Advanced Railway Transportation Equipment

Advanced Railway Transportation Equipment

New Energy and Energy-Saving
Vehicles

New Energy Vehicles and Smart (Connected)
VehiclesEnergy Equipment

Advanced Energy Equipment

Agricultural Machines

Agricultural Machinery and Equipment

New Materials

High-End New Materials

Biopharmaceuticals and HighTech Medical Devices

High-End Medical Equipment and Innovative
Drugs

Source: Simon Rabinovitch (@s_rabinovitch), “ ‘Made in China 2025’ is dead. Long live ‘Made in
China 2025’! China’s new Five-Year Plan is not nearly as detailed as its controversial MiC 2025
plan, but it targets all the same sectors & technologies, plus a few more.” Twitter, March 11, 2021,
10:26 p.m. https://twitter.com/S_ Rabinovitch/status/1370214528571514884.
* Beidou is China’s global navigation satellite system and has achieved global coverage as of2020 with 35 satellites worldwide. Beidou is operated by the China National Space Administration. GPS, “Other Global Navigation Satellite Systems.”

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The “Ten-Year Sprint” to Ensure China’s Global CompetitivenessAs Chinese policymakers seek to transform China into a “modernsocialist country,” they believe they have a relatively narrow window
to do so. Key CCP plans to address the structural challenges in China’s economy, which target completion by 2030 and 2035, indicate
an urgency in the Party’s timeline. Predictions that the country’s
population will peak between 2025 and 2030 have fueled the urgency to address a host of problems that will come with demographic
decline, including a smaller workforce, a more elderly population,and increased strain on government budgets and China’s social safety net.17 Jude Blanchette, Freeman chair at the Center for Strategic
and International Studies, noted in testimony before the Commission that because these challenges “threaten to derail China’s development path and global ambitions, it’s clear that Beijing is engaged
in a decade-long sprint, not a hundred-year marathon.” 18 In otherwords, as Michael Beckley and Hal Brands of the American Enterprise Institute argue in Foreign Affairs, this indicates that U.S.
competition with China could be “short and sharp.” 19
Chinese policymakers have long acknowledged weaknesses in
the country’s science and technology systems, particularly in basic
research and development (R&D) and the struggle to draw in talent.20 These deficiencies will become even more crucial not just in
the global tech race, but also in the CCP’s race against economic
slowdown and demographic decline. The CCP views innovation, development, and security as intrinsically linked and believes development of science and technology will answer its domestic and foreign
policy problems. Chinese planners appear confident that they areon track to achieve the necessary talent and tech breakthroughs. At
the same time, their approach recognizes challenges to the research
environment and its management by various government and nonstate actors. The 14th FYP establishes a ten-year action plan tostrengthen basic research, commits to changing regulations to support a more dynamic system of R&D, and outlines steps to growtalent. At the same time, policymakers will need to make significant
improvements in the education system likely beyond what the 14th
FYP prescribes to increase workforce opportunities in an era thatvalues science and technology skills. Inadequate rural education remains a critical obstacle to the future of Chinese employment as
China’s 900 million rural residents often lack education beyond ahigh school level.21 With only 15.5 percent of China’s population college-educated as of China’s 2020 census, shifting employment fromlow-wage labor toward knowledge-intensive innovation and services
will be a challenging transition.22
CCP Control of China’s Nonstate Sector Is Increasing
Under General Secretary Xi, the CCP has increased its control ofChina’s economy in ways that have further enhanced the linkages
between state and nonstate firms. In addition to promoting stateowned enterprises (SOEs), the CCP has also embraced hybrid formsof financing that allow it to direct capital toward, and increase influence in, nonstate enterprises. This approach is typified by the
CCP’s use of new tools to extend its reach, including government
guidance funds, which are state-nonstate investment vehicles that

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seek to raise capital for firms operating in strategic and emerging
industries such as AI. According to a March 2021 report by the Center for Security and Emerging Technology at Georgetown University,
as of 2020 the Chinese government had set up 1,741 government
guidance funds, with a total of more than $740 billion (RMB 4.76
trillion) raised.* 23
As Chinese and foreign economists have noted, the CCP’s oversight of China’s economy—and the integration of state and nonstate
firms in an economic policymaking ecosystem—brings certain advantages to China’s economic development. According to Mr. Blanchette, “The power of China’s state capitalist system stems from thesynergies created through strategic alliances, cross shareholdings,
frequent personnel rotations; and, increasingly, complex vertical
integration.” 24 This is exemplified in the case of COSCO Shipping
Group, an SOE that in 2017 raised more than $1 billion from other
SOEs to fund its purchase of 20 new ships.25 As Mr. Blanchette noted, “Most of COSCO’s foreign competitors do not possess the ability
to raise capital via government-orchestrated equity sales.” 26
For all its ostensible advantages, China’s state-led model imposessignificant costs on China’s economic growth as well. For instance,
the Center for Security and Emerging Technology study on government guidance funds concluded that the funds had several important
shortcomings, including misallocation of funds, an overabundance offunds that leads to redundant and inefficient investment, a relianceon “inexperienced, poorly incentivized” bureaucrats, and crowdingout of more efficient nonstate-sector investment.27 The report concludes that many of these problems “are not merely ‘growing pains,’
but are rooted in basic issues of institutional capacity and contradictions in the model—between CCP aims and the profit motive, andbetween national visions of technological development and local,
shorter-term economic development interests.” 28 Nevertheless, CCP
policymakers are willing to accept suboptimal economic outcomes
if it ensures achievement of political objectives. As Mr. Blanchette
wrote, “Such weaknesses are not lost on China’s industrial planners,
who instead appear to have adopted a ‘venture capitalist’ approachthat implicitly understands most investment ‘bets’ won’t be winners.
The goal, then, is to place sufficient bets to ensure enough productive, profitable, or strategic outcomes.” 29 (For further discussion on
government guidance funds, see Chapter 2, Section 3, “The Chinese
Government’s Evolving Control of the Nonstate Sector.”)
China’s Strategy for Emerging Industries
As the CCP sets its sights on the horizon for technological upgrading, it is also seeking to ensure Chinese global leadership in
key fields. The 14th FYP enumerates ambitions across a range of
emerging technologies, most of which have been previously singled
out for government support.
This section examines the Chinese government’s promotion ofsynthetic biology, new mobility, and cloud computing—each itself
a constellation of related technologies foundational to achieving
breakthroughs outlined in the 14th FYP. Synthetic biology has the*Unless noted otherwise, this section uses the following exchange rate throughout: $1 = RMB
6.43.

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potential to transform nearly every sector of China’s economy, including some of the sectors Chinese policymakers view as the mostimportant, such as agriculture, energy, and medicine. While many of
its applications remain in development, synthetic biology also shows
great promise in addressing important quality-of-life issues the CCP
views as underpinning its own legitimacy. Developing new mobility—an umbrella term that captures everything from ride-hailingservices to autonomous vehicles (AVs)—is a strategic imperative for
the CCP as it seeks to both lower China’s carbon emissions and improve transportation systems for an increasingly urban and aging
population. New mobility is integral to China’s smart cities ambitions and stands to enhance the CCP’s digital surveillance methods,
which has implications well beyond China’s borders. Chinese leaders have long prioritized cloud computing, both as a critical channelof information flows and for its role in enhancing data collection,transfer, and storage in practically all other sectors due to increased
integration of digital services across the economy. Cloud computing
enables the mass collection and transfer of genomic data, powers
machine learning in transportation infrastructure, and undergirds
digital financial payments and recordkeeping.
Advancement in each of these technologies could fulfill several strategic objectives. Development of these technologies may translate into
immense economic gains as Chinese firms realize their commercial
value. The CCP also hopes that these technologies can help alleviate many of the social and environmental problems currently facing
the Chinese population. Finally, the CCP believes leadership in thesefields is a valuable geopolitical tool that affords the Party the ability
to set international standards favorable to its own interests.* Chinese
government policies and tactics to achieve these goals harbor potentially significant implications for the stability of U.S. employment in
key sectors, national security, and global competitiveness.
The CCP Views Synthetic Biology as Key to Solving Economic
and Livelihood Problems
The CCP believes synthetic biology can help address many ofChina’s most pressing issues, from healthcare needs of an aging
population to food supply challenges created by climate change.30
Synthetic biology (also known as engineering biology) is a type of
biotechnology focused on designing or redesigning biologically based
parts, devices, and systems for useful purposes.† According to the
U.S. National Academy of Sciences, there is no precise difference
between synthetic biology and other types of biotechnology. Broadly speaking, however, synthetic biology is characterized by the useof approaches common to engineering disciplines, including computational modeling and the construction of prototypes based on thecomputational models.31 Scientists generally understand the term
“synthetic biology” to comprise three technologies: (1) gene sequencing (including the ability to “read” the human genome), (2) gene
* For more on the CCP’s attempts to expand China’s influence in international standards-setting organizations, see U.S.-China Economic and Security Review Commission, Chapter 1, Section 2, “The China Model: Return of the Middle Kingdom,” in 2020 Annual Report to Congress,
December 2020, 80–135.
† For more on China’s ambitions in biotechnology, see U.S.-China Economic and Security Review
Commission, Chapter 2, Section 3, “U.S.-China Links in Healthcare and Biotechnology,” in 2020
Annual Report to Congress, December 2020, 293–327.

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editing (i.e., changing existing DNA), and (3) gene synthesis (i.e.,creating DNA and inserting it into an existing genetic sequence).32
Synthetic biology is a rapidly growing field with the potential to revolutionize many different industries, including food, agriculture, medicine, and energy (see Figure 1). Ginkgo Bioworks, one of the world’s
largest biotechnology firms, has predicted synthetic biology will one
day be able to produce “virtually any physical good.” 33 One immediate
application of synthetic biology has been to address the COVID-19 pandemic through the rapid development of testing kits and vaccines.34
While advances in synthetic biology will yield benefits to global
consumers, the greatest advantage will accrue to the countries thatclaim leadership in the field, ranging from economic gains such as
greater employment opportunities to the ability to play a leadingrole in the global governance of synthetic biology.35 Leadership insynthetic biology also carries significant national security implications, including the development of new materials with military applications and the possible creation of more virulent bioweapons.36
Figure 1: Applications of Synthetic Biology

Fine Chemicals
Synthesis of fragrances at lower costand more consistency than extraction
from plant sources

Food
Cultured cells for higher quality meat
replacements, lower cost sweeteners
and other flavors

Materials
Engineering leather and fibers to improve
quality and embed tech functionalities

Fuels
Ethanol from waste cellulose, biodiesel
from photosynthetic algae

Therapeutics(Medicines)
Synthesis of complex medicinalcompounds at high yields
and purities

Therapeutics(Human Engineering)
Treatment of hereditary disease,engineering immunity to cancers,
replacement organs for transplant,elimination of type 2 diabetes

Agriculture
Enhanced resistance to plants,
pesticides, drought

Source: Adapted from Tara O’Toole, “Synthetic Biology and National Security: Risks and Opportunities,” Center for Strategic and International Studies, April 14, 2020.

U.S. scientists agree that while the United States remains theglobal leader in synthetic biology, its advantage is declining due toChina’s rapid advances in the field.37 Jason Kelly, CEO of Gingko Bioworks, testified before the Commission that China’s national champion, BGI, the world’s largest genomics company, has already reached near-parity with U.S. firms in gene sequencing.* 38
According to Dr. Kelly, China has not yet reached parity with theUnited States on gene editing and gene synthesis, but it is gaining
ground.39 Dr. Kelly noted that maintaining U.S. leadership in bio* BGI was founded in 1999 as Beijing Genomics Institute to contribute to the Human Genome
Project, an international scientific research project that successfully mapped all human genes.
Mark Kazmierczak et al., “China’s Biotechnology Development: The Role of U.S. and Other Foreign Engagement,” Gryphon Scientific and Rhodium Group (prepared for the U.S.-China Economic and Security Review Commission), February 14, 2019, 25; Oak Ridge National Laboratory,“History of the Human Genome Project.”

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technology will require government support, comparing it to the U.S.
government’s support of the defense industry in the 1950s.40 China’s
advances have been driven by generous government support for synthetic biology research and significant efforts to obtain research anddata from foreign countries, including the United States, sometimes
illicitly.
China’s Strategy for Synthetic Biology
In recognition of the transformative potential of synthetic biology and the importance of leadership in the field, the 14th FYP
has listed biotechnology, including synthetic biology, as one of sevenfields in science and technology where the CCP will focus resources
and strategic planning.41 Although detailed data on Chinese government spending on biotechnology are unavailable, according to someestimates, China’s central, provincial, and local governments havecollectively invested over $100 billion in life sciences R&D.42 This
government support includes the establishment of synthetic biology
institutes in Beijing and Tianjin.43
Government backing has also been essential to some of China’s
top synthetic biology companies, including BGI, which received substantial government regulatory support soon after it was founded
in 1999 and continues to receive subsidies.44 In 2010, BGI received$1.5 billion in funding from China Development Bank, a state bank,to expand its operations.45 Some of the funding was used to purchase gene-sequencing machines from Illumina, a U.S. company,
several years before BGI began producing its own gene-sequencing
equipment.46
China’s International Expansion in Synthetic Biology
As part of China’s efforts to become a global leader in synthetic biology, Chinese companies and researchers have sought to gain
access to foreign expertise. In some cases, Chinese companies’ purchases of foreign companies have driven significant breakthroughs
in China’s own capabilities in synthetic biology. In 2013, BGI purchased Complete Genomics, a U.S. gene-sequencing company.47 In
2020, Complete Genomics announced it would be able to sequence ahuman genome for $100, compared to $600 for most of its competitors.48 The Chinese government has also supported investment in
non-U.S. firms. In 2017, ChemChina, a state-owned firm, purchased
Syngenta, a Swiss agrichemical company, for $43 billion, the largest-ever Chinese takeover of a foreign company.49 In buying Syngenta, ChemChina acquired not only valuable seedstocks but also
research applications for CRISPR, a highly precise and efficient
gene-editing technology used in synthetic biology.* 50
Collection of Genomic Data Key to Global Synthetic Biology
Leadership
Genomic data, whether it comes from humans, other animals, ororganisms such as plants, provide crucial inputs for advances in syn* Both BGI’s purchase of Complete Genomics and ChemChina’s purchase of Syngenta received
clearance from the Committee on Foreign Investment in the United States. Jacob Bunge, Brian
Spegele, and William Mauldin, “Powerful U.S. Panel Clears Chinese Takeover of Syngenta,” WallStreet Journal, August 23, 2016; Genome Web, “Complete Genomics, BGI Get Clearance from U.S.
Committee; Tender Offer Extended,” December 31, 2012.

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thetic biology. For instance, using genomic data from SARS-CoV-2, thevirus that causes COVID-19, scientists were able to develop prototype
COVID-19 vaccines for human testing in less than a year.* 51 Previously, the fastest a vaccine had been approved for human use was
the mumps vaccine in the 1960s, which took four years.52 Recognizing the importance of genomic data and its role in synthetic biology
leadership, the CCP has set ambitious goals to collect and catalogue
genomic data both within China and from other countries.
Human Genomic Data
The Chinese government has long prioritized the collection of human genomic data. The CCP has collected the human genomic dataof millions of its citizens: a 2020 report by the Australian Strategic
Policy Institute estimated that the Chinese government possesses
genomic data of up to 140 million people, the largest such dataset
in the world.53 The collection of genomic data is important for research and development of new medical treatments, but it has also
been used to further the CCP’s efforts to monitor its citizens andpersecute ethnic minorities (see textbox “DNA Collection Enables
CCP Monitoring of Uyghurs and Other Ethnic Minorities”).
In addition to domestic collection efforts, the CCP has also collected human genomic data abroad. The genomic diversity from foreign
samples could enable research discoveries and enhances the likelihood of commercial breakthroughs from such research.54 Chinese
entities have gained potential access to U.S. healthcare data throughinvestment in U.S. firms such as genetic testing company 23andMe,
sales of equipment and gene sequencing services, and partnerships
with U.S. universities and hospitals.55 In many cases, Chinese regulations prevent foreign researchers from gaining reciprocal access toChinese data.56 Chinese state-sponsored groups have also targeted
U.S. healthcare data through hacking U.S. healthcare providers andbusinesses.†
The international sale of certain medical products manufactured
by Chinese firms has provided the Chinese government potential
access to genomic data from populations around the world. A July
2021 Reuters report found that BGI’s prenatal tests, which are soldin at least 52 countries (though not the United States), were developed in coordination with the People’s Liberation Army.57 The
prenatal tests collect a wide range of information, including genetic
code, location of the tests, and medical history of the mother. The
Reuters investigation found that genetic information of at least 500
women, including women outside of China, was stored in the National GeneBank, a government-supported project administered by
BGI to research hundreds of millions of genetic samples of humans,
animals, plants, and microorganisms.‡ 58* The official name of the novel coronavirus responsible for the pandemic is “severe acute respiratory syndrome coronavirus 2,” which is abbreviated SARS-CoV-2. COVID-19 is the name of thedisease caused by the SARS-CoV-2 virus. World Health Organization, “Naming the Coronavirus
Disease (COVID-19) and the Virus That Causes It,” 2020.
† For more on the CCP’s efforts to gain access to foreign healthcare data, see U.S.-China Economic and Security Review Commission, Chapter 2, Section 3, “U.S.-China Links in Healthcare
and Biotechnology,” in 2020 Annual Report to Congress, December 2020; U.S. Cybersecurity &Infrastructure Security Agency, “China Cyber Threat Overview and Advisories.”‡ BGI issued a statement disputing the Reuters report, including the assertion that the prenatal tests were developed with the People’s Liberation Army. In the statement, BGI also said
it “has never been asked to provide, nor has it provided data from its [prenatal] test to Chinese

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The use of Chinese test kits by U.S. citizens presents the possibility for U.S. patient data to be collected for use by the Chinese
government. In March 2021, Amazon announced it was partneringwith BGI to use a modified version of BGI COVID-19 test kits, initially for at-home testing of Amazon employees.59 The company’s
announcement came weeks after the National Security Commission
on Artificial Intelligence noted in its report that BGI’s COVID-19
testing kits “potentially provide access to large international genetic
data sets” and warned that “BGI may be serving, wittingly or unwittingly, as a global collection mechanism for Chinese government
genetic databases, providing China with greater raw numbers anddiversity of human genome samples as well as access to sensitive
personal information about key individuals around the world.” 60
DNA Collection Enables CCP Monitoring of Uyghurs andOther Ethnic Minorities
The CCP’s earliest efforts in mass collection of genomic data
focused on ethnic minority groups in Tibet and Xinjiang, wherescientists gathered tens of millions of samples during what the
Chinese government said were free annual physicals.* 61 Alongwith DNA samples, Chinese authorities collected other forms of
biometric data, including photographs, voice recordings, fingerprints, and iris scans, to be stored in police databases.62 The biometric data collected from these populations have augmented theuse of high-tech surveillance methods to monitor ethnic minorities, including the predominantly Muslim Uyghur population of
Xinjiang. A 2019 New York Times report found that Chinese police have used facial recognition technology to determine whether
residents of some cities were Uyghurs.63
U.S. companies in the past have come under criticism for selling DNA and surveillance equipment to Chinese authorities.64 In
October 2019, the Department of Commerce placed 28 organizations, including the Xinjiang Public Security Bureau and affiliated entities, on its Entity List due to their involvement in “China’s
campaign of repression, mass arbitrary detention, and high-technology surveillance against Uyghurs, Kazakhs, and other Muslim
minority groups in [Xinjiang],” actions the U.S. government has
since deemed to constitute genocide.65 U.S. firms are prohibitedfrom conducting business with organizations on the Entity List
without first receiving a government license. In June 2021, however, the New York Times reported that Xinjiang police departments continued to purchase DNA equipment produced by U.S.
companies by obtaining it through Chinese intermediaries not on
the Entity List.66

authorities for national security or national defense security purposes.” BGI, “BGI Statement in
Response to Reuters Report,” July 8, 2021.
* According to an interview with one Uyghur man living in Xinjiang, the physical involved
recording his voice and taking his fingerprints but did not involve checking his heart or kidneys.
Sui-Lee Wee, “China Uses DNA to Track Its People, with the Help of American Expertise,” NewYork Times, February 21, 2019.

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Nonhuman Genomic Data
China’s genomic collection also extends to nonhuman genetic
data, which Dr. Kelly described as “the raw material of the bioeconomy” in his testimony before the Commission.67 While China hashistorically had high levels of biodiversity, environmental degradation has caused the loss of many species. 68 China has sought tocollect genomic data from many other countries through various
channels. In September 2019, BGI announced a joint venture withSpaceTime Ventures in Brazil, which included plans to establish alarge-scale R&D center studying tropical plant genomics along withassociated sequencing and bioinformatics infrastructure.69 BGI has
also entered into collaborations with institutions in Ethiopia andSouth Africa.70
The COVID-19 pandemic has provided China with further opportunities to collect nonhuman genomic data. BGI has built COVID-19
testing laboratories and sold test kits that collect genomic data on
the virus that causes COVID-19 around the world. By August 2020,
BGI sold more than 35 million COVID-19 test kits to 180 countries, including the United States, and had established 58 COVID-19
testing laboratories in 18 countries.71 BGI’s establishment of theselabs provides China with a network of laboratories to collect andsequence genomic data from around the world.72
Many of the world’s most biodiverse countries are unawareof the potential value of nonhuman genomic data.73 Moreover,global standards for collecting, protecting, sharing, and monetizing genomic data remain largely undeveloped.* A country thatcollects more genomic data will have a distinct advantage not
only in being able to use the gathered data for commercial gains
but also in being able to set international standards for sharing
such data.74 According to Dr. Kelly, neither the United States
nor China currently leads in the collection of nonhuman genomic
data, but China has the opportunity to collect massive amounts
of nonhuman genomic data from other countries on highly favorable terms.75 China’s leadership could lead to a more closed
system for nonhuman genomic data sharing, in contrast with theUnited States’ role in establishing open ecosystems that have set
international standards for technologies such as mobile phones,
personal computers, and the internet.76
New Mobility Drives Chinese Sustainability and Global
Competition
The term “new mobility” refers to two broad categories of innovation in transportation: (1) new technologies, such as NEVs andconnected or autonomous vehicles; and (2) new business models orsocial trends, including ride-hailing apps or “mobility-as-a-service”(MaaS), which integrates different modes of travel in one platform(see Figure 2).77 MaaS offerings can include any combination of public transit, individual automobiles, bikes, or scooters, and include
companies like ride-sharing giant Uber or the bike and scooter-sharing company Lime.
* The Convention on Biological Diversity, a 1993 international treaty, addresses some aspects of
the international exchange of biological materials. China is a party to the Convention on Biological Diversity, while the United States is not. Convention on Biological Diversity, “List of Parties.”

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Figure 2: New Mobility Subsectors

New Mobility

New
Technologies

New Business
Models/Mobilityas-a-Service

New Energy
VehiclesZero Emission
VehiclesRidesourcing/ehailing

Shared Use
Mobility

Vehicle-toVehicle
Communication

Vehicle-toInfrastructure
Communication

Ridesharing

SemiAutonomous

Fully
Autonomous

SharedRidesourcing/ehailing

Micromobility

Carsharing

Source: Adapted from Peter Slowik and Fanta Kamakaté, “New Mobility: Today’s Technology
and Policy Landscape,” International Council on Clean Transportation, July 2017, 2; Dana Yanocha and Mackenzie Allan, “Maximizing Micromobility,” Institute for Transportation & Development Policy, July 2021, 5–7.

Autonomous and connected vehicles are poised to be the most disruptive new mobility technologies. Drawing a distinction between
the two sets of technologies, Joanna Moody, then research program
manager at the Massachusetts Institute of Technology Energy Initiative Mobility Systems Center, noted that an AV can “make its
own driving decisions independently,” whereas “connected vehicles
exchange driving information with other vehicles (potentially bothautomated and nonautomated vehicles) and/or transportation infrastructure.” 78 Connected vehicles may also connect with passengers’
mobile communication devices.79
Where internal combustion engines powered growth and innovation in the 20th century, new mobility has broad implications forthe digital economy in the 21st century. For China and many othercountries, new mobility will help reduce pollution, accelerate the development of smart cities, and promote better accessibility of transportation infrastructure. For the United States, new mobility will
also transform the automotive industry, which remains one of the

182largest U.S. employers. According to the U.S. Bureau of Labor Statistics, as of August the automotive industry supported 923,300 manufacturing jobs and 3.2 million jobs in automotive retail in 2021.80
In 2020, NEV production employed more than 261,000 people in
the United States.81 Management consulting firm McKinsey estimates that global revenues from AV commercial fleets and personaltransportation in urban areas could reach $1.6 trillion a year by2030—more than twice the combined 2017 revenues of Ford, General Motors, Toyota, and Volkswagen.82 Meanwhile, the MaaS market
is predicted to reach $106.8 billion by 2030, with expected annual
growth of 20 percent from the current market valuation of $60 billion.83
China’s Strategy for New Mobility
After decades of investment, China’s government has achieved
only limited success in the production of internal combustion engine vehicles, but it is determined to achieve leadership in the next
generation of mobility technologies. A 2020 China State Information
Office white paper, Sustainable Development of Transport in China,
described transportation as “a basic, leading, and strategic sectorof the economy underpinning sustainable development.” 84 China’s
government has set a goal of establishing a “modern comprehensive
transport system” by 2035 and emphasized “raising the quality ofthe transport industry through digital, internet-based, intelligent,and green technologies.” 85 The white paper also highlighted China’s
move “from follower to leader” in transport technology and referenced other international ambitions, including “promoting reform ofglobal transport governance.” 86 While China’s central government
sets broad policy goals for transportation, cities have played an increasingly important role in setting individualized transportation
policies to meet these goals.87 Local government involvement has
been key to expanding the new mobility ecosystem with companies
able to refine their business models and product testing based on
local conditions.
Although China’s government has recently improved the legal
framework for foreign automotive companies, such measures havedone little to counteract obstacles facing U.S. automakers, such aspolicies discouraging the purchase of internal combustion engine
vehicles and preferential treatment of domestic firms. Despite U.S.
automakers’ longstanding presence in China’s auto market, U.S.
firms have struggled to gain a bigger market share there. In 2018,
China’s National Development and Reform Commission announced
it would phase out regulations that limited foreign investment andownership over automobile companies along with requirements forforeign automobile companies to form joint ventures with Chinesecompanies.88 Companies manufacturing NEVs were the first typeof car companies to be exempt from this requirement, beginning in
2018.89 A 2019 Office of the U.S. Trade Representative report on
China’s WTO compliance nonetheless found U.S. firms face otherdisadvantages in China’s market, in part due to other policies “apparently designed to promote the development of a Chinese NEV
industry at the expense of foreign enterprises.” 90 These policies include government subsidies in connection with the purchase of Chi-

183
nese—but not foreign—NEVs.91 Between 2018 and 2020, U.S. auto
imports were also subject to Chinese retaliatory tariffs in response
to U.S. Section 301 tariffs.92 This dynamic depressed U.S. car sales
in China over this period, though China lifted its tariffs following
the finalization of the U.S.-China Phase One agreement in January
2020.93 Many other administrative barriers remain with complex
networks of regulations and standards unique to China that are
generally easier for local companies to navigate.
Autonomous and Connected Vehicles
For China’s government, autonomous and connected vehicles area critical part of advancing a digital infrastructure strategy. Suchvehicles not only make it possible to overcome labor shortages foran array of positions like delivery drivers but also hold the potential
to increase road safety.94 In 2020, the central government proposedthat half of all new cars sold would be at least semi-autonomousby 2025.95 Beginning in 2017, cities such as Beijing, Shanghai, andGuangzhou have developed policies to allow AV testing, and many
local governments have provided subsidies and favorable policies tocompanies working on AVs.96 While most of the automakers testingon Chinese roads are domestic companies, General Motors’ subsidiary in China, Cruise, has been testing some self-driving functions,though not fully autonomous systems, since 2017.97 Central government guidance in January 2021 also encouraged local governments
to open up more testing and permits as it aims to speed up deployment of AVs and catch up with U.S. AV testing efforts.98 Other foreign companies like Audi, BMW, Daimler, and Volkswagen have also
been able to test autonomous driving in Chinese cities since 2018.99
Honda, Toyota, and Volvo have partnered with Chinese companies
like Pony.ai and AutoX to provide vehicles that rely on Chinese autonomous driving systems.100
At the same time, Chinese regulators are seeking to capitalize on
the data-gathering potential of AVs and are moving forward withnew rules to address data usage, which may impact foreign firms.
Between March and May 2021, the Chinese government restricted
military and key SOE personnel from using Tesla cars and moved
to prohibit parking Tesla cars near government compounds due tonational security concerns about vehicle sensors and cameras.101 In
May 2021, the Cyberspace Administration of China released draft
rules for the security of car data, which aim to protect consumer
information along with controlling “important data” that may besensitive to national security.102 The “important data” subject torestriction in the draft includes surveying and mapping data withgreater accuracy than public maps; it also includes a catch-all clausefor “other data that may affect national security and public interests.” 103 The draft rules mandate localization of important data as
well as specific approval and certification processes to transfer thedata overseas. The broad scope of important data increases the possibility of arbitrary restrictions that may limit the effectiveness offoreign AV systems and also introduces an additional administrative
burden on companies seeking operations in China. In May 2021,
Tesla announced it was building a data center in China to assuage
concerns about security.104

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Mobility-as-a-Service and Shared Mobility
MaaS and shared mobility encompass a broad range of services
that the Chinese government has at times encouraged and occasionally struggled with as these services have demonstrated applicability to key social problems. Central government ambitions for techchampions along with idiosyncrasies of local governments and theirtransportation needs have inspired the growth of multinational giants like Didi Chuxing (“Didi”) along with less successful bike-sharing companies like Ofo and Mobike.105
Didi, China’s largest ride-hailing company, was established in2012 and began as a ride-hailing app to better connect taxi drivers
with customers. Over time, the company has expanded to include
not only established taxis but also a more Uber-like model of private carsharing, bikesharing, car rentals, and deliveries for a broad
network of transportation services on one app. Didi has focused on
sharing datasets and working with local governments to reduce traffic and improve transportation infrastructure.106 Didi also provides
increasingly localized services in some cities, including the ability
to book public transit rides on the platform.107 In 2020, Didi began
to focus on addressing accessibility for consumers with disabilities,
which is currently an underserved customer base that will only continue to grow with China’s aging population.108
New Energy Vehicles and Zero Emissions Transportation
The Chinese government promotes NEV development throughpreferential treatment and subsidization of domestic NEV companies, demonstrating the government’s emphasis on NEV promotion as both an industrial policy and an environmental policy. For
Chinese policymakers, domestic production of NEVs solves several
problems, including reliance on foreign technology, dependence on
oil imports, and air pollution caused by internal combustion engine
vehicles. Half of all electric cars in the world are currently in China,
as well as 90 percent of electric buses and trucks.109 China’s growthin this industry has depended on heavy government subsidies. According to estimates by the Center for Strategic and International
Studies, total government support for the NEV sector amounted to$21 billion (RMB 134.9 billion) in 2019, equivalent to 30.7 percent
of total NEV sales.110 In November 2020, China’s State Council estimated NEV sales would account for 20 percent of all new car sales
by 2025, up from 5 percent today.111
China’s strategy to build up its NEV sector consists not just of
constructing cars but also, crucially, manufacturing energy storage such as NEV batteries. As Dr. Moody wrote, “While much of
the critical research and development that created the lithium-ion
battery took place in the U.S., China’s bullish investments in thecommercialization of battery production and electric vehicle manufacturing have given it a clear edge.” 112 China controls over 70
percent of the global NEV battery supply, a clear advantage as thecountry increases its proportion of NEV passenger and commercial
vehicles.113 Since batteries are the most important and often mostexpensive component of NEVs, Chinese control of critical minerals
stands to have a significant effect on U.S. and other global NEV
manufacturers.

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Critically, Chinese companies control not only key nodes of battery
production but also access to and processing of mineral inputs that
go into production of batteries. NEV batteries rely on a number ofminerals like graphite, cobalt, lithium, and nickel.114 In 2019, China
held nearly 60 percent of the world’s graphite stock and was responsible for processing 80 percent of the world’s cobalt.115 New nickel
production innovations in March 2021 were slated to boost China’s
share of processed nickel and sustain its consumption of over half
the world’s nickel.116 China’s stronghold over the NEV battery supply chain has historically been driven by Chinese companies seeking
to capitalize on the government’s NEV promotion, but those company motivations are increasingly converging with government interests in securing minerals. Strategic investments in the Democratic
Republic of the Congo have allowed Chinese companies a steadyflow of cobalt, though it is plagued by a legacy of child labor andcalls to classify it as a conflict mineral. * 117 Manganese is emerging
as a potential replacement for cobalt and is more widely available
around the world, though China is the primary refiner.118 At least
49 Chinese companies, almost all SOEs, have joined the China National Manganese Industry Technology Committee, which the WallStreet Journal described as a Chinese state-backed cartel.119 Pini
Althaus, CEO of USA Rare Earth, estimated that it would take theUnited States 20 to 30 years to catch up to China’s progress in NEV
battery supplies.120
The Chinese government’s efforts to build a domestic NEV industry are most visible in China’s critical hold on the NEV battery supply chain. China’s dominance in both mining and refining
key minerals for NEV batteries positions it as central to the overall
NEV supply chain. Even if European and U.S. NEVs are competitive against Chinese NEVs, their manufacturers are nonethelessreliant on a broad set of Chinese SOEs to access and build the key
component of their products. China’s Contemporary Amperex Technology Company (CATL) currently makes up 31.2 percent of global
market share for NEV batteries, edging out South Korean competitor LG Energy Solutions for the ranking of top battery supplier.121
BYD, a Chinese company that also has a NEV automobile division,
grew 381.9 percent year-on-year in March 2021, taking 8.9 percent
of global market share.122 In a demonstration of dependency on Chinese sources for NEV batteries, Reuters reported in June 2021 that
Apple approached CATL and BYD to establish U.S. manufacturing
sites that would support Apple’s planned rollout for an electric vehicle.123
New Energy Vehicle Commercial and Rail Transportation
As Chinese policymakers emphasize ground transportation forgoods as part of the dual circulation strategy, autonomous commercial vehicles and rail will be increasingly important in China.
Autonomous commercial transportation solutions have been some
* Conflict minerals refer to several categories of raw minerals and their derivatives that aremined from areas subject to extreme violence where the harvesting of such materials may violate
human rights. Under U.S. law, there are specifically defined “conflict minerals” under the DoddFrank Wall Street Reform and Consumer Protection Act of 2012 that require disclosure and due
diligence from companies whose supply chains may rely on conflict minerals. Crowe, “Conflict
Minerals.”186of the earliest deployed around the world. In China, trucks were
the first autonomous vehicles to operate regularly for commercial
purposes.124 Autonomous commercial fleets are increasingly favoredfor greater fuel efficiency and safety along with likely reductions intraffic congestion.125 At the same time, new energy vehicles for commercial transportation remain in the early stages of development,with even coach buses in China at a minimal 4 percent of electrification.126 Similarly, Chinese policymakers are focused on high-speed
rail freight transportation as they seek to reduce carbon emissions
and expand the country’s already robust passenger rail networks.127
Chinese producers and policymakers anticipate great commercial
advantage from the sale of these vehicles and related equipment,
though the U.S. and other national governments have raised concerns with the security and integrity of the technology.* In China,
the movement toward more autonomous commercial transportation
may also alleviate future shortages in China’s labor force, though it
currently threatens nearly 220 million jobs that are largely held by
low-wage, low-skilled workers.128
International Expansion of China’s New Mobility Companies
China is gaining ground in new mobility competition with the United States across all subsectors, demonstrating successful innovationsin autonomous and connected vehicle systems, potential for higher
NEV exports and control over NEV batteries, and notable capture of
ride-hailing markets. AVs have yet to reach broad adoption and, alongwith NEVs, require newer infrastructure to satisfy digital connectivity or electricity needs. Competition between U.S. and Chinese markets is currently limited due to strong consumer preferences, relative
brand strength, and respective domestic policies. In 2021, Guidehouse
Insights (formerly Navigant Research), a market research firm focusedon energy and transportation research, ranked Baidu’s AV subsidiary,
Apollo, fourth in its assessment of technological advancement among
global autonomous driving systems.129 U.S. companies Waymo, Nvidia,
and Argo AI ranked ahead of Apollo.130
Testing and Standards
While Chinese-branded cars are currently not sold in the UnitedStates, Chinese AV companies are testing their models on U.S. roads.
The United States lacks federal regulations for testing or cybersecurity of AVs.131 Similarly, there is no clear U.S. federal, state, or
local standard for protecting, sharing, and collecting vehicle data in
the United States. In 2019, the U.S. Department of Transportation
issued a Data for Automated Vehicle Integration Framework thatoutlines principles and guidelines for state and local governments,
companies, and other stakeholders on identifying, prioritizing, andsharing data in AV systems.132 It recommends that AV companies
share data with local governments regarding crashes and infrastructure data, but the framework itself is voluntary.133* The 116th Congress addressed concerns over Chinese rail cars and public transportationequipment with the passage of the Fiscal Year 2020 National Defense Authorization Act. Section
7613 prohibits government procurement of bus and rail equipment from a range of countries,
including China. This restriction particularly affected BYD, which was poised to be a top exporterof bus and rail equipment to the United States. National Defense Authorization Act for Fiscal
Year 2020, Pub. L. No. 116–92, 2019; Lindsay Wise and Katy Stech Ferek, “Congress Wants to
Ban Chinese Buses, Railcars in Defense Bill,” Wall Street Journal, December 10, 2019.

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California AV Testing
Absent federal regulations, states have been issuing their own
frameworks for managing AV testing and deployment, with 18
U.S. states allowing for testing of AVs without a human operator in the vehicle.134 Because of the AV industry’s connections
to Silicon Valley, California retains a high concentration of AV
testing sites and companies. In 2012, California began allowing
AV testing, and in 2014 it launched its AV Tester Program topromote this development.135 As of July 2021, California permitted 54 companies to conduct autonomous testing with a driver,including 23 foreign entities, of which 11 are Chinese.136 California has granted permits to eight companies to test AVs without adriver, half of which are Chinese; the other half are U.S. companies. * 137 California is one of the few states that provide a publicly available list of participating companies.138 The notable lackof information elsewhere makes it difficult to verify the presenceof companies across states.
California’s AV Tester Program and related regulations arerooted primarily in driver safety, but they do not appear to consider specific rules or regulations on data or cybersecurity. AV
Tester Program participants are only required to share collision
data within ten days of an incident, but they are currently not
required to submit to any form of cybersecurity certification. In
many other states, like Arizona, no licensing or permits are required to do testing other than regular vehicle registration requirements, and no state or federal U.S. law prevents AV testingotherwise.139
Meanwhile, China is developing numerous domestic standards forautonomous, connected, and electric vehicles while Chinese companies remain active participants in global standards-setting bodies.
Efforts in multiple standards forums to address various technological components of autonomous and connected vehicles are still at an
early stage. Among others, the International Organization for Standardization (ISO) is developing international standards while theInternational Telecommunication Union (ITU) is pursuing several
pre-standardization studies.140 In 2018, ISO approved a Chinese
proposal to form a working group focused on standards development
for “test scenarios of automated driving systems” under ISO Technical Committee 22, the primary group under ISO that develops standards for road vehicles.141 While the formation of the working group“was a milestone for Chinese auto standards,” the group’s work so
far appears to rely on the collaborative efforts of multinational experts.142 China is also an active participant in the ITU and holds
leadership positions in two focus groups on AV-related standards.143
The structure of the ITU could allow Chinese participants greater
influence over the process and the ability to export its standards to* The eleven Chinese companies include AutoX Technologies, Baidu, DeepRoute.AI, DiDi, Inceptio Technology, Leonis Technologies, NIO, Pony.AI, Qcraft.ai, WeRide, and Xmotors.AI. California
Department of Motor Vehicles, “Autonomous Vehicle Testing Permit Holders,” May 21, 2021.

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developing nations that tend to participate more in the ITU thanin ISO.*
Global Mobility-as-a-Service Competition
MaaS competition is most apparent in the area of ride-hailingservices, where Uber and Didi continue to vie for dominance acrossdeveloping markets.† In 2020, Didi reported that it had 600 million
monthly active users and aimed to serve 800 million monthly users
globally by 2022.144 By comparison, Uber had 329 million monthly
active users in 2020.145 Over the last five years, Didi has entered 14other markets outside of China, covering Latin America, Africa, andOceania.146 Didi has been closing in on competition with Uber in
Latin America, with operations in six countries across the region.147
In 2018, Didi claimed 30 percent of market share in Latin America
following its acquisition of the preeminent Brazilian ride-sharing
app 99 (formerly known as 99 Taxis).148 In March 2021, Didi beganoffering services in South Africa in its first venture on the continent.149
Didi may also hold a data-driven appeal to local governments thathave much to gain from Didi’s GAIA Initiative. Launched in 2017,
the GAIA Initiative shares two of Didi’s datasets with registered users such as researchers and government offices and provides a platform for additional research and publications. The anonymized datasets ‡ provide information on traffic and ride times to enable more
precise transportation planning and assist AI-managed transportation. The GAIA Initiative went global in 2018 and expands alongwith the company as it gathers more data points in new markets,
though public information indicates that much of the data available
still centers on Chinese cities.150 Uber has a similar open platform
called Movement for anonymized data sharing that covers 51 cities
across markets that Uber serves.151 Data security has nonethelessbeen a point of contention between Didi and the Chinese government.152 In June 2021, Didi listed on the New York Stock Exchange
to reach a valuation of $68.4 billion on its first day, but this fell
precipitously by 52 percent after Chinese regulators ramped up an
antitrust investigation into the company, subjected it to a cybersecurity review, and restricted new user downloads.153 (For more ontightening Chinese regulation, see “Chapter 2, Section 1, “Year in
Review: Economics and Trade.”)*For more information on the international standards development process, see “U.S.-China
Economic and Security Review Comission, Chapter 1, Section 2, “The China Model: Return to theMiddle Kingdom,” in 2020 Annual Report to Congress, December 2020, 80–135.
† Uber operated in China from 2014 to 2016, ultimately retreating from the market due tostrong local preference, Didi’s market dominance, and some Chinese regulations that undercut
Uber’s services. Uber traded shares with Didi such that each company had a member on the others’ board seat and Didi assumed control over a dissolved Uber China. Meanwhile, Didi is able tooperate in the U.S. market, but the company does not provide rideshare services due to market
saturation. Didi does have three research labs in California, including one in Silicon Valley, which
focus on research of advanced safety and security technology for transportation, algorithms, andself-driving technologies. James Crabtree, “Didi Chuxing Took On Uber and Won. Now It’s Taking
On the World,” Wired, September 2, 2018; William C. Kirby, “The Real Reason Uber Is Giving Up
in China,” Harvard Business Review, August 2, 2016.
‡ Didi anonymizes the accumulated ride data for public access by removing personal information removed from start and end points, along with separating travel times from any personallyidentifiable information. Didi, “GAIA Open Dataset.”

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NEV Export Competitiveness and Energy Storage
China does not have a clear advantage in the export of finished
NEVs, but it is well positioned to compete with other leading automakers in the United States and Germany. NEV growth has slowed
in China since the government reeled back subsidies in 2019, thoughaccording to Pew Research Center, China still accounted for 44 percent of the world’s total NEV stock in 2020.154 According to McKinsey in 2019, four Chinese brands—BYD, Beijing Electric Vehicle
Co. (commonly known as BJEV), SAIC, and Geely—were among the
top ten global NEV sellers, together making up 23.9 percent of global NEV sales.155 Tesla claimed 16.2 percent alone and top German
automakers BMW and Volkswagen accounted for 9.6 percent.156 The
success of Chinese companies appears largely attributable to theChinese market and its home advantage there. In Europe, the second-largest NEV market, Chinese companies made up less than 2
percent of the market in 2019.157 Although Chinese companies arestill a small part of the passenger vehicle market, they are making
inroads in Europe and Latin America with the sale of electric buses.
In 2019, Chinese company BYD held nearly 20 percent of European
NEV bus market share.158 Meanwhile, Chinese companies produce
at least 71.4 percent of the total electric buses in Latin America asof July 2021.159
Chinese NEV companies may prove to become more competitiveon cost rather than technology or branding when compared to theever-popular Tesla.160 Chinese automaker SAIC sold 10,000 units
to Europe in 2019 through acquiring British brand MG and has
committed to selling 100,000 units annually to Europe by 2025.161
There are more than 400 Chinese NEV companies, some of which
are ready to compete internationally after being backed by extensive subsidies over the last decade.162 While these companies maylack some of the sophistication in technology and brand appeal, Chinese NEVs are, much like in their home market, likely to come ata much lower cost.163 Similar to its approach in other industries,
Chinese producers could sustain an advantage in the global market
by undercutting prices as a result of government support. The proliferation of Chinese NEVs at below-market costs could have significant consequences for global automakers and related manufacturing workers while also raising future questions around overcapacity,
particularly concerning batteries.164
Cloud Computing at the Core of China’s Digital Economy
Ambitions
Cloud services form a critical backbone for the deployment ofother emerging and foundational technologies, including telemedicine, smart manufacturing, quantum computing, and new mobility.
The National Institute of Standards and Technology defines cloudcomputing as a business model that allows for “convenient, on-demand network access to a shared pool of configurable computing
resources . . . that can be rapidly provisioned and released with minimal management effort or service provider interaction.” 165 In otherwords, cloud computing is not so much a single technology as it isa business model: a cluster of integrated capabilities from analytic
infrastructure to servers that can be easily scaled and customized to190suit various storage and operational needs. While cloud computing
enables a proliferation of virtual environments and workspaces, it
relies on physical data centers, traditional data storage, and hardware (e.g., switches, routers, and servers) in order to function.166
How the global cloud computing architecture is developed and who
controls its operations, data, and access carry significant implications for critical civilian and defense systems. Cloud computing supports a wide range of operations, from managing transmission ofelectricity across energy grids to battlefield situational awareness in
informationized warfare. Cloud computing has appeared in China’s
FYPs since the 12th FYP (2011–2015) and is still listed in the 14th
FYP as a “key industry of the digital economy,” with policymakers
encouraging migration to the cloud.
China’s Strategy in Cloud Computing
Building on its longstanding approach in other sectors, China’s
strategy for cloud computing has had two key components: protection of the domestic market from foreign competition and extensive
state support for buildout of the Chinese cloud computing industry.
Industry alliances, standardization efforts, research centers, andgovernment promotion programs at both the central and local levels helped to create a formidable and remarkably closed cloud computing ecosystem in China. Because cloud computing enables broadand often real-time access to information on a given network, the
CCP has a political imperative to control cloud computing accessand development and prevent free flow of information via the cloud.
Between 2010 and 2012, the central government helped to mobilize
not only service providers but also other telecommunications companies in China to improve the underlying infrastructure that supports cloud computing.167 In 2011, the National Development andReform Commission partnered with the Ministry of Industry andInformation Technology and Ministry of Finance to pool $236 million in support of Chinese cloud providers.168 While these subsidies
may appear modest, they were complemented by a panoply of othermeasures that allowed domestic firms to grow easily in the earlydays of cloud adoption. Local governments looking to satisfy central
government objectives and obtain funding also built data centers as“deliverables” for central government big data and cloud computing plans.169 Preferential local policies also deferred tax payments
and provided preferential housing for recruiting talent.170 Government-driven initiatives did not prove immediately successful, andnonstate firms have ultimately been far more successful than SOEs
like China Mobile, which invested $52 billion between 2011 and2014 to support cloud services with little market share in return.171
Promotion of cloud computing has always been essential to the
CCP’s goal of maintaining information control. It has also been tied
to the Chinese government’s efforts to grow other emerging technologies, such as smart cities.172 It is difficult to estimate the total
spending on cloud computing-related technologies, but a majorityof Chinese digital infrastructure projects that receive government
financing will contribute to cloud computing capacity in China by
expanding storage and analytical capacity. Under the Internet Plus
initiative, launched in 2015, the Chinese government dedicated at

191
least another $440 million in infrastructure spending from 2016
to 2018.173 Amid a raft of COVID-19-related stimulus measures in
2020, the Chinese government announced a “new infrastructure”
initiative of nearly $1.4 trillion over six years between 2020 and
2025 to increase the number of data centers and networking equipment to support cloud computing, 5G, AI, and smart cities.174
Relying on the government’s support, Chinese cloud companies
have had fewer obstacles to operating than their foreign counterparts, though they are still subject to stringent security requirements given the government’s concerns around information control.
Today, China is the second-largest cloud services market after theUnited States and in 2019 accounted for 5 percent of global public cloud services spending.175 According to market research firm
Canalys, Chinese companies Alibaba, Tencent, and Huawei dominate the domestic cloud services market.176 These three Chinesecompanies make up 72 percent of domestic market share.177 Foreigncompanies as a group, which includes Amazon Web Services and Microsoft Azure, account for less than 20 percent of the Chinese market.178 The total market in China grew 30 percent each year from2015 to 2019 and demand increased by nearly 70 percent in 2020
alone as a result of the COVID-19 pandemic.179 Alibaba is far andaway the leader in China’s cloud market, with Tencent its nearest
competitor, followed by Huawei, Baidu, and China Telecom.
The Chinese government has boosted incentives for Chinese cloudproviders toward sector-specific cloud-based solutions that will support CCP objectives for social development and provide technological solutions for China’s greatest growth challenges. In 2015, Alibaba formed a partnership with BGI and Intel Corporation to launcha cloud platform for precision medicine, which takes genetics, lifestyle, and environment into account.180 Along with its AI Open Lab,
Tencent announced a cloud services offering that allows patients tomanage their medical imaging and securely share the images withdifferent medical providers.181 In 2016, with the help of its auto
subsidiary, Apollo, Baidu worked with the Ministry of Transport tooffer an open data platform that provides publicly available transportation and traffic data, including data shared by companies andresearch institutes.182
International Expansion of China’s Cloud Companies
Chinese companies are increasingly looking to compete with cloudservice providers in emerging markets. Being somewhat late to arrive in the United States, Chinese cloud providers do not have asizable portion of U.S. market share, though some have partnerships
with U.S. companies like Equinix or have built data centers in the
United States.183 In 2019, U.S. imports of Chinese cloud computing and data services were a mere $10 million, which is less than
2 percent of total U.S. cloud services imports globally.184 Chinesecloud computing companies appear to have largely given up on market share in already saturated markets like those in North America
and Europe. U.S. cloud leaders like Amazon Web Services, Microsoft,
Google, and IBM capture over 60 percent of global market share,even with barriers in China’s market.185

192
China’s cloud computing giants are gaining ground in emerging
markets, where competition is set to intensify with U.S. companies.
According to Nigel Cory, associate director for trade policy at theInformation Technology and Innovation Foundation, “China is aheadof the United States and many others . . . in terms of advocating forits digital and [information and communications technology] firms
and associated projects as part of its [Belt and Road Initiative] andthe Digital Silk Road initiatives.” 186 U.S. companies continue to retain an edge due to processes that allow large organizations themost up-to-date and seamless experience in data processing and analytics.187 At the same time, Chinese companies have the advantage
of a lower price point (sometimes operating at a loss * and creating
an unfair advantage) with fewer up-to-date products but greater
flexibility to accommodate unique data localization and information
control policies.188 Chinese companies like Alibaba also appeal tosome markets by promising big investments in the host country techsector, such as commitments to build data centers and other tech
infrastructure.189 Huawei has taken a similar approach as it has
focused on the growth of its cloud computing business, partneringwith foreign governments and SOEs on cloud infrastructure andservices (Figure 3).190
Although U.S. companies remain the dominant global cloud providers, Chinese companies are gaining ground. According to global
advisory firm Gartner, Alibaba claimed 9.5 percent of global market
share for public cloud services in 2020 compared to 8.8 percent in2019 while Huawei’s more than doubled from 1.9 percent to 4.2 percent in the same period.191
Extensive investment in data infrastructure and tolerance formore restrictive data policies have given Chinese cloud providersa head start on market share in Southeast Asia and other developing economies.192 Mr. Cory notes that for India, Vietnam, andother Southeast Asian countries with restrictive data localization
policies, Chinese companies have a competitive advantage in their
willingness to build out isolated data center operations or tailor
their offerings to country-specific censorship and content-monitoring regimes.193 U.S. companies have historically resisted rules thatbroadly infringe on consumer privacy for law enforcement and national security investigations, as well as data localization rules thatwould require building in-country data centers, which can come atsignificant cost.194
China’s Promotion of a Sovereign Digital Currency
The Chinese government believes that a digital version of the
RMB can help it increase control over China’s financial system andsurveillance over those who participate in it. The government has
also stressed the potential for a central bank digital currency toallow for greater financial efficiency and inclusiveness. Therefore,
the CCP has made the development of the digital RMB a key priority, announcing in 2016 a “strategic goal” of launching a digitalcurrency.195 Since then, China has emerged as one of the leading* Alibaba Cloud, the largest cloud provider in both China and the Asia Pacific region, turned
profit only in 2021 after 11 years in operation. A statement from the company noted this wasdue to achieving “economies of scale.” Rita Liao, “Alibaba Cloud Turns Profitable after 11 Years,”
Tech Crunch, February 3, 2021.

1

CHILE

ECUADOR

1

1

BRAZIL

4

1 1

VENEZUELA GUYANA

1 1

1

MALI

1

Number refers to projects

ActivePlanned

1

2

1

1

1

KENYA

2

1 1

ETHIOPIA

3

UAE

1

OMAN

1

PAKISTAN2UZBEKISTAN

2 1

MADAGASCAR

1MOZAMBIQUE

ZIMBABWE

1

2 1

SAUDI
ARABIATANZANIA

EGYPT

1

TURKEYZAMBIASERBIACAMEROONCÔTE GHANA TOGO
D’IVOIRE

PROJECTS

2

CABO
VERDE

SENEGAL

1

1

ALGERIA1

1 1

SLOVAKIA

1INDIA

THAILAND

1

LAOS

1

2

RUSSIA1

INDONESIA

3

MALAYSIA

1VANUATU >2

PAPUANEW GUINEA

Source: Reconnecting Asia Project, “Reconnecting Asia Huawei Cloud & e-Government Data,” Center for Strategic and International Studies, April 2021.
Note: “Planned” indicated projects that have been signed through a contract or memorandum of understanding.

MEXICO

3

SPAIN

1

1

NETHERLANDSSWEDEN

1

Figure 3: Huawei’s Overseas Cloud Computing Projects

193

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countries in researching and developing central bank digital currencies. While supporting the development of a digital RMB, the
CCP has sought to prevent the growth of other digital currencies. In
October 2020, the People’s Bank of China (PBOC) published a draft
law that, if passed, would officially recognize the digital RMB andwould ban the circulation of other digital currencies or tokens.196
The 14th FYP reaffirmed China’s ambitions for the digital RMB,
with an objective to “steadily advance digital currency R&D.” 197 As
digital payments are already dominant in China through platforms
such as Alipay and WeChat Pay, the introduction of a digital RMB
does not represent a seismic shift in China’s financial landscape.
Absent fundamental changes to China’s monetary policy, such as
the relaxing of its strict capital controls, a digital RMB will not significantly enable the RMB to be used more broadly in cross-bordertransactions. Nevertheless, China’s development of the digital RMB
is significant because it will help the CCP expand its surveillance
regime. In the longer run, the digital RMB could also reduce China’s reliance on the United States-led international system while
helping China increase its own influence in other domains, such as
the internet.
China has not yet officially launched its digital RMB, which it
refers to as Digital Currency and Electronic Payments (DCEP), andmany key details of the digital RMB have not yet been publicly confirmed.198 China has carried out significant testing, however, withtrials beginning in four cities in May 2020 and expanding since then
to 11 cities and pilot areas.199 According to a July 2021 PBOC white
paper, as of June 2021 more than 20 million personal wallets andmore than 3.5 million corporate wallets have been opened, with a
total transaction value of approximately $5.4 billion (RMB 34.5 billion).200
What Are Digital Currencies?
“Digital currency” is an umbrella term for any money that exists
only in electronic form and is not available in physical form.201
Over the past decade, different forms of digital currencies haveappeared. These digital currencies share similar characteristics
but differ in important aspects.
Cryptocurrency. Cryptocurrency is a type of digital currency that uses encryption and whose transactions are verified
using a decentralized network of computers rather than a centralized bank-based database. Bitcoin is a well-known example
of a cryptocurrency. Cryptocurrencies use a distributed ledger
technology, typically blockchain, which verifies the validityof transactions through a network of computers using cryptographic tools and third parties rather than through a central
banking authority. This process allows cryptocurrency transactions to be pseudonymous. Many cryptocurrencies, including
Bitcoin, are not linked with government money or a commodity. These cryptocurrencies are subject to volatile fluctuations
in value and are often used as speculative assets rather thanmeans of payment.202

195
What Are Digital Currencies?—Continued
Central Bank Digital Currency (CBDC). These are digitalcurrencies issued and backed by sovereign central banks. They
may be, but are not necessarily, cryptocurrencies.203 China’s central bank digital currency will not be a cryptocurrency, as the
Chinese government does not want to replicate in its sovereign
currency the pseudonymity or distributed nature of cryptocurrencies. Instead, the PBOC will retain the ability to precisely monitor and approve transactions.204
Digital Currency/Electronic Payments (DCEP). This is
Beijing’s nomenclature for its digital currency payments ecosystem. The term refers not only to the digital RMB but also to theelectronic payment tools that will link with the digital RMB, suchas those offered by Alipay and WeChat Pay.205
Stablecoin. This is a privately issued type of cryptocurrency
whose value is tied to government-issued paper or coin money,such as the U.S. dollar, or a commodity such as gold. Stablecoins
have more consistent values compared with other cryptocurrencies such as Bitcoin, offering the speed and efficiencies of digitalcurrency without volatility in market pricing. A well-known stablecoin is Diem (formerly Libra), created by Facebook and pegged
to the U.S. dollar, which was first proposed in 2019 and set forlaunch later in 2021.206 Chinese regulators have expressed views
that a dollar-backed stablecoin could cement U.S. dollar hegemony while increasing the possibility of destabilizing cross-border
capital flows.207
The CCP’s Motivations for Promoting the Digital RMB
The CCP’s immediate goals for the digital RMB are domestic
and focus on shifting how the economy operates and what types ofdata can be collected. These aims of the digital RMB complement
other efforts by the CCP to “informationize” the economy.208 The
CCP also has longer-term international aims, however, based on theidea that digital currency will be an important aspect of geopolitical competition.209 As Miles Yu, senior fellow at the Hudson Institute and former principal China policy and planning advisor at the
U.S. Department of State, testified before the Commission, “China
views the digitization of national currencies as an opportunity toincrease its surveillance of its own people and to upend the U.S. dollar-dominated global trade settlement and transactional monitoring
systems.” 210 In an indication of the CCP’s international ambitions,in March 2021 during a seminar at the Bank for International Settlements a PBOC official proposed a set of global rules for the interoperability of central bank digital currencies.211
Promoting Efficiency in China’s Financial System
In promoting a sovereign digital currency, PBOC officials havehighlighted the greater efficiency that digital payments can bringto China’s economy. The PBOC’s 2016 announcement of the digital RMB as a strategic goal outlined several advantages of digital

196
payments, including greater efficiency, more financial inclusion, andlower costs in comparison to handling cash.* 212 Martin Chorzempa,
senior fellow at the Peterson Institute for International Economics,
testified before the Commission that the technical innovations ofcentral bank digital currencies are less significant than they first
appear, as digital payments, including on nonstate payment platforms, are already dominant in China. 213 The distinguishing feature of sovereign digital currency is that the money is a liability of
the central bank rather than a liability of the bank that provides
the customer’s account (known as commercial bank money). Because
central banks can legally create more money, payments using central bank digital currencies are theoretically less risky than thoseusing commercial money.214
Preventing Challenges from Other Digital Currencies
The CCP views private cryptocurrencies such as Bitcoin or Diem
(formerly Libra) as potentially destabilizing because of their ability
to facilitate unregulated capital flows in and out of China. Moreover, the anonymous nature of transactions with these currencies
lessens the Chinese government’s ability to monitor economic activity. In 2017, concerns over these cryptocurrencies led Chinese
regulators to ban the sale of newly minted digital currencies suchas Bitcoin on Chinese exchanges, further cementing the government’s role in digital currencies.215 In May 2021, amid an increasein speculative trading of Bitcoin, financial regulators in China expanded the restrictions against cryptocurrencies, including banning
financial institutions in China from providing an exchange between
cryptocurrencies and the RMB.216 In September, Chinese regulatorsbanned all cryptocurrency transactions in China, including throughoffshore exchanges.217 Chinese regulators see the implementationof a sovereign digital currency as an urgent part of CCP efforts toprevent challenges from private digital currencies. After Facebook
announced its plans in 2019 to introduce a stablecoin, PBOC digitalcurrency research leader Mu Changchun said the PBOC’s digital
RMB team was working around the clock in response to Facebook’s
announcement, reflecting Beijing’s sense of urgency to develop a digital currency before an alternative gains prominence. 218
Co-Opting Chinese Nonstate Payment Platforms
The CCP’s promotion of a digital RMB reflects Beijing’s increasing
exercise of control over China’s nonstate fintech firms, particularlyin the mobile payments industry.† Unlike privately issued digitalcurrencies, mobile payments are conducted in RMB and thus are
not an inherent challenge to the PBOC’s authority. Indeed, Chinese
regulators encouraged the growth of nonstate mobile payment firms
in the early 2010s, viewing them as an important source of modernization for China’s banking industry. As Mr. Chorzempa testified* According to the PBOC, the digital RMB is intended to serve as a substitute for physical cash
in circulation, though will exist alongside physical cash rather than replace it. It is not intended
to serve as a substitute for other ways to store money, such as bank deposits. Working Group on
E-CNY Research and Development of the People’s Bank of China, Progress of Research & Development of E-CNY in China, July 2021.
† In Q3 2019, transactions on third-party mobile payments in China totaled approximately $8.7
trillion (RMB 56 trillion). China Banking News, “China’s Mobile Payments Market Grows over
15% in Q3 2019, Alipay’s Market Share Exceed Half,” January 21, 2020.

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before the Commission, the relationship became more complicatedafter 2016 due to faster-than-anticipated growth of the sector, theexposure of Ponzi schemes, and risky microlending practices.219
Regulators are also concerned over the duopoly power of two firms,
Alipay and WeChat Pay, which together hold a 94 percent share in
China’s mobile payments market. * 220
Rather than replacing AliPay and WeChat Pay, however, the PBOC
intends to incorporate them fully into the digital RMB system. Since
2016, PBOC officials have articulated a plan for a two-tiered system under which the PBOC issues the digital RMB while financial
firms (both banks and mobile payments companies) distribute themthrough online wallets. Such an arrangement will allow the PBOC
to take advantage of the firms’ innovative capacity as well as their
existing customer base and user data, increasing its oversight offinancial transactions in China.221
Enhancing the CCP’s Financial Monitoring and Surveillance
Capabilities
Samantha Hoffman, senior analyst at the Australian Strategic
Policy Institute (ASPI), argued in her testimony before the Commission that while the digital RMB does not create fundamentally new
forms of political control, it can enhance the existing monitoring andsurveillance capabilities of the CCP.222 In a recent ASPI report on
the digital RMB, Dr. Hoffman and her coauthors argued that while
China’s central bank digital currency “may address some financial
governance challenges, such as money laundering, it would also create unprecedented opportunities for surveillance,” including tracking financial activities of Uyghurs and other persecuted minorities
under the guise of addressing “terrorist financing.” 223 The adoptionof a digital RMB also strengthens the CCP’s push for technology-driven governance, particularly in the financial sector.† According
to Mr. Mu, digital RMB users may remain anonymous to counterparties but will still be required to register their real names withthe government in all but small transactions, allowing the PBOC to“achieve traceability under certain conditions and ensure that regulatory technologies such as big data analysis are useful.” 224 PBOC
officials have termed this “controllable anonymity.” 225
Potential Links to China’s Social Credit System
The digital RMB system, and the ability that it could give the
CCP to both monitor and prevent financial transactions, could be
used with China’s Corporate Social Credit System. Launched in2014, the Corporate Social Credit System collects government records and corporate compliance data into “Corporate Social Credit* While AliPay and WeChat Pay remain primarily focused on China’s domestic market, they
have made some expansion abroad. Alipay also has expanded e-payment operations globally andis available in 47 U.S. jurisdictions and 110 countries. According to Mr. Chorzempa, this expansion abroad has so far been relatively modest and mostly consists of Chinese tourists using theplatforms while traveling abroad. Martin Chorzempa, written testimony for U.S.-China Economic
and Security Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions,Plans, and Metrics of Success, April 15, 2021, 4; Nationwide Multistate Licensing System, “NMLS
Consumer Access: Alipay US, Inc.”† In 2019, the CCP released a three-year fintech development plan that prioritized big data
and artificial intelligence in the financial sector. Yaya J. Fanusie and Emily Jin, “China’s Digital
Currency: Adding Financial Data to Digital Authoritarianism,” Center for a New American Security, January 2021.

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Files” for every domestic and foreign legal entity in China. 226 Companies with poor social credit scores can be placed on “blacklists,”
with consequences including restrictions on issuing stock, restricted
access to government subsidies, and suspended approvals for R&D
projects. Similarly, companies with high social credit scores are eligible to be placed on “redlists,” with incentives such as fast-tracked
approval procedures, reduced inspections, and preferential quotas
for imports and exports.* As with the digital RMB, the PBOC has
played an important role in planning the Corporate Social Credit
System. According to Dr. Hoffman, while CCP sources have not explicitly linked the two systems, the financial transaction data generated through digital RMB payments could be integrated with thesocial credit system, which covered more than 60 million organizations and enterprises in China at the end of 2020.227
The CCP envisions control via the digital RMB to extend not justto commercial transactions but also to individuals, including Party
members. In June 2020, the Central Commission for Discipline Inspection, China’s top anticorruption body, published an article saying the digital RMB would counter crimes that “cannot be tolerated,” such as bribery and corruption.228 The enhanced surveillancecapabilities could be used to further the CCP’s efforts to exercise
control over Chinese citizens. In September 2020, the manager ofChina Construction Bank’s fintech lab said at a virtual panel thatthe bank’s fintech projects would incorporate China’s “blacklist.” 229
Reducing Reliance on the Dollar-Led Financial System
Internationalizing the RMB
In 2018, Fan Yifei, deputy governor of the PBOC, stated that adigital currency could promote RMB internationalization, which has
been a significant goal of the CCP since the 2008 financial crisis.230
In theory, the digital RMB could support internationalization of the
RMB by enabling easier and more widespread use of the currency incross-border payments. According to a January 2021 report from theCenter for a New American Security, Beijing will likely pursue policies to encourage adoption of digital RMB transactions by foreigners visiting China and could require Chinese citizens to use digital
RMB when traveling abroad. Such measures, however, are unlikely
to lead to substantial internationalization of the RMB.231 Observers
agree that the greatest impediments to internationalization of the
RMB are China’s restrictions on capital flows and the opacity of the
RMB’s exchange rate policy, which the digital RMB does nothing toaddress.232 In May 2021, Zhou Xiaochuan, former chairman of the
PBOC, downplayed the role of the digital RMB in internationalizing the RMB, saying that while the digital RMB could make small
cross-border payments more convenient, this development “is not in
the sense of a reserve currency, nor is it the internationalization of
the RMB in the sense of large-value transactions in the financial
market.” 233* For more on the Corporate Social Credit System, see Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,” Trivium China (preparedfor U.S.-China Economic and Security Review Commission), November 16, 2020.

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SWIFT and the Impact of U.S. Sanctions
The digital RMB has the potential to reduce China’s reliance on
SWIFT,* which the Chinese government views as a source of vulnerability. In 2019, Huang Qifan, chair of the China Center for International Economic Exchanges, argued that developing a digital RMB
would help guard against the United States’ ability to “exercise global hegemony and carry out long-arm jurisdiction” through SWIFT as
well as the Clearing House Interbank Payments System (CHIPS),
which is a U.S. clearinghouse for financial transactions.† 234 Asidefrom establishing the digital RMB, the CCP has already engaged
in some efforts to reduce China’s reliance on SWIFT and CHIPS.
A July 2020 report by the Bank of China called for banks in China
to increase their use of China’s Cross-border Interbank Payments
System, citing the risk of exposing financial payment information
to the United States via SWIFT as well as the risk that the UnitedStates could cut off Chinese banks’ access to SWIFT.‡ 235
If eventually adopted around the world, the digital RMB could reduce China’s vulnerability to U.S. sanctions, as it could provide thesame transfer capabilities as SWIFT and CHIPS without the needfor intermediary institutions.236 Other countries that are susceptible to U.S. sanctions, such as North Korea or Iran, may also decide
to use the digital RMB to bypass sanctions.237 In the short term,
however, most economists believe that the digital RMB is unlikely tosignificantly change the CCP’s ability to evade U.S. financial sanctions. In fact, the more comprehensive financial data under the digital RMB could provide a disincentive to attempting to evade sanctions. In testimony before the Commission, Mr. Chorzempa said theadoption of the digital RMB could make evading U.S. sanctions moredifficult for the Chinese government because the PBOC’s monitoring
capabilities of digital RMB payments would prevent the Chinese
government from having any deniability of sanctions evasion.238
Potential Connection to Blockchain-Based Service Network
While the CCP has restricted the use of blockchain-based cryptocurrencies such as Bitcoin in China, Chinese regulators nevertheless want to develop a blockchain network with global users andapplications. In 2019, General Secretary Xi said that blockchain“plays an important role in new technical innovation and industrial transformation” and called for China to increase its blockchain
R&D, including in setting international blockchain standards.239 In
2020, China’s main economic planning agency, the National Development and Reform Commission, further demonstrated the CCP’scommitment to blockchain, classifying it as part of a new model of* SWIFT (the Society for Worldwide Interbank Financial Telecommunications) is a messaging
system that facilitates most of the world’s banking transfers. SWIFT has been instrumental inenforcing U.S. financial sanctions, disconnecting sanctioned banks from the system. Mark Dubowitz, “SWIFT Sanctions: Frequently Asked Questions,” Foundation for Defense of Democracies,
October 10, 2018.
† CHIPS (Clearing House Interbank Payments System) is a private sector money transfer system used for electronic payments settled in U.S. dollars. OFX, “What Is CHIPS?”‡ CIPS (Cross-Border Interbank Payment System) is an alternative to SWIFT created by China
in 2015. In 2018, CIPS handled $3.7 trillion, while SWIFT handled $40 trillion. Kayla Izenman,“DC/EP’s Potential Internationalization and the Global Economy” in “The Flipside of China’s
Central Bank Digital Currency,” Australian Strategic Policy Institute, October 2020.

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infrastructure, along with cloud computing and AI, that will form an
important part of China’s information technology.240
In an effort to claim global leadership in blockchain development,
in 2020 China’s government launched the Blockchain-Based Service
Network (BSN), which is an international cloud computing networkwith the capability of supporting blockchain-based applications.241
According to Yaya Fanusie, adjunct senior fellow at the Center fora New American Security, the BSN is not a separate internet but
rather “a system of low-cost backend architecture on which softwaredevelopers around the world can build blockchain applications—including digital assets such as cryptocurrencies.” 242 As of November
2020, the BSN has 131 data centers located on every continent except for Antarctica.243 The BSN has already partnered with international firms, including some from the United States, for blockchain
development projects, due in large part to the lower cost of developing projects versus through traditional cloud service providers.244
The BSN architecture is bifurcated between Chinese and international users. Data servers for Chinese users and international users
are physically separate, and internet users within China will not beable to access many of the blockchain applications developed on the
BSN.245 Nevertheless, both the domestic and international services
fall under CCP control. At a 2020 Hong Kong fintech conference,
Tan Min, secretary general of the BSN, stated that the BSN would
create an internet where “China controls the rights to [blockchain]internet access.” 246
China’s government has not yet directly linked the digital RMB
to the BSN, but it is likely that both the domestic and internationalversions of the BSN will incorporate central bank digital currencies.
CCP officials working on the BSN have discussed the use of the
BSN to streamline online payments, and as Mr. Fanusie testified
before the Commission, because China will not allow for private
cryptocurrencies to be used on the domestic BSN, “it is logical toconclude that the payment instrument for such transactions will be
the digital RMB.” 247 Internationally, Chinese officials also expect
the BSN to use foreign central digital bank currencies. A January
2021 blog post outlined BSN plans to establish a universal digital
payment network by 2026 based on central bank digital currencies
of various countries and “enable a standardized digital currencytransfer method and payment procedure.” 248
Implications for the United States
The Chinese government sees itself as competing directly with
the United States for global economic leadership, a rivalry where
technological prowess will play a central role. China’s pursuit of innovation also includes a struggle for influence over international
standards in a range of key technologies that the CCP sees as drivers of the next-generation global economy. The United States may
be facing a short, sharp competition with China, but leadership infoundations of future economic growth hangs in the balance.
To mitigate perceived comparative disadvantages, the CCP isstrengthening its tools for top-down direction, making it more difficult to determine the extent of its influence and control over the nonstate sector. U.S. policymakers and businesses would benefit from a201
more detailed understanding of connections between the Party andnonstate firms, which may assist in preventing and mitigating risks.
As the Chinese government intensifies pursuit of self-sufficiency
across a range of emerging technologies, U.S. businesses can anticipate more intense competition from Chinese actors both in China
and in third-country markets. Even where China is not able to succeed in its ambitious goals, its implementation of a grand strategy
still can have significant consequences for U.S. national and supply
chain security, competitiveness, and jobs.
The CCP’s promotion of synthetic biology, including its support ofnational champions like BGI, could make China the global leader
in an emerging field with transformative potential for the futureof economic development, environmental protection, healthcare, andnational security. China’s growing synthetic biology capabilities are
not inherently harmful to U.S. interests. Indeed, Chinese developments in synthetic biology, if shared with the world on a reciprocal
basis, have the potential to benefit both U.S. and Chinese interests,
including through the provision of cutting-edge medical treatments.
In practice, however, the CCP views scientific research as a zero-sum
contest. China’s massive worldwide collection of genomic data—particularly from smaller countries that do not fully appreciate the value of their genetic diversity or have the ability to protect it—gives
the CCP the opportunity to enshrine this closed model in emerging
international standards for synthetic biology. Since China’s trackrecord has not been that of a trusted and reciprocal partner, this
could challenge the U.S. tradition of open scientific ecosystems andeventually give China an insurmountable advantage over the United States in the field.
Chinese advantages in new mobility technologies pose a distinct
risk to U.S. automakers and workers. China is pursuing a price-competitive strategy for NEVs in third-country markets and is leveraging its influence in international standards bodies to promote its
domestic standards for AVs. Without a clear strategy that includes
continued investment in R&D as well as participation in international standards setting, the United States could lose competitive
advantage in this field. U.S. federal, state, and local governments
must also anticipate vulnerabilities in digital infrastructure around
Chinese autonomous and connected vehicle operations and mayneed to contend with exploitation of U.S. digital infrastructure. U.S.
companies may be shut out of NEV battery supply chains due toChina’s state-driven control over critical minerals and dominance inrefining and battery production. If China cuts off access to key inputs as part of its offensive decoupling strategy, U.S. companies may
struggle to avoid critical shortages without domestic alternatives orcooperation with allies. China has shown willingness to weaponize
and politicize supply chains.
Steady growth of China’s cloud computing industry strengthens
its overall technological capabilities and enables the growth of other strategic industries, such as AI, quantum computing, and smart
cities. U.S. cloud computing companies are in a close race for market
advantage with Chinese competitors. The growth of Chinese cloudcomputing companies in emerging markets may also have longer-term consequences for the future of digital rules and encourage

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the proliferation of techno-authoritarianism. Greater Chinese influence and competitiveness heighten the risk that Chinese technicalstandards and security assessments around cloud computing andcross-border data transfer will gain traction in developing markets,
undermining the competitiveness of U.S. firms in these markets.
China’s development of a sovereign digital currency bears shortand long-term implications for the United States. In the short term,
U.S. citizens and companies operating in China could have theirfinancial payments subject to greater CCP monitoring. Potentially, it
would be easier for the CCP to impose economically coercive actions
against U.S. individuals and firms, including preventing financialtransactions of U.S. firms that do not conform to Beijing’s policy
preferences. In the longer term, China’s development of a sovereign
digital currency could pose even greater challenges to U.S. leadership of the global financial system. Currently, the greatest impediment to internationalization of the RMB is China’s capital controls,
which will not be affected by the introduction of the digital RMB.
If the CCP does change its capital controls, however, the use of thedigital RMB could ease cross-border use of the RMB, thereby aiding
internationalization. Similarly, although the digital RMB does not
currently undermine U.S. financial sanctions, in the future it could
facilitate financial payments that bypass SWIFT and CHIPS, placing them beyond the reach of U.S. financial sanctions.

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ENDNOTES FOR SECTION 2
1. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 Long-Term
Goals, March 12, 2021.
2. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 Long-Term
Goals, March 12, 2021.
3. Loren Brandt, written testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans, and Metrics ofSuccess, April 15, 2021, 4, 14.
4. Loren Brandt, oral testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans, and Metrics ofSuccess, April 15, 2021, 60–61.
5. Loren Brandt et al., “China’s Productivity Slowdown and Future Growth Potential,” World Bank Policy Research Working Paper 9298, 19.
6. Loren Brandt, written testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans, and Metrics ofSuccess, April 15, 2021, 14–15.
7. U.S. Department of Commerce Bureau of Industry and Security, “Supplement
No. 4 to Part 744 - ENTITY LIST,” June 15, 2021.
8. Ling Chen, written testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans, and Metrics ofSuccess, April 15, 2021, 6.
9. Matt Pottinger, oral testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans and Metrics ofSuccess, April 15, 2021.
10. Matt Pottinger, oral testimony for U.S.-China Economic and Security Review
Commission, An Assessment of the CCP’s Economic Ambitions, Plans and Metrics ofSuccess, April 15, 2021.
11. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 Long-Term
Goals, March 12, 2021.
12. Xinhua, “Xi Declares China a Moderately Prosperous Society in All Respects,”
July 1, 2021.
13. Oki Nagai, “China’s Xi Outlines Vision of ‘Great Modern Socialist Country,’ ”
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14. Zhang Xiaodong, “New Changes to Draft Outline of China’s 14th Five Year
Plan,” People’s Daily, March 11, 2021.
15. Zhang Xiaodong, “New Changes to Draft Outline of China’s 14th Five Year
Plan,” People’s Daily, March 11, 2021.
16. CGTN, “China’s State Planner Outlines Measures to Promote High-Quality Development during 14th FYP Period,” March 9, 2021.
17. Chen Gong, “Apparent New Characteristics and New Trends in China’s Demographic Development (我国人口发展呈现新特点与新趋势),” People’s Daily, May 13,2021. Translation.
18. Jude Blanchette, written testimony for U.S.-China Economic and Security Review Commission, An Assessment of the CCP’s Economic Ambitions, Plans, and Metrics of Success, April 15, 2021, 4.
19. Michael Beckley and Hal Brands, “Competition with China Could Be Short andSharp,” Foreign Affairs, December 17, 2020.
20. Rogier Creemers et al., “Xi Jinping’s Sept. 2020 Speech on Science and Technology Development (Translation),” New America, September 11, 2020.
21. Loren Brandt, oral testimony for U.S.-China Economic and Security Review
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22. China’s National Bureau of Statistics, “Main Data of the Seventh National
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23. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Government
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24. Jude Blanchette, “From ‘China Inc.’ to ‘CCP INC’: A New Paradigm for ChineseState Capitalism,” China Leadership Monitor, December 1, 2020, 9.
25. Jude Blanchette, “From ‘China Inc.’ to ‘CCP INC’: A New Paradigm for ChineseState Capitalism,” China Leadership Monitor, December 1, 2020, 9.
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204
27. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Government
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28. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Government
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29. Jude Blanchette, “From ‘China Inc.’ to ‘CCP INC’: A New Paradigm for ChineseState Capitalism,” China Leadership Monitor, December 1, 2020.
30. Tara O’Toole, “Synthetic Biology and National Security: Risks and Opportunities,” Center for Strategic and International Studies, April 14, 2020, 5. https://csiswebsite-prod.s3.amazonaws.com/s3fs-public/event/200416_O%27Toole.pdf.
31. National Academies of Sciences, Engineering, and Medicine 2018, Biodefense in
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33. John Cumbers, “If Biology Can Build It, They Will Come: Ginkgo Bioworks Is
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37. Marcus A. Cunningham and John P. Geis, “A National Strategy for Synthetic
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205
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53. Emile Dirks and James Leibold, “Genomic Surveillance: Inside China’s DNA
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54. Mark Kazmierczak et al., “China’s Biotechnology Development: The Role of U.S.
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56. Regulations of the People’s Republic of China on the Management of Human
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74. Jason Kelly, oral testimony for U.S.-China Economic and Security Review Commission, An Assessment of the CCP’s Economic Ambitions, Plans, and Metrics of Success, April 15, 2021, 194.

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125. Don Burnette and Paz Eshel, “The Surprising Benefits of Self-Driving Trucks,”
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158. Jill Shen, “China’s Electric Bus Makers Hold Early Advantage in Growing
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159. Sustainable Mobility Laboratory, “Latin America,” E-BUS RADAR, March
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163. Mark Andrews, “Tesla, Recharge: Can China’s EV Brands Dethrone Elon
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183. Alibaba, “Alibaba Cloud’s Global Infrastructure”; Larry Dignan, “Alibaba
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188. Anjie Law Firm, “Regulation of Cloud Computing in China,” October 13, 2020;
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200. Working Group on E-CNY Research and Development of the People’s Bank of
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204. Martin Chorzempa, “China’s Central Bank-Backed Digital Currency Is theAnti-Bitcoin,” Peterson Institute for International Economics, January 31, 2018.
205. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
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206. Ian Allison, “Diem Stablecoin Prepares for Liftoff with Fireblocks CustodyPartnership,” Coindesk, February 16, 2021.
207. Frank Tang, “Facebook’s Libra Forcing China to Step Up Plans for Its Own
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208. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
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209. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
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210. Miles Yu, written testimony for U.S.-China Economic and Security Review
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211. Tom Wilson and Marc Jones, “China Proposes Global Rules for Central Bank
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212. Martin Chorzempa, “China, the United States, and Central Bank Digital Currencies: How Important Is It to Be First?” China Economic Journal, January 5, 2021,
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213. Martin Chorzempa, written testimony for U.S.-China Economic and Security
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214. Martin Chorzempa, written testimony for U.S.-China Economic and Security
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215. Andrey Sergeenkov, “China Crypto Bans: A Complete History,” CoinDesk, September 29, 2021.
216. Reuters, “Explainer: What Beijing’s New Crackdown Means for Crypto in China,” May 19, 2021.
217. Bloomberg, “China Widens Ban on Crypto Transactions; Bitcoin Tumbles,”September 24, 2021; People’s Bank of China, Notice on Further Preventing and Disposing of the Risk of Hype in Virtual Currency Trading (关于进一步防范和处置虚拟货
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218. Martin Chorzempa, written testimony for U.S. China Economic and Security
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219. Martin Chorzempa, written testimony for U.S. China Economic and Security
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220. Coco Feng and Masha Borak, “China’s Digital Currency Will Not Competewith Mobile Payment Apps WeChat and Alipay, Says Programme Lead,” South China
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221. Samantha Hoffman, “DC/EP and Surveillance,” in “The Flipside of China’s
Central Bank Digital Currency,” Australian Strategic Policy Institute, October 2020.

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222. Samantha Hoffman, “DC/EP and Surveillance,” in “The Flipside of China’s
Central Bank Digital Currency,” Australian Strategic Policy Institute, October 2020.
223. Samantha Hoffman, “DC/EP and Surveillance,” in “The Flipside of China’s Central Bank Digital Currency,” Australian Strategic Policy Institute, October
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224. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
Data to Digital Authoritarianism,” Center for a New American Security, January
2021, 11.
225. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
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226. Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,” Trivium China (prepared for U.S.-China Economic
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227. Samantha Hoffman, written testimony for U.S. China Economic and Security
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228. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
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2021, 12.
229. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
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230. Maximilian Kärnfelt, “The Digital Yuan Will Only Lend a Minor Boost to Internationalization of the Currency,” Mercator Institute for China Studies, November
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Economy,” in “The Flipside of China’s Central Bank Digital Currency,” AustralianStrategic Policy Institute, October 2020, 23.
231. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
Data to Digital Authoritarianism,” Center for a New American Security, January
2021, 12.
232. Eswar Prasad, “China’s Digital Currency Will Rise but Not Rule,” Brookings
Institution, August 26, 2020.
233. Zhang Yu, “Zhou Xiaochuan Talks about Digital RMB Research and Development: Don’t Overly Connect It to RMB Internationalization” (周小川谈数字人民币研发：不要过多和人民币国际化联系), Yicai, May 20, 2021. Translation.
234. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
Data to Digital Authoritarianism,” Center for a New American Security, January
2021, 5; Miranda Wood, “China ‘Likely to Be the First’ to Issue Central Bank Digital
Currency, Says Official,” Ledger Insights, October 29, 2019.
235. Reuters, “Chinese Banks Urged to Switch Away from SWIFT as U.S. Sanctions
Loom,” July 29, 2020.
236. Kayla Izenman, “DC/EP’s Potential Internationalization and the Global Economy” in “The Flipside of China’s Central Bank Digital Currency,” Australian Strategic
Policy Institute, October 2020, 25.
237. Kayla Izenman, “DC/EP’s Potential Internationalization and the Global Economy” in “The Flipside of China’s Central Bank Digital Currency,” Australian Strategic
Policy Institute, October 2020, 25.
238. Martin Chorzempa, oral testimony for U.S. China Economic and Security Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions, Plans,and Metrics of Success, April 15, 2021, 261.
239. Liu Zhen, “Chinese President Xi Jinping Calls for More Research, Investment
into Blockchain Technology,” South China Morning Post, October 26, 2019; Xinhua,“During the 18th Collective Study Session of the Political Bureau of the Central Committee, Xi Jinping Emphasized the Use of Blockchain as an Important Breakthroughfor Independent Innovation of Core Technologies and Accelerated the Developmentof Blockchain Technology and Industrial Innovation” (习近平在中央政治局第十八次集
体学习时强调•把区块链作为核心技术自主创新重要突破口•加快推动区块链技术和产业创新发展), October 25, 2019. Translation.
240. China’s National Development and Reform Commission, Record of theApril Press Conference of the National Development and Reform Commission (国家发展改革委4月份新闻发布会实录), April 20, 2020. Translation. https://webcache.
googleusercontent.com/search?q=cache:xiN1NMyUrBoJ:https://www.ndrc.gov.cn/
xwdt/xwfb/202004/t20200420_1226031.html+&cd=2&hl=en&ct=clnk&gl=us.
241. Yaya J. Fanusie, “Don’t Sleep on China’s New Blockchain Internet,” Lawfare,
November 10, 2020.

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242. Yaya J. Fanusie, “Don’t Sleep on China’s New Blockchain Internet,” Lawfare,
November 10, 2020.
243. Yaya J. Fanusie, written testimony for U.S. China Economic and Security Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions, Plans,and Metrics of Success, April 15, 2021, 7.
244. Yaya J. Fanusie, written testimony for U.S. China Economic and Security Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions, Plans,and Metrics of Success, April 15, 2021, 8; Anna Badydakova, “Inside China’s Effort toCreate a Blockchain It Can Control,” CoinDesk, March 16, 2021.
245. Yaya J. Fanusie and Emily Jin, “China’s Digital Currency: Adding Financial
Data to Digital Authoritarianism,” Center for a New American Security, January
2021, 15; Sebastian Sinclair, “Developer of China’s Blockchain-Based Service Network
Gets $30M in Series A Funding,” Coindesk, June 9, 2021.
246. Yaya J. Fanusie, written testimony for U.S. China Economic and Security Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions, Plans,and Metrics of Success, April 15, 2021, 7.
247. Yaya J. Fanusie, written testimony for U.S. China Economic and Security Review Commission, Hearing on An Assessment of the CCP’s Economic Ambitions, Plans,and Metrics of Success, April 15, 2021, 7.
248. Blockchain-Based Service Network, “BSN 2021 Outlook,” January 15, 2021.

SECTION 3: THE CHINESE GOVERNMENT’S
EVOLVING CONTROL OF THE NONSTATESECTORKey Findings• China’s government has developed numerous avenues throughwhich to monitor corporate affairs and direct nonstate firms
and resources toward advancing the Chinese Communist Party’s (CCP) priorities. Within this expanded framework of government control, traditional definitions of state control in an
entity no longer apply because any entity may be compelled toact on behalf of the Chinese government’s interest, regardlessof the state’s formal ownership.
• Control of Chinese firms is blurred, contrary to the precise division between state and nonstate firms implied in corporate ownership registration. Historically, nonstate firms have sought state
investment to overcome political and regulatory barriers. China’s
government is also now increasing investments in nonstate firms
to advance its technology development goals and policy objectives,
further obscuring the distinction between state and nonstate.
• Under General Secretary of the CCP Xi Jinping, the Party has
systematically expanded its representation in corporate governance. Whereas traditional regulatory intervention in corporate affairs occurs through Chinese bureaucratic mechanismsprescribed by law, there are no such constraints on the CCP.
Consequently, it can be impossible to identify the extent of theexercise of CCP influence.
• The CCP is also supplanting the role of Chinese government
agencies in market monitoring and regulatory enforcement.
While this may create the appearance of better regulated markets, replacing routine bureaucratic functions with CCP intervention both acknowledges the inherent weakness of Chinesestate institutions and further undermines their effectiveness.
• Chinese corporate law affords the state unique and substantial
governance rights as an investor and imposes a legal obligation to serve state development goals on all firms. By contrast,
nonstate minority shareholders of publicly traded companies,
including U.S. investors in China’s domestic equities market,
are afforded minimal protections.
Recommendations
The Commission recommends:• Congress direct the U.S. Securities and Exchange Commission
to require that publicly traded U.S. companies with facilities
(214)

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in China report on an annual basis whether there is a CCP
committee in their operations and summarize the actions andcorporate decisions in which such committees may have participated.
• Congress direct the Bureau of Economic Analysis at the U.S.
Department of Commerce to amend its surveys of U.S. multinational enterprise activity in China to report on the presence
and actions of CCP committees in the foreign affiliates of U.S.
firms operating in China.
Introduction
While China’s leadership claims its economy is becoming more
open, better regulated, and less dominated by the state, the opposite is true. Since General Secretary Xi assumed power in 2012, theParty has deepened its presence in the nonstate sector and begun
supplanting the regulatory and administrative functions of China’s
bureaucracy in the name of improved market integrity. The CCP is
also evolving and increasing means to monitor, exert influence over,and intervene in corporate affairs. China’s government is simultaneously becoming an increasingly active investor in nonstate firms
and mobilizing broad segments of the nonstate economy to contribute to its technology ambitions.
This section documents the various legal and political channels
through which the CCP and China’s administrative state are extending their influence over Chinese firms. The proliferation of thesechannels is motivated by the CCP’s attempt to attain greater visibility into and control over China’s corporate sector. In principle, China’s authoritarian government does not need legal mechanisms (e.g.,
exercising shareholder voting rights) or political backchannels (e.g.,
placing CCP members on corporate boards) to intervene in corporate
affairs. As China’s economy has grown, however, the complexity of
economic activity has outpaced the evolution of channels for government oversight. In practice, therefore, the Chinese government’s
power to direct firms’ activities often exceeds its awareness of andinformation on those activities. The CCP is consequently looking
to increase government investment and CCP presence in nonstate
firms to improve its ability to monitor corporate behavior and provide channels to steer corporate decision-making when it desires.
The CCP is also using its internal anticorruption investigations togather information on and punish corporate malfeasance, in place ofChina’s weak regulatory apparatus.
The outcome of these processes is a complex expansion of government involvement in China’s business environment. This expansion
makes it increasingly difficult to distinguish between China’s state andnonstate sectors and heightens the risk that investment in Chinesecompanies ultimately supports CCP objectives that may counter U.S.
interests and harm U.S. investors. (For more on the national security
risks of U.S. investment in China, see Chapter 2, Section 4, “U.S.-China Financial Connectivity and Risks to U.S. National Security.”)
This section draws from the Commission’s March 2021 hearing,“U.S. Investment in China’s Capital Markets and Military-Industrial Complex”; consultations with government officials, industry experts, and academics; and open source research and analysis.

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China’s Government Has Numerous Channels for Intervention
in Corporate Decision-Making
Control of Chinese firms is often blurry, and the government has
wide latitude to intervene in corporate affairs. Many nonstate firms
welcome state-owned enterprises (SOEs) as shareholders to curry
regulatory favor, while numerous subsidiaries of state-owned conglomerates have raised capital through partial privatization.1 Even
when there are no government shareholders, firms with three ormore employees that are CCP members must establish CCP committees, effectively offering the Party a seat at the table. The Chinese government also uses its extensive influence over the economy
to guide commercial behavior without directly intervening in individual companies’ decision-making. Through policy incentives andcontrol of the financial system, the government shapes the opportunities available to entrepreneurs, steering nonstate firms toward
activities that advance state goals.
Three types of channels—legal, political, and economic—are used
to influence the corporate sector, any combination of which may be
operative for a given company. The complexity of these channels
and the increase in the government’s potential for intervention
demonstrates the limitations of current investment screening policy frameworks to safeguard U.S. national security and economic
interests. Analysis of equity ownership to establish actual control,
for instance, is less meaningful within an economy that grants thestate extensive corporate governance rights even when it owns justa fraction of a percent in a firm.2
1. Legal channels to intervene in corporate decision-making. Chinese law grants the state privileged status in the governance ofany corporation for which it is a shareholder, regardless of its
ownership stake.3 The state may exercise these rights throughits extensive investment in the nonstate economy. This section
describes in detail the nature of these rights and extent of state
ownership, but this should not suggest that legal channels forintervention are of the greatest concern for U.S. policymakers.
If anything, political and economic channels are in many cases
more important but harder to identify and address.
2. Political channels to influence corporate affairs. In contrast to thestate bureaucracy’s de jure mechanisms for intervention, the CCP
is not bound by legal constraints. Within firms, the CCP is expanding its influence over management and personnel decisions
through CCP committees. Chinese policy is prioritizing committee members’ joint appointments as corporate board members,
particularly within SOEs. Within the market more broadly, it issupplanting regulatory agencies’ role in monitoring and enforcement.
3. Economic channels to guide commercial behavior. Policy incentives, such as subsidies, grants, and tax breaks, as well as corporate monitoring mechanisms, guide companies toward fulfilling
the Chinese government’s objectives even without direct govern-

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ment influence.* (For a case study of how policy inducements
realign corporate incentives without direct government intervention, see Chapter 2, Section 4, “U.S.-China Financial Connectivity and Risks to U.S. National Security,” which addresses
the commercial environment created by China’s military-civil
fusion strategy.)
Legal Channels: State Investment in Nonstate Firms Is
Widespread and Expanding
Much of China’s corporate sector remains controlled by the statebureaucracy. The state holds a minority stake in an ever-increasing
number of nonstate firms, and state investment has been integral
to the success of China’s largest nonstate firms.4 As China has retained strong elements of a state-led approach to economic management, the role of state ownership and investment remains an
evolving mainstay of Chinese economic policy.5
These trends have important consequences for U.S. investors.
First, the state is legally afforded great privileges in the governanceof Chinese firms. As a result, any state-invested enterprise, not justan SOE, can become subject to the Chinese government’s influenceand control. Second, many ostensibly nonstate firms are actuallystate-invested enterprises, with the appointment of executive personnel serving as a key outcome of state investment.
Chinese Corporate Law Establishes Government Influence
In the 1990s China’s government introduced shareholding as atool for streamlining and consolidating its control over market development. The system evolved to enable the state to preserve control
even if its ownership of SOEs was diluted.6 Chinese law also grants
the government a say in personnel decisions and other matters ofcorporate governance for any state-invested enterprise,† regardlessof whether the state is a controlling shareholder in those enterprises. Because the Chinese government has extensive investments innonstate firms, special privileges for the state as a shareholder further extend government influence over the nonstate economy. Finally, Chinese law imposes obligations on all firms, state and nonstate,
to comply with government supervision and “bear social responsibilities” such as participation in national development objectives.7
State Shareholders Have “Super-Control Rights”
China’s corporate governance framework gives the state what
law professors Li-Wen Lin and Curtis Milhaupt call “super-control
rights,” applicable regardless of its stake in a firm.8 Establishedprimarily in China’s State-Owned Assets of Enterprises Law, theserights extend beyond those available even to nonstate controllingshareholders and fall into three broad categories:* For a discussion of China’s industrial subsidies and their impact on U.S. producers, see Chapter 1, Section 2, “Tools to Address U.S.-China Economic Challenges” in U.S.-China Economic andSecurity Review Commission, 2018 Annual Report to Congress, 77–80.
† Article 5 of China’s State-Owned Assets of Enterprises Law defines “state-invested enterprises” as wholly state-owned enterprises, state controlled or majority state-owned enterprises, andany enterprise with minority state equity investment. State Council of the People’s Republic ofChina, State-Owned Assets of Enterprises Law of the People’s Republic of China (中华人民共和国
企业国有资产法), 2008. Translation.

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1. State shareholders have outsized influence in personnel decisions. Regardless of its stake in the company, by law, the state
may propose candidates for a firm’s board of directors or senior
management to a shareholders’ meeting, or it may conversely propose the removal of directors or senior management.*
In some cases, state shareholders can appoint candidates to afirm’s board of directors outright, rather than merely proposing
them.† The state also has the authority to establish systems for
manager performance assessment and remuneration standards,
authorities otherwise vested in the board of directors. Furthermore, the state determines the pay and performance standards
for any managers it appoints.9
2. State shareholders have influence over any decision regardingtransfer of state-owned assets. The State-Owned Assets of Enterprises Law gives the state de facto veto power over proposedtransfers of assets (e.g., mergers and acquisitions) that could
impact the state’s rights and interests in a state-invested company, according to Harvard Law School fellow Tamar Groswald
Ozery.10 Normally such transactions are the purview of theboard, but Chinese courts have interpreted the law as invalidating otherwise legal contracts to transfer state assets because
they did not have the State-Owned Assets Supervision and Administration Commission’s (SASAC) approval.11
3. Nonstate firms and their management have fiduciary obligations
to state shareholders. Beyond the normal fiduciary responsibilities of every company, the management of any nonstate firm isliable for any actions that cause loss of state-owned assets.12
Shareholders of Public Companies Have Few Protections
Aside from affording the state unique privileges, China’s broader
corporate governance legal framework grants unconstrained authority to controlling shareholders, particularly state control over SOEs.
Chinese law protects the ultimate authority of the controlling shareholder, limits the rights of public shareholders, and empowers thecontrolling shareholder to pursue its own goals at the expense ofother shareholders’ interests.13 Dr. Groswald Ozery observes:[E]ven under an assumption of benevolent, well-coordinated,state asset management, the state as a controlling shareholder may direct the firm in pursuit of objectives that simply
run counter to the interest of the firm as a profit-maximizing business. Examples of this in China include the use ofstate-controlled firms to advance geopolitical goals without* By contrast, a nonstate shareholder can only propose convening a shareholder’s meeting if
it holds a 10 percent or greater stake and can only nominate candidates if it holds at least a 3
percent stake. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7.
† For example, in April 2020, a subsidiary of the state-backed China Internet Investment Fund
acquired a one percent stake in Weimeng, an affiliate of Chinese social media giant Weibo. According to Weibo’s filings with the U.S. Securities and Exchange Commission, this third-party
minority stake includes the right to appoint a director to Weimeng’s three-member board of directors. Yingzhi Yang and Brenda Goh, “Beijing Took Stake and Board Seat in Key ByteDance
Domestic Entity This Year,” Reuters, August 17, 2021; U.S. Securities and Exchange Commission,
Form 20-F Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for Weibo Corporation Fiscal Year ended December 31, 2020, April 22, 2021, 87.

219
sound expectations for economic return; harnessing management control to enforce broad social and political agendas,or to accelerate the implementation of market structure reforms; using state-controlled firms to implement special social tasks; and, as recently seen, to influence or even control
capital market volatility.14
Additionally, governance institutions that serve as a check on corporate malfeasance or poor management in other economies, such as
those of the United States, are purposefully weak or constrained in
China, enabling the controlling shareholder to make decisions that
may harm minority shareholders with impunity.15 For instance, China lacks institutional investors and advocacy organizations that act
on minority shareholders’ behalf,* not to mention a free press that
could hold corporations accountable.16 This prevents shareholders’coalitions from exercising oversight capacity in a manner similar toother economies.17 Capital market regulations also constrain hostile takeover bids (i.e., buying a controlling interest in a listed firm
through share purchases) and place stringent restrictions on foreign
ownership.18 For example, in public equities markets, foreign investors are barred from acquiring more than a 10 percent stake in a
Chinese company, and combined foreign ownership cannot exceed 30
percent in aggregate.† 19
State Investment Is Widespread and Integral to Major Nonstate
Firms’ Success
Ownership and control of Chinese firms is complex and does notreflect the distinct categories recognized in corporate registration,
namely state-owned versus nonstate.‡ Two primary challenges makeit difficult to determine actual control of Chinese firms:* Most institutional investors in China are part of the state-controlled financial system, so even
if they collectively obtained a controlling interest in a firm, they would still act on the state’sbehalf. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy
Account,” University of Michigan Law School, June 2019, 57–58.
† These foreign ownership restrictions have led some global investment index providers to modify their exposure to select Chinese securities. For example, in March 2019, MSCI announced
it would remove Han’s Laser Technology Industry Group Co., a Chinese manufacturer of laser
processing equipment used in the production of smartphones and other high-technology products,from its MSCI China indices, citing concern about approaching the foreign ownership limit. MSCI’s decision followed an announcement from the Hong Kong stock exchange that it would halt
buy orders from overseas investors in Han’s Laser Technology Industry Group Co. through theShenzhen-Hong Kong Stock Connect, as foreign ownership was nearing a 30 percent threshold
set by Chinese regulators. China Securities Regulatory Commission Vice Chairman Fang Xinghai
stated after the Han Laser episode that regulators do not plan to raise limits on foreign holdings
in stocks. MSCI, “Standard Announcements—March 06, 2019,” March 6, 2019; Reuters, “China
Halts Foreign Purchases of Shenzhen-listed Stock as Inbound Investment Surges,” March 5, 2019.
‡ Nonstate firms, literally called “privately operated enterprises” (民营企业), are defined under
Chinese business regulations as “economic units invested in or controlled (by holding the majorityof the shares) by natural persons who hire workers for profit-making activities.” In general, an
SOE simply refers to a firm in which the state owns a majority of shares, with various Chinese
government agencies employing different precise definitions according to their mandates. Chinese business regulations recognize a number of other corporate forms with exclusively domestic
shareholders, including domestic joint ventures (i.e., between an SOE and a nonstate Chinesefirm), collectively owned enterprises, cooperative enterprises, joint-stock cooperative enterprises,
limited liability companies, companies limited by shares, and “other.” Except for cooperative andcollectively owned firms, the other types may be considered SOEs or nonstate firms depending
on if the controlling shareholder is a natural person or an SOE or state agency. Firms with foreign shareholders (excluding publicly listed firms with foreign portfolio investors) have separate
types of business entities, further divided by whether foreign shareholders are domiciled in Hong
Kong, Macau, and Taiwan, or in other locations. Zhu Jianlong, “Understand the Identification
and Classification of China’s SOEs in One Article” (一文看懂我国国有企业的认定与分类), Lantai
Law Firm, April 21, 2020. Translation; China’s National Bureau of Statistics and China State
Administration of Industry and Commerce, Notice on the Revision of the Regulations Regarding220
1. Ownership does not correlate with control because the state’s influence exceeds its equity. When the state is a majority owner
but does not own 100 percent of a firm’s shares, it still retains
complete control over that firm’s operations because Chinese
law protects the majority shareholder’s interests. This applies
for the many SOEs that have sold minority stakes on China’s
domestic exchanges to raise capital. Of 1,490 companies listedon the Shanghai Stock Exchange at the end of the August 2019,655 (or 44 percent) were more than 50 percent state owned.20
On the Shenzhen Stock Exchange, 523 (or 22 percent) of 2,377
listed companies were more than 50 percent state owned at theend of 2020.21 Additionally, as described above, the state can intervene in corporate affairs even as a minority shareholder. The
state is increasingly a minority shareholder in nonstate firms
for three reasons. First, when China initially allowed privatization of SOEs in nonessential sectors, such as manufacturing, thestate often retained a minority stake.22 Second, many private
firms have sought state investors to benefit from political andregulatory privileges afforded by becoming an SOE’s subsidiary.* Third, under General Secretary Xi, China’s government is
actively expanding its portfolio of investment in nonstate firms
to fund technological development led by the nonstate sector,
improve returns on state capital, and increase government influence over nonstate firms.23
2. Elaborate corporate structures often make it difficult to identify the majority owner of a Chinese company. For instance, acompany may be the ultimate majority owner of a second-tier
subsidiary (i.e., a subsidiary of a subsidiary) through several
affiliates that themselves only hold minority stakes in the subsidiary. In such a case, it would appear the company has no
immediate majority shareholder, unless one examines two tiersof shareholding to discover the common owner across multiple
minority shareholders. These sorts of relationships are common
within large Chinese SOEs, many of which are sprawling conglomerates. Under this structure, a holding company often oversees operations for numerous subsidiaries segregated by function and geography.24 Generally, they oversee at least one listed
firm that represents the public face of the conglomerate andincludes its high-value assets.25 In addition, conglomerates often have separate financing arms that provide commercial andinvestment banking services solely to corporate group members,
and possibly a number of research institutes.26 The publicly
listed subsidiaries, financing arms, and research institutes arein turn often shareholders in a number of state and nonstate
firms, adding complexity to the corporate structure and making
ultimate ownership difficult to trace. Moreover, SOE managers often purposefully create multilayered corporate structures
the Classification of Enterprise Registration Types (关于划分企业登记注册类型的规定调整的通知),
September 30, 2011. Translation.
* Unless otherwise specified, within this section a “subsidiary” refers to any firm that is partly
owned by another state or nonstate firm (i.e., the parent company), regardless of the parent
company’s ownership stake. In the United States, subsidiary generally connotes a controlling, or
greater than 50 percent, ownership stake.

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in attempt to evade government oversight.* 27 In many cases,
successful nonstate firms have similarly elaborate structures.
Among other reasons, they have often had to form joint ventures with local SOEs across China to gain access to regional
markets.28
Nonstate Firms Benefit from State Investment
As the corporatized state sector has taken shape, firms in China’s
nonstate sector have concurrently sought to bolster their politicaland legal position by partnering with SOEs and welcoming state investment. Outside of legal guarantees, China’s SOEs enjoy politicalfavoritism in receiving licenses and bank loans, as well as priority
allocation of contract awards and subsidies to implement state policy
objectives. State capital has also been sheltered from private sector
competition via administrative monopolies forbidding nonstate firms
to operate in certain high-value industries, such as telecommunications.29 Given weak institutional protections for private property
and nonstate firms versus robust protections and privileged market
access for the state, successful growth as a nonstate firm has often
required aligning with state priorities and seeking political support
through SOE partners. For instance, Chery, currently China’s largest auto exporter, was only able to obtain a license to manufacture
automobiles in the late 1990s by selling a 20 percent stake to stateowned Shanghai Automobile, making it an SOE’s subsidiary under
Chinese law.† 30
State investment has become an important determinant of success for non-state firms. In a 2020 study tracing state investment
patterns in nonstate firms via Chinese corporate registry data, ateam of economists led by Tsinghua University professor Chong-En
Bai found that the largest ‡ nonstate firms are far more likely tohave state shareholders than their smaller counterparts.31 Importantly, nonstate firms grew faster after receiving state investment,suggesting that partial state ownership was critical to their success.32 Furthermore, nonstate firms with state shareholders havebecome politically important shareholders themselves in other nonstate firms, as have their subsidiaries.33 Within China’s corporate
landscape, there is consequently a hierarchy of nonstate firms basedon proximity to the state as a shareholder.34 Notably, the trend ofstate investment in nonstate firms has increased substantially. Be* In China’s central SOEs, holding companies are completely owned by the state and directly
owned by SASAC. Corresponding provincial and local state-owned assets supervision and administration committees own and oversee state-owned conglomerates at the respective levels ofgovernment.
† Chery has since bought back Shanghai Automobile’s stake. It is China’s tenth largest automobile manufacturer overall. Chong-En Bai et al., “Special Deals from Special Investors: The Riseof State-Connected Private Owners in China,” NBER Working Paper 28170, December 2020, 2.
‡ Within the study, registered capital is used as a proxy for firm size. Under China’s Company
Law, firms must subscribe a certain amount of funds, called “registered capital,” at establishment, with different minimum amounts depending on sector. A firm’s registered capital is the
maximum liability creditors may collect in event of default, so it signifies a company’s financial
resources and is closely considered by potential creditors. Consequently, the amount of registeredcapital is typically determined by the amount of real business needs a firm undertakes, and it
can form a rough gauge of a business’ size. Registered capital is often increased without issuing
new shares as a business expands in order to signal the health of a business to creditors andpotential business partners. Chong-En Bai et al., “Special Deals from Special Investors: The Riseof State-Connected Private Owners in China,” NBER Working Paper 28170, December 2020, 8;
China Accounting School Online, “The Difference between ‘Registered Capital’ and ‘Paid-in Capital’ ” (“实收资本”与“注册资本”的区别), August 11, 2009. Translation.

222
tween 2000 and 2019, the proportion of non-state firms with a stateshareholder increased from 9.9 to 15.3 percent.35
Under Xi, China’s Government Is Becoming a More Active Investor
in the Nonstate Sector
While nonstate firms have sought state investment to overcome
regulatory and political barriers for decades, under General Secretary Xi China’s government is actively promoting increased state
investment in nonstate firms. The 18th Third Plenum decision, theeconomic policy blueprint laid out by General Secretary Xi in November 2013, envisions a fundamental shift in the nature of state
ownership of assets. Previous plans conceived of the government as
an active manager directing day-to-day operations of majority stateowned firms in a limited number of sectors. By contrast, the Third
Plenum decision and supplementary policies envision the government transforming into a passive asset manager holding minority
stakes in a far greater swath of China’s economy.36 Chinese policymakers are pursuing policies that blur the lines between state andnonstate companies.37
This change in the Chinese government’s relation to nonstate firms
reflects a search for alternative means to achieve goals policymakers
have not been able to meet, either by active management of SOEs’
corporate operations or by regulating the nonstate sector. Foremost,SOEs have not delivered the contribution to economic growth orinnovation sought by state planners. At the start of General Secretary Xi’s tenure in 2012, SOEs’ return on assets had shrunk to 3.1
percent compared to 5 percent in 2007.38 The inefficiency was particularly extreme in industrial enterprises,* where nonstate firms’
return on assets was over 9 percent, more than double that of SOEs
at 4.5 percent.39 Critical to China’s technology ambitions, the outgoing Hu-Wen government publicly recognized that its attempts toinstill state-led innovation had largely failed.40 Rampant fraud andthe inability of the central government to overcome local blocs ofvested interests compounded both SOE inefficiency and lack of innovative capacity.41
Additionally, China’s government is uncomfortable with its inability to anticipate and control market fluctuations, which are often exacerbated by state intervention in the first place. In particular, thegovernment has far less visibility into financial conditions and otherimportant information for the nonstate sector, particularly for firms
in which the state is not a shareholder.42 The consequences of thislimited visibility became apparent during the stock market bubble
and subsequent crash in 2015. Leading up to the crash, Chinese
regulators had poor understanding of internet finance platforms
that circumvented the state-run banking system and had augmented margin trading, such as peer-to-peer lending.43 Caught unawareof the extent stock prices had been inflated by leverage, authorities
likely triggered financial panic through a series of regulatory missteps intended to reduce leverage.44* “Industrial enterprises” excludes those in the agricultural and service sectors. It includes
commodity extraction and processing as well as manufacturing firms. China’s National Bureau of
Statistics, 4. Statistical System and Classification Standards (四、统计制度及分类标准[17]), June
19, 2020. Translation.

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According to Harvard Business School professor Meg Rithmire,
the expansion of Chinese government’s nonstate investment portfolio in response to these challenges has occurred through multiple
channels and in fulfilment of at least three distinct policy objectives:
1. The government is offering financing to the nonstate sector
through government guidance funds. These funds aim to position the state as a venture capital (VC) investor leveraging
nonstate sector dynamism to meet technology development objectives. Such funds form a pillar of China’s strategy to achieve
indigenization goals under Made in China 2025. For instance,
the National Integrated Circuits Industry Development Investment Fund, launched in 2014, aimed to allocate $21 billion toclose the gap between China’s domestic semiconductor fabrication capabilities and those of international leaders.45 The semiconductor fund, which has been the most high-profile example
of such a fund to date, has failed to achieve this stated goal.46
The fund has focused on building foundries, but most of thefabrication technologies acquired in China’s semiconductor push
are generations behind cutting-edge international equipment.47
In many cases, construction has been halted before facilities arecomplete, and those that are finished have neither adequate talent nor sufficient research budgets to keep pace with industry
developments.48 Despite these setbacks, the fund has facilitatedcritical advances in China’s chip design and packaging capabilities, and government guidance funds constitute an important
evolution of both industrial policy and state ownership.49 The
funds are discussed in further detail later in this section.
2. The government is acquiring stakes in nonstate firms to seek areturn on state-owned assets through “mixed-ownership reform.”
Central to the Third Plenum decision’s blueprint for restructuring China’s state sector, mixed-ownership reform has attempted to improve the efficiency of China’s state sector by inviting
private capital and managerial expertise into nonstrategic sectors, such as hotel chains and other services, while allowing
China’s government to concentrate on managing the operationsof a smaller number of SOEs in critical sectors of strategic importance, such as energy, telecommunications, and technologies
prioritized under industrial policy initiatives.50 The state does
not necessarily divest from nonstrategic sectors, but reduces itsrole in actively managing firms in these sectors, transforming
the administrative agencies that oversee them into capital managers.* 51 In practice, the program has tilted much more heavily* Some scholars liken the intent of the revised compound role of China’s State-owned Assets Supervision and Administration Commission to Singapore’s state-owned holding company Temasek.
The government of Singapore set up Temasek in 1974 to manage the city-state’s investments but
maintained distance from the company’s day-to-day business operations. Singapore’s government
had taken minority shares in many domestic firms to indicate its own confidence in local companies in order to encourage foreign investment and developed the holding company structure
in part to address foreign investor concerns regarding the Singaporean government’s conflict ofinterest as a dual shareholder and regulator of much of its economy. In practice, SASAC, the CCP,
and other government agencies maintain far more involvement in Chinese SOEs’ affairs than
Temasek exercises in its portfolio companies. Wei Jie and Nicholas Ng, “Comparative Corporate
Governance: Why Singapore’s Temasek Model Is Not Replicable in China,” International Law and
Politics 51:1 (Fall 2018), 211–250, 219–221; Weng Shiyou, Zhou Zhe, and Chu Chu, “Chen Qingtai:
The Breakthrough is in Managing Capital” (陈清泰： 突破口是“管资本”), Caijing Magazine,
September 14, 2015. Translation.

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toward increased state investment in the nonstate sector rather
than vice versa.52
3. By purchasing stocks to stabilize market turbulence, the government has become a shareholder of many listed nonstate firms.
Through the “national team,” a group of state shareholding funds
under the guidance of the China Securities Regulatory Commission, China’s government has intervened extensively in China’s
stock market to arrest market downfalls.53 The most large-scale
example of the national team in action was during China’s stock
market collapse in 2015. Acting in concert, the national team,
China’s social security fund and many subnational pension funds,
and many SOEs bought shares in companies to prop up prices.
Goldman Sachs estimated the national team spent $234 billion(renminbi [RMB] 1.5 trillion) * in July and August 2015, and in
November that year Financial Times reported the national teamowned 6 percent of China’s stock market.54 Since the 2015 crash,
the state has retained a substantial portion of its shares andcontinues to employ similar tactics at a smaller scale during other periods of market turbulence.55 Because minority ownershipgives the state more visibility into the financial condition of thecompanies in which it holds shares, regulators view the nationalteam and similar tactics as a financial risk management tool.56
It also gives the state potential avenues to exercise control via its
special rights as a shareholder.
The Chinese government is also expanding investment in nonstate firms to strengthen influence over the nonstate technology
sector. In April 2021, the state-backed Chinese Internet Investment
Fund took a one percent stake worth $308,770 in a domestic operating unit of Chinese social media giant ByteDance. 57 As part ofthe deal, a Cyberspace Administration of China official also becamea board member of the ByteDance subsidiary.58 The move coincidedwith a government campaign to check the growing influence andanticompetitive behavior of Chinese technology firms. Separately,in September 2021, Bloomberg reported several Beijing municipal
government-owned companies were considering acquiring a stakein ridesharing firm Didi Chuxing.59 The reports followed heightened
regulatory scrutiny of the firm’s data management practices in thewake of its initial public offering on the New York Stock Exchange.
(For more on Chinese regulators’ actions against top technology
firms and Chinese companies listed overseas, see Chapter 2, Section
1, “Year in Review: Economics and Trade.”)Government Guidance Funds Attempt to Combine Policy Imperativeand Profit Motive
In financing industrial policy initiatives, China’s government hasrolled out government guidance funds that adopt elements of the
VC funding model.† Guided but not actively directed by the Chinese* Unless noted otherwise, this section uses the following exchange rate throughout: $1 = RMB
6.43.
† An alternative investment class that is not listed on a public exchange, VC helps firms seeking
to commercialize unproven technologies by providing “patient capital,” as opposed to stock investors that typically expect to see immediate profitability. This funding might be used to meet highupfront costs to launch capital-intensive operations, to maintain or scale up operations during
the period before a firm establishes a sufficient customer base to cover its operating costs, or to225
government, these funds are intended to function as public-private
partnerships. The funds are sponsored by central or local government agencies and usually focus on a specific strategic sector, suchas semiconductor manufacturing or artificial intelligence. The sponsoring government agency typically contributes 20 to 30 percent of
the fund’s target capital, then seeks to raise the balance from outside investors, including both nonstate firms and financial institutions as well as SOEs and the state financial sector.60
First introduced by local governments in 2000 and then established at the central government level in 2013, these funds haveproliferated rapidly since the release of Made in China 2025 inspring 2015 and the Chinese government’s sharpened focus on technological development.61 Between the end of 2014 and June 2020,
the total funding scope * of government guidance funds grew fromless than $100 billion to roughly $1.7 trillion (RMB 11.3 trillion).62
Research by Chinese economic consultancy Zero2IPO counted 1,741
government guidance funds across all levels of government as of thefirst quarter of 2020.63 Since 2018, formation and fundraising haveslowed in response to both declining economic growth and Chinese
policymakers’ concern about wasted investment and opportunities
for fraud.64
Compared to standard private equity and VC funds, government
guidance funds have a few distinct features unique to China’s stateled science and technology system. First, to incentivize participation
by nonstate capital, guidance funds offer a number of potential benefits. For example, a guidance fund’s government sponsor may forgo
their own investment or interest income or assume other investors’
losses.65 Second, where they might not provide the depth of industry
expertise and connections available from top Silicon Valley funds,
China’s government guidance funds are often able to provide connections to other institutions and resources within China’s researchand development infrastructure. As Zachary Arnold, research fellow
at Georgetown’s Center for Security and Emerging Technology, detailed in testimony before the Commission, funds may coordinate
with state-led technology incubators and industrial parks to provide
access to facilities or work with talent and recruitment programs
to help startups secure human capital.66 Finally, because guidance
funds have a mandate to focus on strategic technologies rather thansimply generating return, startups seeking their investment do nothave to compete against less technologically advanced companies
that might be able to demonstrate a more viable business model.67
By contrast, funding patterns in Silicon Valley have trended towardfavoring consumer-facing companies with less innovative technology but a shorter timeline to profitability (for further discussion on
expand a workforce to meet production demand. A key driver of VC funds’ success is their ability
to pick promising business models and technologies and to help the companies they invest in
succeed. Aside from providing financing, private equity and VC investors are often involved intheir portfolio companies’ operations, offering managerial expertise, business connections, andtechnical acumen. Robyn Klingler-Vidra, “When Venture Capital is Patient Capital: Seed Funding as a Source of Patient Capital for High-growth Companies,” Socio-Economic Review (October2016): 1–18.
* Funding scope refers to the target value in the articles of agreement creating the fund, andnot all funds have actually raised the target amount. Once the funds are raised, it can takeyears to deploy them to suitable investments. Barry Naughton, “The Rise of China’s Industrial
Policy 1978–2020,” Center for Chinese-Mexican Studies of the School of Economics of the National
Autonomous University of Mexico, 2020, 105–106.

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government guidance funds’ role in the economy, see Addendum I:
Government Guidance Funds Struggle to Overcome Limitations ofPrevious Industry Policies.) 68
Political Channels: CCP Committees’ Involvement in Corporate
Governance Is Rapidly Increasing
The Chinese government’s potential control over corporate activity through legal channels has limits, insofar as these channels arecodified in law and must be exercised through formal mechanisms,
such as a shareholder’s meeting. By contrast, the CCP exercises influence through a variety of channels that have no legal constraints,
even if they have a legal basis.* Though they are often complex
and operate without procedural checks and balances, many of thesechannels are nonetheless highly routinized within the CCP’s vastadministrative apparatus.†
The CCP Committee Gains Prominence in Corporate Governanceand Market Regulation
Changes in the CCP’s role both within individual firms and across
China’s capital markets impact U.S. investors in China’s economy.
Within firms, the CCP’s role and ability to exert influence is becoming more deeply entrenched through CCP committees, among othermechanisms. CCP committees take on three functions: (1) overseeing personnel appointments and management decision-making; (2)coordinating political and ideological education; and (3) monitoring
the behavior of employees, for instance to report on corrupt practices.69 These are all existing functions of the CCP administrative apparatus, but committees enhance the ability of the CCP to exercise
these functions within firms by strengthening coordination between
the committees and the larger Chinese government bureaucracy, as
well as increasing CCP members’ accountability to the Party andtheir employing firms.70
In addition to these traditional CCP functions, China’s 2015 Guiding Opinions on restructuring SOEs prioritize joint appointments
for CCP committee members as board members and state that thehead of the corporate board should be the company’s CCP secretary.71 The document also positions the CCP committee as parallelto the board in granting it capacity to oversee and audit major decisions.72 Companies are also amending corporate charters to elevate CCP committees: between 2015 and 2018, nearly 90 percent* For instance, CCP committees have a constitutional and legal basis. The CCP constitution
establishes the requirement that any firm with at least three CCP members must have a CCP
committee and grants the committee a monitoring role, while China’s Company Law prescribes arole for CCP committees in any company based in China. Unlike legal channels for state control,
however, the constitutional and legal bases for CPP committees impose no constraints on theircapacities. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 120–121.
† Other informal channels such as quasi-government trade associations and unions also impact
Chinese firms’ behavior and are deeply connected to the CCP. Additionally, other CCP channels
traditionally focused on political influence, such as the United Front, are now being recruited toincrease CCP outreach to private firms. This section confines its discussion to CCP influence overcorporate decision-making and monitoring of capital markets. Jason Arterburn, written testimony
for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s
Capital Markets and Military-Industrial Complex, March 19, 2021, 9–10; People’s Daily, “General
Office of the CCP Central Committee Issues ‘Opinions on Strengthening the United Front Workof the Private Economy in the New Era’ ” (中共中央办公厅印发《关于加强新时代民营经济统战工作的意见》), September 15, 2020. Translation.

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of SOEs adopted the policy, and almost 6 percent of nonstate firms
implemented similar changes despite not being required to do so.73
Concurrently, the CCP is supplanting the role of the state bureaucracy in implementing policy and enforcing regulation within
China’s capital markets. As part of General Secretary Xi’s nearly decade-long anticorruption campaign, the CCP is dispatching inspection tours to investigate potential fraud and corporate malfeasancewithin Chinese SOEs as well as high-profile, ostensibly nonstate
enterprises, such as property development conglomerate Wanda Dalian.74 In executing this campaign, the CCP’s Central Discipline Inspection Committee appears to establish cooperation with CCP committees within a conglomerate’s subsidiaries, gathering evidence ofpotential misconduct through financial records and other documents
through committee members.75 The campaign has systematicallyprogressed through different industries, including energy, healthcare, the financial sector, and both nonstate and SOE commercial
and offshore investment vehicles.76 China’s leaders view this as anecessary step to combat widespread corruption and self-dealing
within China’s state sector and among listed firms.77
Notably, this CCP-led enforcement receives high-level collaborationfrom state bureaucratic institutions, with SASAC and the banking
and securities regulators assisting in confiscating documents, freezingbank accounts, and other measures.78 Where this cooperation may
give the illusion of a legally valid process, the Discipline Inspection
Committee operates extralegally, and state agencies are obliged to cooperate without due process under China’s 2017 National Supervision
Law.79 Despite creating the appearance of greater market integrity,
increased reliance on the CCP to ensure regulatory compliance inplace of state institutions marks a retrogression in China’s capital
market development.80 This dynamic could ultimately lead to markets that not only have the potential for CCP intervention via political channels but also depend on these channels to function.
China’s Corporate Social Credit System Seeks to Guide
Commercial Behavior
China’s emerging corporate social credit system (CSCS) * equips
the CCP with an economic channel of corporate control. Officiallylaunched in 2014 with the release of the Planning Outline for theConstruction of a Social Credit System (2014–2020), the CSCS
comprises a network of central and local government data-gathering initiatives designed to centralize regulation of companies
registered in China. Though still under development, it aims toprovide China’s government a nationwide system to monitor all
aspects of corporate behavior and administer automated regulatory responses to keep companies in line with the CCP’s governanceobjectives.† 81* For a comprehensive overview of China’s corporate social credit system, see Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,”
Trivium China (prepared for the U.S.-China Economic and Security Review Commission), November 16, 2020.
† Chinese policy and regulation does not formally distinguish between the corporate social
credit system and the social credit system more broadly, which applies to individuals as well as
firms. Certain types of data collected apply only to companies or individuals, however, while othercategories may apply to both. Li Wang, “New Defaulters’ Blacklists Released, Seriously Untrust-

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China’s Corporate Social Credit System Seeks to Guide
Commercial Behavior—Continued
The CSCS also equips the Chinese government with a tool toensure only companies deemed reliable by the Party are able toparticipate in the Chinese market. It focuses on aggregating government and corporate compliance data to create “corporate social credit files” on every legal entity in China.82 As government
departments collect information on firms, they create “blacklists”
of “untrustworthy” * companies found to have violated government regulations and “redlists” of firms with exemplary records.83
In testimony before the Commission, Nazak Nikakhtar, former
Assistant Secretary for Industry and Analysis at the U.S. Department of Commerce, explained that placement on a government department’s blacklist can subject companies to an array of punishments, including higher taxes or business licensing difficulties.84
Additionally, when a company is blacklisted by one government
regulator, the blacklist record is included in the company’s corporate social credit file.85 This triggers scrutiny from other regulators and can effectively bar that company from participating in
the Chinese economy more broadly.86 Such inducements enable
the CCP to compel compliance with Chinese law and alignment
with CCP policy priorities, including among foreign firms.87 In
place of hard controls currently governing market access, such as
investment restrictions, the CSCS provides a framework of incentives to manipulate domestic and foreign firms’ behavior within
and beyond China’s borders.88
CCP Committees Increase Their Presence within Nonstate andForeign Firms
In addition to elevated power within SOEs, CCP committees havefocused on expanding their presence from SOEs to all firms. Since
1925, the CCP constitution has required that any organization withthree or more CCP members form a party unit, but in practice theunits have not always been active in nonstate and foreign-invested
enterprises in China.89 China’s leadership renewed systematic efforts to build CCP committees in nonstate enterprises in the wakeof the global financial crisis. Since assuming power in 2012, General Secretary Xi has accelerated this trend, making greater CCP
involvement and direction in nonstate affairs, including presence
within nonstate and foreign firms, a pillar of Chinese governance.90
In 1998, a mere 0.9 percent of nonstate firms had CCP committees, a figure that rose to 16 percent by 2008.91 By 2013, committee
presence in nonstate firms expanded to 58 percent, and by 2017 it
worthy Entities Involved in the Financial Sector Includes 400 New Additions” (10月失信黑名单出
炉 金融领域新增严重失信人400家), People.cn, November 12, 2018. Translation.
* China’s National Development and Reform Commission segments blacklist behavior into
three categories: “generally untrustworthy,” “seriously untrustworthy,” and “particularly seriously
untrustworthy.” Companies deemed “particularly seriously untrustworthy” may be those foundto have harmed the public interest by, for example, violating food and drug safety regulations,engaging in contract fraud, and making false advertisements, among other things. Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,”
Trivium China (prepared for the U.S.-China Economic and Security Review Commission), November 16, 2020, 31.

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reached 73 percent, accounting for 1.9 million firms, according to the
CCP Organization Department.92 China’s government has placed
special emphasis on increasing the CCP’s oversight of China’s major
technology companies, with the Financial Times reporting in 2017that more than 35 such companies had quietly instituted committees.93 A newspaper run by China’s Ministry of Human Resources
and Social Security reported in 2018 that among roughly 15,000
internet firms in Zhejiang Province, home to e-commerce giant Alibaba, more than 65 percent had established CCP committees.94
In addition, the CCP is seeking to establish CCP committees
within foreign firms.* In 2016, around 74,000 foreign enterprises
in China, roughly 70 percent of the total, also had CCP committees,compared with 47,000 at the end of 2011.95 One 2017 Reuters investigation found CCP committees had been used to influence investment decisions by foreign-invested firms in China, with two major
multinational firms, Samsung and Nokia, confirming the presence ofParty units in their China operations.96 The Reuters investigation
also found that a major U.S. consumer goods firm reported that its
CCP committee had pressured the company to locate a new facility
in an area where the local government was attempting to draw investment, and the company agreed.97
Anhui Province Shows CCP Expansion in the Nonstate
Sector Is Systematic
Far from an ad hoc campaign, the CCP’s growing presence within the private sector is the result of multipronged and systematic political mobilization. In their 2017 study of the expansion of
CCP committees, University of Hong Kong professor Xiaojun Yan
and PhD candidate Jie Huang examine the CCP’s coordinatedapproach to Anhui, a major agricultural province and household
appliance manufacturing hub on the Yangtze River.98 They tracefour key steps the CCP took to rapidly increase the penetration ofcommittees throughout the province’s nonstate sector beginningin 2012:• Establishing a separate organization with the sole
purpose of expanding CCP presence in the nonstate
sector. Where private sector engagement used to be the purview of a subordinate department within the provincial CCP
organizational department, Anhui’s CCP established a separate committee, the Nonstate Economic Organizations andSocial Organizations Working Committee, devoted to increasing CCP presence in the nonstate sector.99 Granted greater* China’s Company Law requires all companies based in China, both foreign and domestic,
allow the establishment of Party units to “carry out the activities of the Party” and to provide“necessary conditions” for these units to function if these companies employ three or more Party members. It is difficult to assess the influence of Party organizations in foreign enterprises.
This is because foreign businesses may be reluctant to report their existence or complain about
them out of fear of provoking retaliation from the Chinese government. The U.S.-China BusinessCouncil (USCBC) reported in 2018 that the state-owned joint venture partners of some USCBC
member companies have tried to modify articles of association to support Party units within the
joint venture and elevate their role in managerial decisions. Nicholas Borst, “Party Committees
in Chinese Companies,” Seafarer, June 2021; Jérôme Doyon, “Influence Without Ownership: The
Chinese Communist Party Targets the Private Sector,” Institut Montaigne, January 26, 2021; Jake
Laband, “Fact Sheet: Communist Party Groups in Foreign Companies in China,” China Business
Review, May 31, 2018.

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Anhui Province Shows CCP Expansion in the Nonstate
Sector Is Systematic—Continued
authority within the CCP administrative hierarchy, the newcommittee established liaison offices with state agencies responsible for nonstate sector oversight, such as the bureau
of industry and commerce that handles corporate registration.* 100• Sending “Party building instructors” to nonstate firms.
Reminiscent of Mao-era campaigns that mobilized cadresthroughout China to communicate new political doctrine, Anhui’s provincial CCP sent teams of cadres to guide nonstate
firms in Party building, dispatching roughly 10,000 instructors in 2013 alone.101 The instructors simultaneously helped
nonstate firms manage administrative and political resources
while strengthening CCP operations within firms.102• Recruiting entrepreneurs and awarding prestigious
CCP posts. By 2015, the CCP estimated that 20 percent of
all nonstate entrepreneurs and half of the largest company
founders had joined the CCP ranks.103 To further incentivize
membership, the CCP in some instances provided prestigious
political appointments to nonstate entrepreneurs, including
membership in legislative bodies or leadership positions in
trade organizations.104 These appointments can afford entrepreneurs preferential policy treatment, access to information,and political protection.105• Positioning the CCP as business-friendly. To overcome
suspicions that increased CCP presence in nonstate firms
would lead to political interference or undermine managers’
authority, the CCP focused on cultivating an image of the
CCP as business-oriented.106 For instance, CCP committees
encourage their members to work harder and more efficiently,
and CCP propaganda aimed at the nonstate sector promotes
the results of CCP “demonstration brigades” that contributeto firm financial performance through innovation or resolving
operational challenges.107
Implications for the United States
The CCP’s expanding ability to monitor, exert influence over, andintervene in corporate affairs is fundamentally changing the natureof government-corporate relations in China. Where the government
has always played an outsized role in directing the allocation of resources in China, the political and policy mechanisms of this direction were generally heavy-handed. By contrast, the evolving legal,
political, and economic channels for government intervention under
General Secretary Xi are more complex and nuanced. To date, theexpansion of these channels appears largely motivated by the CCP’s
desire for greater oversight into market conditions and attempts to* In 2018, these bureaus were superseded by the State Administration of Market Regulationand its provincial bureaus.

231
steer the nonstate sector toward advancing policy objectives. Theirexistence nonetheless lays the groundwork for more drastic government intervention in China’s corporate sector, with the CCP gaining
a greater authority to shape corporate actions of both domestic andforeign companies operating in China.
As U.S. financial integration with China increases, the Chinese
governments’ complex and expanding presence in China’s businessenvironment poses distinct commercial and security risks to theUnited States. The CCP’s quest for greater control over the economy is moving China further away from a rule of law system that
protects and provides adequate due process for market participants.
Further undermining China’s politically weak and insufficiently empowered institutions, the CCP is using political channels, such as
its anticorruption campaign, to carry out market regulation. Rather than strengthening market integrity by improving bureaucratic
professionalization and authority, this campaign-style enforcementattempts to bolster top-down control of market outcomes. To theextent it is successful, it risks creating the appearance of better
regulated markets and further drawing in foreign investors, without achieving any underlying improvement to market regulation or
investor protection.
The Chinese government’s extensive footprint in China’s corporate sector also increases the likelihood that foreign capital invested
in China’s economy will ultimately fund Chinese government objectives, including activities that may counter U.S. interests. Moreover,numerous avenues for Chinese government oversight challenge conventional regulatory frameworks for assessing whether entities are
acting on behalf of foreign governments. For instance, U.S. trade andinvestment screening procedures often assess government control
or influence via equity ownership. Such analysis is less meaningfulwhen evaluating Chinese investors or investment targets, however,as the government is afforded special controlling rights over any
firms in which it invests, regardless of its ownership stake. Moreover,
the CCP is expanding its influence in corporate decision making andregulatory enforcement via channels that are effectively above thelaw. Because the CCP seldom acts through legal mechanisms, thenature and extent of its role in a particular company’s affairs may
be impossible to trace.

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Addendum I: Government Guidance Funds Struggle to Overcome
Limitations of Previous Industrial Policies

Despite their attempt to introduce market forces into capital allocation, China’s government guidance funds are ultimately constrained by many of the same limitations plaguing China’s earlier
models for financing industrial planning. These include:
Ignoring market fundamentals. Local government guidance
funds in particular have a track record of chasing trends and making poor investment decisions by responding to policy signals without adequate due diligence on both the quality of their investment
targets and the market potential for their products.108
Duplicating investment. The rapid proliferation of funds means
investment supply has quickly outstripped a volume China’s startup environment can absorb. This leads to duplicative investment,with every provincial government hoping to fund, for instance, biotech start-ups with similar products or services, when natural market demand can support far fewer than the number receiving funding.109 Additionally, given the number of funds launched, demand
for skilled investment managers far exceeds the available pool oftalent.110
Failing to raise funding. Some of China’s past industrial policies have faltered as unfunded mandates, with the central government directing local governments or agencies to raise funding
for implementation they ultimately could not find. Similarly, many
guidance funds never find outside investors to raise their target
funding amounts.111 Of a target size of $1.6 trillion (RMB 11 trillion), guidance funds had only raised just under $700 billion by
early 2020.112
Lacking appropriate investment avenues. Even if they are
fully funded, sometimes funds never find qualifying firms in which
to invest, leaving the capital idling in bank deposits.113 Investment managers may overlook promising start-ups because they
are too risky to meet the high fiduciary obligations for investments made with state capital.114 In other cases, viable start-ups
may simply not exist in the sectors and geographies that government guidance funds intend to target. Because many government
guidance funds are raised by provincial and local governments,
they often aim to make investments in local firms, sometimes explicitly with the intent of drawing start-ups to a city to generate
tax revenue.115 For instance, wealthy eastern provinces Guangdong and Zhejiang respectively require funds to deploy 60 and 80
percent of their capital locally, while coastal city Fuzhou requires
all investments must be made within its province, Fujian.116 Despite guidance funds having raised $700 billion, there were only
about $130 billion in total VC and non-venture private equity
deals in China during 2020.117
Fraud and self-dealing. A chief reason for mediocre results inpast state-led investment is rampant fraud and officials directing
funds toward private gain, rather than advancing the goals of thestate. Despite General Secretary Xi’s perpetual crackdown on corruption, government guidance funds introduce new channels for233
fraud by entrusting government funds to investors that might not
be part of the state bureaucracy and CCP personnel system (as SOE
managers are), and thus are subject to less direct oversight andlighter penalties for appropriating state assets.118

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ENDNOTES FOR SECTION 3
1. Chong-En Bai et al., “Special Deals from Special Investors: The Rise of State-Connected Private Owners in China,” NBER Working Paper 28170, December 2020, 2,
9–13, 17, 19–20; Andrew Szamosszegi and Cole Kyle, “An Analysis of State-Owned
Enterprises and State Capitalism in China,” Capital Trade, Incorporated (prepared
for the U.S.-China Economic and Security Review Commission), October 26, 2011,
8–9, 43.
2. Anne Stevenson-Yang, written testimony for U.S.-China Economic and Security
Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 1–3.
3. Li-Wen Lin and Curtis J. Milhaupt, “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review 65:5
(May 2013), 43, 46.
4. Chong-En Bai et al., “Special Deals from Special Investors: The Rise ofState-Connected Private Owners in China,” NBER Working Paper 28170, December
2020, 23–26; Barry Naughton, The Chinese Economy: Transitions and Growth, Massachusetts Institute of Technology Press, 2007, 316–319, 323–325.
5. Margaret Pearson, Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism inChina,” Harvard Business School Working Paper 21–065, 2020, 3–6.
6. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security
Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 1–3.
7. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security
Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 3–4.
8. Li-Wen Lin Curtis J. Milhaupt, “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review 65:5 (May2013), 43.
9. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security
Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7.
10. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7; State Council of the People’s Republic of China,
State-Owned Assets of Enterprises Law of the People’s Republic of China (中华人民共和国企业国有资产法), 2008. Translation.
11. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7; Tamar Groswald Ozery, “Unraveling China’s
Capital Market Growth: A Political Economy Account,” University of Michigan Law
School, June 2019, 41; Li-Wen Lin Curtis J. Milhaupt, “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law
Review 65:5 (May 2013), 43.
12. Tamar Groswald Ozery, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7–8; Tamar Groswald Ozery, “Unraveling China’s
Capital Market Growth: A Political Economy Account,” University of Michigan Law
School, June 2019, 41.
13. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 22, 39.
14. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 43.
15. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 22, 39.
16. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 51–61.
17. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 60–61.
18. China Securities Regulatory Commission, Guidance on Questions Related to the
Implementation of “Administrative Measures on Domestic Securities and Futures Investments by QFIIs and RMB QFIIs” (关于实施《合格境外机构投资者和人民币合格境外
机构投资者境内证券期货投资管理办法》有关问题的规定QFIIs), September 25, 2020, 5.
Translation; Xinhua, Securities Law of the People’s Republic of China (中华人民共和国证券), 2019. Translation.
19. China Securities Regulatory Commission, Guidance on Questions Related to
the Implementation of “Administrative Measures on Domestic Securities and Futures

235
Investments by QFIIs and RMB QFIIs” (关于实施《合格境外机构投资者和人民币合格境外机构投资者境内证券期货投资管理办法》有关问题的规定QFIIs), September 25, 2020,
5. Translation.
20. SZNews, “Shanghai Stock Exchange Manufacturing Companies Exceed Half
the Market” (沪市制造业公司占比逾五成), September 30, 2019. Translation.
21. Securities Times, “523 SOEs on SZSE Have a Market Cap of 9.4 Trillion RMB”
(深市国有控股上市公司523家 总市值9.4万亿元), January 28, 2021. Translation. http://
www.xinhuanet.com/finance/2021-01/28/c_1127034730.htm.
22. Barry Naughton, The Chinese Economy: Transitions and Growth, Massachusetts Institute of Technology Press, 2007, 324.
23. Hao Chen and Meg Rithmire, “The Rise of the Investor State: State Capitalin the Chinese Economy,” Studies in Comparative International Development 55:3
(2020), 6–10.
24. Li-Wen Lin and Curtis J. Milhaupt, “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review 65:5
(May 2013), 19–24.
25. Li-Wen Lin and Curtis J. Milhaupt, “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review 65:5
(May 2013), 19–24.
26. Li-Wen Lin and Curtis J. Milhaupt, “We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review 65:5
(May 2013), 19–24.
27. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 22–23.
28. Chong-En Bai, Chang-Tai Hsieh, and Zheng Michael Song, “Special Deals with
Chinese Characteristics,” University of Chicago, Becker Friedman Institute for Economics Working Paper 2019–74 (2019), 9–13.
29. Susan Ning, “China’s Anti-Monopoly Law and Its Enforcement against State
Monopolies: Achievements and Limitations,” in Eleanor Fox, Harry First, and Nicolas
Charbit, eds., Antitrust in Emerging and Developing Countries: Conference Papers
2nd Edition, October 23, 2015, 10, 16.
30. Michael Dunne, American Wheels, Chinese Roads: The Story of General Motors
in China, John P. Wiley, 2011, qtd. in Chong-En Bai et al., “Special Deals from Special
Investors: The Rise of State-Connected Private Owners in China,” NBER Working
Paper 28170, December 2020, 2.
31. Chong-En Bai et al., “Special Deals from Special Investors: The Rise ofState-Connected Private Owners in China,” NBER Working Paper 28170, December
2020.
32. Chong-En Bai et al., “Special Deals from Special Investors: The Rise ofState-Connected Private Owners in China,” NBER Working Paper 28170, December
2020, 20–21.
33. Chong-En Bai et al., “Special Deals from Special Investors: The Rise ofState-Connected Private Owners in China,” NBER Working Paper 28170, December
2020, 3–4, 23–39.
34. Chong-En Bai et al., “Special Deals from Special Investors: The Rise ofState-Connected Private Owners in China,” NBER Working Paper 28170, December
2020, 2–3.
35. Chong-En Bai et al., “Special Deals from Special Investors: The Rise ofState-Connected Private Owners in China,” NBER Working Paper 28170, December
2020, 23.
36. Daniel H. Rosen, “Avoiding the Blind Alley: China’s Economic Overhaul and Its
Global Implications,” Asia Society Policy Institute, October 2014, 85–88.
37. Margaret Pearson et al., “Party State Capitalism in China,” Harvard Business
School, 2020, 7. Hao Chen and Meg Rithmire, “The Rise of the Investor State: State
Capital in the Chinese Economy,” Studies in Comparative International Development
55:3 (2020), 257–277, 258–59.
38. Andrew Batson, “Fixing China’s State Sector,” The Paulson Institute, January
2014, 7.
39. Andrew Batson, “Fixing China’s State Sector,” The Paulson Institute, January
2014, 9.
40. Tai Ming Cheung et al., “Planning for Innovation: Understanding China’s Plans
for Technological, Energy, Industrial, and Defense Development,” University of California Institute on Global Conflict and Cooperation (prepared for the U.S.-China
Economic and Security Review Commission), July 28, 2016, 34.
41. Tai Ming Cheung et al., “Planning for Innovation: Understanding China’s Plans
for Technological, Energy, Industrial, and Defense Development,” University of California Institute on Global Conflict and Cooperation (prepared for the U.S.-China Eco-

236
nomic and Security Review Commission), July 28, 2016, 34; Andrew Batson, “Fixing
China’s State Sector,” The Paulson Institute, January 2014, 14, 16.
42. Meg Rithmire, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 5.
43. Meg Rithmire, Pekingology, “The New Realities of Party-State Capitalism inChina,” Podcast, January 28, 2021.
44. Charles Horne and Xinling Wang, “What We Learned from the Stock Market
Crash,” China Economic Quarterly, March 2016, 38–39.
45. Li Tao, “How China’s ‘Big Fund’ is Helping the Country Catch Up in the Global
Semiconductor Race,” South China Morning Post, May 10, 2018; Margaret Pearson,
Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism in China,” Harvard Business School Working Paper 21–065 (2020), 12.
46. Semiconductor Industry Association, “Taking Stock of China’s Semiconductor
Industry,” July 13, 2021; Alex He, “China’s Techno-Industrial Development: A Case
Study of the Semiconductor Industry,” Centre for International Governance Innovation No. 252, May 2021, 18.
47. Alex He, “China’s Techno-Industrial Development: A Case Study of the Semiconductor Industry,” Centre for International Governance Innovation No. 252, May
2021, 18.
48. Alex He, “China’s Techno-Industrial Development: A Case Study of the Semiconductor Industry,” Centre for International Governance Innovation No. 252, May
2021, 18; Emily Feng, “A Cautionary Tale For China’s Ambitious Chipmakers,” NPR,
March 25, 2021.
49. Sayari, “Inside China’s Largest Semiconductor Investment Fund,” July 1, 2021;
Semiconductor Industry Association, “SIA Whitepaper: Taking Stock of China’s Semiconductor Industry,” July 2021, 5; Christopher A. Thomas, “Lagging But Motivated:
The State of China’s Semiconductor Industry,” Brookings, January 7, 2021.
50. China Policy, “SOE Reform: More Plans, More Pilots,” September 23, 2015; Andrew Batson, “Fixing China’s State Sector,” The Paulson Institute, January 2014, 4–6.
51. Weng Shiyou, Zhou Zhe, and Chu Chu, “Chen Qingtai: The Breakthrough Is
in Managing Capital” (陈清泰: 突破口是“管资本”), Caijing Magazine, September 14,
2015. Translation; Andrew Batson, “Fixing China’s State Sector,” The Paulson Institute, January 2014, 19.
52. Ann Listerud, “MOR Money MOR Problems: China’s Mixed-Ownership Reforms in Practice,” Center for Strategic and International Studies, October 1, 2019.
53. Margaret Pearson, Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism in China,” Harvard Business School Working Paper 21–065 (2020), 10; Chen
Li, Huanhuan Zheng, and Yunbo Liu, “The Hybrid Regulatory Regime in Turbulent
Times: The Role of the State in China’s Stock Market Crisis in 2015–2016,” Regulation & Governance, July 28, 2020, 9–11.
54. Margaret Pearson, Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism in China,” Harvard Business School Working Paper 21–065 (2020), 10; Chen,
Li, Huanhuan Zheng, and Yunbo Liu, “The Hybrid Regulatory Regime in Turbulent
Times: The Role of the State in China’s Stock Market Crisis in 2015–2016,” Regulation & Governance, July 28, 2020, 9–11; Gabriel Wildau, “China’s ‘National Team’
Owns 6 Percent of Stock Market,” Financial Times, November 25, 2015.
55. Economist, “As China’s Stockmarket Corrects, Regulators Try Doing Less,”
April 10, 2021; Hudson Lockett and Sun Yu, “How the Invisible Hand of the State
Works in Chinese Stocks,” Financial Times, February 4, 2020.
56. Meg Rithmire, Pekingology, “The New Realities of Party-State Capitalism inChina,” Podcast, January 28, 2021.
57. Nikki Sun, “Chinese Government Builds a Stake in Unit of TikTok-owner ByteDance,” Nikkei Asia, August 17, 2021.
58. Coco Feng, “Chinese Government Takes Minority Stake, Board Seat in TikTok
Owner ByteDance’s Main Domestic Subsidiary,” South China Morning Post, August17, 2021.
59. John Liu et al., “City of Beijing Said to Seek Taking Didi under State Control,”Bloomberg, September 3, 2021.
60. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 8.
61. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 6; Karen Sutter, “ ‘Made in China 2025’ Industrial Policies: Issues for Congress,”
Congressional Research Service, August 11, 2020; Barry Naughton, “The Rise of Chi-

237
na’s Industrial Policy 1978–2020,” Center for Chinese-Mexican Studies of the Schoolof Economics of the National Autonomous University of Mexico, 2020, 107.
62. Barry Naughton, “The Rise of China’s Industrial Policy 1978–2020,” Center for
Chinese-Mexican Studies of the School of Economics of the National Autonomous University of Mexico, 2020, 105–106.
63. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 7.
64. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 9.
65. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 8–9; Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security andEmerging Technology, March 2021, 7; Ministry of Finance of the People’s Republicof China, Interim Measures for the Administration of Government Investment Funds(政府投资基金暂行管理办法], [中华人民共和国财政部), November 12, 2015. Translation.
66. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 9.
67. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 10–11; Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 9.
68. Fredrik Erixon and Björn Weigel, The Innovation Illusion: How So Little Is
Created by So Many Working So Hard, Yale University Press, 2016.
69. Tamar Groswald Ozery, oral testimony for U.S.-China Economic and Security
Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 89; Tamar Groswald Ozery, written testimony for
U.S.-China Economic and Security Review Commission, U.S. Investment in China’s
Capital Markets and Military-Industrial Complex, March 19, 2021, 13.
70. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 119.
71. Daniel H. Rosen, Wendy Leutert, and Shan Guo, “Missing Link: Corporate Governance in China’s State Sector,” Asia Society and Rhodium Group, November 2018,
6–7; Communist Party of China Central Committee and State Council of the People’s
Republic of China, Guiding Opinions of the Communist Party of China Central Committee and the State Council on Deepening the Reform of State-Owned Enterprises(中共中央、国务院关于深化国有企业改革的指导意见), September 13, 2015. Translation.
72. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 122–123.
73. Lauren Yu-Hsin Lin and Curtis Milhaupt, “Party Building or Noisy Signaling?
The Contours of Political Conformity in Chinese Corporate Governance,” ECGI Working Paper Series in Law No. 493/2020 (January 2021), 4.
74. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 141.
75. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 139.
76. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 140–141.
77. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 135–136.
78. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 141.
79. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 132–133.
80. Tamar Groswald Ozery, “Unraveling China’s Capital Market Growth: A Political Economy Account,” University of Michigan Law School, June 2019, 106, 115.
81. Michael D. Sutherland, “China’s Corporate Social Credit System,” Congressional Research Service, January 17, 2020; State Council of the People’s Republic ofChina, Planning Outline for the Establishment of a Social Credit System (2014–2020)(社会信用体系建设规划纲要 [2014–2020年] 的通知), June 27, 2014. Translation.
82. Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,” Trivium China (prepared for the U.S.-China Economic and Security Review Commission), November 16, 2020, 19.

238
83. Michael D. Sutherland, “China’s Corporate Social Credit System,” Congressional Research Service, January 17, 2020.
84. Nazak Nikakhtar, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Military-Industrial Complex, March 19, 2021, 8–9.
85. Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,” Trivium China (prepared for the U.S.-China Economic and Security Review Commission), November 16, 2020, 10–11.
86. Kendra Schaefer, “China’s Corporate Social Credit System: Context, Competition, Technology, and Geopolitics,” Trivium China (prepared for the U.S.-China Economic and Security Review Commission), November 16, 2020, 10–11.
87. Nazak Nikakhtar, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Military-Industrial Complex, March 19, 2021, 8–9.
88. European Union Chamber of Commerce in China and Sinolytics, “The Digital
Hand: How China’s Corporate Social Credit System Conditions Market Actors,” August 28, 2019, 7.
89. Margaret Pearson, Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism
in China,” Harvard Business School Working Paper 21–065 (2020), 8.
90. Margaret Pearson, Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism
in China,” Harvard Business School Working Paper 21–065 (2020), 9.
91. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63.
92. Margaret Pearson, Meg Rithmire, and Kellee S. Tsai, “Party-State Capitalism inChina,” Harvard Business School Working Paper 21–065 (2020), 9; Jude Blanchette,oral testimony for U.S.-China Economic and Security Review Commission, Hearing
On What Keeps Xi Up At Night: Beijing’s Internal And External Challenges, February
7, 2019, 13, 74; CCP Organization Department, “Chinese Communist Party InternalCommunique” (2017年中国共产党党内统计公报), Xinhua, June 30, 2018. Translation.
93. Office of the U.S. Trade Representative, Section 301 Report into China’s Acts,
Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, March 27, 2018, 89–90; Emily Feng, “Chinese Tech Groups Display Closer
Ties with Communist Party,” Financial Times, October 10, 2017.
94. Liu Yun, “Aligning with the ‘Network Nature’ and Adhering to the ‘Party Spirit’ ” (契合“网性” 坚守“党性”), China Organizational Affairs, April 2, 2018. Translation.
95. Chun Han Wong and Eva Dou, “New Partner of Foreign Enterprises in China:
Communist Party of China” (外企在華新夥伴: 中國共產黨) Wall Street Journal Chinese
Edition, October 31, 2017. Translation.
96. Michael Martina, “Exclusive: In China, the Party’s Push for Influence inside
Foreign Firms Stirs Fears,” Reuters, August 24, 2017.
97. Office of the U.S. Trade Representative, Section 301 Report into China’s Acts,
Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, March 27, 2018, 89.
98. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63.
99. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 47–49.
100. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 47–49.
101. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 49–50.
102. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 49–50.
103. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 50–52.
104. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 50–52.

239
105. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 51–52.
106. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 52–53.
107. Xiaojun Yan and Jie Huang, “Navigating Unknown Waters: The Chinese Communist Party’s New Presence in the Private Sector,” China Review 17:2, June 2017,
37–63, 52–53.
108. Zachary Arnold, written testimony for U.S.-China Economic and Security
Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 10; Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security andEmerging Technology, March 2021, 16.
109. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 16.
110. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 9.
111. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 14; Economic Daily, “A Total of 1,171 Government Guidance Funds Have Been
Established in China with a Total Target Size of 5.85 Trillion Yuan” (国内共成立1171
只政府引导基金 总目标规模达5.85万亿元), August 21, 2018. Translation.
112. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 10.
113. Emily Feng, “China’s State-owned Venture Capital Funds Battle to Make an
Impact,” Financial Times, December 23, 2018.
114. Ge Longhui, “Government Guidance Funds: 12 Trillion Difficulties and Contradictions” (政府引导基金: 12万亿的困境与矛盾), EastMoney, December 13, 2018.
Translation.
115. Emily Feng, “China’s State-owned Venture Capital Funds Battle to Make an
Impact,” Financial Times, December 23, 2018.
116. Ge Longhui, “Government Guidance Funds: 12 Trillion Difficulties and Contradictions” (政府引导基金: 12万亿的困境与矛盾), EastMoney, December 13, 2018.
Translation.
117. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 10.
118. Hao Chen and Meg Rithmire, “The Rise of the Investor State: State Capitalin the Chinese Economy,” Studies in Comparative International Development 55:3
(2020), 27.

SECTION 4: U.S.-CHINA FINANCIAL
CONNECTIVITY AND RISKS TO U.S. NATIONALSECURITY
Key Findings• A surge of U.S. investor participation in China’s markets is
outpacing the U.S. government’s defense against the diverse
threats to U.S. national and economic security posed by U.S.
investment in some problematic Chinese companies. This inflow
of U.S. capital into China’s economy is occurring as the Chinese
government strengthens its ability to direct nonstate firms andresources toward advancing strategic priorities that may harm
U.S. interests and as Beijing further fuses military and civilian
corporate operations.
• The Chinese government permits the participation of foreign
firms and investors in the Chinese market only when it suits
its national interest. As a result, nominal financial “opening”
in China in reality is a carefully managed process designed toreinforce state control over capital markets and channel foreign
funding toward fulfilling the Chinese government’s national development objectives.
• China’s military-industrial ecosystem encompasses state andnonstate firms, research institutes, and investment funds, allacting in concert in service of China’s military modernization
objectives. These coordinated efforts may advance an agendathat threatens U.S. national security but is not always evident
at the level of individual entities or transactions. Traditional
legal remedies, such as trade and investment restrictions, arelimited in their ability to fully address these threats, and current tools may be inadequate.
• The U.S. government’s defense against these challenges is further constrained by strong U.S. investor interest in Chinese
markets and the outsized influence of unregulated investment
indices in steering global capital flows. The substantial increasein the inclusion of Chinese securities in investment indices automates U.S. investor allocation toward Chinese companies.
Because passively managed index funds replicate these indicesand actively managed funds seek to at least outperform them,index providers have played a pivotal yet unregulated role inguiding foreign portfolio investment toward Chinese companies.
• Compared to portfolio investment, private equity and venture
capital investment present a unique set of challenges. Criticaltechnical knowledge, managerial expertise, and business connections often flow to the investment target in addition to funding.
Lack of transparency in private transactions compounds both
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oversight challenges for U.S. regulators and potential risks to
U.S. economic and national security interests.
Recommendations
The Commission recommends:• Congress consider comprehensive legislation to ensure Chinese
entities sanctioned under one U.S. authority be automaticallysanctioned under other authorities unless a waiver is grantedby the president or the authority applying the initial sanction.
This legislation should rationalize existing U.S. sanctions targeting adversarial Chinese entities to ensure, for example, Chinese firms placed on the Entity List and/or Military End User
List of the U.S. Department of Commerce are also placed on the
Non-Specially Designated Nationals (SDN) Chinese Military-Industrial Complex (NS-CMIC) Companies List and vice versa.
• Congress enact legislation expanding the jurisdiction of existing
U.S. investment restrictions targeting Chinese entities placedon the NS-CMIC Companies List as well as the scope of entities to be targeted by such restrictions. Such provisions should
include:○ Expanding the prohibitions relating to transactions and supporting work by U.S. persons in NS-CMIC securities covered
by Executive Order 14032 to include the execution, support orservicing of transactions by U.S. persons in any market or for
any other person, including both U.S. and non-U.S. persons;and○ Providing additional resources to ensure that a more comprehensive list of entities engaged in supporting the Chinese military-industrial complex be published and that subsidiaries
supporting such entities be included on the list. In identifying
entities that should be evaluated for inclusion in such designations, authorities should include companies designated by
Chinese securities issuing and trading entities as supporting
the military industrial complex.
• Congress pass legislation that defines categories of Chinese persons, Chinese entities, and Chinese Communist Party (CCP)-related persons and entities subject to full blocking sanctions andinclusion on the U.S. Department of the Treasury’s SDN list due
to actions that harm the vital national interest or the national
security of the United States or that constitute gross humanrights violations.
• Congress consider comprehensive legislation to address risks to
U.S. investors and U.S. interests from investments in Chineseequity, debt, and derivative instruments by:○ Prospectively prohibiting investment in Variable Interest Entities (VIEs) linked to Chinese entities.
○ Absent prohibition, ensuring that the risks of investments in
VIEs linked to Chinese entities are more prominently identified for investors, including that the VIE structure is illegal
under Chinese law, and that taxpayer subsidies do not sup-242
port investments in such entities. Provisions that should beconsidered in support of this goal include: Requiring prominent identification of the potential highrisk for investments in VIEs linked to Chinese companies
by:• Identifying VIEs linked to Chinese companies be identified as such in their stock trading symbols on U.S. exchanges.
• Requiring that broker-dealers provide risk warning labelson the potential lack of legal recourse for investors fortheir investments in VIEs linked to Chinese entities.
 Prohibiting preferential federal tax treatment on losses andgains on investments in VIEs linked to Chinese entities
made after the passage of appropriate statutory provisions.
○ Directing the U.S. Securities and Exchange Commission (SEC)
as part of its evaluation of potential guidance on reportingon environmental, social, and governance matters by publicly
traded companies to require reporting of: Sourcing and due diligence activities of such companies involving supply chains that are directly or indirectly linked
to products and services utilizing forced labor from Xinjiang.
 Transactions with companies that have been placed on the
Department of Commerce’s Entity List or those designatedby Treasury as Chinese Military-Industrial Complex Companies.
○ Requiring index providers that include within their indicessecurities issued on mainland Chinese exchanges or the Hong
Kong Stock Exchange, securities of China-headquartered companies listed on U.S. exchanges through a VIE, or derivative
instruments of either of the preceding types of securities, be
subject to regulation by the SEC.
• Congress ensure the effective implementation of the Export
Control Reform Act of 2018 and the Foreign Investment Risk
Review Modernization Act of 2018 by enacting legislation that:○ Creates a Technology Transfer Review Group (TTRG) within
the Executive Office of the President responsible for identifying emerging and foundational technologies. The TTRG
should be chaired by the secretary of defense and include
the director of the Office of Science and Technology Policy
along with Cabinet-level secretaries or their designees fromthe U.S. Departments of Commerce, Energy, and Homeland
Security.
○ Authorizes the TTRG to direct the Department of Commerce’s
Bureau of Industry and Security to implement export controls
following from the identification of these technologies.
○ Authorizes and requires the TTRG to oversee multilateralengagement related to export controls, foreign investment
screening, and regulations over technology transfer by rele-243vant agencies to ensure that such engagement does not undermine U.S. national and economic security interests.
○ Require that additional resources be provided to improve andexpand end-user verification of export controls. Export licenses to the following entities should receive strict scrutiny:
end-users identified as Chinese Communist Military Companies per Section 1237 of the National Defense Authorization
Act for Fiscal Year 1999, those identified as contributors to
China’s military-civilian fusion activities per Section 1260H of
the National Defense Authorization Act for Fiscal Year 2021,
entities with direct and formal ties to the CCP or Chinese
government, and entities identified by the U.S. Trade Representative, U.S. Department of Justice, and Federal Bureau of
Investigation as being linked to efforts to steal or coerce thetransfer of U.S. intellectual property. The inability to identify
end-user facilities and, if identified, the lack of adequate andtimely access to these facilities should strongly inform investigating officials and licensing officials.
○ Require that the TTRG engage with the Department ofJustice, the Department of Commerce’s Bureau of Industry
and Security, and other relevant agencies to align “deemed
export” controls with engagement on knowledge transfer
and expert recruitment strategies such as the 1,000 Talents Program, as well as investigations of the CCP’s United
Front Work Department and other entities and programsof the CCP designed to acquire U.S. technology and capabilities.
• Congress mandate from Treasury an annual update of the accurate U.S. portfolio investment position in China since 2008,
including money routed through offshore centers such as the
Cayman Islands. This should include exposure for:○ Individual Chinese sectors;○ U.S. institution types, such as state pension funds;○ Sanctioned Chinese entities (Entity List, NS-CMIC List, andothers);○ Individual Chinese recipients who receive more than a minimum amount, such as $100 million; and○ Individual U.S. investors with more than a minimum share of
the total, such as two percent.
Introduction
Despite ongoing U.S.-China tensions, U.S. investors, asset managers, and mutual funds are increasing their participation in China’s financial markets. U.S. holdings of Chinese equity and debt
securities have surged 57.5 percent from $765 billion in 2017 toas much as $1.2 trillion in 2020.1 Major global investment index
providers accelerate and automate these flows as they continue towiden their indices’ exposure to China A-shares * and government* A-shares are renminbi (RMB)-denominated securities of companies incorporated in China that
trade on either the Shanghai or Shenzhen stock exchanges. The trading of A-shares is not re-244
bonds. Many Chinese companies most attractive to U.S. and foreign
investors operate in cutting-edge, high-technology sectors. The Chinese government seeks to cultivate these same sectors in realizing
its technological ambitions and national security objectives. The
entry of foreign wealth managers into China’s financial services
sector also facilitates perceptions of China’s financial markets as
sophisticated and stable, amplifying U.S. and foreign investor interest in Chinese securities. U.S. money managers * have promoted
increasing investment participation in China.
While it is not clear whether the Chinese government is actively
diverting foreign capital inflows toward fulfilling national objectives, the very structure of China’s capital markets itself facilitates
the funding of state priorities. This strategic use of financial markets occurs in an ecosystem in which all types of Chinese companies are subject to state control and influence. As a result, U.S. investors and policymakers cannot always know to what extent U.S.
capital flowing into China may advance China’s military modernization, facilitate human rights abuses, or subsidize unfair tradepractices by Chinese firms. Of particular concern to U.S. national
security is the possibility that U.S. investment could be directed tocompanies tapped by the Chinese government to modernize China’s military as part of its military-civil fusion strategy. This poses
unique national security risks to the United States on top of theeconomic risks to U.S. investors stemming from the flaws in China’s financial system.†This section examines the emerging risks to U.S. national andeconomic security of rising U.S.-China financial connectivity. First,
the section profiles China’s financial opening and U.S. and foreign
investor participation in China’s capital markets. Next, it examines how increased foreign investor participation in China’s capital
markets coincides with a Chinese government effort to strategicallyutilize capital markets in advancing technological development andmilitary modernization objectives, to the detriment of U.S. national
security interests. Finally, the section evaluates existing U.S. policy
efforts to manage this emerging risk. This section draws from thestricted for Chinese residents, but foreigners can only access the A-shares market through special
investment programs such as the Qualified Foreign Institutional Investors and Stock Connect
programs. A-shares are distinct from other Chinese share classes such as H-shares (shares in
Chinese incorporated companies listed on the Hong Kong Stock Exchange), trading of which
is not restricted to Chinese residents. At the end of 2020, foreign investors’ holdings of China
A-shares reached $528.8 billion (RMB 3.4 trillion), accounting for approximately 4.3 percent of
the total market capitalization of all China A-shares. Gene Ma, Phoebe Feng, and Lu Zhang,“China Spotlight: A-Share Market’s Coming of Age,” Institute of International Finance, April 20,
2021; FTSE Russell, “Guide to Chinese Share Classes,” April 2021.
* In August 2021, U.S. asset manager BlackRock’s research unit, the BlackRock Investment
Institute, said China should no longer be considered an emerging market and recommended
investors increase their exposure to the country by as much as three times. BlackRock’s recommendation came despite the Chinese government’s regulatory tightening on China’s technology
sector. Goldman Sachs analysts have also argued that Chinese markets remain investable, with
Beijing’s campaign against Chinese tech firms causing only short-term volatility. John Liu andYujing Liu, “Goldman Sees Limited Long-Term Damage from China’s Crackdowns,” Bloomberg,
September 13, 2021; Steve Johnson, “BlackRock Calls for Investors to Lift Allocations to China’sMarkets,” Financial Times, August 17, 2021.
† Rapid debt accumulation and the inefficient allocation of capital to state-owned enterprises
have saddled China’s financial markets with systemic risks. Furthermore, the Chinese government’s tenacious commitment to financial stability and propensity toward market intervention
inhibit price signals and limits transparency in China’s financial markets. For more on the economic risks endemic to China’s financial system, see U.S.-China Economic and Security Review
Commission, Chapter 2, Section 2, “Vulnerabilities in China’s Financial System and Risks for theUnited States,” in 2020 Annual Report to Congress, December 2020, 243–292.

245
Commission’s March 2021 hearing on “U.S. Investment in China’s
Capital Markets and Military-Industrial Complex”; consultations
with government officials, industry experts, and academics; andopen source research and analysis.
Foreign Participation in China’s Capital Markets
China’s government sees attracting foreign capital as central
to the realization of several overlapping objectives. These include
overall capital market development as well as the resolution of ahost of economic challenges. Financial opening is therefore carefully managed, with the Chinese government striving to manage foreign investor participation to maximize absorption of foreign capitaland expertise while reinforcing its control over markets. Regardless of this extensive government control and the rigid pathways
for access, foreign financial services companies and investors are
increasing their participation in China’s financial markets as the
Chinese government opens them. China’s emergence as the world’s
second-largest economy, rapid wealth creation, and initial recovery
from the novel coronavirus (COVID-19) pandemic have consolidated
the attractiveness of its financial markets to foreign investors as
they pursue higher returns and portfolio diversification. U.S. andother foreign financial firms are separately drawn by the potential
to generate fee income from increased transactions in Chinese securities.
Foreign Investors Embrace Beijing’s Strategic Financial
Opening
At the April 2018 Boao Forum for Asia, General Secretary of theChinese Communist Party (CCP) Xi Jinping and People’s Bank of
China Governor Yi Gang once again announced the Chinese government would deliver on long-overdue pledges first made when China
joined the WTO in 2001 to open China’s financial sector to foreigncompetition.2 Since then, Beijing has taken several steps to increase
market access in the banking, securities, and insurance industries;
grant foreign institutions equal treatment in credit and payment
sectors; and open the domestic bond market to foreign investors.3
The Phase One agreement signed by the United States and China
in January 2020 mostly codified China’s previous commitments toimplementing these measures.
The Chinese government encourages foreign investment in China’s financial markets to serve its political, economic, and security
interests. These include improving the corporate governance of Chinese-listed companies, stabilizing market activity against China’s
volatile retail investors, and expanding state-owned firms’ access tocapital.4 Financial opening is therefore carefully balanced against
the government’s strict maintenance of market control and steeringof market activity. Rather than opening China’s capital markets tounrestricted foreign participation, China’s government maintains a
number of channels through which it controls capital flows into andout of the country.

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China’s Government Establishes Rigid Pathways for
Foreign Investor Participation in China’s Capital Markets
The Chinese government has gradually created an array of
mechanisms by which foreign investors can access China’s capital markets. In 2002, the Chinese government launched the dollar-denominated Qualified Foreign Institutional Investors (QFII)
program. The program granted foreign investors with relevant
qualifications * access to China’s stock and bond markets, though
an aggregate quota was applied to the channel.5 A renminbi (RMB)-denominated cap was applied to a parallel RMB QFII program
initiated in 2011. In May 2020, Chinese authorities scrapped
quotas applied across the programs, allowing qualified foreign
institutional investors unrestricted access to China’s stock andbond markets.6 The QFII and RMB QFII programs were overshadowed, however, by the Stock and Bond Connect programs,
launched in 2014 and 2017, respectively, enabling overseas investors with accounts in Hong Kong to trade stocks and bonds on the
Shanghai and Shenzhen exchanges.† 7 Leading global investment
index provider MSCI’s addition of Chinese onshore equity shares
to its emerging market indices in 2018 further eased foreign investor access to China’s stock market, and several stock and bondinvestment indices have since moved to increase their weightingof Chinese securities.8
While China’s government has eased foreign access to its financial markets, foreign investors remain closely monitored andcontrolled. For example, the Chinese government imposes a ceilingof 30 percent foreign ownership on every publicly traded Chinesecompany.9 This ownership cap limits foreign investors to minority
stakes and prevents them from using equity markets to exert control over Chinese companies.10 The Stock Connect platform also
restricts daily flows into China to $8.1 billion (RMB 52 billion).‡ 11* The China Securities Regulatory Commission, People’s Bank of China, and the State Administration of Foreign Exchange jointly issued updated Measures for the Administration of Domestic
Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors in September 2020. According to the measures, QFII applicants must (1) be in sound financial health, have good credit standing, and possess experience insecurities and futures investment; (2) meet relevant professional and regulatory requirements of
their home country; (3) possess sound and effective governance, internal control, and compliancemanagement systems and designate an individual to be responsible for supervising compliancewith China’s investment regulations; (4) have not been subject to major disciplinary action fromany regulator within the three year-period preceding their application to the QFII program orsince their establishment; and (5) not exert a major impact on the operation of China’s domestic capital market. China Securities Regulatory Commission, [Order No. 176] Measures for the
Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional
Investors and RMB Qualified Foreign Institutional Investors (【第176号令】《合格境外机构投资者
和人民币合格境外机构投资者境内证券期货投资管理办法》), September 25, 2020. Translation.
† The Stock Connect program enabled gross flows via Hong Kong into China’s capital markets
of approximately $9.5 billion in 2016 and $31.3 billion in 2017, while the Bond Connect program
enabled net foreign inflows of approximately $28.7 billion in 2016 and $53.3 billion in 2017. In
April 2018, the China Securities Regulatory Commission raised the daily northbound quota (thevalue that individual Hong Kong and overseas investors can trade in Chinese securities throughHong Kong) for the Stock Connect program from $1.8 billion to $7.2 billion for both mainland
exchanges. The eased quota contributed to the inclusion of China A-shares into major global
investment indices. Bobby Lien and David Sunner, “Liberalization of China’s Portfolio Flows andthe Renminbi,” Reserve Bank of Australia Bulletin, September 19, 2019; Logan Wright, “HongKong: Unforced Errors, with High Stakes,” Rhodium Group, September 3, 2019, 6; Alice Woodhouse, “China Raises Mainland-Hong Kong Stock Connect Daily Quotas,” Financial Times, April
10, 2018.
‡ Unless noted otherwise, this section uses the following exchange rate throughout: $1 = RMB
6.43.

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Despite enduring Chinese government control, U.S. and foreign
investors have poured into China’s capital markets as Beijing has
opened them.12 The Chinese economy’s resilience in the face of the
global pandemic throughout 2020 further heightened investor interest in Chinese securities. According to independent research provider Rhodium Group,* the value of U.S. investors’ holdings of equity
and debt securities issued by Chinese entities on mainland Chinese,
Hong Kong, and U.S. exchanges totaled as much as $1.2 trillion at
the end of 2020,† up 57.5 percent from $765 billion in 2017.13 Thedivergence between China’s economic recovery and performance andthat of other emerging markets in 2020 is prompting some asset
managers to change their asset allocations and devise China-specificinvestment strategies, with U.S. asset management firm BlackRockcalling China “an investment destination separate from emerging
markets.” 14Some foreign investors have been drawn to China’s capital markets
because of the size of China’s economy and higher returns offered by
Chinese securities (see Figure 1). China’s stock and bond markets
have grown at a rapid clip, each becoming the world’s second largest at the end of 2019.‡ Investors in China A-shares, for example,
gain exposure to globally competitive Chinese companies operatingin high-growth sectors such as technology and digital services.15
China’s government bond market is also increasingly attractive to
foreign investors given its high yield relative to other sovereign debt
and liquidity.16 The People’s Bank of China left its benchmark interest rates virtually untouched in 2020 while other major economies
enacted rate cuts, making Chinese government debt § a rare sourceof yield in global fixed-income markets.17* The estimates prepared by Rhodium Group take an expansive view of U.S. holdings of Chinese
securities, collating estimates of U.S. institutional investors’ direct purchases of China A-shares,
U.S. high net worth investors’ purchases of Hong Kong listed H-shares, and U.S. institutional investors’ purchases of government debt and onshore and offshore corporate debt. Rhodium Groupestimates also include U.S. retail investor purchases of American Depositary Receipts issued by
U.S. banks that represent shares in Chinese stock. The estimates prepared by Rhodium Groupbuild on research conducted by the Global Capital Allocation Project, led by Antonio Coppolaand his colleagues. In their study, Redrawing the Map of Global Capital Flows: The Role of
Cross-Border Financing and Tax Havens, Coppola et al. trace corporate ownership chains andassess offshore securities issuance in tax havens to better elucidate U.S. holdings of Chinese
securities. Among other things, they find U.S. investor exposure to risks inherent in U.S.-listed,variable interest entity-structured Chinese companies is larger than understood; China’s net foreign asset position may be half of the official value; and U.S. holdings of Chinese securities arelarger when measured on the basis of nationality rather than residency. Adam Lysenko et al.,“U.S.-China Financial Investment: Current Scope and Future Potential,” Rhodium Group, January 2021, 11, 18–19; Antonio Coppola et al., “Redrawing the Map of Global Capital Flows: The
Role of Cross-Border Financing and Tax Havens,” Global Capital Allocation Project, December
2020; Kevin Rosier, “The Risks of China’s Internet Companies on U.S. Stock Exchanges,” U.S.-China Economic and Security Review Commission, September 12, 2014.
† Rhodium Group finds U.S. investor holdings of equity securities outstrip holdings of debt
securities. U.S. holdings of equity securities ranged from $902 billion to $1.1 trillion at the end of
2020, while holdings of debt securities ranged from $65 billion to $100 billion in the same period.
Adam Lysenko et al., “U.S.-China Financial Investment: Current Scope and Future Potential,”
Rhodium Group, January 2021, 12.
‡ At the end of August 2021, the total equity market capitalization for the U.S. stock market(defined as the Nasdaq and New York Stock Exchange) was $50.4 trillion, compared to $13.4 trillion for the Chinese stock market (defined as the Shanghai and Shenzhen stock exchanges). The
U.S. bond market had $48 trillion in bonds outstanding at the end of the first quarter of 2021,
while China’s onshore bond market had $19 trillion in bonds outstanding in the same period.
China eclipsed Japan to become the world’s second-largest bond market at the end of the firstquarter of 2019. Bank for International Settlements, “Debt Securities Statistics,” September 20,
2021; Bloomberg Professional Services, “China’s Bond Market: A Playground of Untold Potential,”
November 12, 2019; World Federation of Exchanges, “Statistics Portal.”§ “Chinese government debt” here refers not only to central Chinese government bonds but also
to policy bank bonds and local government bonds. China’s Ministry of Finance issues central Chi-

-25%

0%

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75%

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CSI 300 Index Value

Panel A: Financial Performance of the CSI 300 Index vs. S&P 500 Index

Jun-2019

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Jun-2020

S&P 500 Index Value

Sep-2020

Jan-2021

Figure 1: Financial Performance of U.S. and Chinese Stock and Bond Markets, January 2019–September 2021

Jan-2019
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Note: The CSI 300 is a market capitalization weighted stock market index of 300 of the largest companies listed on the Shanghai and Shenzhen stock exchanges.
It is often considered the Chinese counterpart to the S&P 500 Index, a similar benchmark of 500 of the largest companies listed on U.S. stock exchanges.
Source: Index value data from Interactive Data Pricing and Reference Data LLC via S&P Capital IQ database; bond yield data from Mergent Data via S&P Capital IQ database.

4.0%
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Panel B: Ten-Year Government Bond Yields

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Figure 1: Financial Performance of U.S. and Chinese Stock and Bond Markets, January 2019–September 2021—Continued

249

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The Chinese government’s campaign to check the growing influence and anticompetitive behavior of Chinese technology firms in retail markets, financial services, and data collection hammered Chinese tech stocks and contributed to a downturn in foreign investor
interest in China’s capital markets in 2021.18 Chinese regulators’
scrutiny of China’s tech giants, which are among the most attractive
to foreign investors, began in November 2020 with the abrupt cancellation of fintech firm Ant Group’s planned initial public offering(IPO).19 The move was followed in April 2021 by a series of antitrust
actions targeting other tech firms, including a $2.8 billion fine for
Alibaba.20 In early July, Chinese regulators launched a data security investigation into ride-hailing firm Didi Chuxing, erasing billions
from its market capitalization within days of its IPO on the New
York Stock Exchange.* 21 Socioeconomic and political concerns arealso driving the scrutiny, with China’s regulators introducing new
regulations barring education-technology and tutoring companies
from making profits.22 Such companies are in regulators’ crosshairs
because of concerns that the private education industry’s fees may
exacerbate socioeconomic inequality and place an undue burden on
families, deterring them from having more children.23 The government is also concerned that privately taught curriculum may not
track the CCP’s heightened emphasis on ideological education.24
China’s sweeping regulatory review of a broad array of Chinese
technology firms has roiled onshore and offshore Chinese stock valuations. At the close of trading at the end of September, the Nasdaq
Golden Dragon Index (a gauge of U.S.-listed Chinese stocks) had
fallen 33.5 percent on a year-to-date basis, while China’s CSI 300
Index had fallen 6.6 percent.25 Broader emerging market indicesalso declined in value in the same period, with the MSCI Emerging
Market Index falling 3 percent.26 As of September 30 2021, Chineseinternet giants such as Tencent, Alibaba, and Meituan were among
the top five constituents of the index.27 All three firms are in Chinese regulators’ crosshairs. (For more on Chinese regulators’ actions
against China’s top technology firms, see Chapter 2, Section 1, “Yearin Review: Economics and Trade.”)Despite the market turmoil, the global financial services industry
continues to express optimism about longer-term investment prosnese government bonds, which are analogous to U.S. Treasury bonds and feature maturities ranging from three months to 50 years. The state-owned China Development Bank, Export-Import
Bank of China, and Agricultural Development Bank of China issue policy bank bonds. Chinese
provincial and city governments issue local government bonds, which are either general bondsor special purpose bonds. General bonds are used to finance local government expenditure, while
special purpose bonds are typically used to fund infrastructure projects. Local government bonds
do not have an explicit central government guarantee, making them riskier. They therefore trade
at a slightly higher yield compared to central Chinese government bonds. At the end of August
2021, foreign investors held $342.1 billion (RMB 2.2 trillion) of central government bonds, $163.3
billion (RMB 1.1 trillion) of policy bank bonds, and $1.5 billion (RMB 9.4 billion) of local government bonds. ChinaBond, “New Composite Index Decreased Overall as Foreign Investors’ Holdings
Increased Further—Bond Market Analysis for August 2021” (债券新综合指数下行 境外机构继续增
持——2021 年 8 月债券市场分析报告), September 17, 2021. Translation; Reuters, “Foreign Holdingof China Government Bonds Hit New Record in August,” September 6, 2021; UBS, “Investing in
China: Opportunities for Global Investors,” March 3, 2021, 15–18.
* In the wake of heightened regulatory scrutiny of Didi’s data management practices, Bloomberg
reported in September 2021 that Beijing Tourism Group and other Beijing municipal government-backed companies were considering acquiring a stake in Didi. If executed, the move would
mirror a similar one made by a government-backed investment fund in April 2021 to acquire a 1
percent stake in an affiliate of Chinese social media giant ByteDance. For more on the Chinese
government’s expanded investment in nonstate tech firms, see Chapter 2, Section 3, “The Chinese
Government’s Evolving Control of the Nonstate Sector.”

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pects in China’s financial markets. Investment strategists at JPMorgan, for example, see opportunity in the China A-shares * market
as companies issuing such shares are majority domestic owned, are“often tied to policy initiatives,” and are therefore “shielded” from
regulatory scrutiny.28 The firm also believes “China will continue
to deliver superior nominal economic growth relative to other markets” over the next 10–15 years and that the country “is in the earlystages of a financial evolution that will likely offer patient investors a significant opportunity.” 29 Separately, investment analysts at
BlackRock have recommended investors increase their allocations to
Chinese assets by as much three times, highlighting opportunities
for longer-term returns and diversification opportunities despite political risks and “greater uncertainty.” 30 Others question or doubt
this analysis, warning that investment in Chinese securities may
threaten U.S. national security and investment returns may diminish as China’s economy slows and Beijing cracks down on nonstatecompanies.31
Foreign Participation in China’s Venture Capital Markets
While foreign venture capital (VC) investment in China only became legally permissible in the early 2000s,† it has grown at a rapid
pace in the past ten years. By 2018, roughly $125 billion, or nearly
40 percent of global VC investment activity, funded startups in China.32 This number decreased to roughly $68 billion or 20 percent
in 2020, according to data from Pitchbook.‡ 33 At the 2018 peak,
6,005 VC deals were announced in China.§ This number similarly
dropped by almost half to 3,529 in 2020 as concerns about slowing
macroeconomic growth in China and excessive valuations for startups tempered investor enthusiasm.34
Even before the regulatory structures allowing foreign VC investment were legally established,¶ foreign investors played a signifi* As of September 30, 2021, there are 4,158 China A-shares listed on the Shanghai and Shenzhen stock exchanges, with 1,648 in Shanghai and 2,510 in Shenzhen, including on its ChiNext
board. Of these A-shares, 1,437 (34.6 percent) are eligible for trading on the Shanghai and Shenzhen Stock Connect platforms. Hong Kong Exchanges and Clearing Market, “HKEX-Connect
Scheme: All Eligible Securities,” September 30, 2021; Shanghai Stock Exchange, “Stock Data
Overview” (股票数据总貌), September 30, 2021. Translation; Shenzhen Stock Exchange, “Securities Summary,” September 30, 2021.
† Early foreign VC investments in China, such as Japanese conglomerate SoftBank’s $20 million
investment in Alibaba in 2000, were executed through offshore holding companies to circumvent
onshore regulatory restrictions. Massachusetts Institute of Technology professor Yasheng Huang
argues that a substantial portion of foreign direct investment in China effectively functioned as
VC funding, even if it was not labeled as such by investors or recipients. Adam Lysenko, written
testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment
in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 4; Yasheng Huang,
Selling China: Foreign Direct Investment during the Reform Era, Cambridge University Press,
2003, xvi.
‡ Pitchbook is a financial data and software company that compiles data on private market
transactions, including VC, private equity, and mergers and acquisitions.
§ By comparison, nearly $130 billion was invested in close to 9,000 companies in the UnitedStates in 2018. PitchBook, “US Venture Capital Investment Reached $130.9 Billion in 2018, Surpassing Dot-Com Era,” January 10, 2019.
¶ Among other structures, these include legalizing the limited partnership form usually assumed by private equity funds in 2006 and 2009 regulations allowing foreign investors to participate in RMB-denominated onshore funds and move capital in and out of the country. In alimited partnership, all partners (the third-party investors) are entitled to an equal share of
profits absent any other agreement or negotiation on how profits or losses are to be distributed.
Only the general partner (the fund manager) can make decisions on the partnership’s behalf.
State Council of the People’s Republic of China, Administrative Measures for the Establishmentof Partnership Enterprises by Foreign Entities or Individuals in China (外国企业或者个人在中国
境内设立合伙企业管理办法), November 2009. Translation; State Council of the People’s Republic

252cant role in the development of China’s startup ecosystem. Virtually
all of China’s first-wave internet firms, including technology titans
Baidu, Alibaba, and Tencent, received financing from U.S. and otherforeign VC investors.35 In 2020, U.S. investors participated * in $20
billion worth of all announced VC fundraising rounds for Chinesestartups, accounting for 29 percent of all VC capital raised in China’s startup ecosystem ($68 billion).† 36 Though most cross-borderventure deals into China are facilitated by major foreign private equity firms, multinational corporations’ VC arms, such as Intel Capital, are also major investors in China. In 2020, such corporate investors participated in 15 percent of VC transactions involving any
foreign investor in China.37 Foreign funding can also flow into China’s VC ecosystem through funding rounds organized by Chinese VC
funds managed by Chinese general partners, such as Beijing-based
Hony Capital and Hillhouse Capital, investment not reflected in the
figures above.38
In value terms, foreign investors have a more prominent role innon-venture private equity transactions that are focused on maturecompanies, such as established retail chains, rather than emerging
technology companies.39 Much of both VC and non-venture private
equity investments by foreign firms has tended to favor consumer-facing e-commerce companies and service providers, suggesting
investment decisions are driven by an attempt to capture the growthof China’s emerging consumer class rather than a strong belief in
the innovative capacity of Chinese technology.40
Foreign investments in a handful of sectors, including speech recognition and computer vision—forms of artificial intelligence (AI)—and genomic sequencing are notable exceptions.41 The sectoral composition of foreign venture funding can also be influenced by theheavy hand of the state. For example, a 2017 State Council Noticeon the Publication of the Program to Build a National Technology
Transfer System called for Chinese enterprises to seek foreign VC
investment as part of a multifaceted technology transfer strategy,
though there is not any evidence of an uptick in foreign VC funding
flowing into China’s high-technology sectors.42 More recently, theChinese government’s 14th Five-Year Plan notes the government
will continue to attract and utilize foreign capital in developing
emerging technologies, advanced manufacturing, and telecommunications.43 (For more on China’s 14th Five-Year Plan, see Chapter 2,
Section 2, “The Chinese Communist Party’s Economic and Technological Ambitions: Synthetic Biology, New Mobility, Cloud Computing, and Digital Currency.”)of China, Partnership Law of the People’s Republic of China (China) (中华人民共和国合伙企业法),August 2006. Translation.
* Fundraising rounds typically have multiple investors. The value of a fundraising round is thetotal capital raised by all participating investors. The contribution of an individual investor isseldom disclosed, and data on fundraising rounds simply indicate which investors participated,which led or contributed the most, and the total value of the round.
† VC funding transactions typically occur in series demarcated by letters according to the maturity of the company and often the volume of funding. Series A, the first funding round aside
from any angel funding the startup may have received, is riskier because the firm’s business isoften less developed, though investors can acquire a larger equity stake for a smaller investment.
Series E, by contrast, usually involves substantial investment in more mature companies with established business models, but investors have a higher chance of recouping their investment andearning a return through an IPO or sale. Each funding round typically sees multiple VC firms
and potentially other investors participate, with the investor contributing the largest amount
said to be “leading” the round.

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Chinese Regulators Accelerate Approvals for Foreign WealthManagers amid Rapid Growth in Investable Assets
Accelerating approvals for foreign financial services firms toenter and expand in the Chinese market underscore the Chinese
government’s pursuit of foreign expertise in addition to capital.
In remarks delivered at a financial forum in October 2020, Guo
Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said the Chinese government welcomes foreign
financial services firms with expertise in risk control, pension
management, consumer finance, wealth management,* and healthinsurance to “vitalize” China’s financial sector.44 While still cautious about giving foreign financial institutions too prominent arole, regulators seek to draw on their expertise to build a savings
infrastructure that can help manage future economic challenges,
such as an aging population.45
Global financial services firms are expanding into the wealthmanagement sector specifically as the Chinese government accelerates regulatory approvals. To date, four global financial services firms have received approval to establish wealth management joint ventures with Chinese state-owned banks, including
U.S. firms Goldman Sachs and BlackRock.46 Separately, in March
JPMorgan acquired a minority stake in a wealth managementbusiness owned by China Merchants Bank, marking the first timea Chinese bank opened up its wealth management subsidiary toa foreign strategic investor.47 Executives of Chinese state-ownedbanks report such ventures enable them to learn from foreign
expertise in asset allocation and risk control, while foreign firms
are keen to capitalize on rapid growth in investable assets in
China (see Figure 2).48
While the entry of foreign firms into China’s $16.2 trillion asset
management market does not directly facilitate inflows of foreign
capital into China’s financial system, it does make China’s underdeveloped financial markets appear more sophisticated. As more established international financial services firms expand operationsin China to serve Chinese investors, foreign investors may view the
Chinese market more broadly as a viable investment opportunity
despite its significant risks.†* Wealth management, broadly defined, is a financial advisory discipline that incorporates adiverse range of services to manage affluent clients’ overall wealth. Wealth management includes
investment management advice alongside other financial advice, such as tax guidance and estateplanning. This broader, integrated approach differs from other financial advisory services such as
investment management, which narrowly focuses on the professional management of securities
and other assets in order to meet specified investment goals.
† For more on systemic risks and vulnerabilities in China’s financial system and the Chinese
government’s pursuit of foreign capital, see U.S.-China Economic and Security Review Commission, Chapter 2, Section 2, “Vulnerabilities in China’s Financial System and Risks for the UnitedStates,” in 2020 Annual Report to Congress, December 2020, 243–292.

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Figure 2: Total Assets under Management of China’s Asset Management
Industry, 2007–2019

25
19.1

US$ trillions

20

17.3
14.6

15

16.3 16.2

9.6

10
6.2
5
0.7

0.8

1.1

2

2.8

4.1

0

Note: Estimates for assets under management of China’s asset management industry in theyears 2007–2019 are sourced from research conducted by Oliver Wyman, a consultancy. Assets
under management typically refers to the total market value of investments or assets a financial
institution manages on behalf of its clients. Oliver Wyman’s estimate takes a broad view andincludes assets managed on behalf of clients by banks; trusts; private funds; mutual funds; andfutures, securities, and insurance asset managers.
Source: Charlie Zhu and Jun Luo, “Goldman Forms Wealth Venture with China’s Largest
Bank,” Bloomberg, May 25, 2021; Oliver Wyman, “China (Re)Entry for Globals: Starting the New
Chapter,” 2019, 16.

Emerging Risks to U.S. National Security of Rising U.S.China Financial Connectivity
The increase in foreign investor participation in China’s capital markets coincides with the Chinese government’s strengthening control over China’s commercial ecosystem. This rising control
makes the distinction between civilian and defense activities of Chinese companies increasingly blurry and furthers the Chinese government’s objective of cultivating a commercial environment that
supports its military-civil fusion strategy * and broader technological development. Together, these trends increase the risk that U.S.
capital may contribute to improvements in China’s military capabilities, surveillance technologies, human rights abuses, or other activities inimical to U.S. interests. This phenomenon presents novel challenges to U.S. policymakers. While the U.S. government has
restricted U.S. investment flows toward some problematic Chinesecompanies, this has been done through executive action from the* In testimony delivered at the Commission’s March 2021 hearing on “U.S. Investment in China’s Military-Industrial Complex,” Emily Weinstein, research analyst at the Center for Strategic
and Emerging Technology, described military-civil fusion as a guiding vision to align government
agencies, state and nonstate firms, research centers, and investors in fostering emerging andfoundational technologies with dual-use applications. For more on the objectives of military-civil
fusion, see U.S.-China Economic and Security Review Commission, Chapter 3, Section 2, “Emerging Technologies and Military-Civil Fusion: Artificial Intelligence, New Materials, and New Energy,” in 2019 Annual Report to Congress, November 2019.

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president, exemplified most recently by President Joe Biden’s Executive Order (EO) 14032. The U.S. government otherwise does nothave any statutory authority to compel U.S. investors to cease anddesist outbound portfolio investment in a foreign company. Existing U.S. policy frameworks to identify and define Chinese militarycompanies may also struggle to keep pace with the CCP’s extensive
ability to influence and control all commercial activity in China’s
economy.
China’s Capital Market Development Increases the Risk of
Pass-Through from Civilian to Defense Firms
China’s government is increasingly looking toward capital markets to fund its technology development goals, including financing
civilian research and development (R&D) that may advance military capabilities. This trend is especially pronounced for dual-use
emerging and foundational technologies outside the scope of China’s
traditional defense contractors, such as AI and autonomous systems.
As China increasingly turns to capital markets to realize its technology development and military modernization ambitions, there ismore acute risk that U.S. investment in China directly or indirectly
benefits problematic companies.
Two decades ago, China’s military-industrial ecosystem * wasalmost exclusively financed via state banking and subsidies, anddefense expenditure was concentrated entirely in state-owned enterprises (SOEs).49 Today, the Chinese government is using bothforeign and domestic private equity (e.g., VC), public equities (i.e.,
stocks), and public debt instruments (e.g., government and corporate bonds) to fund defense-related companies.† 50 In addition to
SOEs, this funding is increasingly directed toward nonstate firmsthat produce dual-use or potentially military end-use items andmay supplement China’s military capabilities. While few of thesemodes of financing are explicitly aimed at funneling foreign capital
to defense firms, China’s government is purposefully developing its
capital markets to direct domestic institutional and retail investors toward priority sectors. U.S. investors participating in China’s
capital markets may in turn be drawn toward these companies infavored sectors.

* While the relationships between armed forces and the companies that make their equipment
are often described as being part of a “military-industrial complex,” this section finds such networks in China are better described as a military-industrial ecosystem. This is because China’s
military-civil fusion strategy mobilizes a broader array of actors beyond just Chinese government
agencies and state-owned defense contractors to include academic institutions, industrial parks,
and nonstate startups. For more background on the structure of China’s military-industrial ecosystem, see Addendum I: Key Actors in China’s Military-Industrial Ecosystem.
† The extent to which China’s military-industrial ecosystem is financed by private debt—or debt
extended to privately held companies, typically via nonbank financial institutions—is unclear
from public sources. According to PricewaterhouseCoopers China, the majority of private deals
in China between 2015 to 2019 were in the real estate sector. James Dilley, Victor Jong, and
Ted Osborn, “Chinese Private Debt: On the Ground Insights from PwC,” PricewaterhouseCoopers
China, March 2020, 12.

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Military-Civil Fusion Builds a Commercial Ecosystem
Designed to Support the Chinese Government’s National
Security Objectives
For decades, China’s government sought to emulate the mutually beneficial relationship between private sector innovationand defense sector research and contracting in the United States.
These Chinese government efforts met with moderate success intechnological advances, particularly in electronics and shipbuilding, but low rates of nonstate participation persisted in defense
procurement.51 China’s military-civil fusion strategy has soughtto establish a framework for quickly mobilizing civilian infrastructure to serve defense needs, bolstering economic growth by
fostering linkages between the civilian and defense sectors, andleveraging nonstate sector innovation to develop technologies
with military applications. Having established an initial framework, the strategy is now entering a critical “implementation”
phase during the next 15 years.*
Analysts often describe military-civil fusion as a “whole of government” or “whole of society” effort. These descriptors capture
the breadth and magnitude of the program as envisioned, butthey also simplify an intricate and evolving process of intra-government coordination as well as coordination between government and nonstate or quasi-state actors, such as privately managed investment funds with mostly passive state shareholders.
The resulting web of investment and administrative relationsin China’s military-industrial complex is labyrinthine, demonstrating both the ubiquity of military-civil fusion’s impact on
China’s economy and the challenge in identifying whether any
particular entity or transaction may be supporting military-civil
fusion. In short, a transaction or an entity several steps removed
from defense procurement can contribute to military capabilities.
Military-civil fusion is having the greatest impact in traditional
weapons systems R&D, military logistics and auxiliary functions,and public security, but not in the areas that concern major warfighting capabilities.52
Various Investment Vehicles Direct Capital toward Potentially
Problematic Companies
In the last six years, China’s capital market development has coincided with a proliferation of investment vehicles that contributeto both financing companies at different stages of growth and appealing to different groups of investors. The sections below describe
various investment vehicles for investing in private equity, trading
stocks, and investing in local government debt that steer funding to* Experts assess that Chinese policymakers have, to date, focused on laying the groundworkfor the military-civil fusion strategy. For example, Blue Path Labs analysts Peter Wood and Alex
Stone observe that Chinese leaders aimed to establish a “full-element, multi-domain, and high-return military-civil fusion deep development pattern by 2020.” This suggests Chinese leaders may
now be moving toward the more fulsome implementation of the strategy. Alex Stone and Peter
Wood, “China’s Military Civil-Fusion Strategy: A View from Chinese Strategists,” China Aerospace
Studies Institute, June 15, 2020, 26; Brian Lafferty, “Civil-Military Integration and PLA Reforms,”
in Philip C. Saunders et al., eds., Chairman Xi Remakes the PLA: Assessing Chinese Military
Reforms, National Defense University Press, March 3, 2019, 638.

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ward China’s military-industrial ecosystem. Not all of these vehicles
draw foreign investment toward potentially problematic companies
directly, but all contribute to a capital market that prioritizes funding the state’s development objectives.
Private Equity: Government Guidance Funds and Defense
Conglomerates’ Finance Subsidiaries
The launch of the Made in China 2025 initiative in 2015 spurred
rapid proliferation of government guidance funds that seek returns
while advancing policy goals.53 These funds intend to bring outside
management expertise and expand the pool of capital available tofinance government objectives by enticing nonstate co-investors.54
Some of these funds explicitly aim to invest in military-civil fusion
projects, and many others support investment in dual-use technologies.55 Among government guidance funds focused on military-civil
fusion or dual-use technologies, portfolios often resemble or overlap
significantly with the investment targets of China’s defense conglomerates’ financing arms.* Although foreign VC investors may
invest in companies receiving government guidance funding, VC investors generally are not required to disclose the proportion of capital they invest in any investment target.56 For example, SenseTime,a Chinese AI firm specializing in computer vision and deep learning,raised $620 million in Series C+ funding in May 2018, with proceeds used to “spearhead China technology ambitions and to invest
in research, development, and talents.” 57 Qualcomm Ventures, theVC arm of U.S. semiconductor design firm Qualcomm, was among
one of the participating investors.58 This investment occurred before
the U.S. Department of Commerce Bureau of Industry and Security(BIS) placed SenseTime on the Entity List. In October 2019, BIS
added SenseTime along with seven other Chinese technology firms
to the Entity List for their role in enabling human rights violations
against Uyghur Muslims in China’s restive Xinjiang Province.59
SenseTime has also raised VC funding from Beijing-based China
Internet Investment Fund Management Company.60 The fund manager is an investment firm specializing in AI, big data, and cloudcomputing and whose limited partners include the Cyberspace Administration of China and China’s Ministry of Finance.† 61
Public Equities: Initial Public Offerings and Military-Related
Exchange Traded Funds
While government guidance funds typically concentrate on private
equity investment, two trends in China’s public equities markets arealso contributing to Chinese defense firms’ ability to raise capital.
China’s securities regulator is introducing changes intended to create an equity financing pipeline that takes new ventures from startup to IPOs, as the VC environment does within the United States.
Chief among these is the STAR Market, a Nasdaq-style board withless stringent listing requirements than China’s main exchanges in* For example, the China Integrated Circuit Industry Investment Fund, a government guidance
fund focused on developing China’s semiconductor industry, has invested in Shenzhen China
Electronics International Information Technology. The firm has also received investment from
Chinese defense conglomerate China Electronics Corporation. S&P Capital IQ database.
† Neither the China Internet Investment Fund Management Company’s website nor Chinese
media reports provide details on the exact date or scope of the company’s investment in SenseTime.

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Shanghai and Shenzhen. Launched in June 2019 by the Shanghai
Stock Exchange, the STAR Market is aimed at tech companies, andfeatures a registration-based rather than approval-based IPO system.
It includes Semiconductor Manufacturing International Corporation,*
China’s largest contract chipmaker, which was added to the Entity
List in December 2020 for its involvement in China’s military-civil
fusion program.62 Additionally, AI company Cloudwalk and surveillance system microelectronics developer Shenzhen Intellifusion, both
added to the Entity List for their role in China’s human rights abusesin Xinjiang, have planned IPOs on the STAR Market.† The Chinese
government continues to emphasize the role of public equities markets in channeling capital to technology firms as well as small- andmedium-sized enterprises, announcing the establishment of a new
Beijing stock exchange in September 2021.63
A number of Chinese brokerages have established exchange-traded funds (ETFs) aimed explicitly at investing in military-relatedcompanies, drawing investors to their stocks and reducing theircost of capital by improving their valuations. This class of ETFs
has become extremely popular on Chinese domestic exchanges, witha financial publication operated by state-run news outlet People’s
Daily tracking that their total capitalization grew tenfold to $3.7
billion (RMB 23.9 billion) in less than five months between August2020 and January 5, 2021.64 Generally, these funds hold between 60
and 100 securities, many of which are suppliers to Chinese defense
contractors rather than subsidiaries of the major SOEs such as
Aviation Industry Corporation of China (AVIC) or China Aerospace
Science Industry Group Corporation (CASIC).65 As of September
10, 2021, 23 funds with the word “military” in the fund title wereregistered with the China Securities Regulatory Commission.66 At
present, while foreign institutional investors generally do not tradethese ETFs, strong performance companies in any given ETF arelikely to draw investor attention.
Public Debt: Municipal Bonds Raise Capital to Fund ProblematicCompanies
Outside of equity financing, both China’s defense conglomerates
and more established government guidance funds have used corporate debt markets to raise capital that may advance state objectives. For instance, Guangzhou Industrial Investment Fund Management Co., Ltd., a capital management firm run by the municipal
government of Guangdong, capital of wealthy southern province
Guangzhou, has raised $460 million in total through three separate
offshore bond issues to foreign investors during 2016 and 2017 in* Semiconductor Manufacturing International Corporation is also listed on the Hong Kong
Stock Exchange.
† As of September 30, 2021, the STAR Market comprised 341 firms, including firms involved in
producing dual-use technology. Shenzhen Intellifusion Technology Co., Ltd., a company that designs chips used for intelligent vision in security cameras and cloud-based surveillance systems,
released its IPO prospectus in December 2020. The company was added to the U.S. Departmentof Commerce’s Entity List in June 2020 for its involvement in human rights violations in China’s
Xinjiang Uyghur Autonomous Region. Shanghai Stock Exchange, “Stock Data Overview” (股票数据总貌), September 30, 2021. Translation; Shenzhen IntelliFusion Technology Co., Ltd., “Initial
Public Offering on the STAR Market IPO Prospectus (Declaration Form)” (首次公开发行股票并
在科创板 上市招股说明书 (申报稿)), December 31, 2020, 1–23. Translation. https://pdf.dfcfw.com/
pdf/H2_ AN202012081437957528_1.pdf; U.S. Department of Commerce Bureau of Industry andSecurity, “Addition of Certain Entities to the Entity List; Revision of Existing Entries of the Entity List,” Federal Register 85:109 (June 5, 2020), 34503–34508.

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Hong Kong.67 It also issues debt on China’s domestic markets.68
Among other holdings, Guangzhou Industrial Investment Fund isan investor in CloudWalk, a Chinese AI company added to the Entity List in June 2020 for its involvement in human rights violationsin China’s Xinjiang Uyghur Autonomous Region.69
Hikvision’s Rise from a Research Institute to Global
Prominence
Hangzhou Hikvision Digital Technology is a state-owned manufacturer and supplier of video surveillance equipment. The company was founded in 2001 by the 52nd Research Institute at the
China Electronics Technology Group Corporation (CETC), one ofdozens of CETC research institutes and subsidiaries.70 Chinese
government contracts totaling more than $1 billion helped propel
the company’s rise in the intervening years, with Hikvision providing video recording, alert notification, and data storage services
for the 2008 Beijing Olympics and deploying video surveillance
equipment for a smart city project in Chongqing in 2011.71 Hikvision listed on the Small and Medium-Sized Enterprise Board * on
the Shenzhen Stock Exchange in 2010, and by 2016 it was thelargest surveillance equipment manufacturer globally, commanding 21.4 percent of the world’s market share for closed-circuit
television cameras and other surveillance equipment.72
The Chinese government’s careful cultivation of Hikvision andthe surveillance technology market contributed to strong foreign
investor interest (including U.S. investors) † in the company’s
shares once they were made accessible to foreign investors. Foreign ownership of the company jumped from 4 percent of common stock outstanding in April 2017, just after the launch of
the Shenzhen-Hong Kong Stock Connect, to a peak of 12 percentof common stock outstanding in May 2018.73 The firm’s market
capitalization also ballooned from $31.2 billion in 2016 to $50.7
billion in 2018, a 62.5 percent increase, and reached $82.9 billion
at the end of 2020.74 Hikvision’s rapid growth in value has occurred despite an uptick in public reports detailing how the firm’s
technologies are used to prosecute the CCP’s mass surveillanceand oppression of Muslim communities in Xinjiang.75 In October
2019, Hikvision was placed on the Entity List because of its provision of surveillance technology used in repression in Xinjiang,
and the U.S. Department of Defense (DOD) designated the firmalong with CETC as “Communist Chinese Military Companies”
in June 2020.76 CETC, an SOE and Chinese aerospace defense
conglomerate, owned 40.8 percent of Hikvision’s common stock
outstanding as of June 30, 2021.77* The Small and Medium-Sized Enterprise Board was established in 2004 on the Shenzhen
Stock Exchange with the goal of building a multilayer stock market to create more listing opportunities for high-tech firms that could not meet the listing standards of the exchange but otherwise have growth potential. China Banking News, “Shenzhen Stock Exchange Frabs Approval for
Merger of Main and SME Boards,” February 7, 2021; Franklin Allen et al., “The Development of
the Chinese Stock Market” in Marlene Amstad, Guofeng Sun, and Wei Xiong, eds., The Handbookof China’s Financial System, Princeton University Press, 2020, 285–286.
† At the end of 2018, U.S. institutional investors T. Rowe Price, BlackRock, and JPMorgan wereamong the top 25 investors in Hikvision. S&P Capital IQ database.

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Index Inclusion Automates U.S. Portfolio Investment in ChineseCompanies
The Chinese government’s strategic financial opening since2017 has more tightly integrated Chinese securities with global
financial markets. This is most visible in the growing inclusionof Chinese securities in an array of global investment indices,against which an estimated $7.8 trillion in assets under management are currently benchmarked.78 To date, five major indices *have announced or begun implementing inclusions of Chinese
stocks and government bonds † into their indices.‡ These inclusions are projected to lead to an estimated $385 to $450 billion
in new foreign portfolio investment inflows into China by the endof 2022.79
The scale of asset allocation to China’s domestic equities markets is significant, even if foreign shareholding accounts for afraction of the total outstanding shares of any one Chinese firm.
For example, as of September 30, 2021, the MSCI Emerging Markets Index and FTSE Russell Emerging Index feature 34 percent and 37.2 percent asset allocation toward Chinese equities,
respectively, more than any other country.80 Because many ETFs
and other passively managed index funds are often designed toclosely mirror these indices, Chinese companies have become asignificant component of investors’ emerging markets investment
portfolios. Index providers have thus played a pivotal role inguiding foreign portfolio investment toward Chinese companies.
The rising inclusion of Chinese companies’ equity shares in theseinvestment indices has also effectively lowered these companies’
cost of capital.81 This is because passively managed index funds
draw capital from a wide range of sources, including institutional
investors, mutual funds, and pension funds, expanding the poolsof capital available to Chinese companies.82* The five indices are the Bloomberg Barclays Global Aggregate Index, FTSE Russell World
Government Bond Index, JPMorgan EM Global Diversified Index, MSCI Emerging Markets Index, and FTSE Russell Global Equity Index.
† The Chinese government bond universe includes central Chinese government bonds issuedby China’s Ministry of Finance, policy bank bonds issued by China’s state-owned policy banks,
and local government bonds. To date, three major government bond indices (Bloomberg Barclays Global Aggregate Index, JPMorgan Government Bond Index-Emerging Markets, and FTSE
Russell World Government Bond Index) have announced or begun implementing inclusions ofChinese government bonds. The JPMorgan Government Bond Index-Emerging Markets includes
only central Chinese government bonds issued by the Ministry of Finance, while the Bloomberg
Barclays Global Aggregate Index includes these bonds as well as policy bank bonds. FTSE Russell plans to begin phased inclusion of central Chinese government bonds in its FTSE Russell
World Government Bond Index in November 2021 over a 36-month period. State Street, “SPDR
Bloomberg Barclays Global Aggregate Bond UCITS ETF (Dist),” September 23, 2021; BlackRock,“iShares J.P. Morgan EM Local Govt Bond UCITS ETF,” September 22, 2021; FTSE Russell,“UPDATE: Reminder: Upcoming Inclusion of China in the FTSE World Government Bond Index,”
August 19, 2021.
‡ For more on investment indices’ inclusion of Chinese securities, see U.S.-China Economic andSecurity Review Commission, Chapter 2, Section 2, “Vulnerabilities in China’s Financial System
and Risks for the United States,” 2020 Annual Report to Congress, December 2020, 264–267.

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The Power of Investment Indices in Steering Global
Capital FlowsThe rising inclusion of Chinese securities in global investment
indices coincides with a shift in the asset management industry
from active to passive investment strategies.* In an active investment strategy, individual investors or portfolio managers buy orsell individual stocks.83 Such an investment approach requires
individual investors or the managers overseeing their portfolios
to closely follow market activity and particulars of specific companies. In contrast, in a passive investment strategy, investors
invest in an index fund, usually an ETF, whose composition ofstocks and bonds reflects a market benchmark, such as the S&P
500.84 According to Johannes Petry, lecturer at the Freie Universität Berlin, because passively managed index funds often simply
replicate investment indices, index providers’ inclusion decisions
lead to “quasi-automatic asset reallocations.” 85
Since the global financial crisis, investors have allocatedsome $4.6 trillion in assets to ETFs.86 According to PricewaterhouseCoopers, about $30.7 trillion is invested globally in thesepassively managed funds that follow indices, and the firm forecasts passive assets could reach $40.4 trillion by the end of2025, accounting for 29 percent of the industry’s total assets.87
As the industry grows, the index providers who design the indices against which assets are benchmarked exercise growing
authority over capital flows.88 According to Perth Tolle, founderof investment index provider Life + Liberty Indexes, one implication is that index providers strongly influence global portfolio
investment flows, providing benchmarks that asset allocatorsfor global financial institutions are mandated to track.89 Index
providers’ assessment of what constitutes appropriate corporate governance at the firm level and a favorable investment
environment at the country level impacts firms’ and countries’
ability to attract foreign capital.90 This influence extends not
only to passively managed funds but to actively managed funds
as well. By directing more and more passive investment via
their inclusion decisions, index providers exert a “pull effect”
on actively managed funds that must increasingly invest incompanies included in the index in an attempt to match oroutperform it.91 Legal experts have voiced concern about thelight regulation of index providers,† arguing they effectively* According to one study by the Federal Reserve Bank of Boston, as of March 2020, passively
managed funds accounted for 41 percent of combined U.S. mutual fund and exchange-traded fundassets under management, up from 14 percent in 2005. Kenechukwu E. Anadu et al., “The Shiftfrom Active to Passive Investing: Risks to Financial Stability?” Federal Reserve Bank of Boston,
May 15, 2020, 2–3.
† Though the International Organization of Securities Commissions, an international body thatconvenes global securities regulators to develop and implement standards for securities regulation, published guidelines in 2013 on appropriate disclosure of investment index construction
methodologies, these guidelines are not legally binding. In 2016, the European Parliament andCouncil of the EU legislated the EU Benchmark Regulation. It regulates indices used as benchmarks in financial instruments and financial contracts or to measure the performance of aninvestment fund. Among other things, the regulation requires index providers operating in the
EU to register with the European Securities and Markets Authority (ESMA) and publish detailed
information on index construction and constituent selection via a “benchmark statement.” Compliance among U.S. index providers is mixed. For example, while S&P Dow Jones is registeredwith ESMA, MSCI is not. This is because the latter previously complied with the EU Benchmark

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The Power of Investment Indices in Steering Global
Capital Flows—Continued
operate as specialized asset managers or investment advisers
rather than mere publishers of market data.92
Index providers’ methodologies for inclusion exclusively focus ona given equity share’s value and liquidity without consideration for
any risk to national security.* This narrow focus on business fundamentals, together with the passive investment management styleassociated with index funds, raises the risk that investors may unintentionally provide material support to Chinese companies thatengage in practices contrary to U.S. national economic and security interests. In some cases, U.S. and other foreign capital can flow
toward companies otherwise deemed a national security threat by
the U.S. government and subject to trade restrictions. For example,
on October 9, 2019, BIS placed iFLYTEK and Dahua Technology,
among several other Chinese companies, on its Entity List † due totheir supplying surveillance technology deployed in Beijing’s repressive campaign of mass detention and surveillance of Muslim minority groups.93 As of September 1, 2021, these two companies are still
included in the MSCI China index.94
Expertise and Knowledge Flow alongside VC Investment
A challenge for U.S. policymakers is that VC investment is not
subject to the same market disclosures as publicly traded investment holdings. Because of these limited disclosure requirements,
VC investment data are often self-reported and subject to major
biases.95 For example, privacy, competition concerns, or other considerations may lead investors party to a VC transaction to not report
fundraising details.96 As a result of these dynamics, it is difficult totrack comprehensively the behaviors of U.S. VC and private equity
investors in China.97 Researchers examining U.S. VC and private
equity investment in China need to rely on private market data
aggregated by commercial data providers such as Preqin, Pitchbook,
Regulation via its registration with the UK Benchmarks Register, and it now has until December 2023 to register with ESMA under a transition period in the wake of Brexit. Despite thesevariations in registration, both S&P Dow Jones and MSCI, among other major index providers,publish benchmark statements providing information on the construction of their indices. The
U.S. Securities and Exchange Commission regulates neither the supervision nor the content ofstock market indices. MSCI, “Index Regulation,” 2021; Johannes Petry, Jan Fichtner, and Eelke
Heemskerk, “Steering Capital: The Growing Private Authority of Index Providers in the Age of
Passive Asset Management,” Review of International Political Economy (December 10, 2019): 19;
Kelly Sporn, “Guide to the EU Benchmark Regulation,” Linklaters, February 2017; International
Organization of Securities Commissions, “Principles for Financial Benchmarks,” July 2013; U.S.
Securities and Exchange Commission, Market Indices, updated October 15, 2012.
* For example, in January 2019, 141 European institutional investors submitted a letter to major index providers requesting they exclude weapons manufacturers from their indices. Index providers responded that their indices, in being constructed on a market capitalization basis, aim tooffer the broadest choice to investors, and that investors can choose from alternative indices that
do not include securities issued by the companies of concern. Johannes Petry, written testimony
for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s
Capital Markets and Military-Industrial Complex, March 19, 2021, 8; Susanna Rust, “Index Providers Respond to Controversial Weapons Campaign,” Investors & Pensions Europe, February 14,
2019; Swiss Sustainable Finance, “Open Letter to Index Providers,” January 31, 2019.
† The Entity List (Supplement No. 4 to part 744) identifies entities reasonably believed to be
involved, or that pose a significant risk of being or becoming involved, in activities contrary to
the national security or foreign policy interests of the United States.

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or CB Insights.98 Because VC deal announcements can vary in thequantity and quality of information reported, however, even datasets collected by such firms can lack comprehensiveness.99 Unevenvisibility into the structure of U.S. VC transactions in China compounds the risk that U.S. VC investors’ knowledge and expertise
could be leveraged to advance China’s technological development
and military modernization.
These risks of knowledge transfer extend to other private market
investment strategies, such as private equity. In testimony before
the Commission, Adam Lysenko of Strider Technologies noted foreign private equity investors often leverage their in-house technicalexpertise to offer support to portfolio companies in China, enablingthem to accelerate product or technology development or commercialization.100 Such investors are often drawn to certain technology
segments or sectors that benefit from Chinese government procurement and may contribute to the Chinese government’s efforts toutilize market mechanisms in cultivating technology startups’ development.101 For example, by developing a sweeping end market
for surveillance technology used to monitor Chinese citizens, theChinese government has created attractive revenue opportunities
for technology startups involved in the development of facial recognition software.102 An array of Chinese facial recognition firms,
including Megvii and Hong Kong-headquartered SenseTime, havebenefited from private capital provided by foreign investors keen
to capitalize on Chinese government support for the market.103 A
lack of public visibility into private transactions by U.S. VC andprivate equity investors complicates oversight challenges for U.S.
regulators.
U.S. Responses to National Security Threats from ChineseCompanies
Since 2020, the U.S. government has bolstered defenses against
the threats posed by problematic Chinese companies. Through anarray of executive actions,* the Trump Administration took preliminary steps to curtail the flow of U.S. financing to Chinese companies that threaten U.S. policy interests. These steps culminated in a November 2020 EO banning U.S. investment in Chinesecompanies designated by DOD as “Communist Chinese MilitaryCompanies” (CCMCs). The Biden Administration built on these restrictions in 2021, modifying and expanding their scope in a signalof the U.S. government’s hardened focus on defending both U.S.
national security and democratic values. The implementation ofthese restrictions continues to evolve, with challenges in determining Chinese companies’ proximity to the state, inconsistency with
U.S. export controls, and narrow focus on public capital markets,
highlighting the multifaceted threats Chinese military companies
pose to U.S. interests.

* For a comprehensive review of the Trump Administration’s executive actions on U.S.-China
policy, see U.S.-China Economic and Security Review Commission, Timeline of Executive Actions
on China (2017–2021), April 1, 2021.

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U.S. Deploys Investment Restrictions to Bolster Defenses
against Chinese Companies
On November 12, 2020, then President Donald Trump issued an
EO on “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies” (EO 13959).* 104 In
the order, then President Trump cited the national security threat
posed by China’s military-civil fusion strategy and the risk that U.S.
investors are funneling capital toward the modernization of China’s
military as key motivating factors for its implementation.105 Theorder prohibited “any transaction in publicly traded securities” issued by 31 companies deemed by DOD at the time to be CCMCs.106
On December 28, 2020, the U.S. Department of the Treasury Officeof Foreign Assets Control (OFAC) clarified the scope of the orderand announced it would publicly list the subsidiaries of CCMCs, tobe defined as companies either 50 percent or more owned by one
or more CCMCs or “determined to be controlled by one or more”
CCMCs.107 In January 2021, then President Trump amended EO
13959 to prohibit possession of CCMC securities, while total DOD
designations of CCMCs reached 44 distinct companies.108
On June 3, 2021, President Biden released a new EO building on
EO 13959.109 President Biden’s EO 14032 expanded the number of
CCMCs subject to investment restrictions to 59 companies, with 18
prior CCMCs removed and 33 new companies added.110 EO 14032
also renamed CCMCs as Chinese Military-Industrial Complex(CMIC) companies and transferred authority to designate which
companies face investment restrictions from DOD to the Treasury
Department.111 Investment restrictions took effect on August 2,
2021.112
While largely a continuation of the previous order, EO 14032 redefined the scope of investment restrictions on Chinese companies tofocus on defense contractors, surveillance technology companies, andcompanies with corporate affiliates in either sector or ties to otherfirms listed in the order.113 Notably, the evolved restrictions target
not just Chinese defense firms that pose an overt threat to U.S.
national security but also those firms that “undermine the . . . democratic values of the United States and [its] allies.” 114 The reframed
scope therefore rationalizes previously designated Chinese militarycompanies such as Huawei and Hikvision as subject to investment
restrictions not only if they have ties to China’s military but also
if they facilitate repression and human rights abuses.† (For more
* The issuance of the order marked the culmination of a gradual tightening of U.S. government scrutiny of Chinese securities in 2020, with the Trump Administration taking preliminary
steps to close regulatory loopholes and curtail the flow of financing to Chinese companies whose
operations threaten U.S. policy interests. On May 12, 2020, the Trump Administration directed
the Federal Retirement Thrift Investment Board to “immediately halt” steps to benchmark theThrift Savings Program’s I Fund to the MSCI All Country World Index. Separately, the Presidential Working Group on Financial Markets issued a report in July 2020 detailing the risks
posed by U.S.-listed Chinese companies’ shoddy accounting practices and recommending the U.S.
Securities and Exchange Commission seek enhanced risk disclosures and due diligence on thepart of registered investment funds whose holdings include Chinese securities. For more, see
U.S.-China Economic and Security Review Commission, Chapter 2, Section 2, “Vulnerabilities in
China’s Financial System and Risks for the United States,” in 2020 Annual Report to Congress,
December 2020, 271–275.
† According to President Biden’s notification to Congress of the order, “The use of Chinese surveillance technology outside [China] and the development or use of Chinese surveillance technology to facilitate repression or serious human rights abuse, constitute unusual and extraordinary
threats . . . to the national security, foreign policy, and economy of the United States.” White House,

265background on the U.S. government’s evolving implementation of
investment restrictions, market responses, and some Chinese companies’ efforts to challenge their designations as Chinese militarycompanies, see Addendum II: Background on U.S. Outbound Investment Restrictions on Chinese Companies.)
Statutory Authorities Underpinning U.S. Outbound
Portfolio Investment Restrictions
The designation of CCMCs was first mandated by Section 1237
of the 1999 National Defense Authorization Act (NDAA), whichauthorizes the president to use powers granted by the International Emergency Economic Powers Act (IEEPA) against them.115
In November 2020, then President Trump declared a national
emergency under IEEPA with reference to Section 1237 in issuing EO 13959 and formalizing investment restrictions targeting
CCMCs.116 Section 1237 initially defined CCMCs as companies
identified in two Defense Intelligence Agency publications (VP1920-271-90, dated September 1990, and PC-1921-57-95, dated
October 1995) and any other entity “owned or controlled by the[People’s Liberation Army] (PLA) [including the intelligence services] and . . . engaged in providing commercial services, manufacturing, producing, or exporting.” 117 This definition has evolved insubsequent NDAAs. The 2005 NDAA adds that entities are considered CCMCs if they are “affiliated with” the PLA or are owned
by, controlled by, or affiliated with “a ministry of the governmentof the People’s Republic of China or that is owned or controlled
by an entity affiliated with the defense industrial base of the People’s Republic of China.” 118 The 2021 NDAA further expanded
the definition to companies “directly or indirectly owned , or . . .
acting as an agent on the behalf of” the PLA or other organizations “subordinate to the Central Military Commission of theChinese Communist Party” and targeted any company “identified
as a military-civil fusion contributor to the Chinese defense industrial base.” 119Investment restrictions facilitated via then President Trump’s
EO 13959 and President Biden’s EO 14032 are implemented
through the invocation of a national emergency under IEEPA.
Such an invocation is, by definition, temporary. This contrasts
with other U.S. policy tools to defend against the national security threats posed by problematic companies. Specifically, trade
restrictions imposed on Chinese companies via their placementon the Department of Commerce’s Entity List source their statutory authority from the Export Administration Regulations, permanently codified into law by the Export Control Reform Act of
2018.*“Letter to the Speaker of the House of Representatives and the President of the Senate on Addressing the Threat from Securities Investments That Finance Certain Companies of the People’s
Republic of China,” June 3, 2021.
* The Export Administration Regulations (EAR) initially derived statutory authority from theExport Administration Act of 1979, but under the Cold War-era legislation the regulations were
only ever temporary, and the statutory authority underpinning the EAR lapsed permanently in
2001. Prior to the passage of ECRA in August 2018, the EAR continued to derive authority from
EOs invoking IEEPA. For more on the Export Control Reform Act of 2018, see Emma Rafaelof,

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The 2015 to 2016 surge in Chinese investment in the UnitedStates, the expansion of “military-civil fusion” policies, and resulting challenges to U.S. interests and expanding state control of theChinese economy generally were primary reasons why Congress, ona bipartisan basis, passed updates to relevant statutes through theForeign Investment Risk Review Modernization Act (FIRRMA) andthe Export Control Reform Act (ECRA). These became law in 2018.
The updates to these statutes were intended to ensure appropriate
legal authorities to address new threats to national security not addressed by the then-existing laws.
In passing this legislation, as one of the key staffers who drafted
the FIRRMA legislation David Hanke testified to the Commissionin its September 2021 hearing, Congress was seeking to achieve anumber of goals:
First, the national security landscape had evolved, and CFIUS’s (the Committee on Foreign Investment in the UnitedStates) legacy authorities were outdated and inadequate.
China had ‘weaponized’ investment and was using it to meetstrategic government objectives . . . Second, in the modern national security landscape, technologies beyond the Commerce
Control List and the U.S. Munitions List were becoming increasingly important to our long-term national security.120
Rather than legislate a list of technologies that would guide certain aspects of government activities relating to export controls andinform implementation of CFIUS, and could become outdated withina few years, Congress delegated to the Secretary of Commerce theauthority to identify emerging and foundational technologies. In thethree years since, there has been no unilateral U.S. action on emerging technologies and almost no action on foundational technologies.*
At the Commission’s September 2021 hearing, Jeremy Pelter, Acting Undersecretary for Industry and Security, defended the Department’s approach to issuing the emerging and foundational technologies lists. He indicated that engaging allies to agree on multilateraldefinitions was the route being prioritized. In defending such action,
Undersecretary Pelter explained that:
If BIS imposes unilateral controls targeting specific countries or entities and suppliers exist in other countries thatcan backfill orders to those targets with comparable items,
then we will not achieve our national security or foreign policy objectives. The target of our unilateral action will still“Unfinished Business: Export Control and Foreign Investment Reforms,” U.S.-China Economic
and Security Review Commission, June 1, 2021.
* A staff-authored study prepared for the Commission indicated that to date, the Departmentof Commerce has “failed to carry out its responsibilities.” The study noted that a “lack of clarity
from the Department of Commerce on what constitutes emerging and foundational technologies
impedes the ability of the Committee on Foreign Investment in the United States (CFIUS) to
fulfill its responsibilities. The years-long delay in developing these definitions may exacerbate national security risks. By law, a list of technologies defined as emerging and foundational triggers
mandatory filings on certain transactions, drawing CFIUS scrutiny to higher-risk transactions. In
the absence of the complete list, CFIUS continues to operate without this additional guidance andmay be constrained in its ability to screen transactions.” In addition, “[b]y law, the Departmentof Commerce would refer to the list of emerging and foundational technologies to determine thenecessity of additional export controls on a given technology.” See Emma Rafaelof, “Unfinished
Business: Export Control and Foreign Investment Reforms,” U.S.-China Economic and Security
Review Commission, June 1, 2021.

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receive the items of concern. Also, this scenario harms ourtechnological innovation and leadership—if U.S. companies
lose sales to their competitors over time, then the loss ofrevenue deprives U.S. companies of the substantial revenue
that funds the research and development needed to stay atthe leading edge. Thus, potential unilateral controls must be
carefully analyzed to assess their effectiveness on the target
and impact on important U.S. industry sectors, both in the
short term and long term.121
In his prepared testimony, Mr. Hanke referred to a Congressional
Research Service report on the failure of the Department of Commerce to issue such lists in abiding by Congressional intent. The
Congressional Research Service report stated:
The lack of new technology identification arguably impedes
not only ECRA implementation but also congressional reforms that expanded the authority of [CFIUS] to review Chinese and other foreign investments in critical and emerging
technologies below a traditional threshold of foreign control.
CFIUS can only act against non-controlling foreign investments if the technologies involved in the transaction are controlled.122
As a consequence, Mr. Hanke believes that CFIUS has “likely
been unable to review a single non-controlling, nonpassive investment involving emerging or foundational technologies controlled
under Section 1758.” * In testimony prepared for the Commission’shearing, Giovanna Cinelli, a fellow at the National Security Institute at George Mason University Antonin Scalia Law School, also
noted the “relatively slow pace of identifying these technologies” andthe limits it places on CFIUS reviews and potential impact on national security interests. Ms. Cinnelli added, however, that nothing
currently prevents CFIUS from determining a non-notified transaction † is within its jurisdiction after the fact.123 This means thatshould CFIUS decide a previously made transaction unreported to
CFIUS threatens U.S. national security by enabling a foreign party
access to U.S. technology, CFIUS maintains the ability to review
that transaction retroactively.
* Section 1758 “requires the Department of Commerce to establish appropriate controls on theexport, reexport, or transfer (in country) of emerging and foundational technologies. Under ECRA,
emerging and foundational technologies are those technologies that are essential to the national
security of the United States and are not critical technologies [previously] described.” U.S. Department of Commerce Bureau of Industry and Security, “Identification and Review of Controls
for Certain Foundational Technologies,” Federal Register, 85:167 (August 27, 2020).
† A non-notified transaction is a deal that has not been submitted to CFIUS for review andapproval. CFIUS has long had the authority to review such transactions retroactively, but resources to do so were historically limited. FIRRMA strengthened CFIUS’ ability to conduct such
reviews and pursue relevant enforcement actions by increasing the hiring of personnel and formalizing a process to identify non-notified transactions through the establishment of the Officeof Investment Security, Monitoring, and Enforcement at the U.S. Department of the Treasury.
This Office monitors transactions unreported to CFIUS, enforces CFIUS’ mandatory declaration
requirements, oversees compliance with CFIUS regulations, and administers and enforces civil
monetary penalties for violations. Olga Torres and Maria Alonso, “CFIUS Heightents Scrutiny of
Non-Notified Transactions,” Torres Law, July 3, 2021; Farhad Jalinous et al., “CFIUS Outreachon Non-Notified Transaction: What it Means, What to Expect, and How to Successfully Navigate
the Process,” White & Case, June 1, 2021.

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Implementation Challenges and Limitations of Investment
Restrictions
U.S. policymakers lack a comprehensive and efficient methodology to identify companies involved in China’s technological development and military modernization drive. The proliferation of varying
U.S. government designations of risky Chinese companies, including the Commerce Department’s Entity List, DOD’s list of CCMCs,
and Treasury’s Non-Specially Designated Nationals * Chinese Military-Industrial Complex Companies List, underscores the complexity of identifying, monitoring, and assessing Chinese companies ofconcern. Emily Weinstein, research analyst at the Center for Strategic and Emerging Technology, added that the ongoing blurring
between defense and civilian sectors further complicates efforts toarrive at “a concise yet actionable definition” of companies of concern.124 Nazak Nikakhtar, former U.S. assistant secretary for industry and analysis, contended that the evidence required for CCMC
designation prevents the United States from keeping pace with thethreats posed by CCMCs.125
Investment restrictions as designed may not meaningfully alter
capital flows toward China’s corporate ecosystem. While investment
restrictions have resulted in investment index providers deleting
select securities from their indices, none of the traded subsidiariesof the companies designated as CCMCs by DOD are among the top
ten constituents by market capitalization of such indices.126 For instance, Alibaba Group and Tencent Holdings, neither of which are
Chinese military companies, are among the most heavily weighted Chinese companies in three MSCI indices.† 127 Chinese militarycompanies’ loss of capital from unilateral U.S. divestment can also
be readily restored by other global investors, suggesting multilateral implementation could heighten their effectiveness.128 For example, in early January, Asian and European investors purchased
discounted equity shares issued by CMIC companies such as China
Mobile, China National Offshore Oil Corporation, and Semiconductor Manufacturing International Corporation, taking advantage of asell-down in these companies.129
Investment and trade restrictions are neither synchronized nor
comprehensive. Investment restrictions as prescribed by EOs 13959
and 14032 do not target all companies the U.S. government has already deemed a threat to national security via placement on the Entity List. Such companies are subject to U.S. trade restrictions. For
example, Anhui-Sun Create Electronics Company, a designer andmanufacturer of radar and security systems, was placed on the Entity List in August 2018 due to its procurement of commodities andtechnologies for military end-use in China.130 While EO 14032 bars
investment in the company’s parent, CETC, U.S. investors can otherwise continue to purchase shares of Anhui-Sun Create Electronics* As part of its sanctions enforcement efforts, OFAC publishes lists of individuals and companies owned, controlled, or acting for or on behalf of targeted countries. It also lists individuals,
groups, and entities such as terrorists and narcotics traffickers designated under programs thatare not country specific. Collectively, these entities are called “Specially Designated Nationals” or“SDNs.” In addition to SDN lists, OFAC maintains other sanctions lists, including the Non-SDN
Chinese Military-Industrial Complex Companies List. U.S. Department of the Treasury, Specially
Designated Nationals and Blocked Persons List (SDN) Human Readable Lists, June 10, 2021.
† These include MSCI China All Shares Index, MSCI All Country World Ex-U.S. Index, and
MSCI Emerging Markets Index.

269
Company despite U.S. trade with the firm being restricted.* In othercases, investment restrictions are not matched with trade restrictions. For example, Inspur, a cloud computing and big data services
provider, is designated a CMIC company but is not subject to U.S.
export controls.131 Such mismatches between U.S. investment andtrade restrictions reduce the strength with which the United States
can defend against Chinese companies that threaten the national
interest. Other companies recognized as military companies in China’s own financial markets are not subject to any U.S. sanctions
yet continue to benefit from U.S. investment. For example, sharesof Wuhan Guide Infrared Company, an infrared thermal imaging
and night vision systems developer, are included alongside those of
several CMIC and Entity List companies in the Fullgoal Leading
Military Enterprises Fund, a defense sector-focused Chinese ETF,
suggesting its business activities may be of concern to U.S. national
security.132
Investment restrictions exclusively target public capital markets
but omit VC and private equity. Current investment restrictions only
target publicly traded securities investment, though private-market
investments such as VC and private equity could pose even higher
risk. Private sources such as PitchBook, Preqin, and CB Insights
can provide some detail at a cost, but private market transactions
are otherwise not subject to securities disclosure requirements thatwould enable government oversight.133 Chinese technology startups,
increasingly enlisted in the Chinese government’s military modernization drive, benefit not just from private U.S. capital but also fromthe technical and financial expertise, business networks, and otherresources U.S. private market investors provide.134 These resources
may prove to be of greater value to Chinese technology firms anddefense conglomerates than capital they can already secure fromthe Chinese government and domestic market players.
Implications for the United States
The Chinese government’s evolving priorities for financial market development elevate the risk that U.S. investors are funding
Chinese defense and surveillance technology firms. Whereas China’s
economic planners once looked to stock exchanges to bail out China’s heavily indebted state sector, today they see them as sources ofcapital to fund technological development and military modernization. This strategic use of financial markets therefore raises the riskthat U.S. capital may be contributing to improvements in Chinese
military capabilities, surveillance technologies, human rights abuses, and other activities contrary to U.S. national security, economic
interests, and democratic values. Detecting and responding to theserisks poses unique but not insurmountable difficulties for U.S. policymakers because of the blurring of boundaries between state andnonstate firms and the civilian and defense sectors.
Even as the U.S. government is increasingly challenging China’s
economic practices, the U.S. financial sector is becoming more invested in China’s financial markets. Chinese companies operate in* As of August 31, 2021, foreign institutional investors still hold positions in the company,
though their ownership is miniscule (0.118 percent of the company’s outstanding shares). S&P
Capital IQ database.

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dynamic, high-growth sectors, while Chinese government and corporate debt offer higher yields than what is available elsewhere. The
gravitational pull China’s financial markets increasingly exert on
the global investment community, together with investment indices’ automated investment toward Chinese securities, outpace U.S.
policy efforts to defend against the threats posed by investing insome Chinese companies. As China’s influence in the global economy increases and Chinese stocks and bonds become more integral
components of investors’ portfolios, U.S. policy efforts to manage therisks of financial integration are becoming more challenging.
Chinese firms’ potential government and military ties challenge
conventional policy frameworks for restricting trade and investment
with problematic partners. U.S. trade and investment screening formilitary end use, human rights abuses, and other activities often focuses on individual entities or transactions, an approach that is illequipped to respond to China’s military-civil fusion program. This isbecause military-civil fusion transforms China’s military-industrial
complex into a commercial ecosystem in which the aggregate effortsof firms, funds, and research institutes may pose risks not evident
at the level of individual entities or transactions.
The threat of commercial advances aiding military capabilities is
exacerbated by the inherent dual-use nature of many emerging andfoundational technologies. In testimony before the Commission, Undersecretary Pelter identified several actions that the Department
had taken to garner public sector input on the technologies to be
included. However, three years after the passage of ECRA and FIRRMA, the emerging technologies that have been newly controlled
have all been done in accordance with the existing multilateral process, not in response to the stronger Congressional guidance. Additionally, no foundational technologies have been controlled at all.
This constitutes a failure to guide implementation of those statutes
such that the private sector understands what transactions andsales involve national security. As a result of this delay, undesirable
acquisitions of U.S. assets may have avoided CFIUS reviews andtechnologies that enhance China’s military or surveillance capabilities may have been transferred.
Separately, previously unidentified and multifaceted risks arisingfrom U.S.-China financial integration present novel challenges to
U.S. policymakers. There is no template for outbound investment
restrictions, and those that narrowly target only the most overtly threatening Chinese companies may miss the broader ecosystem of actors participating in China’s military-industrial complex.
Structural features of global financial markets also create multiple
pathways for U.S. capital to flow toward Chinese companies of concern. Against this backdrop, the U.S. government’s initial attempts
to craft outbound investment restrictions reflect only a preliminary
step toward safeguarding U.S. national security. First, restrictions
on U.S. capital flows to certain Chinese companies, as currently advanced, are facilitated by executive authority that invokes a temporary emergency response. This contrasts with established U.S. policy tools such as the CFIUS or export controls that are predicatedon permanent legal authorities. Second, these outbound portfolio
investment restrictions do not synchronize with other U.S. policy

271
efforts to defend against the threats some Chinese companies pose
to U.S. national security. Some companies placed on the Entity List,for example, continue to benefit from access to U.S. capital. Third,in targeting only publicly traded securities, outbound investment
restrictions leave unaddressed private flows of capital, businessacumen, and technical expertise to the next generation of Chinesestartups developing potentially dual-use technologies. This shortcoming is compounded by a lack of U.S. visibility into such private
market transactions.

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Addendum I: Key Actors in China’s Military-Industrial Ecosystem

The various actors within China’s military-industrial ecosystem
can be grouped into a few distinct categories, detailed below andpresented in Figure 3.
Central Government Agencies
Numerous government agencies are charged with implementing
different facets of military-civil fusion, but their roles can similarly be grouped into three overlapping and complementary functions.
First, the bulk of China’s defense sector remains composed of stateowned defense conglomerates, and a number of government agencies and military offices exist to oversee fulfillment of PLA procurement needs. Second, in implementing military-civil fusion, China’s
government has redoubled efforts to build a network of research
institutions that support technological advances in China’s militarycapabilities, including through licitly and illicitly acquiring foreigntechnology as well as identifying and encouraging military applications of civilian research. Third, several central government agencies with primarily civilian mandates, such as China’s Ministry ofCommerce, are working to create a commercial environment thatfacilitates—and in some cases legally requires—civilian involvement
in defense production and mobilization. Each of these functions is
described further below.
• Administering traditional defense procurement. A network ofagencies and offices interface between the PLA and Chinese defense contractors to establish procurement needs and oversee
the entire lifecycle of military equipment. This includes defining procurement requirements and R&D or, as described below,
identifying foreign sources for acquisition, manufacturing, deployment, maintenance, and other support. Civilian participation in most of these areas remains relatively minimal so far, as
much of the information required to perform these functions according to military specifications is classified, and bureaucratic
inertia within China’s defense sector prevents regulatory changes to allow greater information sharing. R&D is a key exception,
however, with civilian firms introducing cutting-edge knowhow
into defense research.135 A status update on military-civil fusion from China High-Tech Industry Herald similarly foundcivilian enterprises are contributing valuable knowhow to materials and parts production but are often barred from systems
production and major systems integration.136• Fostering military R&D and technological advances. Led chiefly
by the Ministry of Industry and Information Technology and its
subordinate agencies, China’s government oversees a vast anddecentralized network of government research institutes witha mandate to assist in advancing defense-related R&D.137 This
network also includes offices that identify foreign technologies
for acquisition and recruit foreign talent to help China close
gaps in capabilities between itself and other countries, principally under China’s Ministry of Science and Technology.138 Thisis a particularly important facet of China’s government-led R&D
apparatus: as Zachary Arnold, research fellow at Georgetown’s273
Figure 3: China’s Military-Industrial Ecosystem

Source: Various.139

Center for Security and Emerging Technology, observed in his
testimony before the Commission, China’s government has a
far clearer understanding of U.S. technological capabilities thanvice versa due to the significant resources it expends on identifying technologies for acquisition.140 In execution, the external
face of these policies often makes them appear purely commercial. China’s Ministry of Commerce, for instance, administers
a catalogue of “encouraged foreign imports,” and the Chinese
government more broadly facilitates ostensibly civilian outbound investment to acquire technological capabilities, such asa multi-billion-dollar acquisition spree of U.S. and European en-

274gines, materials, and avionics by aerospace conglomerate AVICin the 2010s.141• Creating a commercial environment that facilitates civilian participation in defense production and mobilization. Agencies witha primarily civilian mandate, such as the Ministry of Commerce,
also play a pivotal role in financing nonstate firms’ participationin military-civil fusion projects and coordinating between thecivilian and defense sectors.
○ Foremost, a number of agencies, particularly the Ministry ofIndustry and Information Technology and China’s state planning agency, the National Development and Reform Commission, offer funding directly to nonstate firms through subsidies or by investing through government guidance funds.
These agencies also transfer funds to local governments toimplement their own military-civil fusion initiatives and develop criteria for selecting firms and projects to participate
in these initiatives.142 China’s Ministry of Finance, its subordinate State Administration of Taxation, and local financeand taxation bureaus also work to establish favorable fiscal
policies to implement military-civil fusion, for instance by offering tax breaks to firms that establish production within
specially designated “demonstration bases.” 143○ Agencies such as the Standards Administration of China andState Administration for Science, Technology and Industry for
National Defense (SASTIND) are involved in improving thecompatibility between commercial and defense production, forinstance by aligning military and civilian technical standards.
○ Lastly, China’s legislature has drafted and passed laws toprovide legal underpinning for military-civil fusion, such as
the 2017 National Defense Transportation Law. The law aims
to facilitate civilian sector support for China’s military logistics, requiring road, railway, port, and airport construction tocomply with defense requirements and allowing the PLA to
expropriate civilian transportation resources, among otherprovisions.144
Defense Conglomerates
The core of China’s defense production is undertaken by a groupof central SOEs in traditional military sectors such as aerospace
and aviation. Following a major overhaul of China’s defense production in the late 1990s, China’s defense contractors were organizedaround five key sectors. Business in each sector was effectively divided among two SOEs in 1999 to encourage oligopolistic competition, though in practice the firms developed monopoly specializations. Key sectors and major defense contractors therein include:• Aviation. The Chinese government established AVIC in 2008by remerging two separate conglomerates, AVIC I and AVIC
II, back into a single company.145 The former focused on fighter jets, bombers, and transportation aircraft, while the latter
focused on helicopters, lighter aircraft, and unmanned autonomous vehicles.146 At the time of the merger, the Chinese gov-

275
ernment also created the Commercial Aviation Corporation ofChina (COMAC), a state-owned company focused on commercial
aircraft production, though AVIC has an outsized influence on
the firm’s operations.147• Aerospace. China Aerospace Science and Technology Corporation(CASC) is China’s premier space equipment supplier, building
space launch vehicles, satellites, and missiles. China Aerospace
Science Industry Group Corporation (CASIC) also supplies missiles as well as electronic and other equipment.148• Shipbuilding. China State Shipbuilding Corporation (CSSC)
constructs frigates and smaller surface warfare combatants aswell as commercial ships. China Shipbuilding Industry Corporation (CSIC) constructs destroyers and commercial vessels.149• Ordnance. China North Industries Group Corporation (NORINCO) supplies tanks, armored vehicles, and artillery. China South
Industries Group Corporation (CSGC) produces other munitions
as well as automobiles and motorcycles.150• Nuclear. Exercising a dual civilian role, China National Nuclear Corporation (CNNC) focuses on nuclear energy development,
fuel, and equipment, while China Nuclear Engineering andConstruction Group Corporation (CNECC) focuses on building
nuclear power plants.151• Information and electronics. In 2002, China Electronics Technology Group Corporation (CETC) was formed as an 11th defense
enterprise group, focusing on a sixth defense sector.152
A few common features hold true for the major defense contractors. First, they are vast conglomerates that also include extensive
civilian operations and unrelated businesses. This trend dates froma 1990s policy that encouraged defense contractors to retool some of
their production lines toward meeting civilian demand in order toimprove profitability and cater to a growing consumer class in China.153 An important externality of this policy was that it provides
defense conglomerates with a web of ostensibly civilian subsidiaries,
often not obviously connected to their parent companies, throughwhich to engage foreign partners in joint ventures and acquire foreign technology they can transfer back to their corporate parent.154
Additionally, these subsidiaries have their own financing arms andvast networks of semiautonomous research institutes. These financing arms are important in providing steady streams of revenue to thecorporate group, financing major acquisitions, and making strategic
VC investments in technology capabilities the defense contractors
aim to cultivate.155 Through investment arms such as AVIC Capital,
China’s defense contractors have also become minority shareholders
in large swaths of China’s economy, giving them financial oversightof their portfolio firms’ operations.156
National Academies, Universities, and Research Institutes
China’s vast network of research institutes contributing to defense R&D is divided into three tiers:
1. China’s State Council directly oversees institutions such as the
Chinese Academy of Science, which has dozens of subordinate276
institutes focusing on basic research in areas like precision mechanics or lasers.157 Additionally, some scientists from the academies, often among China’s most accomplished, are assigned to
PLA-affiliated universities as faculty and advisors.158
2. Many of China’s major universities are involved in developing
technology for China’s military, with SASTIND supervising 61
universities throughout China, according to research from Alex
Joske, an analyst at the Australian Strategic Policy Institute.159
In testimony before the Commission, Ms. Weinstein outlined apattern of defense-affiliated universities having linkages to Chinese defense contractors, such as Northwest Polytechnic University acquiring a Xi’an-based research firm in which AVIC
previously held a 45 percent minority stake.160
3. China’s defense conglomerates themselves have multiple dedicated research centers to support the R&D efforts of their corporate parents.161 As with defense-affiliated universities, theseresearch institutes are a key vector for acquiring foreign technology for military end use. CASC, CASIC, CETC, and CSIC,
for instance, all have numerous research institutes designatedon the U.S. Department of Commerce’s Entity List for illegallyimporting U.S. technology to provide to the PLA or for use in
defense production.162 The defense conglomerates’ research institutes have also served as technology incubators, developing
early-stage startups into successful firms, then spinning themoff into venture-backed or even listed companies.163
Demonstration Bases, Industrial Parks, and Incubators
To encourage civilian firms to participate in military R&D, provincial and local governments in China have established a few templates to provide fiscal incentives and frameworks for military-civil
cooperation. Chief among these are demonstration bases and industrial parks, special zones that offer perquisites to civilian organizations that meet the criteria to establish an office or plant within thezone.164 For instance, Hebei Province requires firms and research
institutes to be engaged in dual-use R&D projects with clear military application and commercial promise, and in turn grants firms
meeting these conditions priority in allocating military-civil fusion
funding and awards to participation in military R&D projects.165
Sichuan Province similarly covers 2 percent of the cost of R&D up
to $1.5 million (RMB 10 million) for Sichuan-based firms.166

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Addendum II: Background on U.S. Outbound Investment Restrictions on
Chinese Companies

EOs 13959 and 14032, their amendments, and evolving Chinese
military company designations have sparked confusion in the financial services industry * (see Figure 4). In response, Treasury’s OFAC
released 17 frequently asked questions (FAQs) clarifying the scopeof the order between December 2020 and June 2021.167 Among other things, the FAQs clarified timelines for compliance and addressed
whether investment securities issued by companies whose names
closely but do not precisely match those detailed by DOD and OFAC
are subject to the restrictions.168 In testimony before the Commission, Teresa Kong, portfolio manager for Matthews Asia, stated thatsome broker dealers “stopped making markets † altogether while
waiting for further clarifications, resulting in mark-to-market losses.” 169
The order’s complexities resulted in a mixed impact. Major investment index providers such as MSCI and FTSE Russell, for example, removed Dawning Information Industry and Hangzhou Hikvision from their indices, effectively curbing foreign capital flows tothem.170 Separately, some Asian asset managers reported trading
CCMC bond issues at a lower value as brokers shunned the designated companies.171 European and Asian investor interest in affected securities heightened amid a sell-down in early January 2021,
however, leading to momentary upswings in share prices of Chinese
telecommunications firms.172
Legal setbacks from Chinese firms successfully challenging their
EO 13959 CCMC designations in court prompted concerns about
the viability of the Trump Administration’s restrictions. Xiaomi (asmartphone maker) and Luokung (a big data processor) challenged
their designation as CCMCs before the U.S. District Court for theDistrict of Columbia and were granted preliminary injunctions inMarch and May 2021, respectively.173 Court opinions for both injunctions said evidence furnished by the U.S. government of thecompanies’ ties to China’s military was insufficient to justify theirdesignations as CCMCs.‡ 174 Following the Xiaomi injunction, DOD
removed the company from the list of CCMCs on May 11.175 The
adverse legal action raised concerns that more CCMCs would challenge the investment restrictions in court.176 GOWIN Semiconductor, another company initially listed as a CCMC, challenged its designation in a complaint submitted to the U.S. District Court of theDistrict of Columbia on May 21.177* Most notably, the New York Stock Exchange announced it would remove U.S.-traded shares ofChina Mobile, China Unicom, and China Telecom, all identified as CCMCs by DOD, on December
31, 2020. It reversed the decision on January 4, 2021, and finally delisted the telecoms on January 6 following guidance from OFAC. Jesse Pound, “NYSE Will Delist Three Big China Telecoms,
Reversing Decision Once Again,” CNBC, January 6, 2021.
† Typically large banks or financial institutions, market makers are high-frequency trading
firms that engage in the buying and selling of stocks en masse to facilitate investor transactions
in financial markets. In providing these high-volume trading services for investors, market makers help create markets for investors to buy or sell securities, keeping financial markets liquid.
Market makers usually hold a high inventory of shares in a security so they can fulfill large
amounts of orders.
‡ As such, the designations failed the “arbitrary and capricious test” established by the Administration Procedure Act (APA), according to the ruling. Section 706(2)(A) of the APA indicates courts
reviewing regulation may overturn agency actions if they find factual assertions or underlying
rationale “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

Source: Created by Commission staff.

Figure 4: Timeline of EO 13959 Implementation and Market Responses, November 2020–October 2021

278

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ENDNOTES FOR SECTION 4
1. Adam Lysenko et al., “U.S.-China Financial Investment: Current Scope and Future Potential,” Rhodium Group, January 2021, 12.
2. He Huifeng, “Xi Jinping Promises to Open China’s Door Wider for Foreign Investors,” South China Morning Post, April 10, 2018; Kevin Yao, “China Pledges to Allow
More Foreign Investment in Financial Sector by Year-End,” Reuters, April 10, 2018.
3. Chen Yulu, “PBOC Deputy: Financial Opening-Up Is a Path China Must Follow,”
Caixin Global, April 12, 2019.
4. Johannes Petry, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 2–6.
5. Nicholas R. Lardy and Tianlei Huang, “China’s Financial Opening Accelerates,”Peterson Institute for International Economics, December 2020, 6.
6. Peng Qinqin and Denise Jia, “China Scraps Quota Limits on QFII, RQFII Foreign Investment Systems,” Caixin, May 8, 2020.
7. UBS, “China Fixed-Income: What is Bond Connect?” June 8, 2020; Goldman
Sachs, “China in Transition: The Stock Connect,” December 2016.
8. Bobby Lien and David Sunner, “Liberalization of China’s Portfolio Flows andthe Renminbi,” Reserve Bank of Australia Bulletin, September 19, 2019; Minny Siu,
Richard Mazzochi, and David Mu, “China Connected to Global Markets: MSCI Includes China A-Shares in Its Major Global Indices from 1 June 2018,” King & Wood
Mallesons, May 31, 2018.
9. Thomas Gatley, “A User’s Guide to the Chinese Stock Market,” Gavekal Dragonomics, April 2, 2019, 11.
10. Thomas Gatley, “A User’s Guide to the Chinese Stock Market,” Gavekal Dragonomics, April 2, 2019, 11.
11. Cissy Zhou, ‘China Ready with ‘Precautionary Measures’ to Stop Foreign Traders Causing Market Volatility, Regulator Says,” South China Morning Post, April 20,
2021.
12. Hudson Lockett and Thomas Hale, “Global Investors Place RMB 1 Trillion Bet
on China Breakthrough,” Financial Times, December 13, 2020.
13. Adam Lysenko et al., “U.S.-China Financial Investment: Current Scope andFuture Potential,” Rhodium Group, January 2021, 12; Antonio Coppola et al., “Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing andTax Havens,” Global Capital Allocation Project, December 2020.
14. Selcuk Gokoluk and Livia Yap, “Big Investors Split China Bets from Emerging
Markets,” Bloomberg, December 9, 2020.
15. Maarten-Jan Bakkum and Ken Dijkstra, “China’s Bid to Attract Capital Creates New Opportunities in Bond and Equity Markets,” NN Investment Partners, April
5, 2021; Lazard Asset Management, “China A-Shares: An Opportunity in Strategic
Exposure,” October 1, 2019.
16. Teresa Kong, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 1.
17. Hudson Lockett and Thomas Hale, “Global Investors Place RMB 1 Trillion Bet
on China Breakthrough,” Financial Times, December 13, 2020.
18. Economist, “China’s Crackdown on the Online-Education Business Marks aTurning Point,” July 31, 2021; Hudson Lockett, “Chinese Stocks Turn from Leader to
Laggard on Tighter Liquidity,” Financial Times, March 24, 2021.
19. Jing Yang and Lingling Wei, “China’s President Xi Jinping Personally Scuttled
Jack Ma’s Ant IPO,” Wall Street Journal, November 12, 2020.
20. Scott Rosenburg, “China’s Homegrown Techlash,” Axios, August 4, 2021.
21. Filipe Pacheco and Matt Turner, “Didi Plunges below IPO Price as China Expands Crackdown,” Bloomberg, July 6, 2021; Tracy Qu and Zhou Xin, “China Takes
Didi off App Stores Two Days after Beijing Announces Cybersecurity Review,” South
China Morning Post, July 4, 2021.
22. Bloomberg, “Why China Is Cracking Down Now on After-School Tutors,” July26, 2021.
23. Shen Lu, “China’s Edtech Crackdown Isn’t What You Think. Here’s Why,” Protocol, July 31, 2021.
24. James Palmer, “Why China Is Cracking Down on Private Tutoring,” Foreign
Policy, July 28, 2021; Xinhua, “Xi Stresses Ideological and Political Education in
Schools,” March 18, 2019.
25. S&P Capital IQ database.
26. S&P Capital IQ database.
27. MSCI, “MSCI Emerging Markets Index (USD),” September 30, 2021.

280
28. Eustance Huang, “Chinese Stocks Are Now among Asia’s Worst-Performing as
Beijing Crackdown Spooks Investors,” CNBC, July 27, 2021.
29. Michael Hood et al., “Understanding the Opportunity in Chinese Equities,” JPMorgan Asset Management, June 18, 2020.
30. Steve Johnson, “BlackRock Calls for Investors to Lift Allocations to China’sMarkets,” Financial Times, August 17, 2021.
31. George Magnus, “Is It Time to Avoid Investing in China?” Financial Times,
September 24, 2021; George Soros, “BlackRock’s China Blunder,” Wall Street Journal,
September 6, 2021; George Soros, “George Soros: Investors in Xi’s China Face a Rude
Awakening,” Financial Times, August 30, 2021.
32. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 5–6.
33. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 5–6.
34. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 5–6.
35. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 6.
36. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 6.
37. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 8.
38. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 6.
39. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 6.
40. William Chloe et al., “Why Has Foreign Venture Capital Investment into China
Soared in 2018,” White & Case, December 13, 2018; Ariel Lu et al., “China’s Venture
Capital: Bigger than Silicon Valley’s?” INSEAD, April 20,2018, 19.
41. Crunchbase, “WuXi AppTec.”; Crunchbase, “iFlyTek.”; Crunchbase, “Megvii.”
42. China’s State Council, State Council Notice on the Publication of the Programto Build a National Technology Transfer System (国务院关于印发国家技术转移体系建设方案的通知), September 15, 2017. Translation.
43. China’s State Council, Outline of the People’s Republic of China 14th Five-Year
Plan for National Economic and Social Development and Long-Range Objectives for2035 (中华人民共和国国民经济和社会发展第十四个五年规划和 2035 年远景目标纲要),March 12, 2021. Translation.
44. Bank for International Settlements, “Guo Shuqing: Remarks—Annual Conference of Financial Street Forum 2020,” October 27, 2020, 3.
45. Thomas Hale et al., “Wall Street’s New Love Affair,” Financial Times, May 28,2021; Johannes Petry, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 4–5.
46. Charlie Zhu and Jun Luo, “Goldman Forms Wealth Venture with China’s Largest Bank,” Bloomberg, May 25, 2021; Thomas Hale, “BlackRock Wins Approval to Run
Wealth Business in China,” Financial Times, May 12, 2021; Tang Ziyi and Zhu Liangtao, “China Greenlights Third Foreign-Controlled Wealth Management Venture,”
Caixin, February 23, 2021; Rob Kozlowski, “Amundi, BOC Wealth Management Ink
China Joint Venture,” Pensions & Investments, December 20, 2019.
47. Jing Yang, “JPMorgan to Buy $410 Million Stake in Chinese Bank’s WealthBusiness,” Wall Street Journal, March 19, 2021.
48. Echo Huang, “Chinese Banks Woo Overseas Asset Managers,” Financial Times,
August 17, 2020.
49. J.D. Kenneth Boutin, “Arms and Autonomy: The Limits of China’s Defense-Industrial Transformation,” in Richard A. Bitzinger, ed., The Modern Defense Industry,
ABC-CLIO, 2009, 219–221; Keith Crane et al., “Modernizing China’s Military: Opportunities and Constraints,” RAND Corporation, 2005, 80, 132–134, 159.

281
50. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 6–7.
51. Richard A. Bitzinger, “China’s Shift from Civil-Military Integration to Military-Civil Fusion,” Asia Policy 16:1 (January 2021): 5–24, 20.
52. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 28, 34–35.
53. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 6; Karen Sutter, “ ‘Made in China 2025’ Industrial Policies: Issues for Congress,”
Congressional Research Service, August 11, 2020; Barry Naughton, “The Rise of China’s Industrial Policy 1978–2020,” Center for Chinese-Mexican Studies of the Schoolof Economics of the National Autonomous University of Mexico, 2020, 107.
54. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds,” Center for Security and Emerging Technology, March
2021, 5.
55. Audrey Fritz and Scott Kennedy, “China’s Military-Civil Fusion Funds: Big but
Not Necessarily Effective,” Center for Strategic and International Studies, October
4, 2019.
56. Adam Lysenko, oral testimony for U.S.-China Economic and Security Review
Commission, U.S. Investment in China’s Capital Markets and Military-Industrial
Complex, March 19, 2021, 149–150.
57. S&P Capital IQ database.
58. S&P Capital IQ database.
59. U.S. Department of Commerce Bureau of Industry and Security, “Addition of
Certain Entities to the Entity List,” Federal Register 84:196 (October 9, 2019).
60. S&P Capital IQ database.
61. S&P Capital IQ database.
62. Cheng Ting-Fang and Lauly Li, “Top China Chipmaker SMIC Buoyed by Robust Domestic Demand,” Nikkei Asia, August 5, 2021; U.S. Department of Commerce
Bureau of Industry and Security, “Addition of Certain Entities to the Entity List,
Revision of Entry on the Entity List, and Removal of Entities from the Entity List,”
Federal Register 85:246 (December 22, 2020); Cheng Ting-Fang and Lauly Li, “SMIC
Makes Biggest Market Debut in China in 10 Years,” Nikkei Asia, July 16, 2020.
63. Tom Hancock, “Xi Plans New Chinese Stock Exchange to Boost Small Businesses,” Bloomberg, September 1, 2021.
64. Wu Jun, “This Type of ETF Is on Fire! Since the Beginning of the Year, 2.3
Billion Has Poured into Fund Managers’ New Vista!” (这类ETF火了! 开年以来23亿资金杀入基金经理最新观点来了!), China Fund News, January 7, 2021. Translation.
65. See, for example, Dacheng National Security Themed Flexible Allocation Mixed
Fund and Fullgoal National Security Themed Mixed Fund. S&P Capital IQ database.
66. China Securities Regulatory Commission, Public Fund Product Guide (August2021) (公募基金产品索引[2021年8月]), September 10, 2021. Translation.
67. GUANGZHOU Silk Road Investment Limited (GZ SILK R B2112) via Hong
Kong Stock Exchange News, September 1, 2017.
68. Guangzhou Industrial Investment Fund Management Co., Ltd., “Company
Debt Security 2020 Interim Report” (广州产业投资基金管理有限公司 公司债券 2020 年
半年度报告), August 2020. Translation.
69. U.S. Department of Commerce Bureau of Industry and Security, “Addition of
Certain Entities to the Entity List; Revision of Existing Entries of the Entity List,”
Federal Register 85:109 (June 5, 2020), 34503–34508; Guangzhou Industrial Investment Fund Management Co., Ltd. via S&P Capital IQ database.
70. John Honovich, “Hikvision PRC China Government Origin and Control,” IPVM,
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71. Anna Lehman-Ludwing, “Hikvision, Corporate Governance, and the Risks ofChinese Technology,” Center for Strategic and International Studies, August 6, 2020;
Danielle Cave et al., “Mapping More of China’s Tech Giants: AI and Surveillance,”
Australian Strategic Policy Institute, November 19, 2019; Qiongyi Chen, “Hikvision:
The Dilemma of a Surveillance Company,” Stimson Center, June 24, 2019; Security
World Market, “800M USD Mega-Contract Awarded to Hikvision for City Safe Project,” December 17, 2010.
72. Hikvision Digital Technology Company, “Hikvision Continues Its Leading Position in IHS Markit 2017 Report,” PRNewswire, June 21, 2017; Hikvision, “Hikvision
Global.”73. Amanda Wang, April Ma, and Fu Yin, “Surveillance Equipment Maker Was
One of Most-Loved Chinese Stocks by Foreign Investors,” Bloomberg, May 22, 2019;

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Zhang Shidong, “Hangzhou Hikvision Emerges as Foreign Investor Favourite after
Mainlanders Dump the Stock,” South China Morning Post, April 6, 2017.
74. Interactive Data Pricing and Reference Data LLC via S&P Capital IQ database.
75. Anna Lehman-Ludwig, “Hikvision, Corporate Governance, and the Risks ofChinese Technology,” Center for Strategic and International Studies, August 6, 2020;
Dan Strumpf, Natasha Khan, and Charles Rollet, “Surveillance Cameras Made by
China Are Hanging All Over the U.S.,” Wall Street Journal, November 12, 2017.
76. U.S. Department of Defense, “Qualifying Entities Prepared in Response to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (PUBLIC
LAW 105–261),” June 12, 2020; U.S. Department of Commerce Bureau of Industry
and Security, “Addition of Certain Entities to the Entity List,” Federal Register 84:196(October 9, 2019).
77. S&P Capital IQ database.
78. FTSE Russell, “FTSE Russell Announces Results of Country Classification Review for Fixed Income and Equities,” September 24, 2020; Bobby Lien and David
Sunner, “Liberalization of China’s Portfolio Flows and the Renminbi,” Reserve Bank
of Australia Bulletin, September 19, 2019.
79. Bobby Lien and David Sunner, “Liberalization of China’s Portfolio Flows andthe Renminbi,” Reserve Bank of Australia Bulletin, September 19, 2019; Salley Chen,
Dimitris Drakopoulos, and Rohit Goel, “China Deepens Global Finance Links as It
Joins Benchmark Indexes,” International Monetary Fund Blog, June 19, 2019; MSCI,“Assets in Global Equity ETFs Linked to MSCI Indexes Reach All-Time High of $707
Billion,” November 10, 2017; Joyce Chang, “J.P. Morgan Perspectives: China’s Index
Inclusion: A Milestone for EM as an Asset Class,” JP Morgan.
80. FTSE Russell, “FTSE Emerging Index,” September 30, 2021, 3; MSCI, “MSCIEmerging Markets Index,” September 30, 2021, 2.
81. Nathan Picarsic, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 189.
82. Jason Arterburn, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S. Investment in China’s Capital Markets andMilitary-Industrial Complex, March 19, 2021, 6; Nathan Picarsic, oral testimony for
U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment
in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 189.
83. Kenechukwu E. Anadu et al., “The Shift from Active to Passive Investing: Risks
to Financial Stability?” Federal Reserve Bank of Boston, May 15, 2020, 1.
84. Kenechukwu E. Anadu et al., “The Shift from Active to Passive Investing: Risks
to Financial Stability?” Federal Reserve Bank of Boston, May 15, 2020, 1.
85. Johannes Petry, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7.
86. Chris Flood, “Annual Inflows Drive ETF Industry Assets to All-Time High of $8
Trillion, Financial Times, January 14, 2021.
87. Chris Flood, “Call for SEC to Regulate Index Providers as Investment Advisers,” Financial Times, February 17, 2021.
88. Johannes Petry, Jan Fichtner, and Eelke Heemskerk, “Steering Capital: The
Growing Private Authority of Index Providers in the Age of Passive Asset Management,” Review of International Political Economy (December 10, 2019): 152–176.
89. Perth Tolle, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 3.
90. Johannes Petry, Jan Fichtner, and Eelke Heemskerk, “Steering Capital: The
Growing Private Authority of Index Providers in the Age of Passive Asset Management,” Review of International Political Economy (December 10, 2019): 154.
91. Johannes Petry, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 7–8.
92. Paul G. Mahoney and Adriana Z. Robertson, “Advisers by Another Name,” in
Law and Economics Paper Series 2021–01, University of Virginia School of Law, January 2021.
93. U.S. Department of Commerce Bureau of Industry and Security, “Addition of
Entities of Certain Entities to the Entity List, Federal Register, 84:196 (October 9,2019).
94. MSCI, “Constituents,” 2021.
95. Adam Lysenko et al., “Disruption: U.S.-China Venture Capital in a New Era ofStrategic Competition,” Rhodium Group, January 2020, 14–15.

283
96. Adam Lysenko et al., “Disruption: U.S.-China Venture Capital in a New Era ofStrategic Competition,” Rhodium Group, January 2020, 14–15.
97. Adam Lysenko, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 149–150.
98. Adam Lysenko, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 149–150.
99. Adam Lysenko et al., “Disruption: U.S.-China Venture Capital in a New Era ofStrategic Competition,” Rhodium Group, January 2020, 14–15.
100. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 10.
101. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 11; Zachary Arnold, written testimony for
U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment
in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 6–7.
102. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 11.
103. Adam Lysenko, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 11–12.
104. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” Federal Register
85:222 (November 12, 2020).
105. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” Federal Register
85:222 (November 12, 2020).
106. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” Federal Register
85:222 (November 12, 2020).
107. U.S. Department of the Treasury, “Frequently Asked Questions: Chinese Military Companies Sanctions,” December 28, 2020.
108. U.S. Department of Defense, DOD Releases List of Additional Companies, in
Accordance with Section 1237 of FY99 NDAA, January 14, 2021; Executive Office of
the President, “Amending Executive Order 13959—Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” Federal
Register 86:11 (January 13, 2021).
109. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Certain Companies of the People’s Republic of China,” Federal Register 86:107 (June 7, 2021).
110. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Certain Companies of the People’s Republic of China,” Federal Register 86:107 (June 7, 2021); Emily de La Bruyère and Nathan Picarsic, “Defusing Military-Civil Fusion: The Need to Identify and Respond to Chinese MilitaryCompanies,” Foundation for Defense of Democracies, May 2021, 31–32.
111. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Certain Companies of the People’s Republic of China,” Federal Register 86:107 (June 7, 2021).
112. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Certain Companies of the People’s Republic of China,” Federal Register 86:107 (June 7, 2021).
113. White House, “FACT SHEET: Executive Order Addressing the Threat fromSecurities Investments That Finance Certain Companies of the People’s Republic ofChina,” June 3, 2021.
114. White House, “FACT SHEET: Executive Order Addressing the Threat fromSecurities Investments That Finance Certain Companies of the People’s Republic ofChina,” June 3, 2021.
115. Jordan Brunner, “Communist Chinese Military Companies and Section 1237:
A Primer,” Lawfare, March 22, 2021; Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 § 1237, Pub. L. No. 105–261, 1999.
116. Executive Office of the President, “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” Federal Register
85:222 (November 12, 2020).

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117. Strom Thurmond National Defense Authorization Act for Fiscal Year 1999
§ 1237, Pub. L. No. 105–261, 1999.
118. Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005
§ 1222, Pub. L. No. 108–375, 2005.
119. William M. Thornberry National Defense Authorization Act for Fiscal Year
2021 § 1259, Pub. L. No. 116–283, 2021.
120. David Hanke, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 2.
121. Jeremy Pelter, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 4.
122. Ian F. Fergusson and Karen M. Sutter, “U.S. Export Control Reforms and China: Issues for Congress,” Congressional Research Service, January 15, 2021.
123. Giovanna M. Cinelli, oral testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021.
124. Emily Weinstein, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S. Investment in China’s Capital Markets andMilitary-Industrial Complex, March 19, 2021, 16.
125. Nazak Nikakhtar, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S. Investment in China’s Capital Markets andMilitary-Industrial Complex, March 19, 2021, 16.
126. Nicholas R. Lardy and Tianlei Huang, “China’s Financial Opening Accelerates,” Peterson Institute for International Economics, December 2020, 4–5.
127. MSCI, “MSCI ACWI ex USA Index (USD),” September 30, 2021, 2; MSCI,“MSCI China All Shares Index (USD),” September 30, 2021, 2; MSCI, “MSCI Emerging Markets Index (USD),” September 30, 2021, 2; Nicholas R. Lardy and Tianlei
Huang, “China’s Financial Opening Accelerates,” Peterson Institute for International
Economics, December 2020, 10.
128. Johannes Petry, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 9.
129. Samuel Shen and Tom Westbrook, “Analysis: Sanctions-Hit Chinese Firms
Surge as Global Buyers Swoop In,” Reuters, January 14, 2021.
130. U.S. Department of Commerce, Bureau of Industry and Security, “Additionof Entities of Certain Entities to the Entity List; and Modification of Entry on the
Entity List,” Federal Register, 83:148 (August 1, 2018); S&P Capital IQ database.
131. U.S. Department of the Treasury Office of Foreign Assets Control, Non-SDN
Communist Chinese Military Companies List, January 8, 2021, 5.
132. S&P Capital IQ database.
133. Adam Lysenko, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 149–150.
134. Zachary Arnold, written testimony for U.S.-China Economic and Security Review Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 16–17.
135. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 25–44, 40.
136. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 25–44, 28, 34.
137. Marcel Angliviel, Benjamin Spevack, and Devin Thorne, “Evaluating Global
Exposure to China’s Defense-Industrial Base,” Center for Advanced Defense Studies,
2019, 17.
138. Marcel Anglivel, Benjamin Spevack, and Devin Thorne, “Evaluating Global
Exposure to China’s Defense Industrial Base,” Center for Advanced Defense Studies,
2019, 6.
139. Marcel Anglivel, Benjamin Spevack, and Devin Thorne, “Evaluating Global
Exposure to China’s Defense-Industrial Base,” Center for Advanced Defense Studies,
2019, 6; Alex Joske, “The China Defense Universities Tracker,” Australian Strategic
Policy Institute, November 25, 2019; Elsa Kania, written testimony for U.S.-China
Economic and Security Review Commission, Hearing on Technology, Trade, and Military-Civil Fusion: China’s Pursuit of Artificial Intelligence, New Materials, and New
Energy, June 7, 2019, 23; Chen Weishan, “Achieving the New Era of Military-Civil
Integration Development—Innovative Practice of Promoting the Deep Developmentof Military-Civil Integration in Mianyang, Sichuan” (奏响军民融合发展新时代乐章——285
四川绵阳推进军民融合深度发展的创新实践), China Economic Weekly, August 6, 2018.
Translation; S&P Capital IQ database.
140. Zachary Arnold, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 73.
141. Katherine Koleski and Nargiza Salidjanova, “China’s Technonationalism Toolbox: A Primer,” U.S.-China Economic and Security Review Commission, March 28,
2018; Greg Levesque and Mark Stokes, “Blurred Lines: Military-Civil Fusion and the‘Going Out’ of China’s Defense Industry, Pointe Bello, December 2016, 36–43; Keith
Crane et al., “The Effectiveness of China’s Industrial Policies in Commercial Aviation
Manufacturing,” RAND Corporation, 2014, 48.
142. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 36–38.
143. Hua Chuang Securities, “Deepening of Military-Civil Fusion Set to Reshape
Weapons and Equipment Procurement in the Long Term” (军民融合深度推进，长期将重塑武器装备采购 推荐（维持）机制), December 24, 2018, 2. Translation; Shaanxi
Workers’ Daily, “Tax Cuts Help Accelerate Military-Civil Fusion in Xi’an” (减税助力西安军民融合加速跑), August 16, 2018. Translation. http://paper.sxworker.com/xpaper/
appnews/17/79/703-1.shtml.
144. Kevin McCauley, written testimony for U.S.-China Economic and Security Review Commission, Hearing on China’s Military Power Projection and U.S. National
Interests, February 20, 2020, 5–7.
145. Keith Crane et al., “The Effectiveness of China’s Industrial Policies in Commercial Aviation Manufacturing,” RAND Corporation, 2014, 25.
146. Richard Bitzinger, “Reforming China’s Defense Industry,” Journal of Strategic
Studies, 39:5–6 (2016): 762–789, 773–774; Keith Crane et al., “The Effectiveness ofChina’s Industrial Policies in Commercial Aviation Manufacturing,” RAND Corporation, 2014, 8.
147. Scott Kennedy, “China’s COMAC: An Aerospace Minor Leaguer,” Center for
Strategic and International Studies, December 7, 2020; Keith Crane et al., “The Effectiveness of China’s Industrial Policies in Commercial Aviation Manufacturing,”
RAND Corporation, 2014, 25.
148. Richard Bitzinger, “Reforming China’s Defense Industry,” Journal of Strategic
Studies, 39:5–6 (2016): 762–789, 774.
149. Richard Bitzinger, “Reforming China’s Defense Industry,” Journal of Strategic
Studies, 39:5–6 (2016): 762–789, 774.
150. Richard Bitzinger, “Reforming China’s Defense Industry,” Journal of Strategic
Studies, 39:5–6 (2016): 762–789, 774.
151. Richard Bitzinger, “Reforming China’s Defense Industry,” Journal of Strategic
Studies, 39:5–6 (2016): 762–789, 774.
152. Richard Bitzinger, “Reforming China’s Defense Industry,” Journal of Strategic
Studies, 39:5–6 (2016): 762–789, 773.
153. Richard Bitzinger, “China’s Shift from Civil-Military Integration to Military-Civil Fusion,” Asia Policy, 16:1 (January 2015): 5–24.
154. Marcel Anglivel, Benjamin Spevack, and Devin Thorne, “Evaluating Global
Exposure to China’s Defense-Industrial Base,” Center for Advanced Defense Studies,
2019, 17–23; S&P Capital IQ database.
155. Marcel Anglivel, Benjamin Spevack, and Devin Thorne, “Evaluating Global
Exposure to China’s Defense-Industrial Base,” Center for Advanced Defense Studies,
2019, 17–23; S&P Capital IQ database.
156. S&P Capital IQ database.
157. Chinese Academy of Sciences, “Organizational Structure” (组织机构), 2021;
Shanghai Institute of Optics and Fine Mechanics, Chinese Academy of Sciences,“SIOM at a Glance;” Xi’an Institute of Optics and Precision Mechanics, Chinese Academy of Sciences, “Introduction.”158. Kenneth Allen and Mingzhi Chen, “The People’s Liberation Army’s 37 Academic Institutions,” China Aerospace Studies Institute, April 2020, 24.
159. Alex Joske, “The China Defence Universities Tracker: Exploring the Military
and Security Links of China’s Universities,” Australian Strategic Policy Institute Policy Brief 23:2019, November 2019, 25–26.
160. Emily Weinstein, written testimony for U.S.-China Economic and Security
Review Commission, Hearing on U.S. Investment in China’s Capital Markets andMilitary-Industrial Complex, March 19, 2021, 9–10.
161. Marcel Anglivel, Benjamin Spevack, and Devin Thorne, “Evaluating Global
Exposure to China’s Defense-Industrial Base,” Center for Advanced Defense Studies,
2019, 19, 27, 37.

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162. U.S. Department of Commerce Bureau of Industry and Security, Supplement
No. 4 to Part 744–ENTITY LIST, October 5, 2021.
163. See Shanghai Stock Exchange listed Anhui Sun Create Electronics, established by CETC Research Institute No. 38, and Hikvision, established by CETC Research Institute No. 52; Anhui Sun Create Electronics Co., Ltd, “About Sun” (关于四创); John Honovich, “Hikvision PRC China Government Origin and Control,” IVPM,
August 29, 2016.
164. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 37.
165. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 37–38.
166. Yoram Evron, “China’s Military-Civil Fusion and Military Procurement,” Asia
Policy 16:1 (January 2021): 38.
167. U.S. Department of the Treasury, “Frequently Asked Questions: Chinese Military Companies Sanctions,” June 3, 2021.
168. Nicholas Turner et al., “Updated: OFAC Issues More FAQs on Forthcoming
Ban on U.S. Investments in Chinese Military Companies,” Steptoe, January 4, 2021.
169. Teresa Kong, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S. Investment in China’s Capital Markets and Military-Industrial Complex, March 19, 2021, 5.
170. MSCI, “Announcement for December 30, 2020 at 09:50 PM GMT,” December
30, 2020; FTSE Russell, “Executive Order by the President of the United States ofAmerica Treatment in FTSE GEIS and FTSE China A Inclusion Indexes,” December
4, 2020.
171. Bloomberg, “Trump’s China Investing Ban Spurs Broad Wall Street Pullback,”
January 12, 2021.
172. Samuel Shen and Tom Westbrook, “Analysis: Sanctions-Hit Chinese Firms
Surge as Global Buyers Swoop In,” Reuters, January 14, 2021.
173. United States District Court for the District of Columbia, Luokung Technology
Corporation v. Department of Defense, et al., Memorandum Opinion: Granting Plantiffs’ Motion for Preliminary Injunction, May 5, 2021; United States District Court for
the District of Columbia, Xiaomi Corporation v. Department of Defense, et al., Memorandum Opinion: Granting Plantiffs’ Motion for Preliminary Injunction; Granting
Plantiffs’ Motion for Leave to File Supplemental Declaration, March 12, 2021.
174. United States District Court for the District of Columbia, Luokung Technology
Corporation v. Department of Defense, et al., Memorandum Opinion: Granting Plantiffs’ Motion for Preliminary Injunction, May 5, 2021; United States District Court for
the District of Columbia, Xiaomi Corporation v. Department of Defense, et al., Memorandum Opinion: Granting Plantiffs’ Motion for Preliminary Injunction; Granting
Plantiffs’ Motion for Leave to File Supplemental Declaration, March 12, 2021.
175. Dan Strumpf, “Pentagon Backs Off Xiaomi Blacklisting after Legal Challenge,” Wall Street Journal, May 12, 2021.
176. Dan Strumpf, “Pentagon Backs Off Xiaomi Blacklisting after Legal Challenge,” Wall Street Journal, May 12, 2021.
177. Jacob Kopnick, “Third Tech Company Challenges Chinese Military Company
Designation in Federal Court,” Export Compliance Daily, May 25, 2021.

CHAPTER 3
U.S.-CHINA SECURITY, POLITICS, AND
FOREIGN AFFAIRSSECTION 1: YEAR IN REVIEW: SECURITY,
POLITICS, AND FOREIGN AFFAIRSKey Findings• In 2021, the Chinese Communist Party (CCP) marked the centennial of its founding by instructing Party members and theChinese people to prepare for a decades-long confrontation
with the United States and other democracies over the futureof the global order. Chinese leaders grew more uncompromising in pursuing their interests as they insisted historical trends
proved the inferiority of democracy to the political, economic,
and normative model of their one-party rule.
• In an apparent paradox, the CCP assessed that internal andexternal threats facing the regime were intensifying and thatits rule was becoming less secure despite the growth of Chinese
power. CCP leaders vowed forceful measures against officials
and Party members wavering in the face of international pressure and continued their repressive campaigns in Hong Kongand against the Uyghur people, Tibetans, and other ethnic minority groups.
• Beijing reaffirmed its intent to maintain high levels of defense
spending to transform the People’s Liberation Army (PLA) intoa powerful force able to operate in and beyond the Indo-Pacificregion. Chinese leaders showed new levels of frustration with
the PLA’s lagging efforts to improve its training and personnel
quality amid perennial concerns about the force’s lack of warfighting experience. The PLA continued to commission advanced
warships and field new aircraft capable of projecting force beyond China’s borders. Beijing also signaled its interest in establishing additional overseas military bases, reportedly including
locations on Africa’s west coast.
• China’s diplomats deepened their embrace of a belligerent anduncompromising approach to foreign relations. The foreign ministry’s disregard for the reputational cost of its strident rhetoricreflected domestic incentives that reward efforts to raise China’s global standing while discrediting the United States andother democracies. As it grew more confrontational toward democratic countries, Beijing expanded its partnerships with Russia
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and Iran and attempted to cast itself as a leader of developing
countries across Africa, the Middle East, and Central Asia.
• China’s aggressive tone and military coercion of its neighbors
prompted deepening cooperation between Indo-Pacific countries
and new efforts by the EU and others to increase their diplomatic and military presence in the region. China continued its
military tensions with India, building illegal military outpostsin neighboring Bhutan and launching cyberattacks that may
have caused blackouts across India.
• U.S. concerns over the growing national security threat from
China continue. Beijing’s refusal to cooperate in investigating
the origins of the novel coronavirus (COVID-19) pandemic anddemands that the Biden Administration cease all criticism ofChina’s human rights abuses and abandon other policies opposed by the CCP undermined Beijing’s initial hopes for a resetin bilateral ties.
Introduction
In 2021, the CCP celebrated the centennial of its founding. Amid
the triumphant celebrations, however, the message of senior CCP
leaders was sober. Rather than evince satisfaction that China’s economic development had ushered in a new era of peace and prosperity, CCP leaders instructed Party members and the Chinese people toprepare for a decades-long confrontation with the United States andother democracies over the future of the global order. Meanwhile,
China’s leaders made plain their ambition to present their one-party
rule to the world as a superior political, economic, and moral model
to democracy and capitalism.
Behind their global assertiveness, CCP leaders perceived growing internal and external threats to the survival of their regime.
As the United States and other democracies took steps to defend
themselves against China’s influence activities, military power, andcoercive economic practices, the CCP escalated attacks against the“enemy forces” at home and abroad that it described as attempting
to undermine its rule. Today, the regime is both confident and paranoid, insistent on its superiority but increasingly fearful of subversion and failure. Having declared the superiority and inevitable triumph of their model, CCP leaders have proved unwilling to tolerate
any domestic or foreign criticism of their actions.
Over the past year, the CCP regime rejected compromise and responded aggressively to any criticism or challenge to its interests.
China stepped up its use of military coercion in the East and South
China Seas, the Taiwan Strait, and along the Indian border, while
attempting to coerce Australia into revising internal policies displeasing to Beijing, such as calling for an independent investigation
into the origins of COVID-19. China also extended its use of coercion
beyond the Indo-Pacific region, demanding Guyana cancel plans fora new Taiwan trade office and halting rail shipments to Lithuania
after the country decided to open a similar representative office.1
At the same time, Beijing attempted to cast itself as a leader ofcountries across the developing world, such as by trumpeting anagreement with Arab states to form a “Chinese-Arab community ofcommon destiny.” 2 Despite the steady coalescing of many democra-

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cies within and outside the Indo-Pacific against its coercive behavior, Beijing projected confidence in its ability to expand partnerships
with other countries and overcome all opposition to achieve its goals.
This section examines the key developments in China’s politics,
military posture, and foreign relations in 2021. It begins by examining CCP leaders’ view of their position within the international system and concerns over intensifying threats to their rule. The section
then assesses the Party’s increasing domestic repression, the growthand continued shortfalls of the PLA, and the mixed results of Chinese foreign policy in the Indo-Pacific and globally. It concludes by
examining the evolution of U.S.-China relations through the transition to and early days of the Biden Administration. This section
is based on Commission hearings and briefings, discussions withoutside experts, and open source research and analysis throughout
the year.
Remaking the International Order
In its centennial year, the CCP forcefully asserted its ambition to
replace the processes and norms of the liberal international orderwith those of its own making. In a speech in Tiananmen Squaremarking the Party’s centennial celebration in July, General Secretary of the CCP Xi Jinping quoted Mao Zedong in reminding his
audience of the CCP’s original aim to fundamentally alter the postWorld War II international order. “Through tenacious struggle,” herecited, “the Party and the Chinese people showed the world that
the Chinese people were capable of not only destroying the oldworld, but also building a new one.” 3 He further argued that by using Marxism the CCP had “seized the initiative in history.” 4 Using
these principles, General Secretary Xi declared, the Party had not
only developed China’s own economy and material power but had
also “created a new model for human advancement.” 5General Secretary Xi’s characterization of the global relevance ofChina’s model followed similar arguments by CCP officials earlier
in the year. Seizing upon the contested U.S. presidential election
and the January 6, 2021, assault on the U.S. Capitol, CCP leaders claimed that a clear contrast had emerged between the “orderof China” and the “chaos of the West.” 6 In another assessment ofChina’s growing strength relative to the United States and otherdemocracies, CCP leaders claimed that historical trends indicatedthe “East is rising and the West is in decline.” * 7 In his speech in Ti* Senior CCP officials have used the phrases “order of China and chaos of the West” and “theEast is rising and the West is in decline” with growing frequency throughout 2021. Although
Party leaders have mentioned “order of China and chaos of the West” since late 2020, Chinese
media articles used the phrase as early as 2017. Chinese media introduced the phrase “the Eastis rising and the West is in decline” in 2019, but it was not used in authoritative CCP statements until early 2021. Sina Finance, “Chen Yixin Conveys the Spirit of the Seminar: ‘The East
Is Rising and the West Is Falling’ Is the Trend. This Development Trend Is Beneficial to Us” (陈一新传达研讨班精神: “东升西降”是趋势 发展态势对我有利), January 15, 2021. Translation; William
Zheng, “The Time for China’s Rise Has Come, Security Chief Tells Law Enforcers,” South China
Morning Post, January 15, 2021; Chris Buckley, “ ‘The East Is Rising’: Xi Maps Out China’s PostCovid Ascent,” New York Times, March 3, 2021; William Zheng, “China’s Officials Play Up ‘Riseof the East, Decline of the West,’ ” South China Morning Post, March 9, 2021; Guo Shengkun (郭声琨), “Building a Safer China of a Higher Level (Study and Implement the Spirit of the Fifth
Plenary Session of the 19th Central Committee of the Party)” (建设更高水平的平安中 (学习贯彻党
的十九届五中全会精神), People’s Daily, December 2, 2020. Translation; Chen Xiangyang (陈向阳),“[China Daily Online Review] Xi Jinping’s Diplomatic Thought Leads the World’s Changes in a
Hundred Years” (【中国日报网评】习近平外交思想领航世界百年大变局), Xinhua, October 11, 2019.
Translation; Qiushi, “The Institutional Causes of Chaos in the West and Order in China” (西方之290
ananmen Square, General Secretary Xi broadcast the CCP’s unwillingness to alter its governance practices or foreign policy in theface of outside pressure, declaring that the Party would not “accept
sanctimonious preaching from those who feel they have the rightto lecture us.” 8 Instead, he warned, anyone attempting to “bully”
China would “crack their heads and spill blood on a Great Wall ofsteel fortified by the flesh and blood of 1.4 billion Chinese people.” 9
The CCP regime further judged it faced a unique opportunity toestablish its governance model as a leading political force internationally. Central to this calculation was the Party’s judgment that theinternational order was entering a period of “turmoil and transformation” while experiencing “great changes not seen in a century.” 10
Chinese leaders assessed the COVID-19 pandemic had quickened
the pace of these changes and helped push the world to a “historical
dividing line.” 11 At this point, the CCP judged, great power relations
were experiencing a “new round of adjustment” while the global order split up and formed new groupings.12 In an article published in
November 2020, China’s top diplomat and Politburo member * Yang
Jiechi asserted that China must lead the world’s transformationand establish a Sinocentric “community of common human destiny.” 13 In January 2021, State Councilor and Foreign Minister Wang
Yi added in the Party’s theoretic journal Qiushi (Seeking Truth) that
General Secretary Xi had identified the “correct direction” for the
global order’s transformation.14 In the coming years, Party leaders
argued, the CCP would therefore place an even greater emphasis on
contributing a “China approach” to global governance.15“China Cannot Compromise”
Underlying the CCP’s aspiration to global leadership is its unfounded claim to speak for the international community and represent new norms of justice superseding those of the international
order prior to China’s rise. In a year when the United States andother countries condemned the CCP’s genocide against the Uyghur
people, the dismantling of Hong Kong’s democracy and civil liberties,
and other human rights abuses, Chinese leaders were unmoved. In
his January 2021 article, Foreign Minister Wang claimed that China “stood on the side of international morality and justice” in its
foreign relations and would “speak with the force of justice” against
criticism of the CCP’s handling of the COVID-19 outbreak; its governance system; and its actions toward Taiwan, Hong Kong, Xinjiang,
and Tibet.16 In an interview in April, the foreign minister revealed
the linkage between the CCP’s increasingly harsh tone toward theUnited States and other countries and its moral self-justification.
Referring to U.S. officials’ remarks on the need for a mixture ofcooperation and confrontation with China, Foreign Minister Wang
responded simply, “China cannot compromise because what we ad乱与中国之治的制度原因), August 2, 2017. Translation; “Yuan Peng, President of the China Institutes of Contemporary International Relations: The U.S. Is Sick, China Is Stable, and the World
Has Changed” (中国现代国际关系研究院院长袁鹏: 美国病了 中国稳了 世界变了), China Daily (中国日报), January 18, 2021. Translation.
* The Politburo (formally known as the Central Political Bureau) of the CCP is currently composed of 25 members. The Politburo Standing Committee, currently comprising the group’s leading seven members, is mandated to conduct policy discussions and make decisions on major
issues when the Politburo is not in session. In practice, the Politburo Standing Committee holds
supreme authority over both the CCP and the Chinese government.

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here to is the basic norms of international relations. China cannot
yield because there are numerous developing as well as medium andsmall countries behind us.” 17 For these reasons, he declared, China“certainly has the right to strike back because we must safeguard
our country’s sovereignty and national dignity.” 18
China depicted the United States and other developed democracies as outdated global rules-setters that the rest of the world
should cast aside in favor of Beijing’s own definition of international
norms. When leaders of Group of Seven countries gathering in the
United Kingdom (UK) in June 2021 criticized China’s human rights
abuses and market-distorting economic practices, Chinese officials
questioned the authority of attendees at the summit, which also included Australia, India, and South Korea, to make these assertions.
“The days when global decisions were dictated by a small group ofcountries are long gone,” the spokesperson for the Chinese embassyin the UK declared. “There is only one set of rules for the world,that is, the basic norms of international relations . . . not the so-calledrules formulated by a small number of countries.” 19 The spokesperson accused the summit’s communique of “wanton[ly] smearing . . .
China” and “flagrantly violat[ing] the basic norms of international
relations.” 20 A People’s Daily editorial published after the summit
made a similar attempt to cast China as the true arbiter of global
order. “The unilateral retrogressive acts of the United States and a
few other countries will only undermine international rules and order,” it claimed. “Lies are lies, and the nature of a lie will not change
because of a few vilifying remarks from rumormongers.” 21Fears of Growing Threats to the Regime
Despite their projection of self-assurance, Chinese leaders assessed that threats to their regime were growing and exacerbating challenges inside China. Moreover, the CCP judged that further
growth of Chinese power would make the Party’s leadership more,rather than less, insecure. In October 2020, People’s Daily publisheda study guide expressing this pessimistic view following the releaseof the third volume of General Secretary Xi’s collection of speeches,
The Governance of China. “It is impossible for the road ahead tobe smooth sailing,” the study guide warned. “The greater our accomplishments, the more we must act with extreme caution . . . andforcefully respond to major risks and challenges.” 22 The guide continued, “We must concentrate on the most harmful aspects of all
developments,” recognizing that if the Party failed to respond forcefully, “small risks and threats will become large ones and partial
risks and threats will become systemic ones.” 23 Left unaddressed,
external threats would eventually become domestic threats whilechallenges to China’s “economy, culture, society, technology, and internet . . . would transform into political risks and challenges threatening the Party’s ruling position.” 24 The threats facing the CCP
were long-term and would only grow more complex, the guide concluded, to the point of the Party encountering “unimaginably stormy
seas.” 25
Chinese leaders viewed U.S. policies pushing back against the
CCP’s growing assertiveness as central to the regime’s challenges.
In January 2021, Secretary-General of the CCP’s Central Political

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and Legal Affairs Commission * Chen Yixin declared “containmentand suppression” by the United States to be a major threat to the
CCP. Referring to Mao’s strategy for fighting Japan during WorldWar II, Secretary-General Chen assessed the confrontation between
the United States and China to have characteristics of a “protracted
war.” † 26 In remarks on the sidelines of China’s National People’s
Congress in March, State Councilor and Defense Minister Wei Fenghe described the long-term relationship between the United States
and China as one of “containment versus counter-containment” andpredicted U.S. containment efforts would last for decades.27 He repeated his assertion from the 2020 National People’s Congress that
China had entered a phase of high risk for national security andurged the country to improve its military capability to prevail over“strong enemies”—a phrase CCP leaders use to refer to the UnitedStates.28
The CCP judged that ideological threats to the regime were atleast as severe as traditional national security challenges. In December 2020, Politburo member and head of the Central Politicaland Legal Affairs Commission Guo Shengkun claimed that bothtraditional and nontraditional threats were increasing and becoming more interconnected against the “great backdrop of the strategic
contest between China and the United States.” 29 If left unchecked,
he warned, these threats could easily grow into “systemic risks.” 30
CCP leaders argued that underlying these threats was the hostile
intent of “outside enemy forces” advocating for principles such as
democracy and the rule of law and questioning the Party’s right torule.31 In its study guide on The Governance of China, the People’s
Daily provided more detail on the paranoia gripping the highest
ranks of the CCP. “Every kind of enemy force has never stopped
their plots to ‘Westernize’ and divide China, nor have they stopped
their activities to topple and destroy the Communist Party’s leader* The Central Political and Legal Affairs Commission is an important body coordinating the
CCP’s “security maintenance” work, coded language for managing social unrest to protect the regime, including through the use of force. In this capacity, it has direct oversight over China’s law
and order bodies, including the Supreme People’s Court, Ministry of Public Security, and Ministryof State Security. The Commission’s head, titled the secretary, reports directly to General Secretary Xi through the National Security Commission, which Xi chairs. The secretary-general of theCentral Political and Legal Affairs Commission is responsible for drafting documents representing the commission’s views and implementing its decisions. The commission’s secretary typically
exercises control over organizational decisions by working closely with the secretary-general todraft policy details. Wen-Hsuan Tsai and Wang Zhou, “Integrated Fragmentation and the Role ofLeading Small Groups in Chinese Politics,” China Journal 82 (July 1, 2019): 1–22, 14–15; Dali
L. Yang, “China’s Troubled Quest for Order: Leadership, Organization and the Contradictionsof the Stability Maintenance Regime,” Journal of Contemporary China 26:103 (January 2017)35–53, 36, 42, 50.
† Chinese official discussions of “protracted war” refer to Mao’s famous 1938 essay “On Protracted War,” in which he advocated for a long-term strategy to prevail over Japan during World War
II. Mao used the essay to urge CCP members to resist both the allure of a quick victory and of
defeatism, arguing instead for a “long and ruthless war” to defeat its more powerful adversary.
By being more willing to tolerate casualties, economic damage, and other costs of conflict, Maoenvisioned China forcing a “strategic stalemate” from which it would gradually rise to a superior
position and launch a decisive counteroffensive. He expected conditions for this victory to be set
in part by the powerful adversary suffering heavy casualties, discontent among its populationand troops, economic losses, and condemnation by world opinion. Chinese official statements haveused the phrase more in recent years, such as in a July 2020 Politburo meeting statement that
China’s economic challenges “must be understood from the perspective of protracted war.” Xinhua, “General Secretary Xi Jinping Presides over a Central Committee Politburo Meeting, WhereIt Decided to Hold the Fifth Plenary Session of the 19th CCP Central Committee and Where It
Analyzed and Studied the Current Economic Situation and Economic Work” (中共中央政治局召开会议 决定召开十九届五中全会 分析研究当前经济形势和经济工作 中共中央总书记习近平主持会议),July 30, 2020. Translation; Mao Zedong, “On Protracted War” (论持久战), Selected Works of Mao
Tse-tung Vol. II, 1967, 113–194.

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ship and China’s socialist system,” the paper warned.32 “They haveplotted all along to attempt a ‘color revolution’ in China.” 33
Vows of a Forceful Response
CCP leaders declared their intent to fight back forcefully against
these perceived threats, focusing particular attention on combating
ideological threats. In its study guide, People’s Daily called on the
Party to use “offensive moves” in a “war of strategic initiative” toguard against risks and neutralize challenges.34 Identifying politicalsecurity as the CCP’s foremost security concern, it urged the Party to implement its “democratic people’s dictatorship” to “severely
strike enemy forces’ activities to infiltrate, destroy, topple, and split
apart” the CCP.35 According to the paper, of particular concern toParty leaders were systemic risks with the potential to “delay or cut
short” China’s rejuvenation.36 In his December 2020 article, Central
Political and Legal Affairs Commission head Guo issued a similar
instruction to strike back against enemy forces attempting to destroy the CCP and called on officials to protect the security of theParty’s ruling position and ideology.37
In a rare but clear indication that individuals or factions within the CCP still oppose the Party’s main line, CCP leaders singled
out for special criticism Party members whose resolution and belief
had been shaken by these perceived “hostile forces.” 38 In a February
2021 speech to members of the Central Political and Legal Affairs
Commission, Chen Yixin expressed General Secretary Xi’s view thatin the face of mounting external pressures, “every kind of mistaken
thinking would seize the opportunity to surface” within the CCP.39
In what was likely an understatement of the extent of the problem,
Chen warned of the threat from a “tiny minority of Party members
and officials” whose belief in the CCP’s legitimacy and mission had“faded from their memories.” 40 (For more on CCP leaders’ concerns
over Party members opposing or lacking commitment to the policiesof the central leadership, see Chapter 1, Section 1, “The Chinese
Communist Party’s Ambitions and Challenges at Its Centennial.”)The Party’s Tightening Grip
In its campaign to eradicate perceived harmful influences, overthe past year the CCP expanded efforts to control all aspects of Chinese society and culture it viewed as threatening to its rule. In April
2021, the Ministry of State Security promulgated new rules for organizations and enterprises in China responding to “intensified infiltration” by “overseas espionage and intelligence agencies and hostileforces.” 41 The new rules require regular counterespionage educationand training for personnel who routinely interact with foreigners,
rather than only for those who work on secret matters, reflecting the
CCP’s view that any interaction with foreign entities is inherently
a security risk.42 The regulations detail the responsibilities of Partyand state organs, social groups, enterprises, and public institutions
to actively prevent espionage within their units and require state
security organs to train these entities in counterespionage.43
The CCP’s efforts at control extended even to the domains of archaeology and Chinese history.44 In a speech published in November
2020 but given several months earlier at a Politburo study session,

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General Secretary Xi asserted that historical and cultural “struggles . . . will exist for a long time” and that the Party must use archaeological studies to counter “distortions and slanders” on China’s
history.45 Acting on Mao’s dictum that “the past should serve thepresent,” he connected the development of what is now China to theParty’s mission of “developing and upholding socialism with Chinesecharacteristics . . . in the correct historical direction.” 46 By emphasizing the primacy of “telling a good story of China’s history,” General
Secretary Xi promoted a view of Chinese history that distorts facts
to argue for the superiority of the Party’s leadership.47
Extending the Party’s Influence at Home and Abroad
In January 2021, the CCP’s United Front Work Department issued updated regulations cementing General Secretary Xi’s ideology
in the Party’s central bureaucracy for guiding domestic and overseas influence operations. The new regulations, updating trial regulations issued in 2015, show that United Front work has grownboth broader in scope and more focused on discrete groups.48 For
example, the new regulations explain in detail the importance of“guiding” overseas and returned Chinese, including overseas Chinese students and their families in China. They also define for the
first time the United Front’s focus on “new social classes,” which
include knowledge workers and other skilled Chinese employees offoreign-invested enterprises, social organizations, and media organizations.49
The CCP moved to further entrench its ideology in the Chinese
court system and extend the international influence of its “rule bylaw” system where authorities use the law as a means of suppressing
political opposition. In November 2020, the CCP held its first evercentral-level work conference on law-based governance and established “Xi Jinping Thought on the Rule of Law” as the main guideof China’s legal system. In January 2021, the CCP Central Committee issued a plan calling for a “socialist rule of law with Chinesecharacteristics” to take shape by 2025 and be “basically formed” by2035, with the aim of bringing about the “convergence and coordination of internal Party regulations and national laws.” 50 The goalof this legal system, according to Zhu Zheng, assistant professor at
China University of Political Science and Law, is “entrenching theParty’s leadership on political power and ideology more deeply than
before.” 51 Other goals of the Central Committee’s plan are for China
to “active[ly] participate in the formulation of international rules,”“accelerate the construction of a legal system applicable outside China’s jurisdiction,” and promote its view internationally that the ruleof law * should serve the Party’s interests.52 State media praised the“socialist rule of law with Chinese characteristics” concept as a contribution to advancing the world’s understanding of the rule of law.53* Chinese discussion of legal systems often interchangeably uses “rule of law,” under which laws
constrain political leaders, and “rule by law,” under which political leaders use the legal system
to protect their own power. The two phrases sound the same in Chinese, and legal experts haveargued official Chinese sources sometimes use the former translation when they mean the latterto give the impression that the meaning of “rule of law” is the same in China as it is in democratic countries. Cheng Li, “Chinese Politics, Economy, and Rule of Law,” Brookings Institution,
September 20, 2016; China Focus, “Laying Down the Law: Jerome Cohen on the Rule of Law inChina Pt. 2,” August 12, 2015; Josh Chin, “ ‘Rule of Law’ or ‘Rule by Law’? In China, a Preposition
Makes All the Difference,” Wall Street Journal, October 20, 2014.

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Continued Repression of Ethnic Minorities
CCP repression of ethnic minorities in Xinjiang, Tibet, and Inner Mongolia continued to devastate communities in these frontier
regions. Evidence emerged in late 2020 that the Chinese government had built factories inside Xinjiang detention camps and thatfor years it had forced detained Muslims to work as part of a “labortransfer program” that is tainting global supply chains with forcedlabor.54 The U.S. government responded to reports of forced labor-derived cotton, tomato, and silica products from Xinjiang by issuing
six new orders in fiscal year 2021 to prohibit the import of relevant
goods.* Based on reports of authorities’ forced sterilizations, coerced
abortions, and other human rights abuses against Uyghurs and other ethnic and religious minorities in Xinjiang, the United States in
2021 formally determined the Chinese government to be committing
ongoing crimes against humanity and genocide in Xinjiang.55
The CCP continued its campaign to “sinicize” Tibetan Buddhism,tightening its political control over the religion. The Chinese government issued new rules in January 2021 requiring religious professionals to “love the motherland, support the leadership of the
CCP, and support the socialist system,” forcing them to subordinate
their religious views to the Party and the Chinese state.56 In June,a Tibetan monk surrounded by security cameras and government
observers told a closely monitored group of foreign journalists in
Tibet that his “spiritual leader” was General Secretary Xi.57 Afterthe Chinese government implemented policies in 2020 to phase out
Mongolian-language education in Inner Mongolia, Chinese officials
reportedly began warning students from Inner Mongolia in Japannot to talk about the ongoing Chinese government suppression ofMongolian culture.58 In response, in April 2021 a group of Japaneselegislators created a parliamentary caucus to protect Mongolian culture from assimilation.59
Toward a Global People’s Liberation Army
Over the past year, the CCP signaled its ambition to transformthe PLA into a global force able to operate both within and beyond
the Indo-Pacific region. In his speech celebrating the CCP’s centennial in July, General Secretary Xi described the PLA as “a powerful force for protecting peace in our region and beyond.” 60 Central
Military Commission Vice Chairman General Xu Qiliang similarly
linked the PLA to China’s global leadership ambitions, noting in a
November 2020 article the force would “contribute its strength” tobuilding a “community of common human destiny” and carry out
duties “commensurate with China’s international status.” 61 In afurther reflection of top leaders’ vision for the PLA’s global role, he
added that the force would work to establish a “security guarantee”
for China’s overseas interests.62* U.S. Customs and Border Protection may issue an order to withhold release of any goods fromits custody that are suspected of having been produced with forced labor. In 2021, these orders
also targeted widespread use of forced labor in an entire commercial fishing fleet based in eastern
China. As of June 2021, according to a White House fact sheet, 35 of 49 active withhold releaseorders were on goods from China, and 11 were on goods originating in Xinjiang. White House,
FACT SHEET: New U.S. Government Actions on Forced Labor in Xinjiang, June 24, 2021; U.S.
Customs and Border Protection, Forced Labor Enforcement, Withhold Release Orders, Findings,
and Detention Procedures, August 2016.

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The CCP continued to support its ambitious goals for force development with high levels of defense spending. In 2021, the PLA’s official budget * grew by 6.8 percent, which is a slightly higher growthrate than the 6.6 percent increase it maintained in 2020 despite
slowing economic growth and pandemic conditions.63 Meanwhile,
the PLA continued producing sophisticated weapons and ships thatfurther extend its power projection capabilities. In April 2021, the
PLA Navy commissioned its first Type 075 (YUSHEN) amphibious
assault ship, third Type 055 (RENHAI) destroyer,† and sixth Type094 (JIN) nuclear-powered ballistic missile submarine.64 China’sType 075 ships support what one analyst considers to be “an amphibious capability that is second only to the United States,” andthey likely serve as the prototype for an even newer class of amphibious assault vessels capable of launching fixed-wing aircraft.65
The PLA typically keeps its Type 094 submarines from public view,so their inclusion in a public commissioning ceremony with China’s
newest amphibious assault ship and premier destroyer likely served
propaganda purposes by stoking nationalist pride.66 In March, China launched three additional Yaogan-31 surveillance satellites, joining a constellation likely to provide the PLA with real-time targeting of distant maritime targets such as U.S. aircraft carriers.67
China further advanced its power projection capabilities by fielding the Y-20U aerial refueling tanker aircraft, while reports indicated Beijing may be exploring opportunities for stationing troops
abroad. With the Y-20U entering service this year, the PLA will be
more capable of extending the flight range and duration of its J-20
fighter, H-6 bomber, and KJ-500A early warning and control aircraft.68 Reuters reported China may also be expanding the number of facilities that PLA aircraft can use, notably with a secretagreement to upgrade an airstrip on an island in Kiribati.69 Thisagreement could position Chinese facilities astride important sea
lanes and flight paths between the United States and Oceania.70
In May 2021, commander of U.S. Africa Command General Stephen
Townsend stated in an interview that China was actively seeking todevelop a naval base on Africa’s western coast and had recently approached countries from Mauritania to Namibia in hopes of securing
an agreement.71 He assessed that China sought to construct a port
facility for rearming and repairing naval vessels, which would becapable of hosting Chinese submarines or aircraft carriers.72
The PLA also hardened and extended the range of its border defenses this year. In May, the PLA Army tested new long-range rockets able to strike targets 100 miles (160 kilometers) away, which isa sufficient distance to hit targets in Taiwan from firing positionsin the Chinese mainland.73 Along the China-India border, the PLA
Army established a joint air defense system that uses advanced
PLA Army anti-aircraft systems to enhance the early warning andrapid deployment capabilities of the PLA Air Force.74* China’s government does not report all defense spending in its official budget. Its official figures are inconsistent and cannot be verified. Jane’s experts assessed that in 2021, China’s defense
spending was 25 percent higher than officially reported. Jon Grevatt and Andrew MacDonald,“China Announces 6.8% Increase in 2021 Defence Budget,” Jane’s Defense Weekly, March 5, 2021.
† The RENHAI-class destroyer has tonnage and capabilities that exceed those of ships thatwere previously designated as cruisers. For a discussion on the distinction between destroyers
and cruisers, see U.S.-China Economic and Security Review Commission, 2020 Annual Report toCongress, December 1, 2020, 342.

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Continued Frustration over Shortfalls in Personnel Quality
and Leadership
Despite the PLA’s success in fielding advanced weapons systems,
China’s civilian and military leaders showed signs of impatience
with the PLA’s meager gains in its longstanding efforts to overcome
weaknesses in training and personnel quality. China’s leaders havelong criticized the PLA as suffering from a “peace disease,” which isa term highlighting the concerns of civilian and military leaders overthe PLA’s lack of combat experience and preparedness for war.75 In
2021, General Secretary Xi escalated this criticism by taking the unusual step of convening a conference on improving combat-realistic
military exercises and by modifying his annual training mobilization order to express the need for the PLA to “build a new militarytraining system.” 76 General Xu also reflected dissatisfaction with
the PLA’s competence in his November 2020 article, urging the force
to continue elevating personnel quality.77 He further instructed the
PLA to enhance its focus on warfighting, warning that “forgetting
how to fight spells danger and neglecting to prepare for battles tocome guarantees defeat.” 78
The PLA refocused efforts to remediate its lack of wartime experience by practicing unit-level decision-making. PLA exercises in 2021
placed a greater focus on giving units the autonomy to make decisions in the field.79 The PLA Air Force improved officer autonomy
this year by significantly increasing “unrestrained air combat training,” an approach in which pilots are permitted to make their own
decisions in combat.80 PLA Navy pilots from the Northern, Eastern,and Southern Theater Commands held a major cross-regional exercise this year also focused on unrestrained air combat training.81
Despite these efforts, state media reported that PLA units continued to struggle with autonomous decision-making, such as deputy
commanders for some units being unprepared to take over command
when exercises simulated injuries to their senior officers.82
Political Work May Conceal Insecurities about Loyalty
The PLA continued to ramp up its emphasis on political work, potentially revealing insecurities about troop loyalty. In one example,
the 2020 edition of the Science of Military Strategy, an authoritative
textbook for PLA officers published by the PLA’s National Defense
University, included a new chapter on wartime political work that
anticipates modern warfare will include a “hidden front” that involves “inciting defections.” 83 In his November 2020 article, General Xu indirectly expressed concern over political reliability in theranks, demanding that soldiers be “absolutely loyal, clean, and reliable” and allow “absolutely no wavering or deviation . . . on the fundamental issue” of Party loyalty.84 In December 2020, a spokesperson for China’s Ministry of National Defense announced that PLA
servicemembers would receive further political training through a
dedicated app called “Study the Strong Military.” 85 State media described some challenges facing the PLA’s political education efforts.
For instance, some brigade leaders reported concerns that their
younger enlisted members were “ideologically active with distinct
personalities,” euphemistically describing individualism resistant to
indoctrination.86

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Conscription in the PLA
Chinese citizens may volunteer for military service or be involuntarily conscripted for two years, after which they may choose tocontinue service or be demobilized.87 China does not publish dataon how many of its recruits are conscripts rather than volunteers,and PLA recruitment practices may further blur the lines between voluntary and forced recruitment. Since 2009, the PLA has
sought to conscript or recruit at least 100,000 college-educatedenlistees each year.88 The PLA appears to struggle to meet thisgoal, however, having repeatedly lowered its physical standards
for conscription to recruit college-educated enlistees.89 Moreover,college-educated recruits may not be of the quality the PLA needs
to modernize its force. For example, one 2017 report found PLA
college-educated recruits included “basically no graduates” ofChina’s top 100 civilian educational institutions.90 Some PLA research also reveals concerns that college-educated conscripts are
not inclined to continue their military service after their initial
two-year term.91
New Leaps for China’s Space Program
China’s dual-use space and rocketry programs met importantmilestones in 2021, including successfully landing a probe on Marsand launching the first module of its long-term space station. The
successful landing and deployment in May of the Zhurong Marsrover for a 93-day mission was notable both for being China’s firsttime landing a probe on another planet and for being the first time
any space agency had succeeded on its first try at the notoriously
difficult Mars landing, nicknamed the “seven minutes of terror.” 92
The Chinese government also added sophisticated new ground infrastructure to support space exploration missions. The Tianwen-1
orbiter, which carries additional instruments to study Mars’s surface
and atmosphere, will relay data through a new, specially constructed 70-meter steerable radio telescope, which is the largest in Asia.93
China launched the Tianhe core module of its long-term lowEarth orbit space station in April 2021, celebrating the project as
the culmination of a 30-year plan to master human spaceflight andtest technologies for long-term space habitation.94 The first team ofthree taikonauts launched in June to carry out a three-month tour,
which is China’s longest crewed space mission ever.95 The launch
was the third of a total of 11 required to complete the station’s construction between 2021 and 2022.96 China intends to use the station
to further international scientific coordination, including joint missions between taikonauts and foreign astronauts, according to themilitary agency overseeing China’s human spaceflight program.97
The Chinese government’s apparent indifference to the international downrange risk from its rockets marred the diplomatic victory of lofting its first space station module.* Debris from launches
in China’s interior has long threatened areas within China, but the
new Long March-5B (LM-5B) rocket, which was used to launch the* The United States and Russia lofted their first modules for the International Space Stationin 1998. ISS National Laboratory, “History and Timeline of the ISS.”299
Tianhe module in April, now spreads this risk to the international
community.98 Its design eschews boosters designed to provide maneuverability after launching its payload, causing the entire rocket
to achieve orbit and then fall back to earth unpredictably.* 99 According to Harvard astronomer Jonathan McDowell, in designing
the LM-5B this way the Chinese government is “deliberately justnot caring and leaving it to reenter.” 100 Plans to launch two additional space station modules on LM-5Bs in 2022 will risk the safetyof people in downrange countries each time.101
Leading experts and official policy continued to signal that the
space sector would remain an important focus in China’s national ambitions. The 14th Five Year Plan (2021–2025), approved in
March 2021, stressed the importance of breakthroughs in seven science and technology frontier sectors, including deep space.102 Thatmonth, Liu Zhirang, National People’s Congress delegate and Party
Secretary of the China Academy of Aerospace Propulsion Technology, said China’s rocketry program would strive to reach “worldclass” level during the next five years.103 Jiang Jie, an expert at the
China Academy of Launch Vehicle Technology, said that during thisperiod China Aerospace Science and Technology Corporation would
work on a new heavy-lift rocket and another new rocket for crewed
launches.104 Former Chinese National Space Administration head
Luan Enjie also confirmed in March that the feasibility study forthe super-heavy-lift LM-9, expected to take taikonauts to the moonin the 2030s, had “basically concluded,” allowing research to begin
in earnest.105
Escalation of “Wolf Warrior” Tactics
In 2021, Chinese diplomats matched the uncompromising tone set
by CCP leadership, deepening their embrace of “wolf warrior” behavior distinctive for its confrontational and belligerent style. This year,
China’s diplomats abandoned much of their remaining decorum
as they levied sensationalist accusations and used disinformation
against other countries.† In February 2021, top diplomat Yang Jiechi demonstrated China’s uncompromising approach by laying out
a list of policy changes he demanded the new Biden Administration
make to improve the U.S.-China relationship.106 In his speech, Yang
defined a “constructive relationship” between the United States andChina as one that required the United States government to abandon competition against China; cease its efforts to curb Chinese
foreign influence operations within the United States; and remain* There is no international requirement to design rockets to reenter under control, but experts
view it as a best practice. The initial LM-5B flight in 2020 was the first intentionally uncontrolled
reentry of an object exceeding 10 metric tons since 1990. Jonathan McDowell (@planet4589), “Before the CZ-5B started flying there were NO ‘by design’ uncontrolled reentries above 10 tonnes
since 1990. DOS-6 (Salyut-7), STS-107 and Fobos-Grunt were all failures,” Twitter, May 2, 2021,
8:53 p.m.
† For example, China’s “wolf warrior” diplomats accused the Canadian government of “Westernegotism and white supremacy” for urging an end to the Chinese government’s arbitrary detentionof two Canadian citizens. Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian spreaddisinformation against the United States and Australia over Twitter by suggesting the COVID-19
pandemic was spread by the U.S. military and by sharing an image digitally altered to show anAustralian soldier holding a knife to the throat of an Afghan child. Associated Press, “COVID
Conspiracy Shows Vast Reach of Chinese Disinformation,” February 15, 2021; Kirsty Needham,“China Tweet That Enraged Australia Propelled by ‘Unusual’ Accounts, Say Experts,” Reuters,
December 4, 2020; Raymond Zhong, “China’s Ambassador to Canada Blames ‘White Supremacy’in Feud over Arrests,” New York Times, January 10, 2019.

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silent on the Chinese government’s destabilizing behavior toward
Taiwan and human rights violations in Hong Kong, Tibet, and Xinjiang.107 Yang’s framing suggests China no longer seeks to cooperate
or find common ground but rather is now dictating that the UnitedStates must submit to all of China’s preferences. In a June 2021
interview, China’s ambassador to France Lu Shaye summarized
China’s diplomacy in plainer terms. “We’re doing things differently
now,” he boasted. “Get used to it.” * 108
At times, Chinese aggressive “wolf warrior” behavior appeared intentionally designed to provoke outrage. In April 2021, the Central
Political and Legal Affairs Commission’s social media account posted
an image juxtaposing a recent Chinese space launch with picturesof cremation pyres and hazmat suits in India, apparently mocking
India’s COVID-19 crisis.109 In July, the Chinese consul general in
Rio de Janeiro mocked a deadly building collapse in Surfside, Florida, on Twitter by juxtaposing a picture of U.S. President Joe Bidenwith the collapsed building and appending the caption, “ ‘America iscoming back!’ But none of the people buried in the ruins has comeback!!!” 110 Referencing this pattern of behavior, a senior German
official explained, “Dialogue is now conditional on us not criticizing
China.” 111 Notably, Beijing’s provocative rhetoric is most frequently
targeted at the United States, Japan, Taiwan, and issues pertaining
to China’s sovereignty claims.112 Still, China’s diplomats have also
turned their “wolf warrior” tactics against developing countries.†
China’s leaders appeared aware of, though unconcerned with, thenegative global reception to their “wolf warrior” diplomats. Instead,they continued projecting confidence in what China Media Project
Director David Bandurski described as the “unshakable premisethat China’s system is superior in terms of its performance,” leading them to dismiss any criticism as “strong ideological bias andcultural prejudice.” 113 CCP leaders have actively sold this message
to Chinese citizens. According to Steve Tsang, director of the University of London’s China Institute, China’s belligerent diplomatic
rhetoric stems from “a revamp of the Communist Party’s social contract with the Chinese people” emphasizing legitimacy drawn fromthe promise of a powerful China that commands global respect.114
As such, CCP leaders have directed and sustained their diplomats’aggressive posture.
* The belligerent turn by China’s diplomats draws upon longstanding tendencies in the diplomacy of the People’s Republic of China (PRC). Peter Martin, author of the book China’s Civilian
Army on China’s diplomatic history, assesses that since the PRC’s founding, China’s diplomats
have consistently shown “they were more concerned about looking weak in front of domestic audiences than truly improving China’s reputation.” Chinese leaders temporarily restrained some ofthese tendencies during much of the country’s reform era to align with former leader Deng Xiaoping’s dictum to “hide your strength and bide your time.” After General Secretary Xi took office,China’s diplomats responded to his encouragement of a more hawkish foreign policy by graduallydialing up their aggressive behavior. In 2019, this trend escalated sharply after Zhao Lijian’s
promotion from minister counsellor in Islamabad to foreign ministry spokesperson demonstrated
that CCP leaders would reward “wolf warrior” behavior. Peter Martin, China’s Civilian Army; The
Making of Wolf Warrior Diplomacy, Oxford University Press, 2021, 195, 216–218, 224.
† China’s diplomats have resorted to bullying and even violent criminal behavior targetingdeveloping countries. For example, at the 2018 Asia-Pacific Economic Cooperation Summit, Chinese diplomats physically forced their way into the hosting Papua New Guinea foreign minister’s
office to demand diplomatic concessions. In October 2020, Chinese diplomats physically beat a
Taiwan trade office librarian in Fiji, leaving the victim concussed and hospitalized, amid theirconcern that Fiji might switch diplomatic recognition from Mainland China to Taiwan. Peter
Martin, China’s Civilian Army; The Making of Wolf Warrior Diplomacy, Oxford University Press,
2021, 1–2, 223.

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At a May 2021 Politburo group study session, General Secretary Xi
appeared to acknowledge China’s poor international image by callingon its diplomats to create a “trustworthy, lovable, and venerable” imageof China amid a global “struggle” over public opinion.115 The speech
was more likely an emphasis on the stakes of China’s international
propaganda, however, rather than a criticism of its diplomats’ aggressive style. As Zhang Weiwei, director of Fudan University’s Institute for
Chinese Studies, explained about the speech, any adverse international
reaction to “telling China’s story well” is “mainly a problem on the partof the ‘West’ ” and not the fault of Chinese diplomats.116 Ambassador
Lu Shaye further clarified the future direction of Chinese diplomacy
several weeks after General Secretary Xi’s remarks, claiming in aninterview that China’s aggressive approach was justified and would
continue.117 The “fundamental reasons behind changes in China’s diplomatic style,” he explained, “are changes in the international situationand in China’s power.” 118
Using Vaccine Diplomacy to Build a Sphere of Influence
Meanwhile, China attempted to cast itself as a leader of developing countries and the only source of readily available COVID-19
vaccines for much of the world. In a speech at the Global HealthSummit in May 2021, General Secretary Xi emphasized the need toprovide more COVID-19 vaccines to developing countries and presented China as a model in this effort.119 While the United States
has donated more than 175 million COVID-19 vaccine doses worldwide and contributed to the international COVAX initiative to distribute vaccines, however, China has primarily sold rather than donated vaccine doses to other countries, including many in Africa andLatin America.120 China’s vaccines have also proved less effective
in preventing infections from COVID-19, with many countries that
paid for China’s vaccines continuing to face outbreaks despite highvaccination rates.121
At times, China suggested that its vaccine exports were part of azero-sum competition with the United States and other countries. In
many developing countries, China capitalized on sometimes slower
deliveries by U.S. and European vaccine manufacturers to claim it
was the only provider of vaccines.122 In a June 2021 visit to Indonesia, for instance, Foreign Minister Wang reportedly accused a“handful of developed countries” of having “hoarded vaccines.” 123
The foreign minister’s message carried an air of triumphalism inIndonesia, where Chinese Sinovac vaccines comprised 89 percent of
the 95 million doses the country received in the first half of 2021.124
China also used vaccine exports as a diplomatic cudgel by treatingthem as leverage over recipient countries. In October 2020, China
announced it would give Malaysia priority access to its vaccines,
after which Malaysia promptly released 60 Chinese sailors who
had been detained for trespassing in its territorial waters.125 After
receiving Chinese vaccines, Philippines President Rodrigo Duterteordered his ministers to refrain from publicly criticizing China forincursions by hundreds of Chinese fishing vessels in the Philippines’
exclusive economic zone (EEZ).126 In another instance, Ukraine
withdrew from a UN Human Rights Council statement calling for
an independent investigation of human rights abuses in Xinjiang

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after China threatened to block a planned vaccine shipment to thecountry.127 Nevertheless, China’s efforts to extract a political pricefor its vaccines were not uniformly successful. When Paraguay suffered soaring COVID-19 infection rates in early 2021, China’s diplomats saw an opportunity to pressure the country into severing
diplomatic ties with Taiwan.128 Paraguay refused to respond to China’s inducements, however, with President Mario Benitez explicitly stating Paraguay would not “accept any kind of blackmail for
vaccine purchases.” 129 He added that the country remained open
to engaging with Chinese vaccine producers “without any type ofconditions involving our diplomatic relations.” 130
Questions Mount over Chinese Transparency on Vaccines and COVID-19
Origins
Already faced with poor results from Chinese vaccines in combating earlier strains of COVID-19, Chinese officials have also been
unable to demonstrate that their vaccines are effective against the
COVID-19 Delta variant. China’s National Health Commission has
declined to comment on the efficacy of Chinese vaccines in preventing infections from the Delta variant.131 Rather than providing dataon vaccine efficacy, Chinese officials have encouraged containment
measures such as distancing and avoiding gatherings to curb Delta
variant transmission, likely reflecting their doubts about Chinese
vaccines.132 Chinese officials have also suppressed efforts to accessinformation on the efficacy of Chinese vaccines. In one instance, aPeople’s Daily reporter was disciplined for requesting information on
how many new COVID-19 infections in China are among vaccinatedpeople, which health authorities did not provide.133 Facing this lackof data, countries in Southeast Asia that previously relied heavily
on Sinovac vaccine doses purchased from China began supplementing these inoculations with the Pfizer and BioNTech, Moderna, andAstraZeneca vaccines, including millions of doses donated by theUnited States.134
Confrontation over Calls for Greater Transparency in
COVID-19 Investigations
China’s resistance to a full, transparent international investigation into the origins of COVID-19 reinforced questions about alab leak being a possible origin of the pandemic.135 In May 2021,
President Biden called for a 90-day intelligence review to allow
the U.S. government to “redouble their efforts” to further study
the origins of the virus.136 After U.S. National Security Advisor
Jake Sullivan said China could face international isolation if it
did not allow proper investigations into the origins of the virus,
a Chinese Foreign Ministry spokesperson called the statementa “blatant threat.” 137 The intelligence assessment, delivered to
President Biden in August 2021, did not offer a definitive conclusion on the origins of the virus.138 The assessment noted “China’s
cooperation most likely would be needed to reach a conclusive
assessment” on the virus’ origins, but that Chinese officials hindered the investigation, preventing U.S. officials from reaching adefinitive conclusion.139

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New Evidence of Strength and Constraints in China-Russia
EntenteChina and Russia continued to deepen ties throughout 2021 as
they celebrated the 20th anniversary of a pact that laid the basis
for their multifaceted cooperation today.140 At the same time, Russia’s independent diplomatic engagements with India and the United States underscored the opportunistic nature of the Sino-Russian
relationship.
Sino-Russian defense cooperation over the past year signaled
to Washington the two countries’ closeness. Military exercises improved their ability to operate together in ways that could allow
them to simultaneously contest U.S. interests. Chinese troops andequipment from the PLA’s Western Theater Command participated in Russia’s large-scale Kavkaz-2020 strategic military exercise
over five days in the fall of 2020, practicing joint live fire-strike,mobile defense, and battlefield situation control.141 Chinese troops
and wheeled equipment traveled to Russia on several Y-20 transport
aircraft, marking the first time China had sent Y-20 transport aircraft with military cargo beyond its borders.142 In December 2020,
Russian and Chinese bombers flew a second joint patrol mission
over the Sea of Japan and the East China Sea after their first everjoint aerial patrol in 2019.143 The Russian Defense Ministry claimed
the joint mission was intended to “increase the level of cooperation
between the two militaries, expand their ability for joint action andstrengthen strategic stability.” 144 Both activities reinforce the trend
in recent years toward Sino-Russian exercises that are increasingly
frequent, geographically varied, and complex, raising concerns thetwo could coordinate their military capabilities to challenge U.S. interests abroad.145 Even so, some observers argue the exercises remain superficial and do not yet meaningfully improve the two countries’ interoperability.146
Concern among some observers also grew over the potential combined threat posed by the two countries in the nuclear domain. China’s significant expansion of its nuclear arsenal prompted Admiral
Charles A. Richard, commander of U.S. Strategic Command, to express concern about the potentially “additive” nuclear threat posedby the two countries, particularly if they choose to work together.
(For more, see Chapter 3, Section 2: “China’s Nuclear Forces: Moving
beyond a Minimal Deterrent.”) 147
China and Russia continued to take complementary positions on
key diplomatic issues and to expand joint scientific initiatives. In
March 2021, both countries blocked a UN Security Council resolution to condemn the military coup in Burma (Myanmar).148 The
two countries also made progress toward their goal of building a
joint research base on the moon. The heads of the Chinese and Russian space agencies signed a memorandum of understanding on theplanned lunar base in March and formally invited other countries
and international organizations to join the project in April.* 149 The
moves came just months after Russia’s space agency Roscosmos
condemned U.S. plans for a lunar Gateway, part of the National
Aeronautics and Space Administration’s Artemis lunar exploration* As of August 2021, no countries or international organizations had formally joined the project.

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program, as too “U.S.-centric” and indicated it could withdraw fromthe International Space Station partnership in 2025.150 According toa promotional video released by Roscosmos, the Sino-Russian lunar
base will develop in three phases: reconnaissance with probes until
2025, construction from 2026 to 2035, and utilization from 2036.151
Meanwhile, Russia and India for the first time held a “two plus
two” meeting of their foreign and defense ministers in April 2021
that one former Indian official argued was Russia’s way of signalingthat close relations with China would not limit its strategic autonomy or arms sales to India.152 After a telephone call in April 2021,
Russian President Vladimir Putin also met with President Biden
at a summit in Geneva in June.153 Some observers speculated that
Chinese leaders were anxiously watching the aftermath of thephone call and summit for any signs that Russia could be aligningitself more closely with the United States.154 Chinese commentators
argued the meeting was intended to drive a wedge between Russia
and China.155
Chinese Sanctions Dash Hopes for Using European Countries
as Counterweight
Sanctions China levied against the UK and EU undermined
Beijing’s hopes to use ties with European countries as a strategic
counterweight against growing tensions with the United States. In
January 2021, Chinese Foreign Minister Wang described the year
ahead as a critical “turning point” for China-EU relations and called
for deepening trust and coordination with the EU amid what he described as the “most severe situation” in U.S.-China relations in over
40 years.156 He further trumpeted the then-recently signed EU-China Comprehensive Agreement on Investment as a symbol of the twosides’ deepening ties.157 Nevertheless, Beijing jeopardized the agreement two months later by sanctioning members of the European
Parliament as well as European academics after the UK and EU
governments joined the United States and Canada in sanctioning
Chinese officials over their human rights abuses in Xinjiang.* 158
Beijing’s countersanctions turned European opinion sharply
against it and created political pressure against approving the investment agreement.159 The heads of 37 European research institutions cosigned a statement in response to the sanctions, expressing
concerns that “targeting independent researchers and civil society
institutions undermines practical and constructive engagement” andharms Europe-China relations more broadly.160 The European Parliament reported in April that before it would consider approving
the investment deal, China must first not only lift the sanctions it* China’s retaliatory sanctions, which were not authorized by any specific Chinese law, prohibit
sanctioned individuals and their families from entering China, including Hong Kong and Macau,
and any companies and institutions affiliated with the individuals from doing business with China. China’s sanctions against Europe followed an earlier round of sanctions in January aimed atjust-departed officials from the Trump Administration, which China’s Ministry of Foreign Affairs
accused of acting against China’s interests out of “bias and hatred.” Ministry of Foreign Affairs of
the People’s Republic of China, Foreign Ministry Spokesperson Announces Sanctions on Relevant
EU Entities and Personnel, March 22, 2021; Gerry Shih, “China Fires Parting Sanctions at Trump
Officials, Seeks ‘Better Angels’ in Biden Team,” Washington Post, January 21, 2021; Ministry ofForeign Affairs of the People’s Republic of China, Foreign Ministry Spokesperson Hua Chunying’s
Regular Press Conference on January 21, 2021, January 21, 2021; Ministry of Foreign Affairs of
the People’s Republic of China, Foreign Ministry Spokesperson Announces Sanctions on Pompeo
and Others, January 20, 2021.

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imposed on EU entities and individuals but also present a timetable
for ratifying and implementing the International Labor Organization’s forced labor conventions and recommit to upholding its commitments to Hong Kong.161 The European Parliament overwhelmingly voted to “freeze” discussion of the deal in May, making clear it
would not approve abandoning what they saw as European values
for the purpose of increased trade.162
Europe pushed back against concerning Chinese actions in otherways over the past year. The EU’s new foreign investment screening framework, inspired by the need to block predatory acquisitions
from Chinese entities, became fully operational in October 2020. The
framework sets minimum standards for EU member states’ investment screening regimes, though it does not harmonize national-levelscreening mechanisms or require member states to introduce any
such screening.163 In November 2020, the European Parliament suspended an EU-China Friendship Group of lawmakers advocating for
closer ties with China over concern the group was too close to theChinese government.164 In April 2021, the Council of the European
Union released its first ever Indo-Pacific strategy, recognizing theEU’s need to actively engage with partners in the region to maintain its rules-based order in the face of China’s challenges to thatorder.165
Notable National-Level Policy Shifts
Amid the debate in Brussels regarding EU policy toward China,some of Europe’s leading governments signaled their own policy
shifts.166 In June 2021, the powerful Federation of German Industries, which is often seen as a bellwether for Berlin’s largely
trade-driven foreign policy, criticized China’s new anti-sanctions law
as creating uncertainty and harming the business environment.167
In July, UK Prime Minister Boris Johnson ordered a national security review of a Chinese-owned firm’s purchase of the UK’s largest
semiconductor producer.168 Although the transaction ultimately proceeded in August, a UK government spokesperson stated that the
UK’s National Security Advisor “will continue to monitor the situation closely” and “will not hesitate to take further action if needed.” 169 Throughout 2021 the UK government also continued seeking
to restrict the involvement of Chinese state-owned nuclear energy
company China General Nuclear Power Group (CGN) in nuclear
power plant projects in the country.* 170
Cracks began to emerge in China’s influence over Central andEastern European countries, many of which had previously been
open to Chinese investment and trade. Some European leaders
skipped a meeting of the Cooperation between China and Central
and Eastern European Countries forum, or the 17+1, which the Chi* The U.S. Department of Commerce added CGN to the Entity List in 2019. CGN is alreadyheavily invested in financing two French-led nuclear power plant projects in the UK, Hinkley andSizewell, and it seeks to build an additional plant at Bradwell that would feature its own nuclear
reactor technology. In August 2020, members of the UK parliament began exploring measures toprevent CGN from participating in the Bradwell project. According to reports from July and September of 2021, the UK government is moving toward a deal that could end CGN’s involvementin the Sizewell project. Reuters, “UK Looking at Deal to Remove China from Nuclear Project—
Report,” September 25, 2021; Reuters, “UK Looks to Remove China’s CGN from Nuclear Power
Projects—FT,” July 26, 2021; Jonathan Ford, Jim Packard, and Nathalie Thomas, “China Tensions
Raise Doubts over UK Nuclear Projects,” Financial Times, August 5, 2020.

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nese government set up in 2012 to directly influence the policies ofindividual European countries against the interests of the broader EU.171 When General Secretary Xi chaired a long-delayed 17+1
summit in February 2021, six member countries sent ministers instead of national leaders. The downgraded delegations showed someparticipants were frustrated enough by the lack of follow-through on
promised Chinese investment to snub Beijing despite the high-level attention General Secretary Xi attempted to place on the meeting.172 In May, Lithuania became the first member of the group toquit the forum entirely.173 Lithuania then agreed to open a new“Taiwanese Representative Office” in Vilnius, the first representative office Taiwan has established in Europe since 2003 and its firstin any European country to bear the name “Taiwan” rather than
“Taipei.” 174 In response, the Chinese government expelled Lithuania’s ambassador and recalled its own ambassador before escalating
tensions by suspending a rail link to Lithuania.175
Expanding Influence in the Middle East, Africa, and Central
Asia
While it grew increasingly confrontational toward European andother democracies, China made concerted efforts to deepen its influence in developing countries in the Middle East, Africa, and Central
Asia. In the Middle East, Beijing demonstrated an increased appetite for involvement and its interest in using ties to Middle Easterncountries to globally promote its alternative definition of humanrights.176 In March 2021, Foreign Minister Wang visited Iran, Saudi Arabia, Turkey, the United Arab Emirates (UAE), Bahrain, andOman.177
China and Iran made headlines when the two nations inked a$400 billion economic and security cooperation agreement in March
2021 after five years of negotiations.178 The wide-ranging deal,
which many experts consider a political maneuver against the United States, seeks to boost Chinese investment in Iran’s infrastructure
over 25 years in exchange for discounted access to Iranian oil andgas.179 The pact also calls for strengthened political and defense ties
between the two countries. Despite the deal’s ambitious investment
goal, questions remain whether the agreement truly signals a sustainable intensification of China-Iran economic ties, with a growing
number of China-Middle East experts surmising that the “terms,
significance, and price of the agreement have all been greatly exaggerated.” * China is also likely to carefully calibrate deepening its
ties with Iran due to its fear of antagonizing other close partners in
the region such as Saudi Arabia and the UAE.180* For instance, according to Chinese customs data, China-Iran bilateral trade stood at $14.9
billion in 2020. This figure was a marked decrease from its already relatively low $23 billion in
2019. In contrast, China’s trade with Saudi Arabia and the UAE in 2020 was valued at $67.2
billion and $49.3 billion, respectively. Will Green and Taylore Roth, “China-Iran Relations: A
Limited but Enduring Strategic Partnership,” U.S-China Economic and Security Review Commission, June 28, 2021, 6; Kabir Taneja, “Iran under Ebrahim Raisi: The View from India,” Observer
Research Foundation, August 2021; William Figueroa, “A Fact Check of the 25-Year Iran China
Agreement,” Al Sharq Strategic Institute, April 8, 2021; Lucille Greer and Esfandyar Batmanghelidj, “China and Iran Announced a New Economic and Security Partnership. That’s Not as
Alarming as It Sounds,” Washington Post, April 1, 2021; Jacopo Scita, “No, China Isn’t Giving
Iran $400 Billion,” Bourse & Bazaar Foundation, September 20, 2021; Jonathan Fulton, “Slender
Beijing-Tehran Agreement: More Is Less, despite Hype,” Arab Gulf States Institute in Washington,
April 1, 2021.

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Foreign Minister Wang also sought to deepen China’s ties to Arabstates, emphasizing China’s agreement with Arab countries to build
a “China-Arab community of common destiny.” 181 Speaking at theend of the trip, he attempted to frame China’s ties with the Middle East as representing an alternative view of international norms,
announcing that China and the Middle Eastern countries he visited “believe that the view of human rights in some ‘Western’ countries does not represent the international view on human rights.” 182
Building on the momentum from these state visits to the region,
China managed to garner widespread support later in the year fromthe Arab world concerning its treatment of Uyghur Muslims, witha majority of the Arab Gulf states publicly praising China’s “counter-terrorism and deradicalization measures in Xinjiang.” *In May 2021, Chinese diplomats made further attempts to promote China as an alternative leader in the region and criticize theUnited States, accusing Washington of “standing on the opposite
side of international justice” in its position on the 11-day conflict
between Israel and Hamas.183 The violence in Gaza also generated
tensions in China’s generally warm relations with Israel, prompting Chinese authorities to call on “all parties, especially Israel . . .
[to] exercise restraint and stop hostilities immediately.” 184 China’s
relations with Israel faced additional strain when an August 2021
report revealed that Chinese operatives, posing as Iranian hackers,
carried out a series of coordinated cyberattacks “against Israeli government institutions, IT providers, and telecommunications entities”
between 2019 and 2020.185
Finally, China continued using COVID-19 diplomacy in an attempt to increase its influence in the region. China’s most important Middle Eastern partners in COVID-19 diplomacy are the UAE
and Bahrain, both of which participated in phase III trials of the
Sinopharm vaccine and were among the earliest adopters worldwide of the vaccine in 2020.186 In March 2021, Sinopharm enteredinto a joint venture with an Abu Dhabi-based technology company,
allowing the UAE to become the first country to produce the Sinopharm vaccine outside of China.187 The joint venture also includes
plans for a research and development center for life sciences and* Despite mounting international pressure over China’s systemic campaign of oppression
against Uyghurs and other Muslim minority groups in the far western region, support for China’s
actions remains strong in much of the Arab world. To date, nearly every country in the Middle
East has expressed support for China’s policies on issues related to Xinjiang, Hong Kong, Taiwan,
and Tibet in one capacity or another, citing opposition to “interference in China’s internal affairs
under the pretext of human rights.” Saudi Arabia, Egypt, and the UAE have also reportedly
collaborated with Chinese authorities to arrest and deport Uyghur Muslims seeking refuge in
the Middle East. In October 2020, a number of leaders from Middle Eastern countries signed
onto a joint statement during the General Debate at the Third Committee of the 75th sessionof the UN General Assembly, praising China for its efforts in combating the “threats of terrorism and extremism” within its borders. In June 2021, 10 Middle Eastern nations were among
69 countries that issued a joint statement at the 47th session of the United Nations Human
Rights Council in Geneva, criticizing countries for interfering in China’s internal affairs “under
the pretext of human rights.” Permanent Mission of the People’s Republic of China to the UN,“Cuba Made a Joint Statement on Behalf of 45 Countries in Firm Support of China’s Counter-Terrorism and Deradicalization Measures in Xinjiang,” October 6, 2020; Permanent Mission of
the People’s Republic of China to the United Nations Office at Geneva and Other International
Organizations in Switzerland, “Joint Statement of 69 Countries at the Interactive Dialogue on
High Commissioner’s Annual Report at the 47th Session of the Human Rights Council,” June 22,2021; Jonathan Hoffman, “Why Do Some Muslim-Majority Countries Support China’s Crackdown
on Muslims?” Washington Post, May 4, 2021; Jomana Karadsheh and Gul Tuysuz, “Uyghurs Are
Being Deported from Muslim Countries, Raising Concerns about China’s Growing Reach,” CNN,
June 8, 2021; Middle East Monitor, “UAE, Saudi, Egypt Deporting Uyghurs to China, Report
Says,” June 9, 2021.

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biotechnology, indicating China’s interest in using the pandemic toestablish a permanent foothold in the region’s biomedical sector.188
Continued Promotion of a China Model in Africa
The CCP stepped up its promotion of China’s political and developmental model to Africa over the past year. In a December 2020
online briefing for African political party leaders, CCP International
Liaison Department head Song Tao described to his African interlocutors “enlightenments acquired by the Party throughout the years
of its development” and asserted “the Chinese system . . . can serve
as a reference to all developing countries including African countries
in their pursuit of independent progress.” 189 He further encouraged
African party leaders to increase exchanges between their parties
and the CCP on the topic of governance and to support more people-to-people interactions between their countries and China.190
China undertook a flurry of diplomatic activity in Africa throughout early 2021 to prepare for the upcoming Forum for China-Africa
Cooperation, held once every three years. In early January 2021,
Foreign Minister Wang visited Nigeria, the Democratic Republic of
the Congo (DRC), Botswana, Tanzania, and Seychelles, continuinga 31-year tradition prioritizing Africa for the Chinese foreign minister’s first overseas visit of the year.191 During the trip, Botswana
and the DRC signed memoranda of understanding to officially join
China’s Belt and Road Initiative (BRI), bringing the total number ofparticipating African countries to 46.192 While in the DRC, Foreign
Minister Wang agreed to cancel approximately $28 million in interest-free loans from the Chinese government to the DRC governmentthat had matured in 2020.193 He also agreed to provide $17 million
in additional financial support to the DRC * and to fund the refurbishment of the DRC’s foreign ministry headquarters.194 In April
2021, China agreed to construct an annex to Ghana’s foreign ministry building,† while the Kenyan government revealed in May 2021
that China had agreed to fund construction of a new building for
Kenya’s foreign ministry.195 After concluding agreements with China earlier in the year, DRC President Felix Tshisekedi nonethelessdemonstrated a willingness to push for a more equitable relationship with Beijing by calling for the renegotiation of mining contracts
with foreign companies operating in the DRC, the great majority ofwhich are Chinese.196
Strengthening Ties in Central Asia
In Central Asia, China’s diplomacy in 2021 centered on improving its strategic position amid the U.S. withdrawal from Afghanistan and expanding China-led mechanisms for regional coopera* According to Foreign Minister Wang, $15 million of the total $17 million will be used to support development projects in the DRC, while the remaining $2 million will be used to support the
DRC in its leadership of the African Union in 2021. February 22, 2021, “President Felix-Antoine
Tshisekedi Tshilombo Elected Chair of the AU for the Year 2021—Five Member Bureau Elected to Support the Work of the Assembly,” February 22, 2021; Jevans Nyabiage, “China Cancels
Democratic Republic of Congo Loans as It Joins Belt and Road,” South China Morning Post,
January 7, 2021.
† Chinese contractors originally constructed Ghana’s foreign ministry headquarters building in2013. Citi Newsroom, “Ghana, China Sign Agreement for Construction of Foreign Ministry Annex
Building,” April 11, 2021; Daily Guide Network, “Agreement Signed for Implementation of China-Aid Foreign Ministry’s Annex Building Project,” April 9, 2021; Ghana Business News, “ChineseContractor Completes Ghana’s New Foreign Affairs Building,” March 18, 2013.

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tion. Against the backdrop of the U.S. withdrawal from Afghanistan,Foreign Minister Wang hosted a nine-member delegation of senior
Taliban officials in late July led by the Taliban’s chief negotiator andcofounder Mullah Abdul Ghani Baradar in Tianjin, signaling “warming ties” between China and the Islamist militant group.197 Beijing’s
motives for strengthening relations with the Taliban have largely
been driven by its fears that Afghanistan could become a potential
hub for Uyghur militants from Xinjiang and other insurgent groups
operating near the China-Afghan border, as well as by its desire tosecure its economic assets in the region.198
Beijing has pledged support for the Taliban in the form of economic support and investment for Afghanistan’s reconstruction, with
Chinese authorities urging the Taliban to “make a clean break withterrorist forces,” including the East Turkestan Islamic Movement.199
Despite having historical connections with Xinjiang’s Uyghur militant groups affiliated with al Qaeda, the Taliban agreed it would
prevent Uyghur separatist fighters, some of whom had previously
sought refuge in Afghanistan, from entering and operating in Afghanistan. In early September 2021, the new Taliban government
claimed China as its “most important partner” because of Beijing’s
readiness to invest in Afghanistan following the group’s forcible
takeover of the country.200 Also in September, China’s foreign ministry spokesperson praised the Taliban’s formation of an interim government as a “necessary step for Afghanistan to restore domestic order and pursue post-war reconstruction.” 201 Despite these overtures,
many experts have assessed China’s cooperation with the Taliban
to be reluctant at best, particularly given China’s campaign against
Uyghur Muslims in Xinjiang. At the same time, the Taliban will
likely seek to “assuage China’s concerns” and are “eager to secure
Beijing’s acquiescence to their rule” in an effort to obtain greaterinternational legitimacy.202
China also maintained positive relations with neighboring Pakistan. In June 2021, Foreign Minister Wang announced that China,
Afghanistan, and Pakistan had agreed to support the “substantial
expansion” of BRI in Afghanistan and expressed interest in extending the China-Pakistan Economic Corridor into the country.203 In
July, Prime Minister Imran Khan supported the Chinese government’s actions in Xinjiang and lauded the CCP for providing theworld a “better alternate governance model” superior to the democratic system of “Western” countries.204
China also expanded its diplomatic engagement with other Central Asian countries. On May 12, Foreign Minister Wang hosted foreign ministers from Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan for the second Foreign Ministers Meeting of a
new China-led grouping called “China + Central Asia” (C+C5).* The* The first C+C5 Foreign Ministers Meeting convened by videoconference in July 2020. The
membership of the C+C5 grouping overlaps considerably with the original membership of the
Shanghai Cooperation Organization, an organization founded between China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan in 2001. China initially used the Shanghai Cooperation Organization as a framework to deepen cooperation with Central Asian states without
arousing a defensive reaction from Russia, which considered post-Soviet states its sphere of influence. In contrast, the C+C5 grouping is notable for Russia not being a member. China Foreign
Ministry, Wang Yi Talks about Eight-Point Consensus and Ten Outcomes of “China + Central
Asia” Foreign Ministers’ Meeting, May 12, 2021; Casey Michel, “It’s Official: India and Pakistan
Join Shanghai Cooperation Organization,” Diplomat, June 12, 2017; China Daily, “History ofDevelopment of SCO,” June 12, 2006; Edward Lemon, Research Assistant Professor, Texas A&M

310group released statements outlining plans for increased cooperationin the economic and security domains and pledged mutual supportof each other’s “core interests,” likely reflecting China’s desire to prevent Central Asian states from criticizing it on issues it considers
sensitive, such as Taiwan and Xinjiang.205 The countries also discussed increasing security cooperation under the framework of BRI,
creating a new initiative under the project they termed the “SafeSilk Road.” * In particular, they pledged to increase counterterrorism
efforts in light of the evolving situation in Afghanistan.206
Chinese Coercion Prompts Indo-Pacific Countries to Strengthen
Ties with the United States
China’s increasing use of coercion in the Indo-Pacific promptedenhanced efforts by countries in the region to balance against China’s aggressive tactics. A key country leading these efforts was Japan, whose relationship with China continued to deteriorate overthe past year. In February 2021, Japan’s government canceled an
anticipated state visit by General Secretary Xi, which would havebeen the first official visit by a CCP general secretary to Japan
since 2008.207 Japan’s government had already postponed a visit in2020 due to concerns over the COVID-19 pandemic.208 At that time,
Japan’s ruling Liberal Democratic Party urged the government tocancel the visit altogether given “grave concerns” about “the principles of freedom, human rights, [and] democracy.” 209 Some Japaneselawmakers continued to politically oppose the state visit in 2021.210
While Japan’s government did not announce that General Secretary
Xi’s visit was cancelled for these reasons, the announcement that hewould not visit Japan in 2021 was nonetheless a high-profile sign oftensions in the China-Japan relationship.
Meanwhile, China continued escalating its military coercion in
Japanese airspace and waters. In 2021, Chinese government ships
set the longest recorded streak of 112 consecutive days sailing in thecontiguous zone † of the Japan-administered Senkaku Islands.211 In
University, interview with Commission staff, August 6, 2020; Michael Yahuda, “China’s Relations
with Asia, Continuity amid Change,” in David Shambaugh, ed., China and the World, Oxford University Press, January 30, 2020, 283; Zhao Huasheng, “China’s View of and Expectations from theShanghai Cooperation Organization,” Asian Survey 53:3 (2013): 436–460, 436–437; China Foreign
Ministry, Wang Yi Talks about Eight-Point Consensus and Ten Outcomes of “China + Central Asia”
Foreign Ministers’ Meeting, May 12, 2021; China Ministry of Foreign Affairs, Foreign Ministry
Spokesperson Hua Chunying’s Regular Press Conference on July 17, 2020. July 17, 2020.
* Creating a “Safe Silk Road,” according to Foreign Minister Wang, would entail cooperation
between China and Central Asian nations to address a number of security challenges, includingtransnational organized crime, illicit drugs, and cybersecurity, in addition to protecting “largescale activities . . . projects . . . personnel and facilities.” China’s ambitions to step up security cooperation with Central Asian countries stem from concerns of a resurgence of terrorism in Afghanistan amid the withdrawal of U.S. troops and the potential threat to regional projects that arepart of the BRI. China Foreign Ministry, Wang Yi Hosts “China + Central Asia” Foreign Ministers’Meeting, May 12, 2021; Rachel Zhang, “China Seeks to Expand Belt and Road to Afghanistan
in Name of Security as US Withdraws Troops,” South China Morning Post, June 4, 2021; Rachel Zhang, “China Looks to Central Asia on Security to Create ‘Safe Silk Road,’ ” South China
Morning Post, May 14, 2021; Economic Times, “China Foresees Threat to BRI Projects amid US
Drawdown from Afghanistan,” May 16, 2021.
† Under international law, coastal states are entitled to territorial seas, which extend up to
12 nautical miles from their baseline, such as a continental shelf, and a contiguous zone, which
extends up to 24 nautical miles from that baseline. Within their contiguous zones, states may
exercise control needed to prevent infringement of laws within their territorial seas. The 2021
record of days Chinese government ships stayed in Japan’s contiguous zone exceeds the record
set in 2020 by a single day, demonstrating China’s trend of setting, then exceeding, such records
on an annual basis since 2019. Prior to 2019, the record for the longest streak of consecutive days
Chinese government ships sailed around the Senkaku Islands was in 2013. U.S. National Oceanicand Atmospheric Administration, Maritime Zones and Boundaries, July 7, 2021; Japan Times,

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March, the PLA Navy sent a Type 055 (RENHAI) warship throughthe Sea of Japan for the first time, which a Global Times article
suggested was in response to a U.S.-Japan joint statement that “seriously provoked China” by emphasizing the importance of stability in the Taiwan Strait.212 One month later, the PLA Navy sailed
its Liaoning carrier group through the Miyako Strait, leading someexperts to assess that the PLA is signaling to Japan its ability to“punch through” the First Island Chain.213
Japan also grew more vocal in its support for Taiwan. In addition to referring to the importance of stability in the Taiwan Strait
during a summit between President Biden and then Japanese Prime
Minister Suga Yoshihide in April 2021, Japan for the first time stated the same in a joint statement with the EU and in its annual
defense white paper.214 In June, the Financial Times reported thatin 2020 U.S. and Japanese military officials “began serious planning
for a possible conflict” against China over Taiwan.215 In July, Japan’s Deputy Prime Minister Taro Aso was even more explicit in describing the importance of Taiwan to Japan, stating that an attack
on Taiwan may also be a “threat to Japan’s survival,” in which case
“Japan and the U.S. must defend Taiwan together.” 216 In August,Japan’s ruling Liberal Democratic Party announced plans to initiate a security dialogue with Taiwan’s ruling Democratic Progressive
Party, noting the talks were requested by the Japanese side.217 (Formore on Japan’s growing engagement with Taiwan, see Chapter 4,“A Dangerous Period for Cross-Strait Deterrence: Chinese Military
Capabilities and Decision-Making for a War over Taiwan.”)Japanese Policy and Public Opinion Harden against China
Japan’s government suggested it was preparing to take historic
steps to increase defense spending in the face of mounting pressure
from China. In May 2021, the Liberal Democratic Party proposedthat Japan “drastically increase” its defense budget in response to
China’s coercive behavior in the region.218 In June, Japan’s Ministryof Defense announced it had shed its self-imposed cap of spending no more than one percent of Japan’s gross domestic product on
defense.219 Following Prime Minister Suga’s resignation from officein September, Japan’s Ministry of Defense announced it would review the country’s core national security guidelines, citing the factthat the security and technological environment in the region had“changed significantly” since Japan formulated its first national security strategy in 2013.220 Fumio Kishida, who took office as Japanese prime minister in October, has supported Japan’s shift toward
a more proactive foreign and defense policy. During his campaign,
Prime Minister Kishida called for Japan to stand up for universal
values and human rights “in the face of the expansion of authoritarian regimes like China” and to develop the capability to strike
Chinese missile bases in response to a hypothetical PLA attack.221
Japan’s policy changes align with the Japanese public’s growing
support for a more proactive foreign and defense policy. A Nikkei
poll taken in April 2021 found that 74 percent of Japan’s public sup“Chinese Ships Sail near Senkakus for Record 112 Straight Days,” June 5, 2021; Shun Niekawa,“Chinese Ships Set 65-Day Record for Closing in on Senkaku Waters,” Asahi Shimbun, June 17,
2020; Caitlin Doornbos and Hana Kusumoto, “Japan Reports a Record Number of Chinese Ships
near Contested Senkaku Islands,” Stripes, December 3, 2019.

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ports the government taking an active role in cultivating stability in
the Taiwan Strait.222 Similarly, a Japan Ministry of Foreign Affairs
poll taken in March found that 69 percent of respondents wanted
Japan’s government to take a “strong stance” against China Coast
Guard ships entering Japan’s waters.* 223
The Quad Takes New Steps
Other counterbalancing efforts were led by countries comprising
the Quadrilateral Security Dialogue, or Quad (the United States,
Australia, India, and Japan) and included other participants fromthe region. In a historical first, the Quad countries’ heads of government met in March 2021, producing a joint statement affirming their commitment to “a free, open rules-based order, rooted
in international law” that will “counter threats to [security andprosperity] in the Indo-Pacific and beyond.” 224 The leaders further committed to regular senior level meetings and held theirfirst in-person summit at the White House in September, releasinga joint statement recommitting to a vision of a rules-based order“undaunted by coercion.” 225 The Quad countries maintained a regular dialogue with vice foreign ministers of New Zealand, South
Korea, and Vietnam, a grouping outside observers called the “Quadplus,” meeting 15 times between March 20, 2020, and March 19,
2021.226
The Quad partnership addressed a broad range of issues. The
joint statement following the Quad summit in March noted that
future objectives for the group included delivering COVID-19 vaccines, collaborating on international standards for technology, andleading efforts to address climate change.227 Following their summit in September, Quad leaders additionally committed to advancesecure and transparent 5G and “beyond-5G” networks and to securesupply chains of critical technologies and materials such as semiconductors.228 Quad countries also stepped up cooperation between
their space programs. In October 2020, a U.S.-India joint statement
announced the two countries would begin sharing space situationalawareness information.229 In early 2021, the India Space Research
Organization also signed agreements with the Australian Space
Agency and Japan Aerospace Exploration Agency to increase cooperation on space-related issues.230
Chinese leaders and scholars were critical of the Quad’s growth.
Immediately after the March summit, China’s Foreign Ministry
spokesperson Zhao Lijian described the grouping as an “exclusive
clique” that he warned “will neither receive a welcome nor have itsway.” 231 In May 2021, China’s ambassador to Bangladesh warned
his host country’s officials that any future collaboration with the
Quad would “substantially damage” the China-Bangladesh relationship.232 In June, President Biden mentioned that General Secretary
Xi had urged him previously to refrain from working with Quadcountries.233 In response to the Quad’s cooperation, China indicatedit might seek to deepen its own security relationships in the region.
* In one illustration of Japan’s changing approach to China, the cover of the Ministry of Defense’s annual defense white paper depicted an armored samurai mounted on a charging horse.
In contrast, in 2020 the defense white paper’s cover had depicted an idyllic scene of Mount Fuji.
Ken Moriyasu, “A Tale of Two Covers: Japan’s Message on Taiwan Draws US Notice,” Nikkei
Asia, July 21, 2021.

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In a May 2021 interview, Pakistan’s Foreign Minister Shah Mahmood Qureshi hinted at one such possibility, suggesting decisions onplans for a PLA Navy base in Pakistan “depends on how the Quadturns out.” 234
Problems Linger from China’s Deadly Clash with India
Unresolved tensions from the deadly 2020 clash between the PLA
and the Indian Armed Forces continued to shape both countries’
policies in 2021. The fatal border clash and following standoff were,according to a former Indian security official, a “very fundamental
change” that drove revisions in India’s “whole policy and discoursearound China.” 235 In a February 2021 interview, Indian Army Lieutenant General Y K Joshi said India was “absolutely on the brink”
with the PLA in August 2020.236 Satellite imagery showed Indianand PLA tanks fewer than 500 feet apart at that time.237 In an
April 2021 speech to Chinese and Indian scholars, Indian Ambassador to China Vikram Misri noted an “inadvisable” tendency among
Chinese diplomats “to sweep [the border conflict] under the carpet
and characterize it as just a minor issue,” which he warned was“tantamount to running away from the problem.” 238 In the same
speech, the ambassador said sustained dialogue and “complete disengagement in all friction areas” would be a necessary first step
toward “restoring trust and confidence in the relationship . . . thatwas damaged through last year’s actions.” 239
Chinese and Indian forces disengaged at two of four standoff locations along their disputed border in 2021, but limited discussions
on troop withdrawal make further disengagement uncertain.240 In
August, an unusually large patrol of over 100 PLA troops entereddisputed territory in the Indian state of Uttarakhand, emerging
from multiple locations to venture several miles into territory administered by India before departing after three hours.241 Both militaries are hardening their positions along the disputed border beyond the existing standoff locations. China has taken a new step inbuilding “militarized village[s]” that position electronic warfare andair defense stations close to India.242 It constructed several of thesevillages in neighboring Bhutan, which researcher Robert Barnett
describes as part of an effort to “force the Bhutanese government
to cede territory that China wants elsewhere in Bhutan to give Beijing a military advantage in its struggle with New Delhi.” 243 The
militarized villages are part of China’s “Plan for the Construction ofModerately Well-Off Villages in the Border Area of the Tibet Autonomous Region,” which describes building 628 such villages near thecontested border between 2017 and 2020 under the guise of “poverty
alleviation.” 244
Shortly after the 2020 border dispute and continuing through2021, PLA cyberespionage and other Chinese state-sponsored organizations significantly increased their attacks on targets in India.
One Chinese group, using techniques and resources similar to thoseof hackers affiliated with the PLA and Ministry of State Security,
launched a “concerted campaign against India’s critical infrastructure,” targeting at least ten regionally important nodes in India’s

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power grid and two sea ports with cyberattacks.* 245 These attacks
may have caused blackouts throughout India, including a blackouton October 13, 2020, in Mumbai that stopped trains and forced hospitals to rely on generators.246 At the time, local Indian media reported the cyber department in Maharashtra, the Indian state inwhich Mumbai is located, discovered malware that may have caused
the power outage.247 Analysts at U.S. cybersecurity company Recorded Future also uncovered evidence suggesting a coordinated cyberattack took place against India’s power grid at the time of the power
failure.248 Responding to the Recorded Future report, in March 2021
India’s Ministry of Power denied any power disruption “due to thereferred threat” in a statement that declined to mention the Mumbai outage.249 In the first six months of 2021, another group closely
affiliated with PLA cyberespionage units heavily targeted Indian
aerospace companies, defense contractors, and telecommunications
providers.250
New Steps toward Decoupling from Chinese Technology
In 2021, India also expanded its 2020 policies to selectively restrict Chinese companies’ access to the country’s 5G and data markets. India’s Ministry of Communications did not include any Chinese companies in its May 2021 announcement listing participants
selected to join trials to extend 5G network coverage in India.251 In
addition, India’s Ministry of Electronics and Information Technology
announced the government’s previously temporary ban on 59 Chinese smartphone applications was now permanent, citing privacy
concerns.252
Australia Rebuffs China’s Demands for Policy Changes
China unsuccessfully sought to compel Australia to make key policy concessions on more than a dozen matters ranging from Australia’s domestic freedom of expression to its international advocacy
for an independent COVID-19 investigation, leading Australian perceptions of China to crater.253 The Chinese Embassy attempted topressure Canberra in November 2020 by leaking an official list of 14
grievances Beijing told Canberra were “poisoning” Australia-China
relations.254 The list claimed the bilateral relationship could be improved only if Australia changed its stance on many internal policy
matters, such as by repealing Australia’s antiforeign interference
laws, effectively demanding Canberra make it easier for agents offoreign influence to subvert its politics.† 255
Peter Jennings, executive director of the Australian Strategic Policy Institute, which Beijing also criticized in its list of complaints,
testified to the Commission in January 2021 that China “seems tohave dispensed with any pretense toward friendly relations” with* These attacks may have been partially enabled by information Chinese hackers stole throughMicrosoft Exchange. Since 2017, Chinese hackers have been targeting foreign ministries andenergy companies, including India’s Hindustan Petroleum Corp., accumulating five gigabytes ofstolen data consistent with what Chinese state-sponsored hackers have previously targeted. The
same trove of stolen data also includes information from Malaysia’s Petronas Nasional Berhadenergy company and documents from the foreign ministries of Bahrain, Egypt, Iraq, Jordan,Oman, and Turkey. Kartikay Mehrotra, “Microsoft Exchange Used to Hack Diplomats before 2021
Breach,” Bloomberg, August 4, 2021.
† For details on the anti-foreign interference laws, see U.S.-China Economic and Security Review Commission, 2018 Annual Report to Congress, November 2018, 325–326.

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Australia.256 Negative perceptions of China among Australians haveincreased fivefold in just three years as General Secretary Xi’s treatment of Australia has “lost the Australian heart and mind for a generation,” according to Mr. Jennings.257 An annual poll by Australia’s
Lowy Institute found in 2021 that 63 percent of Australians now
see China as “more of a security threat to Australia” than an economic partner, which is up from 41 percent in 2020 and 12 percent
in 2018.258 Australian Prime Minister Scott Morrison said in June
2021 that his government is ready to resume constructive dialogue
with Beijing to resolve the “completely unconscionable” Chinese
trade sanctions on Australian goods, but Beijing has not responded
to overtures.259
Canberra used new powers in 2021 to prevent Victoria State frompursuing its own agreements with China, completing a saga begun
when Victoria signed its own BRI memorandum of understanding in
2018. Following criticism of the 2018 BRI memorandum and a subsequent 2019 framework agreement, the Australian Parliament in
December 2020 approved a bill giving the foreign minister veto power over state and local agreements with foreign countries to ensure
such agreements do not harm Australia’s interests.260 When Foreign
Minister Marise Payne then canceled Victoria’s BRI agreements
along with two other unrelated deals * in April 2021, the Chinese
Embassy voiced “strong displeasure and opposition” even thougha spokesperson for China’s Ministry of Foreign Affairs had earlier
called the legislation an “internal affair” for Australia.261 Australia’s
creation and use of this new oversight tool marked a significant
setback for the CCP’s strategy of using subnational diplomacy to
bypass national governments by directly incentivizing local governments to adopt policies favorable to China’s interests. (For more on
the CCP’s strategy of subnational diplomacy, see Chapter 1, Section
2, “China’s Influence in Latin America and the Caribbean.”) 262
Australia, the United States, and the UK also jointly announced
a trilateral security pact in September 2021 that most observers
perceived as a move to counterbalance China.263 Under the pact,
known as AUKUS, the United States and the UK agreed to help
Australia acquire a nuclear-powered submarine fleet by sharing advanced technology for nuclear propulsion.264 Such a fleet will enhance the three countries’ interoperability and efforts to counter
Chinese military expansion across the Indo-Pacific.265 The pact will
also strengthen U.S., UK, and Australian technological cooperationin cyber, artificial intelligence, quantum technologies, and other underseas capabilities.266
Cracks Widen between China and Southeast Asia
In 2021, China’s diplomatic achievements fell short of its ambitions in Southeast Asia. This year marked the 30th anniversary of
the China-ASEAN relationship. In anticipation of the anniversary,
China’s Ministry of Foreign Affairs announced two major diplomatic* The four Victoria State agreements canceled under the Foreign Arrangements Scheme werea 2004 memorandum of understanding on technical and vocational training with the Islamic
Republic of Iran, a 1999 scientific cooperation agreement with the Syrian Arab Republic, a 2018
Belt and Road Initiative Memorandum of Understanding with China’s National Development
and Reform Commission, and a 2019 Belt and Road Initiative Framework Agreement with the
National Development and Reform Commission. Senator the Hon Marise Payne, Decisions under
Australia’s Foreign Arrangements Scheme, April 21, 2021.

316
goals. First, it sought to elevate what it called the China-ASEAN“strategic partnership” to a “comprehensive strategic partnership,”a higher level of cooperation in China’s diplomatic parlance.267 Second, it wanted to complete long-ongoing negotiations over a South
China Sea Code of Conduct.* 268 Alexander Vuving, a researcher
with the Daniel K. Inouye Asia-Pacific Center for Pacific Studies,
noted that China’s diplomatic corps exerted “maximum pressure” on
Southeast Asian countries to meet this 2021 goal.269
China’s diplomats did not achieve either objective. The jointstatement concluding the June 7 Foreign Minister’s Meeting only
reaffirmed the China-ASEAN “strategic partnership” and made no
mention of the Code of Conduct despite the 2020 joint statement’s
acknowledgment of progress in Code of Conduct negotiations.270
Following the 2021 meeting, an ASEAN diplomat reportedly said
China’s target for completing the Code of Conduct “has become more
flexible” and that negotiations will extend into 2022.271 China’s diplomatic shortcomings with ASEAN are likely related to a simultaneous recognition and growing distrust of Chinese power in Southeast
Asian countries. An annual survey of Southeast Asian policymakers
and civic leaders found that 76 percent of respondents considered
China to have the most economic influence in the region, but ofthese, 72 percent said it was a worrying development rather than awelcome one.272 Similarly, 49 percent of respondents said China had
the most strategic-political influence in Southeast Asia, but of these,
89 percent said that was a worrying development.273
New Chinese Provocations Elicit Opposition in the South China Sea
Throughout 2021, Chinese military and paramilitary forces continued to assert illegal maritime claims over much of the South
China Sea. Among these incidents, China regularly singled out Malaysia and the Philippines, souring China’s relationship with bothcountries.† In November 2020, China Coast Guard ships began harassing a drilling rig and accompanying ships operating in Malay* Chinese leaders consider the Code of Conduct a significant opportunity to set rules defining
permissible activities in the South China Sea. Other South China Sea claimants, including Indonesia, Malaysia, the Philippines, and Vietnam, support the UN Convention on the Law of the
Sea’s (UNCLOS) authority on permissible activities and for settling international disputes. Many
South China Sea disputes not involving China do not rise to the level of international tribunals.
In 2021 alone, Malaysia signed maritime cooperation agreements with Vietnam and Brunei, coordinating rather than competing in their overlapping claims. A Code of Conduct negotiated aside
from UNCLOS would support China’s ambitions to selectively ignore international agreements.
Malay Mail, “Malaysia, Vietnam Expected to Ink MoU on Maritime Security This Year, Says
MMEA D-G,” April 5, 2021; Dawn Chan, “Malaysia, Brunei Agree to Jointly Develop Oilfields
Straddling Common Maritime Border,” New Straits Times, April 5, 2021; Viet Hoang, “The Codeof Conduct for the South China Sea: A Long and Bumpy Road,” Diplomat, September 28, 2020.
† Both Malaysia and the Philippines have recently taken steps against China’s illegal maritime
claims in the South China Sea. In December 2019, Malaysia submitted information to the UN
about the limits of its continental shelf, claiming an expanded EEZ within the South China Sea
pursuant to UNCLOS. In 2016, the Philippines won a unanimous award before an international
tribunal declaring that China’s expansive maritime claims in the South China Sea has no basis.
In March 2020, the Philippines cited the ruling to declare China’s expansive maritime claims
illegitimate. China’s coercive behavior is driven by its desire for the maritime resources within
its unlawful claims and as a means of deterring countries from appealing to international law.
Darryl John Esguerra, “On 4th Anniversary of Arbitral Win vs. China, PH Insists Award ‘Non-Negotiable,” Inquirer, July 12, 2020; United Nations Division for Ocean Affairs and the Law of theSea, “Commission on the Limits of the Continental Shelf (CLCS) Outer Limits of the Continental
Shelf beyond 200 Nautical Miles from the Baselines: Submissions to the Commission: Partial
Submission by Malaysia in the South China Sea,” June 19, 2020; United Nations, “Malaysia Partial Submission to the Commission on the Limits of the Continental Shelf Pursuant to Article 76,
Paragraph 8 of the United Nations Convention on the Law of the Sea 1982 in the South China
Sea,” December 12, 2019.

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sia’s EEZ only 44 nautical miles off Malaysia’s coast, the closest
to shore such harassment had been recorded and escalating a pattern of harassment of Malaysian ships that began in late 2019.274
In June 2021, 16 PLA IL-76 and Y-20 transport aircraft, sufficient
military airlift to carry an airborne battalion with its combat equipment,* flew within 60 nautical miles of Luconia Shoals, a feature
Malaysia administers but China includes within its illegal maritime claims.275 Malaysia reported the PLA aircraft flew in “tacticalformation” and were unresponsive to repeated requests for contactfrom regional air traffic control, which conveyed a clear threat regardless of whether any PLA troops were actually embarked.276 The
PLA flight occurred shortly after Malaysia’s state-owned oil and gas
company finished transporting materials to build a drilling platformin the same location.277
The unusually provocative nature of the flight appeared to drive
Malaysia to adopt new policies pushing back against China.278 Malaysian Foreign Minister Hishammuddin Hussein, who earlier in
2021 said to Chinese Foreign Minister Wang “you will always be myelder brother,” called the event a “breach” of “Malaysian airspaceand sovereignty.” 279 Two days after the event, Malaysia requested
bids for a long-range air surveillance radar that would improve its
aerial detection and tracking capabilities.280 On July 1, Malaysia
announced it would partner with Ericsson to develop its 5G network
despite appearing to favor China’s Huawei in 2020.† 281
China’s aggressive maritime activity also pushed the Philippines to adopt a more confrontational approach to China in 2021.
On March 20, the Philippines’ National Task Force for monitoring
South China Sea activities reported that approximately 220 Chinese
fishing vessels, later confirmed to be maritime militia,‡ were mooredwithin the Philippines’ EEZ at Whitsun Reef.282 Over the following
week, the Philippines ordered navy patrols around Whitsun Reef
and filed a diplomatic protest, while Australia, Canada, Japan, theUK, the United States, and Vietnam each voiced support.283 Shortly thereafter, much of China’s maritime militia dispersed to otherareas within or just outside the Philippines EEZ, leaving a muchsmaller contingent of vessels behind.284
Meanwhile, China’s maritime forces escalated their harassment
activities near other features both China and the Philippines claim.
* According to Air University China Aerospace Studies Institute Director of Research Roderick Lee, 16 IL-76 and Y-20 aircraft would be able to deliver an airborne battalion, two artillery
companies, and over one dozen lightly armored infantry transport vehicles. Roderick Lee (@roderick_s_lee), “Some context about what “16 aircraft” translates into (assuming they’re all Y-20s/IL76s): That’s enough to deliver a full PLAAF Airborne light combined arms battalion, a howitzer
company, rocket artillery company, 12–15 Mengshis as prime movers, and associated supplies.”
Twitter, June 1, 2021, 2:12 p.m.
† Speaking in 2019, then Malaysian Prime Minister Mahathir Mohamad said Huawei “can spy
as much as they like because we have no secrets.” Tashny Sukumaran, “Malaysia’s Mahathir
Backs Huawei, Snubbing US Blacklist of Chinese Telecoms Giant,” South China Morning Post,
May 30, 2019.
‡ In addition to its navy and coast guard, China operates the People’s Armed Forces Maritime
Militia, a paramilitary force composed of armed civilians and their vessels, most of which arefishing boats. According to Naval War College professor Andrew Erickson and research associate Conor Kennedy, China’s maritime militia is a “state-organized, -developed, and -controlled
force operating under a direct military chain of command to conduct Chinese state-sponsoredactivities,” which are typically provocations and skirmishes with sailors from other countries in
the South China Sea. Conor M. Kennedy and Andrew S. Erickson, “China’s Third Sea Force, thePeople’s Armed Forces Maritime Militia: Tethered to the PLA,” China Maritime Studies Institute,March 2017, 2.

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On April 9, PLA Navy Type 022 (HOUBEI) fast attack craft repelled
Philippines reporters approaching Second Thomas Shoal, which is afeature the Philippines administers.285 Later that month, the Philippines Coast Guard accused China Coast Guard boats of “shadowing, blocking, dangerous maneuver, and radio challenges” near
Scarborough Shoal.286 In May, the Philippines reported incursions
by 287 Chinese maritime militia vessels in its EEZ.287 Philippines
President Duterte publicly declared that China’s actions are psychological operations intended “just to show the Filipino that no matter
how many times we go back there, nothing will happen because weare not in possession of the sea, it’s with them.” 288 Rejecting China’s
false narrative, the Philippines responded to China’s escalations bydispatching at least 13 vessels to conduct 57 patrols in the South
China Sea from March through May 2021, escalating from threevessels conducting seven patrols across the ten months prior.289
In July, President Duterte reversed his 2020 decision to terminate
the Philippines’ Visiting Forces Agreement with the United States,
which authorizes the rotational deployment of thousands of U.S.
forces into the Philippines.290
U.S. Partners Grow their Military Presence in the South China Sea
This year, Southeast Asian countries hedged against China’s rising
power by continuing to build defenses in the South China Sea andby increasing military engagements with countries like India, Japan, and Australia in addition to the United States. The Philippines
began building a logistics base and improving its maritime monitoring facilities on Thitu Island, which is only 12.4 nautical miles from
China’s military base on Subi Reef.* 291 Vietnam continued its own
artificial island-building in the Spratlys, developing coastal defense
installations able to host anti-air missiles and the country’s EXTRA
artillery system (a precision-guided rocket system with the range tostrike all of China’s bases in the Spratlys).292 Indonesia collaborated
with the United States to build a maritime training center at theentrance to the Malacca Strait where the Indonesian Coast Guard
will operate the center alongside U.S. agencies, including U.S. Indo-Pacific Command.293 Several Southeast Asian countries also increased their defense industry coordination with Quad countries. In
2021, Indonesia and India signed an agreement to jointly develop
new naval vessels and technologies, replicating an agreement India
already has with Malaysia and Vietnam.294 Vietnam also signed adefense agreement with Japan to acquire Japanese naval radar andsurveillance equipment.295
U.S. security partners also began increasing their naval activity
in the South China Sea. In February 2021, France deployed a nuclear attack submarine to patrol the South China Sea.296 French Defense Minister Florence Parly called the patrol “extraordinary” and“striking proof of our French navy to deploy far away and for a long
* In recent years, the Philippines had generally avoided repairs and upgrades to its facilities on
Thitu Island due to Chinese pressure. The most visible expression of that pressure has been thepresence of Chinese maritime militia vessels in the area. From December 2018 to March 2020,
dozens of Chinese maritime militia vessels surrounded Thitu Island, tacitly threatening Philippine leaders against developing the feature further. Likely as a result, Philippines leaders often
delayed ongoing construction projects. Asia Maritime Transparency Initiative, “The Long Patrol:
Staredown at Thitu Island Enters Its Sixteenth Month,” Center for Strategic and International
Studies, March 5, 2020.

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time, together with our Australian, American and Japanese strategic partners.” 297 In April, the UK deployed a carrier strike group tojoin exercises with countries in Southeast Asia as it transited theSouth China Sea.298 In May 2021, the UK First Sea Lord announced
that two offshore patrol vessels will be permanently stationed in the
Indo-Pacific, with frigates to join in the future.299 India and Germany both followed suit in August 2021, with Germany sending afrigate into the South China Sea for the first time since 2002 andIndia sending a destroyer, a frigate, and two other ships.300 When
asked by a Chinese reporter about the UK deployment, Wu Shicun,president of the Ministry of Foreign Affairs-affiliated National Institute for South China Sea Studies, suggested firing warning shots at
the British ships, citing reports that Russian forces had fired in thepath of a UK destroyer in the Black Sea in June.301
China Undermines International Response to the Military Coup in BurmaOn February 1, 2021, Burma’s military launched a coup d’étatand detained President Win Myint, State Counsellor Aung San
Suu Kyi, and other senior government officials while launching
sweeping crackdowns across the country.302 As of October 6, security forces have arrested 8,770 Burmese citizens and foreign
advisors and killed 1,158 people.303 Hostilities in Burma may escalate further after some ousted civilian officials assembled toform a National Unity Government, which on September 7, 2021,
announced a “defensive war” calling on armed civilians to target
Burma’s military and its assets.304
Chinese leaders continue to hedge between Burma’s military
and the country’s ousted civilian government. Undermining international efforts to restore Burma’s civilian government, Chinesestate media characterized the February coup as a “major cabinet
reshuffle,” and China and Russia blocked a UN Security Council statement condemning the coup before later signing on to astatement condemning “violence against peaceful protestors.” 305
As violence in Burma raged on, however, China closed its 1,320mile border with Burma in July 2021 and agreed with the UnitedStates in September to block Burma’s military government fromaddressing the UN General Assembly that month.306 Meanwhile,
Chinese officials have maintained relations with Burma’s ousted
civilian leaders. In August 2021, Chinese officials reportedly told
Burma’s military government that the former civilian government should continue to exist as a political party, which Chinese
leaders reinforced by inviting the ousted leaders and three Burmese political parties to an online summit to discuss economic
development.307
Developments on the Korean Peninsula
China worked to enhance its diplomatic ties with North Korea following a decrease in bilateral engagement since the outbreak of the
COVID-19 pandemic. In celebration of the founding of the Korean
Workers Party in October 2020, General Secretary Xi sent a mes-

320sage to North Korean leader Kim Jong-un applauding his “strong
leadership” and emphasizing China’s willingness to strengthen bilateral ties.308 In April 2021, China appointed senior diplomat Liu
Xiaoming, a former ambassador to the UK known for his outspoken
views on U.S.-China relations, as its special representative on Korean Peninsula affairs, where he will oversee Beijing’s relationshipwith both Pyongyang and Seoul.309 According to one analyst, his appointment reflected Chinese leaders’ view of the growing importanceof North Korea and the broader Korean Peninsula in the context
of an increasingly competitive U.S.-China relationship.310 The twocountries’ leaders also exchanged messages to celebrate the 60th
anniversary of the China-North Korea Treaty of Friendship, Cooperation and Mutual Assistance in July 2021.* 311
China has also made efforts to strengthen bilateral relations with
South Korea amid concerns over developments in the U.S.-South Korea alliance. In January 2021, President Moon Jae-in announced his
intention to elevate bilateral ties to “a new height” and expressed
his hopes to host General Secretary Xi in Seoul sometime thisyear.312 Nevertheless, an October 2020 Pew poll showing 75 percent
of South Koreans had either somewhat unfavorable or very unfavorable views of Beijing reflected the limits of China’s influence inSouth Korea.† 313 China also expressed concerns over South Korea
potentially joining the Quad, with one Global Times article warningthat South Korea joining the group would “inevitably damage thejust restored strategic mutual trust between China and South Korea . . . . If Seoul joins the Quad, it will destroy such mutual trust.” 314
In May 2021, the U.S. terminated an agreement limiting the rangeof South Korea’s ballistic missiles, prompting Chinese concerns thatthe extension would now allow South Korean missiles to reach Beijing.‡ 315
An Increasingly Adversarial U.S.-China Relationship
Tensions between the United States and China continued throughthe change in U.S. presidential administrations in 2021. China’s coercion against U.S. allies and partners like Australia and Taiwan,* The China-North Korea Treaty of Friendship, Cooperation and Mutual Assistance was signed
in 1961 and formally stipulates the two countries’ defense obligations to each other. The treaty is up for renewal every 20 years, with the two sides last renewing the treaty in 2001. In
July 2021, Chinese Foreign Ministry Spokesperson Wang Wenbin stated the treaty “remains inforce unless agreement is reached on its amendment or termination.” Although Kim Jong-un
has pledged to further strengthen relations with China, the North Korean government has not
yet publicly reaffirmed the treaty. Ministry of Foreign Affairs of the People’s Republic of China,
Foreign Ministry Spokesperson Wang Wenbin’s Regular Press Conference on July 7, 2021, July 7,2021; Global Times, “China-North Korea Friendship Treaty ‘Remains in Effect’ All the Time: FM
Spokesperson,” Global Times, July 7, 2021; Jagannath Panda, “How ‘Eternal’ Is the Sino-DPRK
Alliance?” 38North, June 30, 2021.
† A June 2021 joint survey from polling company Hankook Research and news magazine Sisa
IN showed similar results. According to the poll, South Koreans now view China more unfavorably than they view Japan, and they prefer the United States over China by a margin of six toone. Over 58 percent of respondents called China “close to evil,” while only 4.5 percent said China
was “close to good.” Choe Sang-Hun, “South Koreans Now Dislike China More Than They Dislike
Japan,” New York Times, August 20, 2021.
‡ The United States and South Korea signed a memorandum of understanding in October 1979
that restricted the maximum range and payload of South Korea’s ballistic missiles. The two countries had previously renegotiated these guidelines on multiple occasions to increase the range
and payload cap of South Korea’s missiles. Prior to its termination in May 2021, the agreement
had limited South Korean missiles to a range of approximately 500 miles. Yonhap News Agency,“Chronology of major events leading to abolishment of S. Korea-U.S. missile guidelines,” May 22,2021; Korea Times, “What South Korea is Facing with the New Missile Guideline,” September
7, 2020, 5.

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repression in Xinjiang and Hong Kong, and lack of transparency
over the origins of COVID-19 all drove new U.S. response measures.
In the final months of the Trump Administration, U.S. government agencies and high-level officials made statements that signaled significant shifts in U.S. policy toward China. In a December
2020 op-ed, then Director of National Intelligence John Ratcliffe
called China the “greatest threat to democracy and freedom worldwide since World War II.” 316 In January 2021, the U.S. Departmentof State declared the CCP to be committing acts of genocide against
the Uyghur people and other ethnic minorities in Xinjiang. China’s
response was vitriolic, with Chinese Foreign Ministry Spokesperson
Hua Chunying accusing then Secretary of State Michael Pompeo
of being a “notorious liar” and making himself into a “doomed
clown.” 317 Immediately after President Biden’s inauguration, theChinese government issued sanctions targeting U.S. officials purported to have “seriously violated China’s sovereignty,” including
former Secretary of State Pompeo and former National Security
Advisor Robert O’Brien.318 Also in January, the State Department
announced it would lift restrictions on official contacts between the
United States and Taiwan.* 319
Tensions Continue in the Biden Administration
Concerns over the growing national security threat from China
remained after the U.S. presidential transition. Chinese officials initially hoped for a reset in U.S.-China relations, with Chinese Foreign Minister Wang stating in January 2021 that bilateral ties had“come to a new crossroads” and that “a window of hope” was opening.320 Ministry of National Defense Spokesperson Senior Colonel
Wu Qian similarly described the two countries’ military-to-military
relationships as being “at a new historical starting point.” 321
Chinese officials’ hopes were diminished within the first few
months of the Biden Administration. In February 2021, the U.S.
Department of Defense announced it would be conducting a fourmonth task force review to assess the department’s current policies
and programs related to China.† In a March 2021 speech, Secretaryof State Antony Blinken called the U.S. relationship with China “the* The State Department under the Biden Administration issued new guidelines for interactions
between U.S. officials and their Taiwan counterparts in April 2021. The guidelines encourageworking-level meetings with Taiwan counterparts in U.S. federal buildings and at Taiwan’s offices in the United States such as the Taipei Economic and Cultural Representative Office. They
also allow U.S. officials under certain conditions to attend events at the Twin Oaks estate in
Washington, DC (the former residence of China’s ambassador to the United States between 1937
and 1979, retained by Taiwan after the U.S. change in diplomatic recognition). Meanwhile, theguidelines restore some restrictions that were lifted during the Trump Administration, such as
restricting the display of the Republic of China flag during meetings between U.S. officials andTaiwan’s representatives while in the United States. U.S. Department of State, New Guidelines
for U.S. Government Interactions with Taiwan Counterparts, April 9, 2021; Matthew Lee, “US Unveils New Rules for Government Contacts with Taiwan,” AP News, April 9, 2021; Robert Delaney,“US Announces New Policy Encouraging Government Ties with Taiwan Officials,” South China
Morning Post, April 10, 2021; Nick Wadhams, “U.S. Ease Limits on Taiwan Contacts as China
Tensions Climb,” Bloomberg, April 9, 2021; Demetri Sevastopulo, “US to Erase Restrictions on
Meeting Taiwanese Officials,” Financial Times, April 9, 2021; Reuters and David Brunnstrom,“U.S. Issues Guidelines to Deepen Relations with Taiwan,” Reuters, April 9, 2021.
† Final recommendations from the task force were submitted to Secretary of Defense Austin in
June 2021. It has since been reported that as result of the review, the Pentagon is considering
creating a permanent naval task force in the Pacific to better address the threat from China
in the region. Jim Garamone, “Biden Announces DOD China Task Force,” U.S. Department of
Defense, February 10, 2021; U.S. Department of Defense, Secretary of Defense Directive on China
Task Force Recommendations, June 9, 2021; Lara Seligman, “Pentagon Considering Permanent
Naval Task Force to Counter China in the Pacific,” Politico, June 15, 2021.

322
biggest geopolitical test of the 21st century.” 322 Continuing tensions
were also on display during the two countries’ initial high-level engagement in Anchorage, Alaska, later that month.* While the U.S.
delegation criticized China’s use of economic coercion and humanrights abuses in Xinjiang, Hong Kong, and Taiwan, top diplomat
Yang Jiechi attacked the United States’ “Cold War mentality” anddomestic political issues.323 Yang’s remarks, which ran for over fifteen minutes, led to a senior U.S. official stating that the Chinesedelegation “seem[ed] to have arrived intent on grandstanding, focused on public theatrics and dramatics over substance.” 324Open displays of U.S.-China frictions continued after the Anchorage Summit. Also in March, the Biden Administration reaffirmed
the previous administration’s May 2020 determination that Hong
Kong is no longer autonomous and does not deserve special treatment from the U.S. government.325 The State Department’s annual human rights report reaffirmed that China’s actions against the
Uyghurs and other ethnic minorities in Xinjiang constituted genocide.326 In April 2021, the Office of the Director of National Intelligence announced it would create the Foreign Malign Influence Centerto coordinate findings on foreign influence activities from countries,
including China and Russia.327 Chinese leaders undermined theirown efforts to improve bilateral military ties by denying Secretaryof Defense Lloyd Austin’s requests to meet with General Xu, hiscounterpart within the PLA hierarchy as executive vice chairmanof the Central Military Commission.† 328 Pentagon officials in the
Biden Administration and the PLA did not hold official talks until
August 2021, when Deputy Assistant Secretary of Defense for China Michael Chase spoke with PLA Major General Huang Xueping
using the U.S.-PRC Defense Telephone Link.‡ 329
In June 2021, the U.S. Senate’s passage of the U.S. Innovation andCompetition Act prompted the Chinese Foreign Ministry to retortthat the bill “distorts facts and slanders China’s development pathand its domestic and foreign policies.” 330 Prior to Deputy Secretaryof State Wendy R. Sherman’s July 2021 meeting with Chinese officials in Tianjin, Foreign Minister Wang warned that the Chinese
government would give the United States a “tutorial” on how totreat China equitably.331 In a move reminiscent of Beijing’s imposi* The two sides disagreed on how to label the discussion. Chinese Foreign Ministry spokesman
Zhao Lijian called the event a “high-level strategic dialogue,” whereas the U.S. side declined touse the strategic dialogue terminology. See Tsuyoshi Nagasawa and Tsukasa Hadano, “US andChina Play Mind Games over How to Frame Alaska Meeting,” Nikkei Asia, March 12, 2021.
† As the executive vice chairman on the Central Military Commission, Xu Qiliang is the PLA’s
top military officer and undertakes most duties that belong to the secretary of defense in the
United States. In his role as Central Military Commission chairman, General Secretary Xi has
the official responsibilities of commander-in-chief. By contrast, the Chinese Minister of National
Defense has little formal responsibility over the PLA and instead primarily interacts with foreign defense ministers. You Ji, “How Xi Jinping Dominates Elite Party Politics: A Case Study of
Civil-Military Leadership Formation,” China Journal 84, July 2020; Michael D. Swaine, “The PLA
Role in China’s Foreign Policy and Crisis Behavior,” in Phillip C. Saunders and Andrew Scobell,eds., PLA Influence on China’s National Security Policymaking, Stanford Security Studies, 2015,
144.
‡ The U.S.-PRC Defense Telephone Link is a secure military crisis notification mechanism established between the United States and China in 2008. The goals of this agreement include“prevent[ing] destabilizing escalation in times of crisis or tension.” The Defense Telephone Link
was used only four times between 2008 and 2014 until its use was regularized in 2016. U.S. Department of Defense, Annual Report to Congress Military and Security Developments Involving
the People’s Republic of China 2016, April 16, 2016. 96; U.S. Department of Defense, “Military
Crisis Notification Mechanism for Use of the Defense Telephone Link,” September 24, 2015; Robert Pape, “A Hotline to Cool Asian Crises,” Washington Post, April 29, 2014.

323
tions on Australia in late 2020, Chinese interlocutors proceeded toissue twin lists of demands during the meeting, including for theUnited States to lift visa restrictions for Chinese students and sanctions on CCP officials.332
In September 2021, following Huawei executive Meng Wanzhou’s
admission of wrongdoing in U.S. court and permission to returnto China, Beijing immediately released Canadian citizens Michael
Kovrig and Michael Spavor, whom it had detained shortly after Ms.
Meng’s arrest in 2018 and imprisoned for over 1,000 days.333 Beijing
also released U.S. citizens Victor and Cynthia Liu, whom it had prevented from leaving China for over three years.334 While the Chinese government had previously claimed there was no link between
Ms. Meng’s arrest and its detention of Canadian citizens or use ofexit bans against U.S. citizens, Beijing’s actions clearly demonstrated this linkage and its willingness to use hostage diplomacy against
the United States.

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ENDNOTES FOR SECTION 1
1. AP News, “Taiwan Says Trade Office with Guyana Now Off, Blaming China,”
February 5, 2021; Finbarr Bermingham, “China Halts Rail Freight to Lithuania as
Feud Deepens over Taiwan,” South China Morning Post, August 18, 2021.
2. Xinhua, “(International) State Councilor and Foreign Minister Wang Yi Is Interviewed by Media after Concluding Visit to Six Middle Eastern Countries -- China
Is Permanent and Reliable Strategic Partner of Middle Eastern Countries,” March
30, 2021.
3. Xinhua, “Xi Jinping: Speech at the Celebration of the Centenary of the Foundingof the Chinese Communist Party” (习近平: 在庆祝中国共产党成立一百周年大会上的讲话), July 1, 2021. Translation.
4. Xinhua, Xi Jinping: Speech at the Celebration of the Centenary of the Foundingof the Chinese Communist Party” (习近平: 在庆祝中国共产党成立一百周年大会上的讲话), July 1, 2021. Translation.
5. Xinhua, Xi Jinping: Speech at the Celebration of the Centenary of the Foundingof the Chinese Communist Party” (习近平: 在庆祝中国共产党成立一百周年大会上的讲话), July 1, 2021. Translation.
6. Chen Yixin (陈一新), “Chen Yixin: Party History Is the Best Textbook forStrengthening the Party, Governing, and Educating People” (陈一新：党史是强党资
政育人的最好教科书), China Changan, February 23, 2021; Sohu, “Where Is the New
Stage of Development New? Chen Yixin Explains from Eight Aspects” (新发展阶段新在哪里？陈一新从八个方面进行阐释), January 15, 2021. Translation; Guo Shengkun (郭声琨), “Building a Safer China of a Higher Level (Study and Implement the Spiritof the Fifth Plenary Session of the 19th Central Committee of the Party)” (建设更高水平的平安中国（学习贯彻党的十九届五中全会精神), People’s Daily, December 2, 2020.
Translation.
7. Sohu, “Where Is the New Stage of Development New? Chen Yixin Explains from
Eight Aspects” (新发展阶段新在哪里？陈一新从八个方面进行阐释), January 15, 2021.
Translation.
8. Xinhua, “Xi Jinping: Speech at the Celebration of the Centenary of the Foundingof the Chinese Communist Party” (习近平: 在庆祝中国共产党成立一百周年大会上的讲话), July 1, 2021. Translation.
9. Xinhua, “Xi Jinping: Speech at the Celebration of the Centenary of the Foundingof the Chinese Communist Party” (习近平: 在庆祝中国共产党成立一百周年大会上的讲话), July 1, 2021. Translation; Steven Lee Myers and Amy Qin, “To China, Trump Was
Bad. Biden Seems Even Worse,” New York Times, July 20, 2021.
10. Wang Yi (王毅), “Facing Difficulties, Acting for the Country, Striving to Embark
on a New Journey of Major-Country Diplomacy with Chinese Characteristics, (迎难而上 为国担当 奋力开启中国特色大国外交新征程), Qiushi, January 19, 2021. Translation; People’s Daily, “Yang Jiechi: Actively Build a Good External Environment” (杨洁篪: 积极营造良好外部环境), November 30, 2020; People’s Daily, “A Scientific Guide forPreventing and Resolving Risks and Challenges (Thoroughly Study and Implement
Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习近平新时代中国特色社会主义思想)), October27, 2020. Translation.
11. Wang Yi (王毅), “Facing Difficulties, Acting for the Country, Striving to Embark
on a New Journey of Major-Country Diplomacy with Chinese Characteristics, (迎难而上 为国担当 奋力开启中国特色大国外交新征程), Qiushi, January 19, 2021. Translation;
People’s Daily, “A Scientific Guide for Preventing and Resolving Risks and Challenges(Thoroughly Study and Implement Xi Jinping Thought on Socialism with Chinese
Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
12. People’s Daily, “Yang Jiechi: Actively Build a Good External Environment” (杨洁篪: 积极营造良好外部环境), November 30, 2020. Translation.
13. People’s Daily, “Yang Jiechi: Actively Build a Good External Environment” (杨洁篪: 积极营造良好外部环境), November 30, 2020. Translation.
14. Wang Yi (王毅), “Facing Difficulties, Acting for the Country, Striving to Embark
on a New Journey of Major-Country Diplomacy with Chinese Characteristics, (迎难而上 为国担当 奋力开启中国特色大国外交新征程); Qiushi, January 19, 2021. Translation.
15. Sohu, “Where Is the New Stage of Development New? Chen Yixin Explainsfrom Eight Aspects” (新发展阶段新在哪里？陈一新从八个方面进行阐释), January 15,2021. Translation.
16. Wang Yi (王毅), “Facing Difficulties, Acting for the Country, Striving to Embark
on a New Journey of Major-Country Diplomacy with Chinese Characteristics, (迎难而上 为国担当 奋力开启中国特色大国外交新征程); Qiushi, January 19, 2021. Translation.

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17. Ministry of Foreign Affairs of the People’s Republic of China, State Councilorand Minister of Foreign Affairs Wang Yi Accepts Media Interviews after Receiving
Foreign Ministers from Five Peripheral Countries in China (王毅国务委员兼外长 接待
周边五国外长访华后接受媒体采访), April 5, 2021.
18. Ministry of Foreign Affairs of the People’s Republic of China, State Councilorand Minister of Foreign Affairs Wang Yi Accepts Media Interviews after Receiving
Foreign Ministers from Five Peripheral Countries in China (王毅国务委员兼外长 接待
周边五国外长访华后接受媒体采访), April 5, 2021.
19. Embassy of the People’s Republic of China in the United Kingdom ofGreat Britain and Northern Ireland, Embassy Spokesperson’s Remarks on the
So-Called “Rules-Based International System” Advocated at the G7 Summit,
June 12, 2021.
20. Embassy of the People’s Republic of China in the United Kingdom of GreatBritain and Northern Ireland, “Embassy Spokesperson Answers Questions Regarding
Contents Related to China in G7 Summit Communiqué,” June 14, 2021.
21. Zhong Sheng (钟声), “Forming ‘Small Circles,’ Engaging in ‘Clique Politics’ Go
Against Trend (Zhong Sheng)” (搞 “小圈子” 和 “集团政治” 是逆流而动 (钟声), People’s
Daily, June 17, 2021. Translation.
22. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南（深入学习贯彻习近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
23. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南（深入学习贯彻习近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
24. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南（深入学习贯彻习近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
25. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南（深入学习贯彻习近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
26. Sohu, “Where Is the New Stage of Development New? Chen Yixin Explainsfrom Eight Aspects” (新发展阶段新在哪里？陈一新从八个方面进行阐释), January 15,2021. Translation.
27. Jun Mai, “ ‘China’s Military Must Spend More’ to Meet US War Threat,” South
China Morning Post, March 8, 2021; Catherine Wong, “Xi Jinping Tells China’s Military ‘Be Prepared to Respond’ in Unstable Times,” South China Morning Post, March
9, 2021.
28. Catherine Wong, “Xi Jinping Tells China’s Military ‘Be Prepared to Respond’ in
Unstable Times,” South China Morning Post, March 9, 2021; Jun Mai, “Two Sessions
2020: China-US Rivalry in ‘High-Risk Period,’ Chinese Defence Minister Says,” South
China Morning Post, May 27, 2020.
29. Guo Shengkun (郭声琨), “Building a Safer China of a Higher Level (Study and
Implement the Spirit of the Fifth Plenary Session of the 19th Central Committee of
the Party)” (建设更高水平的平安中国 (学习贯彻党的十九届五中全会精神), People’s Daily, December 2, 2020. Translation.
30. Guo Shengkun (郭声琨), “Building a Safer China of a Higher Level (Study and
Implement the Spirit of the Fifth Plenary Session of the 19th Central Committee of
the Party)” (建设更高水平的平安中国 (学习贯彻党的十九届五中全会精神), People’s Daily, December 2, 2020. Translation.
31. Chen Yixin (陈一新), “Chen Yixin: Party History Is the Best Textbook forStrengthening the Party, Governing, and Educating People” (陈一新: 党史是强党资政
育人的最好教科书), China Changan, February 23, 2021. Translation; People’s Daily,“A Scientific Guide for Preventing and Resolving Risks and Challenges (Thoroughly
Study and Implement Xi Jinping Thought on Socialism with Chinese Characteristics
for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
32. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习
近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
33. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with326
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习
近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
34. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习
近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
35. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习
近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
36. People’s Daily, “A Scientific Guide for Preventing and Resolving Risks andChallenges (Thoroughly Study and Implement Xi Jinping Thought on Socialism with
Chinese Characteristics for a New Era” (防范化解风险挑战的科学指南 (深入学习贯彻习
近平新时代中国特色社会主义思想)), October 27, 2020. Translation.
37. Guo Shengkun (郭声琨), “Building a Safer China of a Higher Level (Study and
Implement the Spirit of the Fifth Plenary Session of the 19th Central Committee of
the Party)” (建设更高水平的平安中国 (学习贯彻党的十九届五中全会精神), People’s Daily, December 2, 2020. Translation.
38. Chen Yixin (陈一新), “Chen Yixin: Party History Is the Best Textbook forStrengthening the Party, Governing, and Educating People” (陈一新: 党史是强党资政
育人的最好教科书), China Changan, February 23, 2021. Translation.
39. Chen Yixin (陈一新), “Chen Yixin: Party History Is the Best Textbook forStrengthening the Party, Governing, and Educating People” (陈一新: 党史是强党资政
育人的最好教科书), China Changan, February 23, 2021. Translation.
40. Chen Yixin (陈一新), “Chen Yixin: Party History Is the Best Textbook forStrengthening the Party, Governing, and Educating People” (陈一新: 党史是强党资政
育人的最好教科书), China Changan, February 23, 2021. Translation.
41. Xinhua, “China Releases Counter-Espionage Regulations,” April 26, 2021.
42. Ministry of State Security of the People’s Republic of China, Regulations on
Counter-Espionage Security Work (反间谍安全防范工作规定), April 26, 2021. Translation.
43. Ministry of State Security of the People’s Republic of China, Regulations on
Counter-Espionage Security Work (反间谍安全防范工作规定), April 26, 2021. Translation.
44. Xinhua, “Xi Focus: Xi Stresses Better Understanding Chinese Civilization
through Archaeology,” September 29, 2020; China Daily, “Xi Calls on Historians to
Improve Research,” January 4, 2019; Ian Johnson, “China’s Memory Manipulators,”
Guardian, June 8, 2016.
45. Xi Jinping, “Construct an Archaeology with Chinese Characteristics, a Chinese
Style, and a Chinese Manner to Better Understand the Ancient and Profound Chinese
Civilization” (建设中国特色中国风格中国气派的考古学 更好认识源远流长博大精深的中华文明), Seeking Truth, November 30, 2020. Translation; Ouyang Xuemei, “We Cannot
Write Off Mao Zedong’s Contributions to Building the Culture of New China” (毛泽东对新中国文化建设的贡献不能抹杀), Chinese Social Science News, January 13, 2014.
46. Xi Jinping, “Construct an Archaeology with Chinese Characteristics, a Chinese
Style, and a Chinese Manner to Better Understand the Ancient and Profound Chinese
Civilization” (建设中国特色中国风格中国气派的考古学 更好认识源远流长博大精深的中华文明), Seeking Truth, November 30, 2020. Translation; Ouyang Xuemei, “We Cannot
Write Off Mao Zedong’s Contributions to Building the Culture of New China” (毛泽东对新中国文化建设的贡献不能抹杀), Chinese Social Science News, January 13, 2014.
47. Scott Harold, “What Xi Jinping’s Communist Party Valedictory Speech Can Tell
Us about His Conception of China and Its Role in the World,” The Hill, July 7, 2021;
Xi Jinping, “Construct an Archaeology with Chinese Characteristics, a Chinese Style,and a Chinese Manner to Better Understand the Ancient and Profound Chinese Civilization” (建设中国特色中国风格中国气派的考古学 更好认识源远流长博大精深的中华文明), Seeking Truth, November 30, 2020. Translation.
48. Xinhua, “The Central Committee of the Communist Party of China Issues ‘Regulations on United Front Work of the Communist Party of China’ ” (中共中央印发《中国共产党统一战线工作条例》), January 5, 2021. Translation.
49. Xinhua, “The Central Committee of the Communist Party of China Issues ‘Regulations on United Front Work of the Communist Party of China’ ” (中共中央印发《中国共产党统一战线工作条例》), January 5, 2021. Translation; Alex Joske, “The Party
Speaks for You: Foreign Interference and the Chinese Communist Party’s United
Front System,” Australian Strategic Policy Institute, June 9, 2020; Takashi Suzuki,“China’s United Front Work in the Xi Jinping Era—Institutional Developments andActivities,” Journal of Contemporary East Asia Studies 8:1 (2019).

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50. Xinhua, “Central Committee of the Communist Party of China Issues ‘Plan for
the Construction of Rule of Law in China (2020–2025)’ ” (中共中央印发《法治中国建设规划 (2020–2025年）》), January 10, 2021. Translation.
51. Xinhua, “Central Committee of the Communist Party of China Issues ‘Plan for
the Construction of Rule of Law in China (2020–2025)’ ” (中共中央印发《法治中国建设规划 (2020–2025年）》), January 10, 2021. Translation; Zhu Zheng, “Understanding
Xi Jinping Thought on the Rule of Law,” China Global Television Network, November
21, 2020.
52. Moritz Rudolf, “Xi Jinping Thought on the Rule of Law,” German Institute forInternational and Security Affairs, 28 (April 2021): 6; Xinhua, “Central Committeeof the Communist Party of China Issues ‘Plan for the Construction of Rule of Law
in China (2020–2025)’ ” (中共中央印发《法治中国建设规划 (2020–2025年）》), January
10, 2021. Translation.
53. Xinhua, “Xi Focus: Xi Jinping Thought on the Rule of Law Guides Law-Based
Governance in China,” December 10, 2020.
54. Bethany Allen-Ebrahimian, “The Scope of Forced Labor in Xinjiang Is Bigger
than We Knew,” Axios, January 5, 2021.
55. U.S. Department of State, 2020 Country Reports on Human Rights Practices:
China (Includes Hong Kong, Macau, and Tibet), March 30, 2021; Michael R. Pompeo,
Determination of the Secretary of State on Atrocities in Xinjiang, January 19, 2021.
56. State Council of the People’s Republic of China, Measures for Management ofReligious Professionals (宗教教职人员管理办法), January 18, 2021. Translation.
57. Martin Pollard, “ ‘Xi Jinping Is My Spiritual Leader’: China’s Education Drivein Tibet,” Reuters, June 11, 2021.
58. Shimpei Okuhara, “Inner Mongolians Urge Japan to Help Tackle Persecution
by China,” Japan Forward, May 31, 2021.
59. Qiao Long, “Japanese Lawmakers Form Alliance in Support of Mongolians in
China,” Radio Free Asia, April 21, 2021; Jiji, “Council to Support Inner Mongolia Autonomous Region: China’s ‘Oppression’ in Question - LDP Volunteers” ( 内モンゴル自治区支援へ議連 中国「弾圧」問題視―自民有志), April 21, 2021. Translation.
60. Nikkei, “Full Text of Xi Jinping’s Speech on the CCP’s 100th Anniversary,” July
1, 2021.
61. Xu Qiliang (许其亮), “Accelerate the Modernization of National Defense andthe Military” (加快国防和军队现代化), People’s Daily, November 26, 2020. Translation.
62. Xu Qiliang (许其亮), “Accelerate the Modernization of National Defense andthe Military” (加快国防和军队现代化), People’s Daily, November 26, 2020. Translation.
63. Matthew P. Funaiole et al., “Understanding China’s 2021 Defense Budget,”Center for Strategic and International Studies, March 5, 2021.
64. Andrew Tate, “China Commissions Three Major Naval Vessels on PLAN’s 72nd
anniversary,” Jane’s Defense Weekly, April 27, 2021.
65. Ronald O’Rourke, “China Naval Modernization: Implications for U.S. Naval
Capabilities—Background and Issues for Congress,” Congressional Research Service
RL33153 (July 1, 2021): 31; Tyler Rogoway, “China’s New Amphibious Assault Ship
Is a Monster,” Drive, August 22, 2019.
66. Andrew Tate, “China Commissions Three Major Naval Vessels on PLAN’s 72nd
Anniversary,” Jane’s Defense Weekly, April 27, 2021.
67. Andrew Tate, “China Deploys More Surveillance Satellites,” Jane’s Defense
Weekly, March 15, 2021; Mike Yeo, “Satellite Images Suggest China’s New Tanker
Aircraft Is under Production,” DefenseNews, February 18, 2021.
68. Andreas Rupprecht and Alessandra Giovanzanti, “Update: Image Suggests
Y-20U Aerial Tanker Is in PLAAF Service,” Jane’s Defense Weekly, June 9, 2021; Alessandra Giovanzanti, “Milestones: XAC Y-20 Kunpeng Strategic Transport Aircraft,”Jane’s Defense Weekly, July 2, 2021.
69. Jonathan Barrett, “China Plans to Revive Strategic Pacific Airstrip, Kiribati
Lawmaker Says,” Reuters, May 5, 2021.
70. CDR Salamander, “Why Kiribati and Kanton Matter,” May 10, 2021; Jonathan
Barrett, “China Plans to Revive Strategic Pacific Airstrip, Kiribati Lawmaker Says,”
Reuters, May 5, 2021; Steve Raaymakers, “China Expands Its Island-Building Strategy into the Pacific,” Strategist, September 11, 2020.
71. Lolita C. Baldor, “General: China’s Africa Outreach Poses Threat from Atlantic,”
Associated Press, May 6, 2021.
72. Lolita C. Baldor, “General: China’s Africa Outreach Poses Threat from Atlantic,”
Associated Press, May 6, 2021.
73. Gabriel Dominguez and Mark Cazalet, “Chinese Army Trains Engaging Targets at Sea Using MRLs, ATGMs,” Jane’s Defense Weekly, June 2, 2021.
74. Yang Jin, “PLA Army Anti-Aircraft Defenses Enter PLA Air Force Chain ofCommand” (陆军防空力量进入空军指挥链条), PLA Daily, April 27, 2021. Translation;

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Liu Xuanzun, “China’s Western Airspace More Secure with PLA Army, Air Force Integration,” Global Times, January 26, 2021.
75. Hong Wenjun and Zhang Shuo, “Notes from the Two Sessions: Chairman Xi
Again Raises Eliminating ‘Peace Disease,’ Gives Warning” (两会闻思录: 习主席再提消
除 “和平病”, 给人警示), PLA Daily, March 19, 2018. Translation.
76. Xinhua, “Xi Jinping Signs First Central Military Commission Order of 2021,
Issues Training Mobilization Order to the Entire Military” (习近平签署中央军委2021
年1号命令 向全军发布开训动员令), January 4, 2021. Translation; Xinhua, “At Central
Military Commission Conference on Training Exercises, Xi Jinping Emphasizes Comprehensively Strengthening Combat-Realistic Military Exercises, Comprehensively
Improving Training Standards, and Improving the PLA’s Ability to Win” (习近平在中
央军委军事训练会议上强调 全面加强实战化军事训练 全面提高训练水平和打赢能力), November 25, 2020. Translation.
77. Xu Qiliang (许其亮), “Accelerate the Modernization of National Defense andthe Military” (加快国防和军队现代化) People’s Daily, November 26, 2020. Translation.
78. Xu Qiliang (许其亮), “Accelerate the Modernization of National Defense andthe Military” (加快国防和军队现代化) People’s Daily, November 26, 2020. Translation.
79. CCTV, “Cliff Climbing, Jungle Infiltration . . . PLA Army Scouts Launch Armed
Assault Exercise” (崖壁攀登、丛林渗透 . . . 陆军侦察兵开展武装破袭演练), February 20,
2021. Translation.
80. Zhang He, “ ‘Strong Confrontation’ Taps Hidden Combat Potential” (“强强对决”
深挖战斗潜能), PLA Daily, March 20, 2021. Translation.
81. CCTV, “Noon National Defense and Military: Intense Frontline Exercises,
Three Theater Command Navies Gather to Train Their Troops” ([正午国防军事]直击演训一线 三大战区海军密集练兵), March 14, 2021. Translation; Tian Jianmin, Liu Kun,and Li Hengjiang, “Confrontation in the Clouds: Unrestrained Air Combat” (云端对决自由空战), PLA Daily, March 14, 2021. Translation; PLA TV, “73rd Group Army:
Flying across Day and Night with Many Difficulties to Inspect ‘Real Skills’ ” (第73集
团军: 跨昼夜飞行 多难点检验 “真功夫”), March 12, 2021. Translation; Yang Songsong,“Time Will Not Wait to Launch a Confrontation Air Battle” (时不我待展开对抗空战),
PLA Daily, March 1, 2021. Translation.
82. Zhang Guangxuan and Song Zixun, “Confrontation Exercise Requires Sudden
Change of Commanders” (对抗演练突遭 “临阵换将”), PLA Daily, April 2, 2021. Translation.
83. Joel Wuthnow, “What I Learned from the PLA’s Latest Strategy Textbook,” China Brief, May 25, 2021.
84. Xu Qiliang (许其亮), “Accelerate the Modernization of National Defense andthe Military” (加快国防和军队现代化), People’s Daily, November 26, 2020. Translation.
85. China Ministry of National Defense, December 2020 Ministry of National Defense Routine Press Conference Transcript (2020年12月国防部例行记者会文字实录), December 31, 2020. Translation.
86. Dong Shengbo, “Theme Activities Promote Camaraderie between Comrades inArms” (主题活动增进战友情谊), PLA Daily, March 17, 2021. Translation.
87. Marcus Clay and Dennis J. Blasko, “People Win Wars: The PLA Enlisted Force,and Other Related Matters,” War on the Rocks, July 31, 2020.
88. Brian Waidelich and Bernard D. Cole, “The People’s Liberation Army in 2018:
Education and People’s War,” in Roy Kamphausen, ed., The People of the PLA 2.0,
Strategic Studies Institute, July 2021, 134.
89. Wang Shumei, “The PLA and Student Recruits; Reforming China’s Conscription System,” Institute for Security & Development Policy, January 2015, 13–14.
90. Brian Waidelich and Bernard D. Cole, “The People’s Liberation Army in 2018:
Education and People’s War,” in Roy Kamphausen, ed., The People of the PLA 2.0,
Strategic Studies Institute, July 2021, 134.
91. Brian Waidelich and Bernard D. Cole, “The People’s Liberation Army in 2018:
Education and People’s War,” in Roy Kamphausen, ed., The People of the PLA 2.0,
Strategic Studies Institute, July 2021, 162.
92. Xinhua, “China Succeeds in First Mars Landing,” May 15, 2021; Tobias Corbett,“China Succeeds on Country’s First Mars Landing Attempt with Tianwen-1,” NASASpaceflight, May 14, 2021; Xinhua, “Update: China Focus: China’s First Mars RoverNamed Zhurong,” April 24, 2021; NASA Jet Propulsion Laboratory, Curiosity’s Seven
Minutes of Terror, June 22, 2012.
93. Xinhua, “China Builds Asia’s Largest Steerable Radio Telescope for Mars Mission,” April 27, 2020.
94. Xinhua, “China Launches Space Station Core Module Tianhe,” April 29, 2021.
95. Agence France-Presse, “China Prepares to Send Astronauts to New Space Station,” June 15, 2021.

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96. Mike Wall, “China to Launch 3 Astronauts to Space Station Tonight,” Space,
June 16, 2021.
97. Xinhua, “China to Expand Int’l Cooperation on Space Station,” June 16, 2021.
98. Andrew Jones, “Chinese Rocket Booster Appears to Crash near School during
Gaofen 11 Satellite Launch,” Space, September 7, 2020; Andrew Jones, “Heads Up!
Chinese Rocket Debris Crashes Back to Earth after Recent Launch,” Space, March
23, 2020; Andrew Jones, “Rocket Booster Smashes Home Following Chinese Long
March 3B launch,” November 24, 2019.
99. Inverse, “Uncontrolled Reentry: Why China “Just Not Caring” Is a Huge Problem for Space,” May 3, 2021.
100. Inverse, “Uncontrolled Reentry: Why China “Just Not Caring” Is a Huge Problem for Space,” May 3, 2021.
101. Kyle Mizokami, “A Chinese Rocket Is Wildly Careening toward Earth This
Weekend,” Popular Mechanics, May 7, 2021.
102. U.S.-China Economic and Security Review Commission, Economics and Trade
Bulletin, April 30, 2021, 6–7.
103. Fu Yifei, “Delegate Liu Zhirang: In the 14th Five-Year Plan, China’s Rocket
Power Will Strive to Be World-Class” (刘志让代表: “十四五” 我国火箭动力力争达到世界一流), Science and Technology Daily, March 11, 2021. Translation.
104. Fu Yifei, “During the ‘14th Five-Year Plan,’ China Will Continue to Promote
the Development of Two ‘Heavyweight’ Rockets” (“十四五” 我国将继续推进两型 “重量级” 火箭研制), Science and Technology Daily, March 2, 2021.
105. Deng Xiaoci, “China’s Super-Heavy Lift Rocket Awaits State Approval, toServe in Lunar Manned Mission around 2030: Experts,” Global Times, March 1, 2021.
106. Yang Jiechi, “Dialogue with National Committee on U.S.-China Relations,”
China Ministry of Foreign Affairs, February 2, 2021.
107. Yang Jiechi, “Dialogue with National Committee on U.S.-China Relations,”
China Ministry of Foreign Affairs, February 2, 2021.
108. Guancha, “Zheng Ruolin Interviews French Ambassador Lu Shaye: “Our Diplomatic Style Has Changed, You Need to Get Used to It” (郑若麟对话驻法大使卢沙野:“我们现在外交风格变了, 你们要适应我们的新风格”), June 16, 2021. Translation.
109. Nectar Gan and James Griffiths, “A Chinese Communist Party-Linked Account Mocked India’s Covid Crisis on Social Media. It Backfired,” CNN, May 3, 2021.
110. Jimmy Quinn, “A Chinese Diplomat Mocks the Surfside Tragedy,” National
Review, July 6, 2021; Elliott Zaagman (@ElliottZaagman), “Remember when everyone
thought China was gonna scale back the wolf warrior stuff?” Twitter, July 6, 2021,
9:58 a.m.
111. Noah Barkin, “Watching China in Europe - June 2021,” German Marshall
Fund of the United States, June 2, 2021.
112. Yaoyao Dai and Luwei Luqiu, “China’s Wolf Warrior Diplomacy and Xi Jinping’s Grand Diplomatic Strategy,” March 29, 2021, 26.
113. David Bandurski, “Powers of Persuasion,” China Media Project, June 2, 2021.
114. Melinda Liu, “Is China’s New U.S. Ambassador a ‘Wolf Warrior’—or a Fox?”
Foreign Policy, August 10, 2021.
115. Xinhua, “At the Politburo’s 13th Group Study, Xi Jinping EmphasizedStrengthening and Improving International Propaganda Work to Present China inan Accurate, Three-Dimensional, and Comprehensive Way” (习近平在中共中央政治局第三十次集体学习时强调 加强和改进国际传播工作 展示真实立体全面的中国), June 1,
2021. Translation.
116. David Bandurski, “Powers of Persuasion,” China Media Project, June 2, 2021.
117. Guancha, “Zheng Ruolin Interviews French Ambassador Lu Shaye: “Our Diplomatic Style Has Changed, You Need to Get Used to It” (郑若麟对话驻法大使卢沙野:“我们现在外交风格变了, 你们要适应我们的新风格”), June 16, 2021. Translation.
118. Guancha, “Zheng Ruolin Interviews French Ambassador Lu Shaye: “Our Diplomatic Style Has Changed, You Need to Get Used to It” (郑若麟对话驻法大使卢沙野:“我们现在外交风格变了, 你们要适应我们的新风格”), June 16, 2021. Translation.
119. China Ministry of Foreign Affairs, Xi Jinping Attends and Delivers an Important Speech at the Global Health Summit, May 21, 2021.
120. U.S. Department of State, “COVID-19 Vaccine Donations”; Bridge, “China
COVID-19 Vaccine Tracker,” October 4, 2021; Dan De Luce, “China is Using Vaccines
to Push Its Agenda in Latin America, and the U.S. is behind the Curve, Experts Say,”
NBC News, May 23, 2021; Huizhong Wu and Kristen Gelineau, “Chinese Vaccines
Sweep Much of the World, despite Concerns,” Associated Press, March 2, 2021.
121. Sui-Lee Wee and Steven Lee Myers, “As Chinese Vaccines Stumble, U.S. Finds
New Opening in Asia,” New York Times, August 20, 2021; Sui-Lee Wee, “They Reliedon Chinese Vaccines. Now They’re Battling Outbreaks,” New York Times, August 6,
2021.

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122. Huizhong Wu and Kristen Gelineau, “Chinese Vaccines Sweep Much of theWorld, despite Concerns,” Associated Press, March 2, 2021.
123. Niharika Mandhana and Sha Hua, “China Steps into Covid-19 Vaccine Voidin Asia’s Developing Nations,” Wall Street Journal, June 16, 2021.
124. Niharika Mandhana and Sha Hua, “China Steps into Covid-19 Vaccine Voidin Asia’s Developing Nations,” Wall Street Journal, June 16, 2021.
125. Radio Free Asia, “Source: Malaysia Releases Crew of Chinese Boats It Detained for Trespassing,” October 22, 2020; Channel News Asia, “Malaysia to Be on
Priority List for China-Produced COVID-19 Vaccine: Foreign Minister,” October 13,
2020.
126. Al Jazeera, “Duterte ‘Reluctant’ to Confront China over South China Sea
Row,” April 29, 2021; Neil Morales, “Philippines’ Duterte Issues Gag Order over South
China Sea,” Reuters, May 17, 2021.
127. Jamey Keaton, “Diplomats Say China Puts Squeeze on Ukraine,” AssociatedPress, June 25, 2021.
128. Ernesto Londoño, “Paraguay’s ‘Life and Death’ Covid Crisis Gives China Diplomatic Opening,” New York Times, April 16, 2021.
129. Micah McCartney, “Taiwan Ally Paraguay Rejects ‘Blackmail’ Following Chinese Attempt at Vaccine Diplomacy,” Taiwan News, April 21, 2021.
130. Micah McCartney, “Taiwan Ally Paraguay Rejects ‘Blackmail’ Following Chinese Attempt at Vaccine Diplomacy,” Taiwan News, April 21, 2021.
131. Chao Deng, “As Delta Variant Spreads, China Lacks Data on Its Covid-19
Vaccines,” Wall Street Journal, July 9, 2021.
132. Linda Lew, “Coronavirus: China Sticks to ‘Zero Tolerance’ Stand on Delta
Variant,” South China Morning Post, August 6, 2011.
133. Christian Shepherd and Primrose Riordan, “Delta Outbreak Piles Pressure on
China’s Homegrown Vaccines,” Financial Times, August 9, 2021.
134. Jon Emont, “Hit Hard by Covid-19, Southeast Asian Countries Turn to Western Vaccines,” Wall Street Journal, July 16, 2021.
135. Annie Linskey et al., “Biden Asks Intelligence Community to Redouble Efforts
to Determine Definitive Origin of the Coronavirus,” Washington Post, May 26, 2021;
John Ruwitch, “Theory that COVID Came from a Chinese Lab Takes On New Life in
Wake of WHO Report,” NPR, March 31, 2021; Jeremy Page, Betsy McKay, and Drew
Hinshaw, “How the WHO’s Hunt for Covid’s Origins Stumbled in China,” Wall Street
Journal, March 17, 2021.
136. See White House, “Statement by President Joe Biden on the Investigation
into the Origins of COVID-19,” May 26, 2021; Julian E. Barnes and David E. Sanger,“U.S. Is Said to Have Unexamined Intelligence to Pore Over on Virus Origins,” NewYork Times, May 27, 2021.
137. Yueqi Yang and Claire Ballentine, “China Risks Isolation in Quest for Virus
Origin, Biden Aide Says,” Bloomberg, June 20, 2021; Global Times, “Sullivan’s ‘International Isolation’ Remark a Blatant Threat: Chinese FM,” June 21, 2021.
138. Michael R. Gordon and Warren P. Strobel, “New U.S. Intelligence Report
Doesn’t Provide Definitive Conclusion on Covid-19 Origins,” Wall Street Journal, August 24, 2021.
139. CNN, “READ: Summary of US Intelligence Community Probe into the Origin
of Covid-19,” August 27, 2021.
140. China’s Ministry of Foreign Affairs, Chinese and Russian Foreign Ministers
Deliver Video Speeches to China-Russia High-level Think Tank Forum, June 1, 2021.
141. Dave Makichuk, “Chinese Troops to Take Part in Russia’s Kavkaz-2020,” Asia
Times, September 11, 2020.
142. Luo Shunyu, Yang Xiaobo, and Li Hui, “Chinese Troops for Kavkaz-2020 Strategic Exercise Arrive in Russia,” China Military Online, September 15, 2020; Global
Times, “China’s Y-20 Cargo Planes Hone Strategic Power Projection Capability in
Russian Drills,” September 15, 2020.
143. Associated Press, “Russian and Chinese Bombers Fly Joint Patrol over Pacific,” December 22, 2020.
144. Associated Press, “Russian and Chinese Bombers Fly Joint Patrol over Pacific,” December 22, 2020.
145. Office of the Director of National Intelligence, Annual Threat Assessment of
the U.S. Intelligence Community, April 9, 2021, 6, 9; Andrea Kendall-Taylor and David
Shullman, “Navigating the Deepening Russia-China Partnership,” Center for a New
American Security, January 2021, 6–9.
146. Eugene Rumer and Richard Sokolsky, “Chinese-Russian Defense Cooperation
Is More Flash than Bang,” June 17, 2021; Michael Kofman, “The Emperor’s League:
Understanding Sino-Russian Defense Cooperation,” August 6, 2020.

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147. U.S. Strategic Command, Collaboration between China, Russia Compounds
Threat, Stratcom Commander Says, August 30, 2021.
148. Reuters, “China, Russia Block UN Security Council Condemnation of Myanmar Coup,” March 2, 2021.
149. Andrew Jones, “China, Russia Open Moon Base Project to International Partners, Early Details Emerge,” Space News, April 26, 2021; Andrew Jones, “China, Russia Enter MoU on International Lunar Research Station,” Space News, March 9,2021.
150. Andrew Jones, “China, Russia Open Moon Base Project to International Partners, Early Details Emerge,” Space News, April 26, 2021; Jeff Foust, “Russia Skeptical
about Participating in Lunar Gateway,” Space News, October 12, 2020.
151. Roscosmos, “Video concept of the creation of the International Scientific
Lunar Station. After the presentation, you will be able to read the Roadmap andGuidelines for Participation in the #MNLS project on the official websites of Roscosmos and CNSA,” (“Видеоконцепция создания Международной научной лунной станции
После презентации ознакомиться с Дорожной картой и Руководством по участию в проекте
#МНЛС можно будет на официальных сайтах Роскосмоса и КНКА”), Twitter, June 16,
2021. Translation.
152. Pranay Sharma, “A Message for US and China as India and Russia Put Two
and Two Together,” South China Morning Post, April 30, 2021.
153. Vladimir Soldatkin and Steve Holland, “Far Apart at First Summit, Bidenand Putin Agree to Steps on Cybersecurity, Arms Control,” Reuters, June 16, 2021.
154. Daniel R. DePetris, “Biden-Putin Summit Comes as U.S. and Russia Share
Something In Common: A Fear of China,” NBC News, June 16, 2021; C. Raja Mohan,“Asia’s Stakes in the Biden-Putin Summit,” Foreign Policy, June 11, 2021; Katsuji
Nakazawa, “Analysis: Biden’s Call to Putin Puts Xi on the Defensive,” Nikkei Asian
Review, April 22, 2021.
155. Dai Lun, “Interview with Shi Yinhong: Biden’s Goal Is to ‘Win China.’ WhereIs the Sino-Russian Alliance?” (专访时殷弘｜拜登目标是 “完胜中国” 中俄同盟走到哪步了?), U.S.-China Perception Monitor, June 30, 2021. Translation; The Paper, “Biden
Visits Europe for the First Time, but Is Europe Still the Focus of US Foreign Strategy?” (前瞻｜拜登首访欧洲, 但欧洲还是美国的对外战略重心吗?), June 9, 2021. Translation.
156. Wang Yi (王毅), “Facing Difficulties, Acting for the Country, Striving to Embark
on a New Journey of Major-Country Diplomacy with Chinese Characteristics, (迎难而上 为国担当 奋力开启中国特色大国外交新征程); Qiushi, January 19, 2021. Translation.
157. Wang Yi (王毅), “Facing Difficulties, Acting for the Country, Striving to Embark
on a New Journey of Major-Country Diplomacy with Chinese Characteristics, (迎难而上 为国担当 奋力开启中国特色大国外交新征程); Qiushi, January 19, 2021. Translation.
158. Vincent Ni, “EU Parliament ‘Freezes’ China Trade Deal over Sanctions,”
Guardian, May 20, 2021; European Parliament, “MEPs Refuse Any Agreement with
China whilst Sanctions Are in Place,” May 20, 2021; Robin Emmott and David Brunstrom, “West Sanctions China over Xinjiang Abuses, Beijing Hits Back at EU,” Reuters, March 22, 2021.
159. Vincent Ni, “EU Parliament ‘Freezes’ China Trade Deal over Sanctions,”
Guardian, May 20, 2021; European Parliament, “MEPs Refuse Any Agreement with
China Whilst Sanctions Are in Place,” May 20, 2021; Robin Emmott and David Brunstrom, “West Sanctions China over Xinjiang Abuses, Beijing Hits Back at EU,” Reuters, March 22, 2021.
160. Mika Aaltola et al., “Statement by European Research Institute Directors,”
March 22, 2021.
161. European Parliament, “Draft Report on a New EU-China Strategy,” April 30,
2021, 4.
162. Vincent Ni, “EU Parliament ‘Freezes’ China Trade Deal over Sanctions,”
Guardian, May 20, 2021; European Parliament, “MEPs Refuse Any Agreement with
China Whilst Sanctions Are in Place,” May 20, 2021.
163. DLA Piper, “Multi-Jurisdiction Guide for Screening Foreign Investments,”
May 2021, 71; European Commission, “EU Foreign Investment Screening Mechanism
Becomes Fully Operational,” October 9, 2020.
164. Laurens Cerulus, “EU-China ‘Friendship Group’ Suspended, Its Chair Says,”
Politico, January 25, 2021.
165. European External Action Service, “EU Strategy for Cooperation in the Indo-Pacific,” April 19, 2021; Council of the European Union, “EU Strategy for Cooperation in the Indo-Pacific—Council Conclusions,” April 16, 2021.
166. Noah Barkin, “Rethinking German Policy towards China,” Chatham House,
May 26, 2021; Thomas des Garets Geddes, “UK-China Relations: From Gold to Dust,”
Diplomat, October 2, 2020.

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167. Reuters, “German Industry Group Criticises China over New Sanctions Law,”
June 16, 2021.
168. Jasper Jolly, “UK to Review Purchase of Semiconductor Producer by Chinese-Owned Firm,” Guardian, July 7, 2021; Anna Isaac and Esther Webber, “Boris
Johnson Pulled in Two Directions on China at G7 Summit,” Politico, June 12, 2021.
169. Zach Marzouk, “Nexperia Completes Takeover of UK’s Largest Semiconductor
Firm,” IT Pro, August 17, 2021; Lauly Li and Cheng Ting-Fang, “China Smartphone
Maker Says UK Chip Plant Purchase ‘Complete,’ ” Nikkei Asia, August 16, 2021.
170. Reuters, “UK Looking at Deal to Remove China from Nuclear Project—Report,” September 25, 2021; Reuters, “UK Looks to Remove China’s CGN from Nuclear
Power Projects—FT,” July 26, 2021; Jonathan Ford, Jim Packard, and Nathalie Thomas, “China Tensions Raise Doubts over UK Nuclear Projects,” Financial Times, August 5, 2020; U.S. Department of Commerce Bureau of Industry and Security, “Addition of Certain Entities to the Entity List, Revision of Entries on the Entity List, andRemoval of Entities from the Entity List,” Federal Register 84:157 (August 14, 2019).
171. Benas Gerdžiūnas, “Lithuanian FM: ‘17+1’ Format with China Divides Europe,” Euractiv, March 3, 2021; U.S.-China Economic and Security Review Commission, 2018 Annual Report to Congress, November 2018, 310–311.
172. Stuart Lau, “Lithuania Pulls Out of China’s ‘17+1’ Bloc in Eastern Europe,”
Politico, May 21, 2021; Reid Standish, “Chinese Summit Gets Chilly Reception fromCentral, Eastern European Countries,” Radio Free Europe Radio Liberty, February
9, 2021; Thomas Wright, “Europe Changes Its Mind on China,” July 2020, 2; Andrew
Small, “Why Europe Is Getting Tough on China,” Foreign Affairs, April 3, 2019.
173. Stuart Lau, “Lithuania Pulls Out of China’s ‘17+1’ Bloc in Eastern Europe,”
Politico, May 21, 2021; Reid Standish, “Chinese Summit Gets Chilly Reception fromCentral, Eastern European Countries,” Radio Free Europe Radio Liberty, February 9,2021; Thomas Wright, “Europe Changes Its Mind on China,” July 2020, 2.
174. Associated Press, “China Recalls Lithuania Ambassador in Row over Taiwan
Office,” August 10, 2021.
175. John Feng, “China Cuts Railway Trade Link with Lithuania amid Taiwan
Row, Report Says,” Newsweek, August 18, 2021; Maria Siow, “Why Europe’s Baltic
States Can Brush Off China,” South China Morning Post, July 17, 2021.
176. Shi Jiangtao, “Israel-Gaza Crisis an Opportunity for China to Position Itself
as Peace Broker,” South China Morning Post, May 22, 2021; Shannon Tiezzi, “China’s
Foreign Minister Heads to the Middle East,” Diplomat, March 25, 2021.
177. CGTN, “Wang Yi: China Is a Long-Term, Reliable Strategic Partner of Middle
East Countries,” March 30, 2021; Shannon Tiezzi, “China’s Foreign Minister Heads
to the Middle East,” Diplomat, March 25, 2021.
178. Will Green and Taylore Roth, “China-Iran Relations: A Limited but Enduring
Strategic Partnership,” U.S-China Economic and Security Review Commission, June
28, 2021, 6; Reuters, “Iran and China Sign 25-Year Cooperation Agreement,” March
27, 2021.
179. Farnaz Fassihi and Steven Lee Myers, “China, with $400 Billion Iran Deal,
Could Deepen Influence in Mideast,” New York Times, March 27, 2021; Ariel Cohen,“China-Iran $400 Billion Accord: A Power Shift Threatens Western Energy,” Forbes,
April 5, 2021.
180. Will Green and Taylore Roth, “China-Iran Relations: A Limited but Enduring
Strategic Partnership,” U.S-China Economic and Security Review Commission, June
28, 2021, 6; China’s Ministry of Foreign Affairs, Foreign Ministry Spokesperson Zhao
Lijian’s Regular Press Conference on March 29, 2021, March 29, 2021; Farnaz Fassihi
and Steven Lee Myers, “China, with $400 Billion Iran Deal, Could Deepen Influencein Mideast,” New York Times, March 27, 2021; Jonathan Fulton, written testimony
for U.S.-China Economic and Security Review Commission, Hearing on U.S.-China
Relations in 2020: Enduring Problems and Emerging Challenges, September 9, 2020,
3–4; Jonathan Fulton, “Iran Isn’t the Only Middle Eastern Country in a Unique Partnership with China,” Atlantic Council, July 15, 2020; Golnaz Esfandiari, “Explainer:
Why Are Iranians Angry over a Long-Term Deal with China?” Radio Free Europe/Radio Liberty, July 13, 2020; Bourse and Bazaar, “Despite Public Outcry, Consensus
Builds for China-Iran Deal,” August 11, 2020; Farnaz Fassihi and Steven Lee Meyers, “Defying U.S., China and Iran Near Trade and Military Partnership,” New YorkTimes, July 22, 2020.
181. China’s Ministry of Foreign Affairs, State Council Member and Foreign Minister Wang Yi Accepts Media Interview at the Conclusion of Visit to Six Middle EasternCountries (王毅国务委员兼外长在结束访问中东六国后接受媒体采访), March 31, 2021.
Translation; CGTN, “Wang Yi: China is a Long-Term, Reliable Strategic Partner ofMiddle East Countries,” March 30, 2021.

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182. Xinhua, “(International) State Councilor and Foreign Minister Wang Yi Is Interviewed by Media after Concluding Visit to Six Middle Eastern Countries -- China
Is Permanent and Reliable Strategic Partner of Middle Eastern Countries,” March
30, 2021.
183. Shi Jiangtao, “Israel-Gaza Crisis an Opportunity for China to Position Itself
as Peace Broker,” South China Morning Post, May 22, 2021; Bloomberg, “China Seizes
on Gaza Crisis to Counter U.S. on Human Rights,” May 19, 2021.
184. Wang Yi, “End the Fighting and Violence Immediately and Uphold Equity andJustice,” China’s Ministry of Foreign Affairs, May 16, 2021.
185. Patrick Howell O’Neill, “Chinese Hackers Disguised Themselves as Iran toTarget Israel,” MIT Technology Review, August 10, 2021; FireEye, “UNC215: Spotlighton a Chinese Espionage Campaign in Israel,” August 10, 2021; Forest Cong, “Chinese
Hackers Used Cyber-Disguising Technology against Israel, Report Finds,” VOA News,
August 18, 2021; Amitai Ziv, “In First Massive Cyberattack, China Targets Israel,”
Haaretz, August 10, 2021.
186. Austin Bodetti, “China’s Vaccine Diplomacy in the Middle East,” Diplomat,
January 16, 2021.
187. Kok Xinghui and Dewey Sim, “With Malaysia, UAE Soon to Make Chinese
Vaccines, Does Beijing Have an Edge in Vaccine Diplomacy,” South China Morning
Post, April 9, 2021; Lisa Barrington, “Abu Dhabi Launches New COVID-19 Vaccine
Plant with China’s Sinopharm,” Reuters, March 29, 2021.
188. Kok Xinghui and Dewey Sim, “With Malaysia, UAE Soon to Make Chinese
Vaccines, Does Beijing Have an Edge in Vaccine Diplomacy,” South China Morning
Post, April 9, 2021; Lisa Barrington, “Abu Dhabi Launches New COVID-19 Vaccine
Plant with China’s Sinopharm,” Reuters, March 29, 2021.
189. Song Tao, “Africa: China Keen on Building a Moderately Prosperous Society,”
Speech at the China-Africa Online Briefing of the Fifth Plenary Session of the Nineteenth CCP Central Committee, December 1, 2020.
190. Song Tao, “Africa: China Keen on Building a Moderately Prosperous Society,”
Speech at the China-Africa Online Briefing of the Fifth Plenary Session of the Nineteenth CCP Central Committee, December 1, 2020.
191. China’s Ministry of Foreign Affairs, Foreign Ministry Spokesperson Zhao Lijian’s Regular Press Conference on January 11, 2021, January 11, 2021.
192. Zhang Yunbi, “China, DRC to Enhance Bilateral Ties,” China Daily, January
8, 2021; Xinhua, “China, Botswana Sign MoU on BRI Cooperation,” January 8, 2021;
Jevans Nyabiage, “China Sends Africa Signal that Belt and Road Initiative Is Still
Open for Business,” South China Morning Post, January 10, 2021; China’s Ministryof Foreign Affairs, Foreign Ministry Spokesperson Zhao Lijian’s Regular Press Conference on January 11, 2021, January 11, 2021.
193. Jevans Nyabiage, “China Cancels Democratic Republic of Congo Loans as It
Joins Belt and Road,” South China Morning Post, January 7, 2021; Reuters, “Democratic Republic of Congo Says China Has Granted Pandemic-Linked Debt Relief,”
January 6, 2021; China-Africa Research Initiative, “Global Debt Relief Dashboard,”
2021; China Africa Research Initiative and Boston University Global Development
Policy Center, “Chinese Loans to Africa Database,” Version 2.0, 2021; Deborah Brautigam and Jyhjong Hwang, “China-Africa Loan Database Research Guidebook,” Johns
Hopkins School of Advanced International Studies China-Africa Research Initiative,
2019, 6.
194. Jevans Nyabiage, “Why China Is Building Gleaming New Government Facilities in Africa,” South China Morning Post, May 23, 2021; Jevans Nyabiage, “China
Cancels Democratic Republic of Congo Loans as It Joins Belt and Road,” South China
Morning Post, January 7, 2021.
195. Jevans Nyabiage, “Why China Is Building Gleaming New Government Facilities in Africa,” South China Morning Post, May 23, 2021; Eric Olander, “The Optics
of China Paying for Kenya’s New Foreign Ministry Building Just Looks Awful,” China Africa Project, May 17, 2021; Citi Newsroom, “Ghana, China Sign Agreement forConstruction of Foreign Ministry Annex Building,” April 11, 2021; Daily Guide Network, “Agreement Signed for Implementation of China-Ade Foreign Ministry’s Annex
Building Project,” April 9, 2021.
196. Al Jazeera, “DR Congo President Seeks Review of Mining Contracts with
China,” September 11, 2021; Eric Olander, “DRC: Tshisekedi Keeps Promise of Renegotiating Foreign Mining Contracts,” The Africa Report, August 25, 2021; Jevans
Nyabiage, “China’s Cobalt Mines in Spotlight as DRC Seeks to Renegotiate Deals,”South China Morning Post; May 22, 2021; “DRC: President Tshisekedi to Renegotiate
Mining Contracts,” May 14, 2021; Bienvenu-Marie Bakumanya, “DR Congo President
Says He Will Renegotiate Mining Contracts,” Barron’s, May 14, 2021.

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197. China’s Ministry of Foreign Affairs, “Wang Yi Meets with Head of the Afghan
Taliban Political Commission Mullah Abdul Ghani Baradar,” July 28, 2021.
198. Al Jazeera, “Chinese Officials and Taliban Meet, in Sign of Warming Ties,”
July 28, 2021; Al Jazeera, “With Economic Assets to Secure, China Embraces the Taliban,” August 17, 2021; Xinhua, “China Permanent Representative to the United Nations: International Society Should Contribute More Positive Energy to the Push for
Afghanistan Peace and Reconciliation Process” (中国常驻联合国代表: 国际社会应为推动阿富汗和平和解进程贡献更多正能量), June 23, 2021; Rachel Zhang, “China Seeks to
Expand Belt and Road to Afghanistan in Name of Security as US Withdraws Troops,”
South China Morning Post, June 4, 2021; Rachel Zhang, “China Looks to Central Asia
on Security to Create ‘Safe Silk Road,’ ” South China Morning Post, May 14, 2021.
199. Ayaz Gul, “China Urges Afghan Taliban to Cut Ties with All Terrorists,” VOA
News, July 28, 2021; China Ministry of Foreign Affairs, “Wang Yi Meets with Headof the Afghan Taliban Political Commission Mullah Abdul Ghani Baradar,” July 28,2021.
200. Al Jazeera, “Afghanistan: Taliban to Rely on Chinese Funds, Spokesperson
Says,” September 3, 2021.
201. China’s Ministry of Foreign Affairs, Foreign Ministry Spokesperson Wang Wenbin’s Regular Press Conference on September 8, 2021, September 8, 2021.
202. Yun Sun, “A Reluctant Embrace: China’s New Relationship with the Taliban,”
War on the Rocks, August 10, 2021; Yaroslav Trofimov and Chao Deng, “Afghanistan’s
Taliban, Now on China’s Border, Seek to Reassure Beijing,” Wall Street Journal, July8, 2021.
203. Rachel Zhang, “China Seeks to Expand Belt and Road to Afghanistan inName of Security as US Withdraws Troops,” South China Morning Post, June 2021.
204. Prime Minister’s Office, Pakistan (@PakPMO), “ ‘CPC has brought a better
alternate governance model,’ Prime Minister @ImranKhanPTI, Interaction with Chinese Media Representatives,” Twitter, July 1, 2021, 5:05 a.m.; Al Jazeera, “Pakistan’s
Khan Backs China on Uighurs, Praises One-Party System,” July 2, 2021.
205. China Daily, “Xi’an Meeting Marks New Progress in China and Central Asia
Cooperation: China Daily Editorial,” May 13, 2021; China’s Ministry of Foreign Affairs, Wang Yi Talks about Eight-Point Consensus and Ten Outcomes of “China +Central Asia” Foreign Ministers’ Meeting, May 12, 2021.
206. Rachel Zhang, “China Seeks to Expand Belt and Road to Afghanistan inName of Security as US Withdraws Troops,” South China Morning Post, June 4, 2021;
Rachel Zhang, “China Looks to Central Asia on Security to Create ‘Safe Silk Road,’ ”
South China Morning Post, May 14, 2021.
207. Reuters, “China’s Xi Will Not Make a State Visit to Japan This Year -Sankei,”
February 28, 2021; Japan Times, “China’s Xi Jinping Postpones State Visit to JapanDue to Coronavirus,” March 5, 2020.
208. Japan Times, “China’s Xi Jinping Postpones State Visit to Japan Due to Coronavirus,” March 5, 2020.
209. Mari Yamaguchi, “Japan’s Ruling Party Calls for Government to Cancel Xi
Visit,” Associated Press, July 7, 2020.
210. Tomoyuki Tachikawa, “FOCUS: China’s Xi Paves Way for 3rd Term as President, May Baffle Japan,” Kyodo News, March 11, 2021.
211. John Feng, “China Sends Ships to Senkaku Islands after Japan Names Country Top Security Threat,” Newsweek, July 14, 2021.
212. Liu Xuanzun, “PLA’s Type 055 Destroyer Enters Sea of Japan for 1st Time,”
Global Times, March 19, 2021.
213. Jesse Johnson, “China Sends Aircraft Carrier Strike Group near Okinawa in
Message to U.S. and Japan,” Japan Times, April 5, 2021; Adam Kehoe, “China’s Liaoning Carrier Strike Group Passes through Japan’s Miyako Strait,” Drive, April 4,
2021.
214. Jesse Johnson, “What’s behind Surging Tensions in the Taiwan Strait?” Japan Times, June 6, 2021; EU-Japan Summit 2021, “Joint Statement,” May 27, 2021;
Japan Times, “Japan to Mention Taiwan Stability in Defense Report for First Time,”
May 14, 2021.
215. Demetri Sevastopulo and Kathrin Hille, “US and Japan Conduct War Games
amid Rising China-Taiwan Tensions,” Financial Times, June 30, 2021.
216. Kaoru Osawa, “Japan’s No. 2 Raises Possibility of Joining US in Defending
Taiwan,” Nikkei, July 6, 2021.
217. Japan Times, “Japan’s LDP Plans Security Talks with Taiwan’s Ruling Party,”
August 18, 2021.
218. Jon Grevatt, “Japan MoD Confirms No Cap on Defence budget,” Jane’s Defense Weekly, June 2, 2021.

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219. Jon Grevatt, “Japan MoD Confirms No Cap on Defence Budget,” Jane’s Defense Weekly, June 2, 2021.
220. Jon Grevatt, “Japan Lines Up Defence Policy Review,” Jane’s Defence Industry,
September 20, 2021.
221. Kuni Miyake, “Will Japan’s China Policy Change under Kishida’s Leadership?” Japan Times, October 1, 2021; Ryo Nemoto, “Countering China is top priority
for Japan PM contender Kishida,” Nikkei, September 4, 2021.
222. Ryo Nemoto and Natsumi Iwata, “74% in Japan Support Engagement in Taiwan Strait: Nikkei Poll,” Nikkei, April 26, 2021.
223. Japan Times, “Some 70% of Japanese Want to Take Strong Stance on China’s
Intrusions,” April 15, 2021.
224. Sumitha Narayanan Kutty and Rajesh Basrur, “The Quad: What It Is—andWhat It Is Not,” March 24, 2021; United States White House, “Quad Leaders’ Joint
Statement: ‘The Spirit of the Quad,’ ” March 12, 2021; Joe Biden et al., “Our FourNations Are Committed to a Free, Open, Secure and Prosperous Indo-Pacific Region,”
Washington Post, March 13, 2021.
225. United States White House, “Joint Statement from Quad Leaders,” September
24, 2021; United States White House, “Quad Leaders’ Joint Statement: ‘The Spirit of
the Quad,’ ” March 12, 2021.
226. Republic of Korea Ministry of Foreign Affairs, Outcome of Video Teleconference
on COVID-19 Response between Vice Minister of Foreign Affairs Choi and His Counterparts, March 22, 2021.
227. U.S. White House, “Quad Leaders’ Joint Statement: ‘The Spirit of the Quad,’ ”
March 12, 2021.
228. U.S. White House, “Joint Statement from Quad Leaders,” September 24, 2021.
229. U.S. Embassy & Consulates in India, Joint Statement on the Third U.S.-India
2+2 Ministerial Dialogue, October 27, 2020.
230. India Space Research Organization, Dr. K. Sivan, Chairman, ISRO/Secretary, DOS Had a Meeting with the President of Japan Aerospace Exploration Agency,
March 11, 2021; Hindu, “India, Australia Sign Amended MoU for Space Cooperation,”
February 18, 2021.
231. China’s Ministry of Foreign Affairs, Foreign Ministry Spokesperson Zhao Lijian’s Regular Press Conference on March 15, 2021 (2021年3月15日外交部发言人赵立坚
主持例行记者会), March 15, 2021. Translation.
232. Hindustan Times, “ ‘We Decide Our Foreign Policy’: Bangladesh’s Curt Response to China over Warning to Join Quad,” May 11, 2021.
233. U.S. White House, “Remarks by President Biden in Press Conference,” June
13, 2021.
234. Wajahat Khan, “Pakistan’s Top Diplomat Warns China Could Fill Void Left by
US,” Nikkei, May 26, 2021.
235. James Crabtree, “Why a Trade War with China Is a Bad Idea for India,” Foreign Policy, June 29, 2020.
236. Swarajya, “Satellite Imagery Shows Indian and Chinese Tanks Were Positioned Less than 500 Feet Apart on Kailash Range,” June 26. 2021; Swarajya, “ ‘We
Were Absolutely on the Brink’ of Armed Conflict with China in August, ‘Situation
Was Extremely Tense’: Northern Army Commander,” February 17, 2021.
237. Swarajya, “Satellite Imagery Shows Indian and Chinese Tanks Were Positioned Less than 500 Feet Apart on Kailash Range,” June 26, 2021; Swarajya, “ ‘We
Were Absolutely on the Brink’ of Armed Conflict with China in August, ‘Situation
Was Extremely Tense’: Northern Army Commander,” February 17, 2021.
238. Vikram Misri, “Ambassador’s Remarks at the Opening Session of 7th
ICWA-CPIFA Dialogue,” April 15, 2021.
239. Vikram Misri, “Ambassador’s Remarks at the Opening Session of 7th
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240. Rajat Pandit, “LAC: India, China Complete Gogra Disengagement, but Depsang Remains a Major Problem,” Times of India, August 6, 2021; Krishn Kaushik,“Disengagement of Troops: China Suggests Major Gen-Level Talks,” Indian Express,
June 15, 2021; Jane’s Country Risk Daily Report, “Indian and Chinese Forces’ Disengagement in Ladakh Unlikely in Near Future; Sustaining Risk of Unintended Military Escalation,” June 15, 2021; Christopher Biggers and Sean O’Connor, “China-India Border Dispute Rumbles on despite Disengagement,” Jane’s Intelligence Review,
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241. Dinakar Peri, “Chinese transgressions testing India, say officials,” Hindu, October 3, 2021; Manu Pubby and Rahul Tripathi, “Chinese PLA in Uttarakhand’s Barahoti, returns after damaging bridge,” Economic Times, September 28, 2021.
242. Robert Barnett, “China Is Building Entire Villages in Another Country’s Territory,” Foreign Policy, May 7, 2021; Brahma Chellaney, “Beijing Replicates Its South336
China Sea Tactics in the Himalayas,” Strategist, March 10, 2021; Kinling Lo and
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243. Robert Barnett, “China Is Building Entire Villages in Another Country’s Territory,” Foreign Policy, May 7, 2021.
244. Kinling Lo and Rachel Zhang, “China-India Border Dispute: Village Built inConflict Zone Part of Beijing’s Poverty Alleviation Scheme, Source Says,” South China
Morning Post, January 24, 2021; China National Committee of the Chinese People’s
Political Consultative Conference, Speed Up the Construction of Moderately Well-Off
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Translation.
245. Recorded Future, “China-Linked Group RedEcho Targets the Indian Power
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246. Eric Bellman and Rajesh Roy, “India Suspects China May Be behind Major
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247. Sahil Joshi, “Mega Mumbai Power Outage May Be Result of Cyber Attack,Final Report Awaited,” India Today, November 20, 2020.
248. Recorded Future, “China-Linked Group RedEcho Targets the Indian Power
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249. Eric Bellman and Rajesh Roy, “India Suspects China May Be behind Major
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250. Recorded Future, “Threat Activity Group RedFoxtrot Linked to China’s PLA
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251. India Ministry of Communications, Telecom Department Gives Go-Ahead for
5G Technology and Spectrum Trials, Telecom Service Providers to Start 5G Trials in
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252. Reuters, “India to Impose Permanent Ban on 59 Chinese Apps, Including Tiktok - Indian Media,” January 25, 2021.
253. Phillip Coorey, “US Mocks Beijing’s Threats against Australia,” Australian Financial Review, November 19, 2020.
254. Eryk Bagshaw and Anthony Galloway, “ ‘If You Make China the Enemy, China
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November 18, 2020.
255. Andrew Greene, “China Grappling with Insecurity and Power, DFAT Boss
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256. Peter Jennings, written testimony before U.S.-China Economic and Security
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261. Senator the Hon Marise Payne, Decisions under Australia’s Foreign Arrangements Scheme, April 21, 2021; Colin Qian and Tom Daly, “China Says Australia’s Belt and Road Snub to ‘Further Damage’ Relations,” Reuters, April 21,
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and Australia to Counter China,” Politico, September 15, 2021; Julian Borger, “US,UK and Australia Forge Military Alliance to Counter China,” September 15, 2021.

337
264. U.S. White House, “Remarks by President Biden, Prime Minister Morrisonof Australia, and Prime Minister Johnson of the United Kingdom Announcing theCreation of AUKUS,” September 15, 2021.
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Rules: Expert,” VN Express, August 1, 2019; Jitsiree Thongnoi, “ ‘Major Progress’ on
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Rules: Expert,” VN Express, August 1, 2019.
270. Association of Southeast Asian Nations, “ASEAN, China Reaffirm Commitment toEnhance Strategic Partnership,” May 18, 2021; Association of Southeast Asian Nations,“ASEAN, China Reaffirm Commitment to Strengthen Closer Cooperation,” July 2, 2020.
271. Willard Cheng and Ronron Calunsod, “ASEAN, China Eye 2022 as New Target
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275. Benar News, “Malaysia Will Lodge Diplomatic Protest with China over Maritime Airspace ‘Intrusion,’ ” June 1, 2021.
276. Agence France-Presse, “Malaysia Scrambles Jets to Intercept Chinese Military
Planes,” June 1, 2021; Reuters, “Malaysia Scrambles Fighter Jets after 16 Chinese
Military Aircraft Fly toward Borneo,” June 1, 2021.
277. Asia Maritime Transparency Initiative, “Contest at Kasawari: Another Malaysian Gas Project Faces Pressure,” Center for Strategic and International Studies,
July 7, 2021.
278. Euan Graham, “Aerial Manoeuvres in the South China Sea,” International
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279. Hishammuddin Hussein (@HishammuddinH2O), - @MalaysiaMFA will issue
a diplomatic note of protest against the intrusion to the Government of the PRC; will
also summon the Ambassador of the PRC to Malaysia to provide explanation regarding this breach of Malaysian airspace and sovereignty.” Twitter, June 1, 2021, 11:11
a.m.; Radzi Razak, “Hishammuddin: ‘Big Brother’ Just a Personal Term Referring toSenior Chinese Counterpart,” Yahoo! News, April 3, 2021.
280. Marhalim bin Abas, “Malaysia Aims to Acquire ED Long-Range Air Surveillance Radar,” Jane’s Defense Weekly, June 20, 2021.
281. Joseph Sipalan, “Malaysia Appoints Ericsson as 5G Development partner,”Reuters, July 1, 2021; Joseph Sipalan and Krishna N. Das, “Malaysia to Choose 5G
Partners Based on Own Security Standards,” Reuters, February 17, 2020.
282. Andrew S. Erickson and Ryan D. Martinson, “Records Expose China’s Maritime Militia at Whitsun Reef,” Foreign Policy, March 29, 2021; National Task Forcefor the West Philippine Sea, “Statement on the Presence of China’s Maritime Militias
at the West Philippine Sea,” March 20, 2021.
283. Gabriel Dominguez, “Philippines to Increase Number of Vessels and Aircraft
Monitoring Disputed Whitsun Reef,” Jane’s, March 29, 2021; Radio Free Asia, “Philippines Military Orders Ships Deployed to South China Sea,” March 25, 2021.
284. Simularity, “Over a Hundred Chinese Fishing Ships Remain in Philippine
EEZ as of May 18,” May 24, 2021; Teddy Locsin Jr. (@teddyboylocsin), “NTF just informed. Only 9 ships left.” Twitter, April 13, 2021, 1:33 a.m.; Rene Acosta, “Persistent
Chinese Maritime Militia Presence off Philippines Raises Concerns in Manila,” USNI
News, April 12, 2021; Gabriel Dominguez, “Chinese Fishing Vessels Moored at Whitsun Reef Disperse to Nearby Areas,” Jane’s, March 31, 2021.
285. Patricia Lourdes Viray, “Chinese Missile Boats Drive away Filipino TV Crew
in West Philippine Sea,” Philstar Global, April 9, 2021.

338
286. Philippines Department of Foreign Affairs, Statement: On the Illegal Presence of the Chinese Coast Guard in Bajo de Masinloc, and Their Belligerent Actions
against the Philippine Coast Guard, May 3, 2021.
287. Reuters, “Philippines Flags ‘Incursions’ by Nearly 300 Chinese Militia Boats,”
May 12, 2021.
288. Pia Ranada, “Amid Chinese Incursions, Duterte Again Says Nothing PH Can
Do,” Rappler, April 20, 2021.
289. Asia Maritime Transparency Initiative, “Out in Force: Philippine South China
Sea Patrols Are Way Up,” Center for Strategic and International Studies, May 26,
2021.
290. Idrees Ali and Karen Lema, “Philippines’ Duterte Fully Restores Key U.S.
Troop Pact,” Reuters, July 30, 2021.
291. Radio Free Asia, “Philippine Coast Guard Plans to Upgrade South China Sea
Monitoring,” May 26, 2021; Frances Mangosing, “AFP Eyes Logistics Hub in Pag-Asa
Island for Uninterrupted WPS Patrols,” Inquirer, May 4, 2021.
292. Asia Maritime Transparency Initiative, “Vietnam Shores Up Its Spratly Defenses,” Center for Strategic and International Studies, February 19, 2021.
293. Maritime Executive, “U.S. Funds Indonesian Maritime Training Center near
Strait of Malacca,” June 30, 2021.
294. Jon Grevatt, “Japan, Indonesia Sign Defence Trade Deal,” Jane’s Defense
Weekly, March 31, 2021.
295. Jon Grevatt, “Japan, Vietnam Sign Defence Equipment and Technology Accord,” Jane’s Defense Weekly, October 20, 2020.
296. Sébastian Seibt, “France Wades into the South China Sea with a Nuclear
Attack Submarine,” France 24, February 12, 2021.
297. Sarah Zheng, “South China Sea: Challenge to Beijing as French Nuclear Submarine Patrols Contested Waterway,” South China Morning Post, February 9, 2021.
298. Bill Hayton, “The Carrier Strike Group in the South China Sea,” Council on
Geostrategy, July 2021, 4–5.
299. UK Royal Navy, First Sea Lord Sea Power Conference Speech 2021, May 19,
2021.
300. Sanjeev Miglani, “India Deploys Warships in South China Sea as Part of‘Act East’ Policy,” Reuters, August 4, 2021; Jon Jackson, “Germany Sends Warship
to South China Sea in Latest Challenge to Beijing Territorial Claims,” Newsweek,
August 2, 2021.
301. Zhou Endi, “Expert: British Aircraft Carrier Returns to the South China Sea,
China Should Consider Countermeasures” (英国航母又来南海 中国应该考虑反制), Sing
Tao Global Network, July 31, 2021. Translation; Zheng Wang, “Chinese Discourse on
the ‘Nine-Dashed Line’: Rights, Interests, and Nationalism,” Asian Survey 55:3 (May/
June 2015): 502–524, 509.
302. Reuters, “The Month since Myanmar’s Military Coup,” February 28, 2021.
303. Assistance Association for Political Prisoners, “Daily Briefing in Relation to
the Military Coup,” September 15, 2021.
304. Rebecca Ratcliffe, “Myanmar Opposition Announces ‘Defensive War’ against
Junta,” Guardian, September 7, 2021.
305. UN News, “Myanmar: UN Security Council Strongly Condemns Violenceagainst Peaceful Protesters,” March 11, 2021; Ryan Heath, “ ‘It Will Backfire on Everyone’: U.N. Democracies Walking a Fine Line with China on Myanmar,” Politico,February 2, 2021; Xinhua, “Major Cabinet Reshuffle Announced in Myanmar,” February 2, 2021.
306. Colum Lynch, Robbie Gramer, and Jack Detsch, “U.S. and China Reach Deal
to Block Myanmar’s Junta from U.N.,” Foreign Policy, September 13, 2021; RadioFree Asia, “China Closes Border with Myanmar amid COVID-19 Surge,” July 8, 2021.
307. Radio Free Asia, “China Online Meeting Including Myanmar’s NLD Seen as
Recognition of Ousted Myanmar Party’s Influence,” September 13, 2021.
308. Shannon Tiezzi, “China Underscores Solidarity with North Korea on Party
Anniversary,” Diplomat, October 14, 2020.
309. Won-Gi Jung, “China Appoints New Special Representative for Korean Peninsula Affairs,” NK News, April 12, 2021; Eduardo Baptista, “China’s Ex-Ambassador to
Britain Liu Xiaoming Named Special Envoy for North Korea,” South China Morning
Post, April 12, 2021.
310. Won-Gi Jung, “China Appoints New Special Representative for Korean Peninsula Affairs,” NK News, April 12, 2021; Eduardo Baptista, “China’s Ex-Ambassador to
Britain Liu Xiaoming Named Special Envoy for North Korea,” South China Morning
Post, April 12, 2021.
311. Kinling Lo, “China, North Korea Reaffirm Ties on Defense Treaty Anniversary,” South China Morning Post, July 11, 2021.

339
312. Scott Snyder and See-Won Byun, “China-Korea Relations Poised for Recovery
Despite Intensified Conflict on Social Media,” Comparative Connections 23:1 (2021):
105–114.
313. Laura Silver, Kat Delvin, and Christine Huang, “Unfavorable Views of China
Reach Historic Highs in Many Countries,” Pew Research Center, October 6, 2020;
John Power, “Young South Koreans Turn on China as Hong Kong, Coronavirus Weighon Minds,” South China Morning Post, October 14, 2020.
314. Cheng Xiaohe, “Seoul Shouldn’t Give Up Strategic Ambiguity over Joining
Quad,” Global Times, March 11, 2021.
315. Hyung-Jin Kim, “North Accuses US of Hostility for S. Korean Missile Decision,” AP News, May 30, 2021; Andrew Jeong, “South Korea Can Now Build Missiles
Able to Reach Beijing, with U.S. Blessing,” Wall Street Journal, June 11, 2021.
316. John Ratcliffe, “China Is National Security Threat No. 1,” Wall Street Journal,
December 3, 2020.
317. Ministry of Foreign Affairs of the People’s Republic of China, Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on January 20, 2021,
January 20, 2021.
318. Rachel Treisman, “China Slaps Sanctions on 28 Trump Administration Officials, Including Mike Pompeo,” NPR, January 20, 2021.
319. Matthew Lee, “US Unveils New Rules for Government Contacts with Taiwan,”
AP News, April 9, 2021.
320. CGTN, “Wang Yi: A Window of Hope Is Opening for China-U.S. Relations,”
January 2, 2021; Reuters, “China Senior Diplomat Says U.S. Relations at ‘New Crossroads,’ ” January 1, 2021; AP News, “China Hopes for Cooperation, Better Relations
under Biden,” January 21, 2021.
321. China Ministry of National Defense, Transcript of the Ministry of National
Defense Regular Press Conference for January 2021 (2021年1月国防部例行记者会文字实录), January 28, 2021. Translation.
322. Anthony J. Blinken, “A Foreign Policy for the American People,” U.S. Department of State, March 3, 2021; Simon Lewis and Humeyra Pamuk, “Biden Administration Singles Out China as ‘Biggest Geopolitical Test’ for U.S,” Reuters, March 3, 2021.
323. Matthew Lee and Mark Thiessen, “US, China Spar in First Face-to-Face Meeting under Biden,” AP News, March 18, 2021; Nahal Toosi, “China and U.S. Open
Alaska Meeting with Undiplomatic War on Words,” Politico, March 18, 2021.
324. Matthew Lee and Mark Thiessen, “US, China Spar in First Face-to-Face Meeting under Biden,” AP News, March 18, 2021.
325. Matthew Lee, “Blinken Reaffirms Trump-Era Ruling on Hong Kong Autonomy,” AP News, March 31, 2021.
326. John Hudson, “As Tensions with China Grow, Administration Formalizes
Genocide Declaration against Beijing,” Washington Post, March 30, 2021.
327. Martin Matishak, “Intelligence Community Creating Hub to Gird against Foreign Influence,” Politico, April 26, 2021.
328. Teddy Ng, “US Still Seeking Dialogue with Chinese Military Chiefs, Pentagon
Says,” South China Morning Post, May 26, 2021.
329. Idrees Ali, “EXCLUSIVE Pentagon Holds Talks with Chinese Military forFirst Time under Biden, Official Says,” Reuters, August 28, 2021.
330. BBC News, “US Senate Passes Sweeping Bill to Counter China Tech Reach,”
June 9, 2021.
331. Yew Lun Tian and Tony Munroe, “In ‘Frank’ Talks, China Accuses U.S. of Creating ‘Imaginary Enemy,’ ” Reuters, July 26, 2021; Ministry of Foreign Affairs of thePeople’s Republic of China, Xie Feng: The China-U.S. Relationship Is in a Stalemate,
Fundamentally Because Some Americans Portray China as an “Imagined Enemy,”
July 26, 2021; Laura Zhou and Jun Mai, “China Promises US a ‘Tutorial’ in How toTreat Other Countries Equally ahead of Deputy Secretary of State Wendy Sherman’s
Visit,” South China Morning Post, July 25, 2021.
332. Xinhua, “China Puts Forward Two Lists during Talks with Visiting U.S. Deputy
Secretary of State,” July 26, 2021; Stuart Lau, “Beijing Thrusts Long List of Demands
at Biden Administration,” Politico, July 26, 2021; Ken Moritsugu and Ng Han Guan,“US, China Old High-Level Talks, Highlighting Differences,” AP News, July 26, 2021.
333. Amanda Coletta, “Canada’s ‘Two Michaels’ Back Home After More Than 1,000
Days Imprisoned in China as Huawei’s Meng Cuts Deal with U.S.,” Washington Post,
September 25, 2021.
334. Lily Kuo, “China’s Release of ‘Two Michaels’ Vexes Country’s Online Nationalists,” Washington Post, September 27, 2021; Michael Forsythe, Chris Buckley, and Katie
Benner, “American Siblings Barred from Leaving China for 3 Years Return to U.S.,”New York Times, September 27, 2021; U.S. Department of Justice, “Huawei CFO Wanzhou Meng Admits to Misleading Global Financial Institution,” September 24, 2021.

SECTION 2: CHINA’S NUCLEAR FORCES:
MOVING BEYOND A MINIMAL DETERRENTKey Findings• The People’s Republic of China (PRC) is carrying out its mostsubstantial effort to expand, modernize, and diversify its nuclear forces since first acquiring nuclear weapons in the 1960s. The
People’s Liberation Army (PLA) is developing a nuclear triad;
fielding new, more mobile, and more accurate nuclear weaponssystems; and significantly expanding its stockpile of nuclear
warheads. The PLA has also enhanced its intelligence, surveillance, and reconnaissance (ISR) systems.
• China’s nuclear buildup puts it on a trajectory to become a nuclear peer of the United States in qualitative terms. Qualitative
nuclear parity could entail diversified, reliable, and survivabledelivery systems; highly precise missiles; warheads of various
yields; robust command and control processes; and sophisticated
ISR, all of which enable a truly secure second-strike capability
and options for calibrated, offensive nuclear use. Current public projections suggest China could also become a quantitative
peer in the number of land-based strategic missiles it deploysby 2030.
• Strategic and political forces are driving China’s departure froma minimalist nuclear posture. For most of its modern history,
China maintained a small nuclear stockpile mainly suitable forminimal retaliation against an adversary’s nuclear attack. General Secretary of the Chinese Communist Party (CCP) Xi Jinping’s ambitions for great power status, combined with military
objectives beyond minimal retaliation, have likely motivated therecent buildup of China’s nuclear arsenal.
• At minimum, China’s nuclear buildup enhances its current retaliatory strategy by better enabling its nuclear forces to deteror respond in kind to a nuclear attack. Chinese leaders may
worry that innovations in other nuclear weapon states haveundermined their nuclear deterrent, requiring them to makechanges in order to keep up.
• The scale of China’s nuclear buildup, however, suggests it could
also be intended to support a new strategy of limited nuclear first use. Such a strategy would enable Chinese leaders toleverage their nuclear forces to accomplish Chinese politicalobjectives beyond survival, such as coercing another state or
deterring U.S. intervention in a war over Taiwan.
• Uncertainties created by China’s nuclear buildup heighten therisk of an accidental nuclear exchange or unforeseen nuclear
escalation during a regional conflict. Specific risks of nuclear es(340)341
calation stem from entanglement between China’s nuclear andconventional capabilities, its desperation to avoid losing a conventional war in the region, and false alarms that could result
from its possible shift to a launch-on-warning posture.
• The PLA’s growing arsenal also casts “nuclear shadows” over
China’s disputes with its neighbors, many of whom are U.S. allies and partners. Improved nuclear capabilities could encourage Chinese leaders to coerce or initiate a conventional conflictagainst U.S. allies or partners in the region if they believe their
nuclear capability would deter the United States from intervening.
• China has continued to play a concerning role in the global proliferation of missile and nuclear technologies, though the manner in which this proliferation occurs has evolved over time.
Whereas two decades ago the Chinese government and stateowned enterprises (SOEs) were the main source of missile andnuclear technologies, Chinese companies and private individuals now play a dominant role in the proliferation of such goods
to countries of concern. The Chinese government turns a blindeye to, and in some cases tacitly supports, these illicit activities.
Recommendations
The Commission recommends:• Congress direct the Administration to conduct an interagency
review of any Chinese universities that maintain research ortraining arrangements with China’s nuclear weapons research
institutes, such as the Chinese Academy of Engineering Physics
and the Northwest Institute of Nuclear Technology. The review
should be led by the U.S. Department of Energy and include
the U.S. Departments of Commerce, Treasury, and Defense; theIntelligence Community; and other federal departments andagencies as appropriate. The review would:○ Assess the impact of such cooperation on China’s nuclear
weapons programs and capabilities;○ Assess whether current U.S. export controls adequately address risks from the transfer and exchange of informationand technologies with applications to nuclear research, particularly by researchers and departments in relevant academic
disciplines at U.S. universities to these Chinese universities;○ Identify Chinese universities and research institutes thatshould be added to the Entity List, based on the risks posedby their cooperation with the Chinese Academy of Engineering Physics, Northwest Institute of Nuclear Technology, andother Chinese institutions involved in nuclear weapons development, as appropriate;○ Identify Chinese universities and research institutes thatmerit a presumption of denial for all export licenses involving
items covered by the Export Administration Regulations; and○ Develop and maintain a list of all academic partnerships infields with applications to nuclear weapons development en-342
tered into between Chinese universities and U.S. universities
that receive federal funding for the purpose of determining
whether these activities are subject to export controls.
• Congress prevent the erosion of U.S. strategic nuclear superiority and respond to China’s qualitative and quantitative theater
nuclear advantages by directing the Administration to continue
implementation of the Obama-Trump Program of Record for nuclear modernization.
• Congress enact legislation creating an independent bipartisancommission, similar to the Quadrennial Defense Review commissions authorized in the past, to assess the Nuclear Posture
Review and advise Congress about whether the current U.S.
nuclear posture is sufficient to maintain deterrence against the
expanding Chinese and Russian nuclear forces. The Commission should:○ Determine how Russian and Chinese nuclear capabilities
have changed between 2010 and 2022;○ Evaluate whether the current number of U.S.-deployed strategic weapons is sufficient to deter both Russia and China overthe next 20 years; and○ Identify any further changes required to U.S. force posture,
doctrine, and missile defense.
• Congress authorize funding for a comprehensive diplomatic
strategy on nuclear deterrence and arms control. This comprehensive program would include:○ Intelligence diplomacy with key allies and partners in the Indo-Pacific and in Europe to inform them of developments in
China’s nuclear forces;○ Dialogue to convince these allies and partners to pressure
Beijing diplomatically to enter into arms control talks andto explore these partners’ willingness to host U.S. intermediate-range forces and other U.S. assets; and○ Continued efforts to engage both Russia and China in trilateral arms control talks, including by continuing efforts with
Russia to persuade China to enter into arms control discussions.
Introduction
In June 2021, independent researchers analyzing commercial
satellite imagery identified the construction of 119 new intercontinental ballistic missile silos in a desert in northwestern China.1
Their discovery provoked speculation in the expert community andalarmed U.S. officials, who had expressed concerns about China’s
opaque nuclear activities for years. U.S. Department of State spokesperson Ned Price told reporters the silos reflected China’s growing
deviation from its decades-old nuclear strategy of limiting China’s
nuclear forces to the “minimum” size required for deterring a nuclear attack.2 “These reports and other developments suggest that the
PRC’s nuclear arsenal will grow more quickly, and to a higher level
than perhaps previously anticipated,” Mr. Price said.3

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Concerns about the silos followed remarks by numerous U.S. officials in recent years about the pace, scale, and nature of ongoingchanges to China’s nuclear arsenal. Then director of the DefenseIntelligence Agency Lieutenant General Robert Ashley told an audience at the Hudson Institute in 2019 that China would at least
double its nuclear warhead stockpile “in the course of implementing
the most rapid expansion and diversification of its nuclear arsenal
in China’s history.” 4 Admiral Charles A. Richard, commander of U.S.
Strategic Command, told the House Armed Services Subcommittee
on Strategic Forces in April 2021 that Chinese leaders are engaged
in a “breathtaking expansion” of their country’s nuclear capabilities
that will “backstop their conventional capability and will potentiallyconstrain our options.” 5 Their statements underscore the potential
for China’s nuclear buildup to presage an arms race and embolden
Chinese conventional aggression toward U.S. allies. Considered together with a nuclear-armed Russia, China’s nuclear forces may alsopose a more complex strategic challenge to the United States than
U.S. military planners have previously assumed.
This section assesses the ongoing transformation of China’s nuclear arsenal as well as China’s role as a supplier of nuclear andmissile technologies to countries of proliferation concern. First, thesection examines the modernization, expansion, and diversificationof China’s nuclear arsenal. Next, it explores competing interpretations of the purpose for which Chinese leaders are building a larger
and more capable arsenal: to bolster their retaliatory capability inline with declared strategy or to pursue a new, more ambitious nuclear strategy that threatens or uses nuclear weapons to accomplish
China’s regional objectives. It then discusses ambiguity in Chinese
nuclear doctrine and several scenarios in which China could either
inadvertently or intentionally escalate to the threat or use of nuclear weapons during a conflict in the Indo-Pacific region. Finally, thesection surveys the role of China-based companies and individuals
in the proliferation of dual-use items with nuclear and missile applications to countries like Iran and Pakistan. This section is basedon the Commission’s June 2021 hearing on the topic as well as open
source research and analysis.
China’s Official Stance on Nuclear Weapons
China’s official discourse about the strategy and policy behind its
nuclear weapons has remained consistent since the country detonated its first atomic device in October 1964. Chinese leaders publicly adhere to a nuclear strategy focused on deterring nuclear use
against China, insist that they maintain the “minimum” number ofnuclear weapons required for deterrence, and assert a “no-first-use”
policy.
China’s declared “self-defensive nuclear strategy” achieves deterrence by maintaining the means to survive and credibly retaliate
against an enemy’s nuclear first strike, a strategy some scholars
have described as one of “assured retaliation.” * 6 Chinese leaders’* China’s 2006 defense white paper stated that China pursues a “self-defensive nuclear strategy,” and subsequent white papers have repeated this formulation. Western scholars have variously characterized China’s nuclear strategy as one of “existential deterrence,” “limited nuclear
retaliation,” or “assured retaliation,” making use of U.S. and European concepts of strategic deterrence to differing extents. By contrast, some Chinese scholars have argued that China’s nuclear344
distinctive views about the utility of nuclear weapons and their personal experience of nuclear coercion influenced the development of
this strategy in the early 1960s.7 CCP Chairman Mao Zedong’s famous remark that “the atomic bomb is only a paper tiger” reflected
his belief that future wars would remain conventional because nuclear weapons were too destructive to actually be used in a situation
where two nuclear-armed states had achieved mutual vulnerability.8
At the same time, Chairman Mao recognized that nuclear weapons
could also be used against nonnuclear weapon states to blackmailthem or inflict substantial damage in a war.9 In the face of repeated
U.S. and Soviet threats to use nuclear weapons when tensions arose
over conflicts in the 1950s and 1960s, Chairman Mao and his fellow
CCP leaders concluded that acquiring enough nuclear weapons todeter nuclear coercion and aggression was a “destiny-determining
matter” for the nation.10
Subsequent Chinese leaders, defense white papers, and textbooks
published by Chinese military academies have continually affirmedthat China’s nuclear strategy is purely “defensive” and aims only toestablish a secure second-strike capability.* 11 Accordingly, the authoritative Science of Military Strategy describes only one campaign involving the use of nuclear weapons, a “nuclear counterstrike campaign”
to be carried out against an adversary’s cities after China absorbs anuclear attack.12 China’s historical focus on targeting an adversary’s
cities (known as “countervalue” targeting) made sense partly because
it required considerably less sophisticated technology than did the
U.S. and Soviet strategies of targeting an adversary’s nuclear forces
and military infrastructure (known as “counterforce” targeting).†
Another important element of China’s declared nuclear strategy
is its focus on limiting China’s nuclear forces to the “minimum” size
required to deter nuclear coercion or attack. The PRC’s early leadersstressed that even a small number of nuclear weapons could createa deterrent effect and that scarce financial resources should not be
wasted on the development of excess nuclear weapons.13 China simply needed what PLA Marshal Nie Rongzhen termed “the minimum
strategy is best understood as one uniquely shaped by the country’s own strategic traditions,such as the thought of Chinese military strategist Sunzi and early PRC leaders’ decades of experience fighting revolutionary guerilla war. See, for example, Eric Heginbotham et al., “China’s
Evolving Nuclear Deterrent: Major Drivers and Issues for the United States,” RAND Corporation, 2017, 17; Xu Weidi, “China’s Security Environment and the Role of Nuclear Weapons,” in
Li Bin and Tong Zhao, eds., Understanding Chinese Nuclear Thinking, Carnegie Endowment forInternational Peace, 2016, 20; State Council Information Office of the People’s Republic of China,
China’s Military Strategy (中国的军事战略), May 2015. Translation; M. Taylor Fravel and Evan
S. Medeiros, “China’s Search for Assured Retaliation,” International Security 35:2 (Fall 2010):
50–51, 63; State Council Information Office of the People’s Republic of China, China’s National
Defense in 2008 (2008年中国的国防), January 2009. Translation; State Council Information Officeof the People’s Republic of China, China’s National Defense in 2006 (2006年中国的国防), December
2006. Translation; John Wilson Lewis and Xue Litai, China Builds the Bomb, Stanford University
Press, 1988, 216.
* A secure second-strike capability is the ability of a nuclear state, after being struck by anuclear attack, to strike back with nuclear weapons and cause massive damage to the adversary.
Theorists of nuclear deterrence generally believe that nuclear states must have such a capability,
and make their adversaries believe that capability is credible, in order to deter their adversaries
from attempting to gain military advantage through a disarming first strike.
† Counterforce and countervalue targeting are generally associated with nuclear warfare andrefer to the use of nuclear weapons against an enemy that possesses nuclear weapons. Counterforce involves striking an opponent’s nuclear forces and military infrastructure in order to degrade its war-making capacity, whereas countervalue involves striking an opponent’s population,society, industrial base, economy, or other valuable target in order to degrade its will to escalateor persist in prosecuting a war. However, some states use advanced conventional weapons to carryout counterforce and countervalue strikes.

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means of reprisal,” which could be launched days or even weeks after
China absorbed an adversary’s nuclear attack.14 Political guidance
to restrain the arsenal endured over the following decades in official
statements and documents. China’s 2002 defense white paper declared that the country’s nuclear arsenal is “kept at the lowest level necessary for self-defense only,” while defense white papers from2006 onward described China’s nuclear forces as “lean and effective.” * 15 As recently as June 2021, Chinese Foreign Minister Wang
Yi asserted that China limits its nuclear arsenal to “the minimum
level required for national security” and “does not compete with anyother country in the size or scale of nuclear force[s].” 16
Finally, China’s public stance on nuclear weapons is defined byits longstanding no-first-use policy and negative security assurances.† After successfully conducting the country’s first nuclear teston October 16, 1964, the Chinese government pledged in a publicstatement that “China will never at any time and under any circumstances be the first to use nuclear weapons.” ‡ 17 China also issued
assurances at the UN in 1978 and 1995 that it would never use or
threaten to use nuclear weapons against nonnuclear weapon states
or nuclear-weapon-free zones.18 Chinese officials have also often
promised never to engage in arms races and expressed their aspiration for a future in which all nuclear weapon states totally disarm, though they refuse to participate in talks about arms control
or reduction.19 The Chinese government continues to affirm theseelements in its defense white papers, authoritative military texts,
press conferences, and speeches at international organizations.20
Provocative remarks by Chinese generals have occasionally contradicted this narrative. In 1995, General Xiong Guangkai implicitly
threatened to use nuclear weapons against Los Angeles if the United States defended Taiwan in a conflict.21 Similarly, Major General
Zhu Chenghu said in 2005 that China should use nuclear weapons
against the United States if the U.S. military intervenes in a conflictover Taiwan.22* According to retired PLA Major General Yao Yunzhu, keeping the arsenal “lean” means exercising “restraint” in the overall number of nuclear weapons China develops, while keeping it“effective” means ensuring China’s arsenal is modern and robust enough to ensure a retaliatory
second strike. The “lean and effective” concept neither imposes specific numerical limits on China’s nuclear arsenal nor dictates a specific threshold of destruction the adversary should sustain,
though the 2013 edition of the authoritative military text Science of Military Strategy notes
such destruction should be “unbearable.” Yao Yunzhu quoted in Eric Heginbotham et al., “China’s
Evolving Nuclear Deterrent: Major Drivers and Issues for the United States,” RAND Corporation, 2017, 20; Shou Xiaosong, ed., The Science of Military Strategy (战略学), Military Science
Press, 2013, 172. Translation; David C. Gompert and Phillip C. Saunders, The Paradox of Power:
Sino-American Strategic Restraint in an Age of Vulnerability, National Defense University Press,
2011, 53; Yao Yunzhu, “Chinese Nuclear Policy and the Future of Minimum Deterrence,” Strategic
Insights 4:9 (September 2005): 4.
† In the context of nuclear warfare, “negative security assurances” and “positive security assurances” are statements by nuclear powers intended to reassure nonnuclear weapon states thatthey will not be the victims of a nuclear attack. A negative security assurance is a declarationthat a country will not use nuclear weapons against a nonnuclear weapon state. A positive security assurance is one in which a nuclear weapon state pledges it will come to the aid of a nonnuclear weapon state if that state is the victim of a nuclear attack. All five of the nuclear weapon
states recognized in the Treaty on the Non-Proliferation of Nuclear Weapons have issued negative
security assurances, which the UN Security Council recognized in Resolution 984 in 1995. These
pledges are nonbinding, however, and some nuclear weapon states reserve the right to use nuclear weapons against nonnuclear weapon states under certain conditions. Arms Control Association, “Nuclear Declaratory Policy and Negative Security Assurances,” March 2018; Nuclear Threat
Initiative, “Negative Security Assurances (NSAs) and Positive Security Assurances (PSAs),” 2003.
‡ China is the only nuclear weapon state recognized under the Treaty on the Non-Proliferationof Nuclear Weapons that maintains an unconditional no-first-use policy. Ankit Panda, “ ‘No First
Use’ and Nuclear Weapons,” Council on Foreign Relations, July 17, 2018.

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Why China Has Shunned Arms Control Negotiations
Chinese leaders have long been skeptical about nuclear arms
control on the grounds that it is a “trap” intended to undermine
China’s nuclear deterrent and “lock in” the superpowers’ nuclear
advantages.23 Whereas U.S. experts believe transparency about
nuclear capabilities and behavior enhances strategic stability * byincreasing predictability among nuclear powers, Chinese experts
believe “transparency is a tool of the strong to be used against the
weak.” 24 As a result, China has divulged few details about thecapabilities of its nuclear forces and shunned the efforts of every
post-Cold War U.S. president to involve it in arms control mechanisms.25 Chinese officials at the same time decried the UnitedStates’ withdrawal from the Intermediate-Range Nuclear Forces(INF) Treaty in 2019 as a ruse to “free its hand and develop its
missile capabilities” in East Asia.26 They also rejected calls by
the United States and Japan to join proposed negotiations abouta multilateral INF Treaty, arguing the United States should further slash its own nuclear stockpile rather than shift its arms
control “duties” to other countries.27 Similarly, China’s Foreign
Ministry spokesperson Wang Wenbin rebuffed U.S. calls for China to join a trilateral arms control framework after the UnitedStates and Russia extended the New START Treaty in February
2021.28 Noting the “order-of-magnitude difference” between the
Chinese arsenal and those of the United States and Russia, heemphasized that China “firmly reject[s] the groundless allegationand vilification from the U.S. side.” 29
Strategic and Political Rationales for China’s Nuclear Buildup
Major developments in China’s security environment and international status have provided its leaders strong rationales for its
nuclear buildup, raising the question of whether Chinese leaders’public statements concerning the use of nuclear weapons reflect
their true position on the issue. Chinese leaders may be responding
to these rationales by redefining the requirements of their current
nuclear strategy and no-first-use policy. Chinese leaders also may bereacting with an undeclared departure from their nuclear strategy
of assured retaliation to one that wields nuclear weapons to accomplish the country’s political objectives in the region.
China’s insistence that its stance on nuclear weapons has notchanged over nearly six decades is notable given major developments in China’s strategic environment, which Chinese scholars
and strategists have argued necessitate a buildup of the country’s
nuclear arsenal. U.S. advancements in precision-guided conventional weapons, ballistic missile defense, and ISR since the 1990s have
* “Strategic stability” has many definitions, but at the broadest level it refers to the absence ofarmed conflict between nuclear-armed states. Other definitions include the ideas that: in a timeof crisis, there is no incentive to be the first to use military force of any type, nuclear or otherwise(also known as “crisis stability”); in a crisis or conventional conflict, there is no incentive to be thefirst to use nuclear weapons (“first strike stability”); and neither side believes it can improve its
relative position by building more weapons (“arms race stability”). Linton F. Brooks, “Perceptionsof Sino-American Strategic Stability: A U.S. View,” Carnegie Endowment for International Peace,
November 7, 2017.

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exacerbated longstanding concerns within China that its retaliatory
capability is too vulnerable.30 China’s “nuclear neighborhood” hasgrown more complex with Russia’s nuclear modernization, the emergence of Pakistan and India as nuclear powers, and North Korea’s
development of nuclear and missile capabilities.31 Despite the apparent comity between the two countries, Russia’s deployment of
low-yield nuclear weapons to its Far East, ongoing missile defense
efforts, and modernization of its already formidable arsenal challenge the survivability of China’s nuclear deterrent.32 Continued
border tensions with India, a neighboring nuclear power,* underscore the potential for escalation to nuclear use in a crisis, though
Chinese analysts remain dismissive of that possibility and of Indian
nuclear capabilities in general.33
China’s static public stance on nuclear weapons also stands incontrast to recent official remarks that highlight nuclear weapons’contribution to China’s great power status and broader security interests. In a 2016 speech at PLA Rocket Force headquarters, General
Secretary Xi described the newly elevated service † that oversees thecountry’s land-based missiles as “the strategic support of our country’s status as a major power,” suggesting the Chinese leadershipviews nuclear weapons as an important element of China’s international prestige.34 PLA Rocket Force officers and a political commissar have argued nuclear weapons enable China to deter adversaries
from threatening the country’s “sovereignty,” “core interests,” and“development interests” in addition to “fulfill[ing] the state’s political and diplomatic objectives,” aims more expansive than simply
deterring nuclear attacks against China.35 Chinese leaders havereadily leveraged their growing conventional capabilities to advancetheir interests in regional territorial disputes, raising the questionof whether they might see the threat or use of nuclear weapons as
appropriate means to supplement conventional methods.
China Modernizes, Diversifies, and Expands the Nuclear
ForcesChina’s unchanging public stance on nuclear weapons raises
questions in light of the significant and observable transformationof China’s nuclear posture ‡ underway today.§ This effort involves* India has a stockpile of around 150 nuclear warheads and currently operates eight types ofnuclear-capable delivery systems: two types of aircraft, four land-based ballistic missile systems,
and two sea-launched ballistic missile systems. At least three more systems are in development
and will soon be combat ready. India’s nuclear-capable aircraft and land-based missiles provide
a mix of strike options against China, but its current sea-launched ballistic missiles cannot yet
range China’s east coast. Indian nuclear capabilities are not as robust or sophisticated as Chinese
nuclear capabilities. Hans M. Kristensen and Matt Korda, “Indian Nuclear Forces, 2020,” Nuclear
Notebook, July 20, 2020; Alex Lockie, “We Ranked the World’s Nuclear Arsenals — Here’s Why
China’s Came Out on Top,” Business Insider, January 25, 2019.
† During military reforms announced in December 2015, the PLA Second Artillery Force wasrenamed the PLA Rocket Force and elevated from a military branch to a military service. Like
its predecessor, the PLA Rocket Force oversees China’s land-based missile force. It is responsible
for nuclear and conventional deterrence and strike missions. Michael S. Chase, written testimony
before the U.S.-China Economic and Security Review Commission, Hearing on China’s Military
Reforms and Modernization: Implications for the United States, February 15, 2018, 1.
‡ A state’s nuclear posture encompasses its nuclear forces’ size, structure, capabilities, and readiness.
§ According to Mr. Hans Kristensen, director of the Nuclear Information Project at the Federation of American Scientists, the modernization of China’s nuclear forces has occurred in phases.
The first phase, which occurred in the 1960s and 1970s, introduced bombers and liquid-fuelmoveable medium-range ballistic missiles (the DF-1, DF-2, and DF-3). The second phase, which
occurred in the 1980s and 1990s, introduced longer-range liquid-fuel moveable and silo-based348
developing a viable nuclear triad; * improving the mobility, accuracy, and penetration of deployed weapons systems; and significantly expanding the country’s stockpile of nuclear warheads. The
PLA is also working to build up its nuclear command, control, andcommunications (NC3) system, which includes improved ISR capabilities that enable future missions such as rudimentary strategic
early warning and ballistic missile defense. As a result, the sizeand capabilities of China’s nuclear forces will soon clearly exceed
those required for the minimum and purely retaliatory deterrent
it claims to have.
If these improvements continue apace, China could become aqualitative nuclear peer of the United States in around a decade,with a similarly diversified, precise, and survivable force.† 36 Such aforce will give China a truly secure second-strike capability as well
as options for highly calibrated nuclear use, be that in the context
of retaliation or first use. China could even become a quantitative
nuclear peer if current projections for the growth of its land-based
strategic missile forces bear out.37
China’s Nascent Nuclear Triad
For most of its history, China’s strategic nuclear forces ‡ were land
based and composed of high-yield, “city-busting” warheads mounted atop imprecise missiles.38 Today, the Chinese nuclear forces aremaking significant if uneven progress toward a nuclear triad composed of submarine-launched ballistic missiles (SLBMs), land-based
intercontinental ballistic missiles (ICBMs), and nuclear bombers.
Many of its new sea-based and land-based weapons systems are longer range and more accurate than earlier generations, innovations
that expand the number of targets within the PLA’s reach and giveit new options to calibrate the level of damage inflicted on adversary
targets. China is also developing new technologies that will improve
intercontinental ballistic missiles that put almost all of the United States in range. The second
phase also included the first solid-fuel, road-mobile medium-range ballistic missile (the DF-21)
and an experimental nuclear-powered ballistic missile submarine (the Type 092). The third phase,
which occurred in the first decade and a half of the 2000s, introduced solid-fuel, road-mobileintercontinental ballistic missiles (the DF-31A), an upgrade to the liquid-fuel intercontinental
ballistic missiles (the DF-5B) with multiple independently targetable warheads, and a small fleetof SSBNs (the Type 094). The fourth and current phase is ongoing. Hans M. Kristensen, written
testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s
Nuclear Forces, June 10, 2021, 1–2.
* A nuclear triad is a tripartite nuclear force structure consisting of land-, sea-, and airbased capabilities. Nuclear missiles can be launched from platforms such as ground-based silos,
road-mobile launchers, and submarines. Strategic aircraft can drop nuclear bombs and launch
nuclear missiles.
† Brad Roberts, director of the Center for Global Security Research at Lawrence Livermore
National Laboratory, told Commission staff in an email that he expected China to become a qualitative nuclear peer of the United States sometime during the decade 2030 to 2040. Brad Roberts,
Director of the Center for Global Security Research at Lawrence Livermore National Laboratory,
interview with Commission staff, August 27, 2021.
‡ “Strategic” nuclear forces refer to intercontinental-range missile systems armed with highyield warheads; historically, these were intended for use against an adversary’s major urban andindustrial centers. The New START Treaty signed by the United States and Russia defined therange of strategic missiles as greater than 5,500 kilometers. “Non-strategic” forces encompass
missiles with ranges of less than 5,500 kilometers, potentially including short-, medium- andintermediate-range delivery systems. Medium- and intermediate-range delivery systems are often
associated with China’s “regional” nuclear force. Separately, “tactical” warheads are a subset of“non-strategic” weapons intended for use on the battlefield in close proximity to friendly forces;
they have relatively low explosive power and are carried by very short-range delivery systems
of 1,000 kilometers or less. Philip C. Saunders and David C. Logan, “China’s Regional Nuclear
Capability,” in James M. Smith and Paul J. Bolt, eds. China’s Strategic Arsenal, Georgetown University Press, 2021, 126–127; Arms Control Association, “The Intermediate-Range Nuclear Forces(INF) Treaty at a Glance,” August 2019.

349
its ability to counter other countries’ ISR, ballistic missile defense,and precision-strike systems. These include multiple independently
targetable reentry vehicles (MIRVs), maneuverable reentry vehicles, decoys, chaff, jamming, and hypersonic glide vehicles.* 39 China’s strategic forces are complemented by the PLA’s growing arsenalof medium- and intermediate-range ballistic missiles (MRBMs andIRBMs) that can deliver nuclear warheads throughout the Indo-Pacific region.40
China’s Nuclear Submarines Become a Credible Deterrent Force
China’s nuclear-powered ballistic missile submarine (SSBN) fleet
now constitutes what the U.S. Department of Defense (DOD) describes as a “credible” sea-based nuclear deterrent after more thansix decades of incremental progress and development.41 Before its
first Jin-class (Type 094) SSBN entered service in 2014, the PLA
Navy had since the 1980s operated a sole Xia-class (Type 092)
SSBN that undertook a single patrol and reportedly never sailed
beyond Chinese waters.42 Today, China has four operational Type094 SSBNs based on Hainan Island and two more in the processof being outfitted.43 Each Type 094 carries up to 12 JL-2 nuclear SLBMs, designed to be equipped with a single warhead each.44
DOD’s annual reports on China’s military capabilities, as well asother U.S. government sources, suggest China’s Type 094 SSBNs
have conducted “deterrence patrols” since at least 2016, though it
remains unclear whether these patrols occur with nuclear warheads
mated to the missiles on board.45
China is constructing a follow-on SSBN, the Type 096, that willenter service in the mid-2020s and improve on the Type 094’s noisy
design and limited range.46 The Type 094 is much louder than the
top Russian or U.S. SSBNs, making it easily detectable and vulnerable to adversaries’ anti-submarine warfare capabilities.47 Moreover, the JL-2 has a range of approximately 7,200 kilometers, which
is sufficient to target Alaska, Guam, and Hawaii from waters near
China but unable to reach the continental United States unless thesubmarine operates in the Western Pacific.48 To reach Washington,
DC, a Type 094 carrying the JL-2 would need to operate in waters
north and east of Hawaii.49 China will equip the Type 096 with the
JL-3, an SLBM capable of striking targets at a range of more than
9,000 kilometers.50 The Type 096 would allow China to target northwestern parts of the continental United States from the Bohai Sea
and to hold Washington, DC, at risk if the submarines sail northeast of Japan.51 The Type 096 could carry between 12 and 16 JL-3
SLBMs, and it is unclear at present if the JL-3s will be MIRVed.52
The PLA Navy exhibits conventional-nuclear “entanglement” † tothe extent that it uses the same shore-based, very-low-frequency* MIRV technology enables a single missile to carry a payload of multiple warheads, each ofwhich can be programmed to hit a different target. Maneuverable reentry vehicle technology
enables the warhead on a ballistic missile to track and home in on ground targets. Chaff refers
to clouds of tiny metallic strips that aircraft or rockets can release in flight that appear as separate targets to an enemy’s radar and confuse a missile sent to intercept it. A hypersonic glide
vehicle is a maneuverable glide vehicle that is fired into space by rockets or a ballistic missile
and then released to glide to its target along the upper atmosphere. Hypersonic glide vehicles fly
at a lower altitude than ballistic missiles and can change their intended target and trajectory
repeatedly during their flight.
† Geographic entanglement occurs when a state’s conventional and nuclear forces are locatedin the same space, such as when the forces are garrisoned together during peacetime or when350
transmitters to communicate with both its conventional attack submarines and its SSBNs.53 This means any effort by an adversary to
disrupt communications between a PLA theater command and at-sea
conventional attack submarines during a war could risk nuclear escalation by cutting off communications with the nuclear submarines.
Land-Based Missiles Remain Central to China’s Nuclear Posture
China’s land-based ballistic missile force is the backbone of its
nuclear deterrent and is undergoing a dramatic expansion. The PLA
Rocket Force operates China’s ICBMs for strategic deterrence missions and a variety of shorter-range ballistic missiles for regional
deterrence missions. Up to half of the PLA Rocket Force’s 40 missilebrigades * may be nuclear capable.54 The brigades operating China’s
nuclear missiles are dispersed at many locations across the country and assigned to six bases; † a seventh base located in Shaanxi
Province is responsible for storing and handling most of the force’s
nuclear warheads.55
China’s Strategic Missiles
The ICBM force is reducing its vulnerability to an adversary’s
surprise attack by transitioning from liquid-fuel missiles to a combination of solid-fuel silo-based missiles and road-mobile missiles.‡There are currently about 100 ICBMs in the PLA Rocket Force’s arsenal that could be assigned to various targets in the United States,
Russia, and India.56 These systems currently include the liquid-fuel,roll-out-to-launch DF-4 (range of 5,500 kilometers); the liquid-fuel,silo-based DF-5 (range of 13,000 kilometers), which has two MIRVedvariants; and the solid-fuel, road-mobile DF-31, DF-31A, and DF31AG (ranges varying from 7,000 to 12,000 kilometers).57 A new
solid-fuel, road-mobile, MIRV-capable ICBM known as the DF-41(range of 14,000–15,000 kilometers) became operational in 2020and has been integrated into at least two brigades.58 DOD assessthey operate in the same areas during a crisis or wartime. Operational entanglement occurs
when conventional and nuclear forces are operated by or rely on the same military institutions
or practices, such as when these forces share personnel, command and control structures, mission
sets, or maintenance and logistics infrastructure. Technological entanglement occurs when the delivery systems of conventional and nuclear forces are identical or indistinguishable, as is the casewith dual-capable weapons or weapons that have both conventional and nuclear variants. David
Logan, “Are They Reading Schelling in Beijing? The Dimensions, Drivers, and Risks of Nuclear-Conventional Entanglement in China,” forthcoming in Journal of Strategic Studies, 2020, 5–6.
* The PLA Rocket Force has added ten brigades or more, an increase of more than one-third
since 2017. Ma Xiu and Peter W. Singer, “What Do We Know about China’s Newest Missiles?”Defense One, March 19, 2021.
† PLA Rocket Force “bases” are sometimes referred to as “armies” and are responsible for different geographic regions in China. PLA Rocket Force brigades are assigned to bases numbered 61
through 66; an additional base, Base 67, stores the nuclear warheads. Each base may supervise
between four and seven brigades, and each brigade encompasses thousands of personnel. The
structure of brigades varies depending on whether they operate conventional missiles, mobile
nuclear missiles, or fixed site (silo-based or cave-rollout-to-launch-site) nuclear missiles. Conventional brigades may have up to 36 launchers with as many as six missiles per launcher (enabling
up to five reloads). Mobile nuclear brigades may have between six and 12 missile launchers
per brigade, while fixed site nuclear brigades may have six or fewer launchers (silos or roll-out
sites) per brigade. Christopher J. Mihal, “Understanding the People’s Liberation Army Rocket
Force: Strategy, Armament, and Disposition,” Military Review, July–August 2021; Decker Everleth, “Mapping the People’s Liberation Army Rocket Force,” A Boy and His Blog, July 2, 2020;
David Logan, “Making Sense of China’s Missiles Forces,” in Phillip C. Saunders, Arthur S. Ding,
and Andrew Scobell, eds., Chairman Xi Remakes the PLA: Assessing Chinese Military Reforms,
National Defense University Press, 2019, 403–404.
‡ By transitioning to solid-fuel missiles, China is improving the survivability and safety of its
ICBM force. Liquid-fuel ICBMs are vulnerable to attack because they take more time to fuelbefore launch; liquid fuel is also dangerous to handle because it is toxic and corrosive.

351
es that the DF-41 could also have silo-based and rail-based launch
options.59
Due to increases in China’s arsenal of ICBM missiles, launchers
assigned to its ICBM brigades, and MIRV technology, the numberof warheads that can be mounted on ICBMs threatening the UnitedStates is expanding.60 According to Hans M. Kristensen, director of
the Nuclear Information Project at the Federation of American Scientists (FAS), in 2000 China possessed 35 ICBMs, of which 20 could
hit the continental United States carrying one warhead each.61 Today, most of China’s 100 ICBMs are capable of hitting the UnitedStates with a total of about 125 nuclear warheads, though they are
not all necessarily assigned to U.S. targets.62 DOD predicts that the
number of warheads on China’s land-based ICBMs capable of striking the United States, which make up only a portion of its total
warhead stockpile, will grow to 200 by 2025.63
Moreover, the PLA Rocket Force is constructing more than 270
new missile silos for its ICBM force in remote regions of China that
could be intended for multiple purposes. In 2021, researchers analyzing satellite imagery discovered construction underway for 16 silos
near the city of Jilantai in the western reaches of Inner Mongolia,
119 new silos near the northwestern city of Yumen in Gansu Province, approximately 110 new silos near the city of Hami in Xinjiang,
and at least 29 silos * in Hanggin Banner in Inner Mongolia (seeFigure 1).64 That total is more than ten times the number of silos
the PLA Rocket Force currently operates, greater than the number
of ICBM silos Russia operates, and more than half of the approximately 400 land-based ICBMs the United States maintains in silos
today.65 According to Roderick Lee, director of research at the China Aerospace Studies Institute, between the newly discovered silos
and the PLA Rocket Force’s currently operational ICBM brigades,
China’s projected inventory of ground-based ICBM launchers is already “close to or more than the United States’ current number of
deployed Minuteman III ICBMs.” 66 The silo fields are in various
stages of development and could take between five and ten years to
become operational.67
The emergence of new silos—which are easily identifiable andvulnerable to precision-guided munitions—is surprising given China’s emphasis in recent years on improving mobility, camouflage,
and concealment for its ICBMs.68 The PLA Rocket Force (and its
predecessor, the Second Artillery) has long relied on an elaborate
infrastructure to store and transport its ballistic missiles, including
a vast network of underground tunnels, wheeled transporter erector launchers, and rail networks.69 This infrastructure improves thesurvivability of China’s nuclear forces but requires the relatively
time-consuming practices of bringing ICBMs out of storage, mating them with their warheads, erecting them on mobile launchers,
and connecting them to the appropriate command and control infrastructure before firing a counterstrike. By contrast, silo-based missiles are the most responsive element of a country’s nuclear forces
because they can be put on high alert and launched quickly.70* Roderick Lee, director of research at the China Aerospace Studies Institute, estimates that
this site could eventually contain up to 36 silos. Roderick Lee, “PLA Likely Begins Constructionof an Intercontinental Ballistic Missile Silo Site Near Hanggin Banner,” Air University, August
12, 2021.

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Figure 1: China’s Silo-Based ICBMs
RUSSIAMONGOLIAKAZAKHSTANHAMI SILOS(≈110)HANGGIN BANNER
SILOS
(≈29)

KYRGYZSTANUZBEKISTANYUMEN SILOS(≈119)

TAJIKISTANAFGHANISTANJILANTAITRAINING AREA
SILOS
(≈16)

NORTH KOREAPLA ROCKETFORCE HQ(BEIJING)
SOUTH KOREAJAPAN

EXISTING
DF-5 SILOS(≈9-10)CHINA

NEIXIANG AIRFIELD(H-6N BOMBER BASE)

PAKISTAN
NEPAL

INDIA

EXISTING
DF-5 SILOS(≈9-10)BHUTANBANGLADESHTAIWANMYANMAR

VIETNAMLAOSTHAILAND

New Silos Under Construction
Operational Silos

YULIN NAVAL BASE
(NUCLEAR SUBMARINE
BASE)

≈

PHILIPPINES

Approximate Number of Silosat this Location
0250

500 mi

Sources: Hans Kristensen, Director of the Nuclear Information Project at the Federation ofAmerican Scientists, interview with Commission staff, September 24, 2021; Roderick Lee, “PLA
Likely Begins Construction of an Intercontinental Ballistic Missile Silo Site Near Hanggin Banner,” Air University, August 12, 2021; Matt Korda and Hans Kristensen, “China Is Building a
Second Nuclear Missile Silo Field,” Federation of American Scientists, July 26, 2021; Joby Warrick,“China Is Building More than 100 New Missile Silos in Its Western Desert, Analysts Say,” Washington Post, June 30, 2021; Hans Kristensen, “China’s Expanding Missile Training Area: More
Silos, Tunnels, and Support Facilities,” Federation of American Scientists, February 24, 2021;
Hans M. Kristensen, “China’s Strategic Systems and Programs,” in James M. Smith and Paul J.
Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, and Systems, Georgetown University
Press, 2021, 98–100; Roderick Lee, “China’s Air Force Might Be Back in the Nuclear Business,”
Diplomat, September 9, 2020; Tyler Rogoway, “Image Shows Chinese Submarine Entering Mysterious Cave Facility at South China Sea Base,” Drive, August 19, 2020.

Some observers speculate that China could deploy some of its
ICBMs across the matrix of new silos while filling others with decoys in a Cold War-style “nuclear shell game” for the purpose of complicating adversary targeting.71 Alternatively, China could fill mostor all of the silos with ICBMs, which—especially if MIRVed—would
improve the chances that more of China’s ICBMs survive an adversary’s first strike and defeat its missile defenses.72 Finally, DOD
assesses that expanding the silo-based force and putting a portionof that force on heightened alert would enable China to shift toa launch-on-warning posture, which would allow China to rapidly
launch its ICBMs upon notification of an incoming attack before
their silos could be destroyed.73 Each interpretation assumes China’s motive for building the silos is to secure its second-strike capability rather than to develop a first-strike capability. Large numbersof silo-based missiles can also be used to launch a preemptive nuclear strike on an adversary.
China’s Regional Missiles
The PLA Rocket Force also has nuclear-capable MRBMs andIRBMs capable of hitting targets across the Indo-Pacific, such asallied capitals or U.S. military bases. These include the road-mobile, solid-fuel DF-21 MRBM (range of 2,150 kilometers) and theroad-mobile, solid-fuel DF-26 IRBM (range of 4,000 kilometers).74

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Overall, the PLA Rocket Force has assigned about 60 nuclear warheads to regional missions.75
The DF-26 entails unique escalation risks because it is a dual-capable missile system that is “hot swappable” or able to switch rapidly between conventional and nuclear warheads on a launch-readymissile.76 DF-26 brigades have held drills in which units launcha conventional attack and then reload with a nuclear warhead toprepare for nuclear counterattacks.77 This technological and operational entanglement generates pressures for escalation to nuclear
use by making it difficult for an adversary to distinguish whether
a warhead carried by the DF-26 is conventional or nuclear in flightand, by extension, to decide on an appropriate targeting response.78
As DOD notes, because the DF-26 is China’s first nuclear-capable
missile system that can conduct precision strikes, it is the most likely weapon system to field a low-yield warhead in the near-term.79
The DF-26’s precision enables it to be used for nuclear missions targeting U.S. military assets in the Indo-Pacific, though authoritative
Chinese military texts do not show that PLA doctrine has officiallyshifted from its traditional emphasis on countervalue targeting.
China’s Bomber Force Regains a Nuclear Mission
The PLA Air Force appears to have reassumed a nuclear mission
after a long period of dormancy, indicating its bombers could carry out nuclear counterstrike missions to supplement China’s landand sea-based nuclear deterrent.* 80 In 2019, the PLA unveiled a
new nuclear-capable variant of the H-6 known as the H-6N that isreportedly capable of air-to-air refueling and has a modified fuselage that may allow it to carry a nuclear air-launched ballistic missile.81 The PLA’s H-6Ns are likely stationed in central China next
to a hardened underground facility that could be used to store theaircraft in peacetime.82 China is also developing a nuclear-capablelong-range stealth bomber known as the H-20 that will likely enter
production within the next decade.83
DOD assesses that the deployment of the air-launched ballistic
missile on China’s H-6N will “provide China for the first time witha viable nuclear triad of delivery systems,” though the bombers’ limited range suggests they would more likely be used for missions
closer to China.84 Mr. Lee observes that China’s nuclear triad issomewhat “lopsided” because its air-launched component is relatively small and too limited in range to target the continental UnitedStates unless its bombers fly across Russian airspace or the Pacific
Ocean with their accompanying tankers.85 He argues that the PLA
could be pursuing a nuclear bomber force to deter China’s othernuclear-armed neighbors, for use against U.S. bases in the region, or* The PLA Air Force delivered at least 12 of the nuclear weapons China detonated as part ofits nuclear testing program in the 1960s and 1970s. The U.S. Intelligence Community assessedthat some of China’s bombers trained for nuclear missions in the 1970s, but the country did nothave a dedicated strategic bomber force resembling that of the United States or Soviet Union.
The PLA Air Force’s nuclear capability is thought to have atrophied during the Cold War and its
nuclear mission did not appear active until the PLA Air Force publicly revealed the H-6N as its
first nuclear-capable air-to-air refuellable bomber during a 2019 military parade commemorating
the PRC’s 70th anniversary. Kenneth W. Allen and Cristina L. Garafola, “70 Years of the PLA
Air Force,” China Aerospace Studies Institute, 2021, 83; Hans M. Kristensen and Matt Korda,“Chinese Nuclear Forces, 2020,” Nuclear Notebook, December 10, 2020, 453; U.S. Departmentof Defense, Military and Security Developments Involving the People’s Republic of China 2020:
Annual Report to Congress, 2020, 50–51.

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for the purpose of establishing nuclear competencies within the PLA
Air Force.86 Given the limited range of China’s bombers and sufficiency of other legs of the triad for China’s nuclear deterrent, however, some analysts believe the reactivation of the PLA Air Force’s
nuclear mission more likely reflects its success as a bureaucratic
actor in fighting for resources than a clear strategic mission.87
Nuclear Warhead Stockpile Could Double by 2030
China needs more nuclear warheads to arm its new delivery systems and will significantly expand its inventory of nuclear warheads
over the next decade. China currently maintains a modest stockpile ofnuclear warheads similar in size to that of France or the United Kingdom, depending on the estimate used.* 88 DOD estimated in 2020 that
China’s operational nuclear warhead stockpile was in the low 200s.89
DOD reports on China’s military capabilities from the early 2000s do
not indicate how large they assessed China’s nuclear stockpile to beat that time, though they asserted the PLA planned to increase thenumber of nuclear warheads that could target the United States in
the future.90 Researchers at FAS placed China’s 2020 stockpile at up
to 350 warheads.91 Their estimate of 350 warheads included roughly
272 operational warheads assigned for delivery by China’s land-based
ballistic missiles, sea-based missile forces, and nuclear-capable bombers, as well as 78 warheads to arm new land- and sea-based missiles
still in the process of being fielded.92 FAS researchers assess that thestockpile grew by roughly 118 warheads between 2000 and 2021.93
Projections of the future size of China’s stockpile vary, but credible
sources generally agree the increase will be significant. DOD estimatedin 2020 that the country’s operational nuclear warhead stockpile will
likely double to more than 400 over the next decade.94 Mr. Kristensen
testified before the Commission that a doubling of the stockpile overthe next decade is plausible given China’s past and ongoing modernization efforts.95 Admiral Richard predicted publicly in February 2021
that China’s nuclear weapons stockpile could even triple or quadruple
over the next decade.96 Assuming the most extreme case of a quadrupling of DOD’s estimate, China could possess up to 1,000 warheads inten years’ time, a figure equivalent to more than two-thirds of the 1,400
strategic warheads the United States deploys on ballistic missiles † andless than one-third of the total U.S. stockpile of strategic warheads.‡ 97
According to Mr. Kristensen, projections for doubling, tripling, or
quadrupling China’s nuclear warhead stockpile over the next decade would require significant changes to its current force structure.98 He estimates that to field a doubled stockpile, China would
need to increase the number of its DF-31AG brigades, double its
road-mobile DF-41s with MIRV capabilities, deploy a new brigade ofsilo-based DF-41s with MIRVs, field an additional Type 096 SSBN
* According to the Federation of American Scientists, France and the United Kingdom maintainstockpiles of 290 and 225 nuclear warheads, respectively. Hans M. Kristensen and Matt Korda,“Status of World Nuclear Forces,” Federation of American Scientists, May 2021.
† The New START Treaty caps the number of deployed U.S. and Russian strategic nuclear warheads and bombs at 1,550. Arms Control Association, “New START at a Glance,” February 2021.
‡ As of early 2021, the United States maintained an estimated stockpile of around 3,800 nuclear
warheads. According to FAS, about 1,800 warheads are currently deployed on ballistic missiles orat strategic bomber bases. Around 2,000 are kept in storage to be used as a “hedge” as conditions
warrant. Hans M. Kristensen and Matt Korda, “United States Nuclear Weapons, 2021,” Nuclear
Notebook, January 12, 2021.

355with MIRVed JL-3 missiles, and field more than a dozen nuclear
bombers.99 To field a tripled stockpile, China would need to increase
the number of DF-31AG and DF-41 brigades, add additional railbased DF-41s, field two Type 096 SSBNs, and double the number
and weapons capacity of its nuclear bombers.100 Mr. Kristensen estimates that to field a quadrupled stockpile, China would requirea large number of additional road-mobile and rail-based missiles,
more nuclear DF-26 units, more bombers, and more MIRVed payloads on its DF-41 ICBMs.101
China’s Warhead Stockpile Can Grow without New Fissile Material
Production
China could vastly increase its stockpile of nuclear warheads
without producing additional fissile material. According to Harvard
University Belfer Center research associate Hui Zhang, China halted production of highly enriched uranium and plutonium for nuclear
weapons in the 1980s and maintains military stockpiles of 14 ± 3
tons * of highly enriched uranium and 2.9 ± 0.6 tons of plutonium
from that time.102 Mark Hibbs, nonresident senior fellow at the Carnegie Endowment for International Peace, testified before the Commission that China could produce between 200 and 800 additional
nuclear weapons using its existing plutonium inventory, depending
on how many kilograms of plutonium one estimates is necessary for
Chinese nuclear weapons designs.103
If Chinese leaders wished to generate additional weapons-grade
plutonium for even more warheads, Mr. Hibbs said, they could build
a new plutonium production reactor, repurpose an existing Chinese
research reactor to produce weapons-grade plutonium, or operate
fast reactors as part of their civil nuclear power program to “breed”
plutonium.104 At present, there is no evidence China intends to use
its fast reactors for nuclear weapons production, and neither of its
two 600-MW reactors are yet operational.105 Given the sufficiency ofChina’s existing inventories of fissile material, Chinese leaders may
see little need to make use of these additional pathways.
Recent construction activity at China’s testing and weapons production facilities may offer additional evidence China is expanding
its production of nuclear warheads. Commercial satellite images ofChina’s longtime nuclear weapons testing site at Lop Nur taken
between 2019 and 2021 showed construction of a probable drill site,a probable underground facility, an excavated recess, and new roads
that could be a part of the support facilities required to conduct
new nuclear tests.106 Satellite imagery of Pingtong nuclear facility, which manufactures Chinese nuclear weapons components, also
shows new and renovated buildings for steam production and electricity consumption constructed between 2010 and 2020 that may
increase its capacity to produce larger numbers of finished nuclear
weapons.107
China May Pursue Low-Yield Warheads in the Future
DOD assesses that China may complement its stockpile of strategic nuclear warheads with the production of low-yield warheads fortactical nuclear weapons in the future.108 Most of China’s nuclear* ± is a notation used to measure uncertainty and is read “plus or minus.”

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warheads have large yields ranging from several hundred kilotons
to more than one megaton; they are designed to be delivered acrossa region or continents and to inflict large-scale damage on theirtargets.109 By contrast, low-yield weapons can range from 5 kilotons
to 150 kilotons and are useful for calibrating damage to smaller
targets, such as military bases or aircraft carriers.110
There is little publicly available evidence that China has deployed tactical nuclear weapons, but U.S. Intelligence Community
estimates from the 1970s and 1980s noted “circumstantial evidence”
the country could have developed low-yield warheads, perhaps foruse in small bombs or depth charges.111 The PLA also held several
military exercises in the early 1980s simulating the use of tactical
nuclear weapons, though simulations themselves do not prove development or deployment.112
Chinese commentators have argued in recent years that China requires lower-yield nuclear weapons to enhance deterrence and to expand the PLA’s options for engaging U.S. forces in a regional war.113
Moreover, a 2017 article that originally appeared in the overseas
edition of the People’s Daily cited an interview with retired PLA
Rocket Force Senior Colonel Yang Chengjun in which he mentionedthat the PLA would develop “smaller tactical nuclear warheads toattack the enemy” and limit collateral damage to civilian targets.114
China reportedly carried out a secret test at its Lop Nur facility in2019 that the State Department and some observers say was consistent with testing a low-yield weapon.115
China Enhances Nuclear Command, Control, andCommunications
China has made substantial progress over the last two decades
toward improving the survivability of its NC3, or the systems andprocesses for directing strategic forces to alert or employ nuclear
weapons.* 116 According to Phillip C. Saunders, director of the Center for the Study of Chinese Military Affairs at the National Defense
University, between the 1980s and early 2000s China had an “underdeveloped” NC3 system and no strategic ISR systems that could
provide warning of an incoming attack.117 Since then, China’s NC3
system and the ISR that supports it have improved substantially.
The PLA’s situational awareness now enables more rapid retaliation
against a nuclear strike and forms the basis for a nascent ballistic
missile defense system. This progress is consistent with goals for
China’s nuclear force modernization identified by its 2015 white paper, which called for “improved strategic early warning, commandand control . . . and rapid reaction.” 118
China’s Shifting Readiness and Nascent Triad Complicate Command
and Control
China’s NC3 system has historically emphasized centralizationand strict controls to prohibit the unauthorized use of nuclear weapons. Authority to decide whether to use nuclear weapons is reserved* According to DOD, NC3 includes detecting and characterizing incoming attacks, facilitating
decision-making, transmitting orders to alert or use nuclear weapons, and directing the strategic
forces. It therefore requires excellent ISR to provide situational awareness of incoming attacks
and redundant communications to ensure strategic forces carry out orders to use nuclear weapons. U.S. Department of Defense, Nuclear Posture Review, 2018, XIII.

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to China’s top leaders in the Politburo Standing Committee.119 The
Central Military Commission (CMC), headed by General SecretaryXi, handles the execution of Chinese nuclear operations.120 The PLA
Rocket Force is commanded directly by the CMC rather than indirectly through the geographical Theater Commands that oversee theother services, an arrangement reflecting the importance China’s
leaders place on controlling the nuclear forces.121 China may haveseveral practices in place to prevent the unauthorized use of nuclear weapons, including storing warheads and delivery systems separately in peacetime, installing technical-use controls on the weapons
themselves, and enacting a “two-man rule” prohibiting access to orcontrol of the weapons by any single person.122
The PLA Rocket Force appears to be putting portions of its forces on heightened alert in an effort to improve its readiness. China
keeps the majority of its nuclear forces on a peacetime status withseparated launchers, missiles, and warheads, DOD notes, but nuclear and conventional PLA Rocket Force brigades conduct “combat
readiness duty” and “high-alert duty,” which include assigning a missile battalion “to be ready to launch” and rotating to standby positions as often as monthly for “unspecified periods of time.” 123 These
periods of combat readiness and high-alert duty presumably involve
temporarily mating warheads and delivery systems and could bepart of what DOD assesses is an impending move by some portionsof China’s nuclear forces to a launch-on-warning posture.124
The PLA Rocket Force’s growing numbers of mobile launchers anddual-use missiles could complicate its NC3 process. China’s leaders
maintain redundant means of communication and command pathways, including the ability to skip echelons of command, to ensure
their orders reach the firing units responsible for carrying out nuclear strikes.* Dr. Saunders notes that the NC3 system may struggle to adequately track China’s growing number of mobile ICBMs
since all of those mobile launchers will be dispersed from garrison
to concealed locations during a crisis or conflict.125 Another NC3-related complication that may arise is whether the PLA Rocket Forcebrigades operating the hot-swappable DF-26 missile will answer toorders directly from the PLA Rocket Force, which oversees nuclear
missions, or from the Theater Commands, which oversee conventional missions.126
Little information is available about the NC3 processes for China’s SSBN fleet and strategic bomber force, which may pose theirown challenges for command and control. During a crisis or conflict,
the CMC will presumably relay orders to alert or use nuclear weapons to PLA Navy headquarters and PLA Air Force headquarters,* According to George Washington University assistant professor Fiona Cunningham, the CMC
will transmit orders to alert or use nuclear weapons to the CMC Joint Operations Command,
PLA Rocket Force Headquarters, the missile bases, and then down the chain of command to themissile launch companies. China’s leaders can relay orders directly to missile brigades, battalions,or launch companies during a crisis (the so-called “skip echelon” system). The PLA Rocket Force’s
communications brigades operate redundant means of communication, including radio, fiber-optic
cables, and satellites, to ensure CMC orders are successfully transmitted to operational units.
The PLA Rocket Force also operates an automated command system that may be interoperablewith that of other PLA services and include support for its mobile missile force. Bates Gill,“Organization of China’s Strategic Forces,” in James M. Smith and Paul J. Bolts, eds., China’s
Strategic Arsenal: Worldview, Doctrine, and Systems, Georgetown University Press, 2021, 171;
Fiona Cunningham, “Nuclear Command, Control, and Communications Systems of the People’s
Republic of China,” Nautilus Institute, July 18, 2019; Yu Xijun, ed., The Science of Second Artillery
Campaigns (第二炮兵战役学), People’s Liberation Army Publishing House, 2004, 168. Translation.

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which will then convey those orders to the submarines on patrol
and the nuclear bombers, respectively.127 Dr. Saunders observes
that each branch must “develop [its] own operational doctrine, personnel reliability systems, and nuclear warhead handling facilities
to support . . . nuclear operations,” but the details are currently unknown.128 The SSBN fleet may have difficulty maintaining contact
with its command authority while operating in deep ocean waters
on patrol, though media reports in 2018 indicated China had built
a massive experimental antenna that could transmit messages tosubmerged submarines via extremely low-frequency waves.* 129
Moreover, China’s SSBNs cannot replicate the PLA Rocket Force’s
practice of keeping nuclear warheads separated from their missiles.
The PLA will need to discard this practice for its SSBNs to carrynuclear weapons on patrol, which will remove a traditional barrier
to unauthorized use.130
ISR Capabilities Will Enable Multiple Missions
China’s ISR systems improve targeting and situational awarenessfor China’s nuclear forces, enabling missions such as strategic early
warning and ballistic missile defense. An overlapping network ofradars and sensing satellites, most of which the PLA Strategic Support Force likely operates in direct support of the CMC and PLA
Rocket Force headquarters, are the most important elements.131
Together, these capabilities improve Chinese leaders’ situationalawareness and could enable them to move to a launch-on-warning
posture, whereby the PLA would launch nuclear weapons in retaliation for an incoming strike that has been detected by ISR systems
but not yet detonated on Chinese territory.
China’s ground-based radars, which include large-phased arrayradars, over-the-horizon radars, and radars that detect low-flying
targets, enable the PLA to detect threats from different trajectories.
The Strategic Support Force now operates four large-phased arrayradars that can detect and track incoming ballistic missiles at theapex of their trajectory up to 5,000 kilometers away.† 132 Moreover,
China has two over-the-horizon radar systems that can detect ballistic missile launches up to 2,500 kilometers away from the southeast,
giving China radar coverage over neighboring countries in the East
China Sea and much of the Western Pacific.133 China also has ahigh-frequency surface wave radar as well as radars associated with* Submerged submarines are unable to communicate with their command authorities at ordinary radio frequencies, which do not travel well through saltwater. Submarines can surface
and raise an antenna above sea level to use ordinary radio transmissions for communication,
but this makes them vulnerable to anti-submarine warfare. Such vulnerability is problematic
because submerged submarines need to be able to receive their launch orders in the event of a
nuclear war. Technological innovations during the Cold War led to several methods for underwater communication, such as the use of very low frequency radio waves at shallow depths and extremely low frequency radio waves at depths up to hundreds of meters. Extremely low frequency
transmitters are technically difficult to construct and only the United States, Russia, China, andIndia are known to use them. Ryan White, “How Do Submarines Communicate with the Outside
World?” Naval Post, May 3, 2021.
† The north-facing large-phased array radar at Huanan can detect and track ICBMs launchedfrom the United States and Russia on a polar trajectory, while the large-phased array radars at
Yiyuan and Longgangzhen face southeast toward Taiwan and the South China Sea for the possible purpose of bolstering Chinese conventional strikes on targets in those areas. The large-phasedarray radar at Korla can face west, south, southeast, or east and may be utilized for tracking
satellite launch and missile intercept tests. Hans M. Kristensen, “China’s Strategic Systems andPrograms,” in James M. Smith and Paul J. Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, and Systems, Georgetown University Press, 2021, 115–116.

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indigenous and Russian-made surface-to-air missile (SAM) systems
that can detect low-flying stealth aircraft and cruise missiles fromhundreds of kilometers away.134
China is developing infrared satellites to detect ballistic missiles
from space, though the extent to which it may already have suchsatellites is unclear. China has built a constellation of infrared early warning satellites named Shaobing akin to the United States’
Defense Support Program satellites in geosynchronous orbit, according to a 2018 article in Science and Technology Daily, the official newspaper of China’s Ministry of Science and Technology.135
Secret Chinese satellite launches in 2015, 2017, and 2020 provoked
speculation that the country was establishing a constellation of early warning satellites in geosynchronous orbit similar to the United States’ Space-Based Infrared System, but it is not clear if thisconstellation is the Shaobing constellation or something else.136 In
2019, Russian President Vladimir Putin said Russia is helping China build an early warning system, cooperation that could include
assistance on space-based sensors.137 China’s Yaogan electro-opticalsatellite constellation provides broad coverage of ships and aircraft
operating in the Pacific Ocean.138
China has intermittently researched and tested technologies required for ballistic missile defense since the 1960s, even though it
formally opposes U.S. ballistic missile defense.139 Dr. Saunders testified that China already has a “limited capability against tacticaland medium-range ballistic missiles” enabled by its Russian-built
and indigenous SAM systems, advanced interceptors, and ISR capabilities.140 For example, DOD assesses that China’s domestic HQ-9
long-range SAM system “likely has a limited capability to provide
point defense against tactical ballistic missiles.” 141 China has also
tested its HQ-19 mid-course interceptor, which may be able to intercept ballistic missiles within a 3,000-kilometer range, similar to the
U.S. Terminal High Altitude Area Defense system.142 Dr. Saunders
notes the PLA “has some capability to engage both short-range andmedium-range ballistic missiles,” though the speed of its interceptors and its launch detection capabilities may limit its ability tointercept longer-range missiles.143
China’s Modernized Nuclear Forces Enable Changes inStrategy and Heighten Nuclear Risks
The observable transformation of China’s nuclear posture and the
projections for its expansion over the next decade raise questions
about changes in China’s nuclear strategy. Recent qualitative andquantitative improvements in the nuclear forces clearly allow Chinese leaders to pursue a more ambitious nuclear strategy if theywish to do so. Regardless of the strategic intent behind these changes, China’s buildup creates new capabilities that an increasingly
risk-tolerant Chinese leadership could someday feel emboldened to
employ either for threats or for limited use during a regional conflict.
Moreover, the risks of a nuclear exchange between China and theUnited States are higher today than in the past. The entanglementof China’s conventional and nuclear forces creates risks of accidental nuclear escalation during a conventional war triggered by Chi-

360
na’s aggression in the Indo-Pacific. If Chinese leaders have alreadychanged their strategy without declaring they have done so, they
could be much more likely to intentionally threaten or use nuclear
weapons to achieve their regional objectives, such as deterring or
degrading intervening U.S. forces in a conventional war over Taiwan
they fear they could lose. Finally, if Chinese leaders choose to shift
their land-based missile force to a launch-on-warning posture, thedifficulties associated with learning to operate such a system could
generate false alarms about nonexistent incoming nuclear attacks,
potentially triggering a nuclear exchange between China and theUnited States.
Competing Interpretations of China’s Nuclear Buildup
The available evidence about China’s nuclear buildup is consistent
with multiple interpretations of Chinese leaders’ intent. Chinese
leaders could simply be upgrading their nuclear forces to ensure
they can survive and retaliate against an adversary’s first strike
without altering China’s current nuclear strategy. Alternatively,
many of these advances could enable a shift to a launch-on-warning
posture. A third possibility is that Chinese leaders could be transforming their nuclear forces to support a strategy involving the limited use of nuclear weapons against conventional military targets
in the Indo-Pacific, such as U.S. aircraft carriers and bases, while
continuing only to target an adversary’s major cities in retaliation
for a nuclear attack China sustains first. These explanations are
not mutually exclusive; Chinese leaders could intend to keep theircurrent retaliatory strategy for now but reserve the option to adopt
a new nuclear strategy in the future should conditions warrant.
China’s Buildup Aims to Create a Survivable Retaliatory Force
One interpretation is that China may be building up its nuclear forces in order to improve or restore its second-strike capability,
which was arguably never truly secure but has been underminedin recent years by technological advances in other nuclear weapon
states China considers a threat.144 Chinese scholars and some U.S.
analysts identify the United States’ development of ballistic missile
defense and conventional long-range strike capabilities for “damage
limitation” * as the main impetus for changes in China’s nuclear
posture.145
The PLA’s emerging nuclear triad, growing warhead stockpile,and increasing reliance on mobile platforms make it more difficult
for an adversary to disarm China in a nuclear first strike, increasing what George Washington University assistant professor Fiona
Cunningham and Massachusetts Institute of Technology politicalscience professor M. Taylor Fravel call the “assuredness” of retal* “Damage limitation” refers to the ability to significantly reduce the damage an adversary can
inflict against the U.S. homeland in an all-out nuclear retaliatory attack. During the Cold War, theUnited States interpreted damage limitation as denying the Soviet Union an “assured destruction
capability” against the United States, which then Secretary of Defense Robert McNamara defined
as a state’s ability to destroy 20 to 25 percent of another country’s population and 50 percent of
its industrial base in retaliation after an attack on its nuclear forces. Damage limitation requires
robust ISR to track incoming missiles, capable ballistic missile defense to intercept missiles inflight, and long-range weapons (conventional or nuclear) that can destroy a state’s nuclear forceson land and at sea, as well as its nuclear command and control infrastructure. Charles L. Glaser
and Steve Fetter, “Should the United States Reject MAD? Damage Limitation and U.S. Nuclear
Strategy toward China,” International Security 41:1 (Summer 2016): 54, 55, 62.

361
iation.146 MIRV technology on China’s ICBMs and the ability tolaunch enough missiles to impose unacceptable damage on an adversary’s cities helps China complicate the U.S. approach to damage limitation and advance a de facto—if not political *—state ofmutual vulnerability.147 Growing numbers of missile silos improve
the likelihood that more of China’s ICBMs survive an attack, since
they are hardened and could be filled with a mix of decoys and real
warheads.148 Viewed through this lens, a decision by China to adopt
a launch-on-warning posture could also be consistent with the retaliatory aspect of its current nuclear strategy.149
China’s Buildup Enables a Transition to Launch-on-Warning
Chinese leaders might also intend their nuclear buildup to support the adoption of a launch-on-warning posture. Such a posture,
which is technologically sophisticated and greatly increases the
speed with which China can retaliate against an incoming attack,arguably supersedes the requirements of minimum deterrence if
adopted across the ICBM force. The very short time frame for decision-making created by a launch-on-warning posture could lead
Chinese leaders to launch a second strike with overwhelming force,
before they are able to assess the scale of the damage sustained bya target as a result of the adversary’s first strike. Such a posturethus creates the possibility that China could impose disproportionate damage on an adversary that struck it first in a more limited
fashion, behavior that would be inconsistent with the proportionality and relaxed response time emphasized by China’s historical
nuclear strategy. More importantly, a transition to launch-on-warning heightens the risks of accidental or erroneous nuclear escalation(for more, see “China’s Shift to Launch-on-Warning Could Result in
Accidental Nuclear Launch”).150
China’s Buildup Enables a More Ambitious Nuclear Strategy
China’s nuclear posture could also support a more ambitious nuclear strategy that envisions the limited first use of nuclear weapons as a legitimate means of achieving China’s political objectives
in the region. Such a strategy would be consistent with important, if
officially marginalized, Chinese intellectual debates that took placein the past over how China could use nuclear weapons to prevail inwars and whether it should discard the no-first-use policy. Chinese
leaders today could be more receptive to the PLA’s perennial push
for additional strategic options as they consider how best to achieve
their expanding political interests.
According to Dr. Saunders, PLA theorists have repeatedly raised
the possibility of a shift toward a more ambitious nuclear doctrinethat might include nuclear warfighting,† only to have CCP leaders* The United States does not publicly acknowledge a mutual vulnerability relationship with
China. The nuclear forces of China and the United States can hold each other’s countries at risk,
but not to the same extent given the greater size and sophistication of the U.S. arsenal as well
as U.S. ballistic missile defense capabilities.
† Nuclear warfighting strategies, often described as “flexible” or “limited” nuclear option approaches, purportedly enable military commanders to limit the effects of a nuclear war by targeting an enemy state’s nuclear forces and military infrastructure (counterforce targeting) rather than its major population centers (countervalue targeting). Concepts of nuclear warfighting
assume that nuclear weapons can be deployed with discrimination and flexibility to accomplish
political objectives without resulting in escalation to all-out nuclear war. Nuclear warfighting
strategies are distinct from strategies that envision the only function of nuclear weapons as362
end the discussion.151 In the 1980s, for example, Chinese strategists
debated the possibility of a shift to “limited deterrence,” * an approach that envisioned a mix of counterforce and countervalue tactical, theater, and strategic nuclear forces to deter escalation to war orcompel an adversary to back down if war broke out.152 Christopher
P. Twomey, associate professor at the Naval Postgraduate School,
notes that passages in the 2004 authoritative text Science of Second
Artillery Campaigns discuss “distinct waves of [nuclear] retaliation,”suggesting the text’s authors saw nuclear weapons as a tool to be
employed in a graduated way to control further escalation † during
a war that had already gone nuclear.153
More recently, writings by Chinese strategists and passages in authoritative texts over the past 20 years reflect an officially quasheddebate over whether China should abandon or otherwise qualify no
first use.154 Some PLA officers have argued that China should use
nuclear weapons first if an enemy’s conventional attack threatens
the survival of China’s nuclear forces or of the CCP itself.155 The
aforementioned Science of Second Artillery Campaigns describes
threatening nuclear use—though not actually employing nuclear
weapons—in response to conventional attacks against high-value
targets within China.156 The 2020 Science of Military Strategy discusses launching nuclear weapons in “demonstration strikes,” presumably on China’s territory or the open ocean, to signal resolve
during a crisis.157
Nuclear Use against Regional, Conventional Military Targets to
Deter or Degrade Adversary Forces
If Chinese leaders decide to adjust their nuclear strategy, they are
most likely to adopt one involving the limited first use of low-yield,
more precise nuclear weapons against select conventional military
targets in the Indo-Pacific region.158 Chinese leaders may believe
such a strategy would deter U.S. intervention or confer significant
military advantages if it enables them to destroy assets critical to
U.S. military operations, such as U.S. aircraft carriers or the bases
deterring an enemy from launching a nuclear attack. Nuclear warfighting strategies generally
require many accurate, reliable, and survivable nuclear weapons; robust ISR; and efficient command and control processes, though the quantities may depend on the enemy state’s nuclear
capabilities. Bulletin of Peace Proposals, “Nuclear Deterrence, Nuclear War-Fighting and Nuclear
Disarmament,” Arms and Disarmament SIPRI Findings, 17:3/4 (1986): 391.
* According to Harvard University professor Alastair Iain Johnston, Chinese writings outlining
limited deterrence identified as appropriate targets an enemy’s strategic missile, naval and airforces, nuclear weapons stockpiles, command and control, early warning systems, transportation
hubs, military industrial targets, and political and economic centers, among others. Hitting thesetargets and successfully suppressing escalation to higher levels of nuclear violence would require additional numbers of accurate and survivable ICBMs, SLBMs, tactical and theater nuclear
weapons, ballistic missile defense, space-based early warning, and anti-satellite weapons. Chinese
strategists believed a limited deterrent should be able to respond proportionately to any level of
nuclear use, from tactical to strategic, and enable China to “entertain war-winning possibilities.”
China did not have the capabilities to implement limited deterrence when it emerged in the
1980s, however, and its core concepts were not reflected in policy or authoritative military texts
published afterward. Alastair Iain Johnston, “China’s New ‘Old Thinking’: The Concept of Limited
Deterrence,” International Security 20:3 (Winter 1995–1996): 5–6, 17–20.
† Nuclear weapons can theoretically be used to control substantial military escalation during
an ongoing war, a concept known as “intrawar deterrence” or “transwar deterrence.” Intrawar
deterrence can be achieved by threatening to use nuclear weapons should the adversary escalate
a conflict beyond a particularly important threshold. Christopher Twomey, written testimony for
the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces,
June 10, 2021, 3–4; Keith B. Payne, “The Great Divide in U.S. Deterrence Thought,” Strategic
Studies Quarterly (Summer 2020): 24; W. Andrew Terrill, Escalation and Intrawar Deterrence
during Limited Wars in the Middle East, U.S. Army War College Press, 2009, xi.

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on Guam and Okinawa.159 They could signal restraint at the strategic level by keeping their ICBM force de-alerted and communicating
directly that China would continue only to target an adversary’s
major cities with large-yield warheads in retaliation for a nuclear
first strike on the Chinese Mainland.
Several technological developments within China’s nuclear forces make this shift in strategy possible. Caitlin Talmadge, associate
professor of security studies at Georgetown University, testified before the Commission that the precision, range, and hot-swappablecharacter of the DF-26 suggest the system is “designed to be used
for something other than a countervalue second strike” and “wellsuited to limited nuclear use against U.S. military targets in the
Pacific.” 160 Chinese commentators have described the future development and deployment of lower-yield nuclear weapons as means todestroy U.S. aircraft carriers and bases and to manage escalation.161
Improvements to China’s NC3 system and ISR would also better
position China’s theater nuclear forces to identify and successfullytarget U.S. forces during a regional conflict.162 All of these capabilities support Admiral Richard’s observation in February 2021 that
China can now adopt “any plausible nuclear employment strategy
regionally” with its nuclear forces.163
Chinese leaders could believe this strategy of limited nuclear use
is unlikely to provoke further nuclear escalation because of the imbalance of nuclear forces at the theater level. The United States
was unable to deploy nuclear or conventional intermediate-range
missiles in the Indo-Pacific between 1987 and 2019 due to its participation in the now-defunct INF Treaty.164 During the same period, China—which was not party to the treaty—rapidly expanded
the intermediate-range missile arsenal that is now foundational toits conventional military strategy and developed several intermediate-range nuclear variants of these systems.165 Brad Roberts, director of the Center for Global Security Research at Lawrence Livermore National Laboratory, told the Commission that as a result, thebalance of Chinese and U.S. ground-based nuclear forces deployed in
the Indo-Pacific is “roughly a thousand missiles to zero.” 166 This imbalance means the United States lacks proportionate ground-based
options to respond to a limited use of nuclear weapons by China at
the theater level.
PLA Capabilities to Engage in Limited Nuclear Counterforce against
the U.S. Homeland
China’s military today may be capable of shifting to counterforce strategies * involving the very limited use of nuclear weapons* One strategy might involve a limited “demonstration” of nuclear use, such as detonating a
nuclear weapon to create an electromagnetic pulse on the open ocean water near a U.S. military
installation. Chinese leaders could employ this strategy during a crisis to shock U.S. politicalleaders and demonstrate their resolve to escalate to higher levels of nuclear violence should theUnited States fail to “back down” over the issue at hand. The second strategy could involve using
a low-yield nuclear weapon against one or more of the radars associated with U.S. missile defense,such as those located at military bases in Alaska. This strategy too would aim to intimidate U.S.
leaders into accepting Chinese political objectives during a crisis, but it would have the added
benefit of degrading U.S. NC3 and missile defense capabilities that would be relevant in the nextstage of a war. Both strategies rely on highly questionable assumptions that the U.S. leadershipwould either not retaliate at all, for fear of inviting further nuclear attacks, or inflict a “tolerable,”
proportionate level of damage with a limited nuclear strike against a similar target in China.
There is no evidence in Chinese military texts indicating Chinese leaders intend to adopt either
strategy. Phillip C. Saunders, Director of the Center for the Study of Chinese Military Affairs at364
against targets on the U.S. homeland with its highly precise DF-41
ICBM and lower-yield warheads potentially under development, butthese strategies would be unable to manage escalation to all-out
nuclear war. China remains technologically incapable of launchinga disarming first strike against the United States. China’s nuclear forces are not large enough or sophisticated enough to destroy
most or all of the United States’ nuclear forces. It is true China isdeveloping highly accurate missiles, MIRVs, better ISR, the ability to launch rapidly, and ballistic missile defense, all of which aretheoretically useful for destroying an adversary’s nuclear forces andlimiting any damage China could sustain in response. But to target and degrade large portions of the U.S. nuclear arsenal, the PLA
would need vast quantitative increases and qualitative improvements in each of these capabilities. Even if it were to destroy manyof the United States’ silo-based ICBMs or strategic air bases, the
PLA would almost certainly be unable to destroy U.S. SSBNs before
they inflicted massive and unacceptable retaliation on the Chinese
Mainland.
New Risks of Nuclear Escalation in a Competitive U.S.-China
RelationshipTechnological changes within China’s nuclear forces and the growing chance of a conventional conflict in the Indo-Pacific theater increase the risks of escalation to a limited nuclear exchange between
China and the United States. This section discusses specific risks
associated with the PLA’s entanglement of nuclear and conventional
systems, the possibility China might use nuclear weapons to reverse
the outcome of a conventional war it was losing, and the adoption ofa launch-on-warning posture. It also assesses the risk that China’s
more credible nuclear deterrent could give Chinese leaders the confidence to pursue coercion or conventional aggression against U.S.
allies and partners in the Indo-Pacific.
A U.S. Attack on “Entangled” PLA Assets Results in Nuclear
Escalation
Growing entanglement between the PLA’s conventional and nuclear forces, specifically in its intermediate-range missile systems andsubmarine forces, creates risks of accidental or unforeseen nuclear
escalation. It is not clear whether the PLA has intentionally entangled these capabilities to heighten the risks it poses to its adversary,
thereby enhancing deterrence, or whether it has done so to enhance
operational efficiency.167 Using the same designs for nuclear andconventional missile variants also saves costs associated with research and production, creating economies of scale.168
The PLA’s entanglement of its conventional and nuclear forces
increases the possibility that the United States could unintentionally degrade components of China’s nuclear arsenal or its associatedNC3 systems during a conventional war in ways that precipitate
Chinese nuclear escalation. Dr. Talmadge describes this escalation
pathway as “conventional counterforce” and notes it is most likethe National Defense University, interview with Commission staff, July 19, 2021; Christopher P.
Twomey, Associate Professor at the Naval Postgraduate School, interview with Commission staff,
July 20, 2021.

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ly to emerge amid the fog of war and worst-case thinking during
an armed conflict over Taiwan.169 “If Beijing interprets the erosionof its sea- and land-based nuclear forces as a deliberate effort todestroy its nuclear deterrent through conventional counterforce, or
perhaps even as a prelude to a nuclear counterforce, it might see
limited nuclear escalation as a way to force an end to the conflict,”
she observes.170 Similarly, Dr. Saunders agrees “U.S. strikes which
inadvertently destroy a handful of Chinese ICBMs or severely degrade [PLA Rocket Force] strategic command and control systems
could significantly heighten Chinese threat perceptions and create‘use or lose’ pressures that encourage nuclear use.” 171
China Threatens or Uses Nuclear Weapons to Avoid Losing a War
over Taiwan
Chinese leaders might also consider purposefully threatening theuse of or actually using nuclear weapons as a means to reverse
the outcome of a conventional war they were losing, such as a war
over Taiwan. Consistent with methods of strategic deterrence described in the Science of Military Strategy, China could attempt todeter the United States from intervening in a conflict over Taiwan
by threatening the use of nuclear weapons through escalatory signaling practices. These methods include adjusting the deploymentsof China’s nuclear weapons, raising readiness levels, publicly revealing its prepared nuclear weapons, or carrying out warning strikes
involving nuclear weapons (presumably on the open ocean), any ofwhich could cause unintended escalation if mistaken by an adversary as preparations for a nuclear first strike.172
Alternatively, Dr. Talmadge argues that China could engage in“asymmetric escalation” by actually using nuclear weapons against
U.S. military targets during a war over Taiwan.173 “Given the island’s political importance, it is not inconceivable to think that Chinese leaders losing a war over Taiwan could engage in asymmetricnuclear escalation to try to get the United States to back down or
simply to halt the U.S. conventional campaign,” she said.174 China’s
use of nuclear weapons against conventional U.S. forces and bases
during a Taiwan contingency would obviously constitute a violationof its no-first-use pledge, but in Dr. Talmadge’s view would be comparable to the scenarios in which countries facing the loss of territory during a land war have historically threatened asymmetricnuclear escalation.* 175
Chinese leaders’ decision to escalate to nuclear use would rely on
the potentially erroneous assumption that the United States wouldback down because it “cares less” about the outcome of a Taiwan* Dr. Talmadge points out that China engaged in highly escalatory behavior during a bordercrisis with the Soviet Union in 1969. “China started a skirmish that risked war and initiallybelieved that nuclear weapons would be irrelevant, even though the Soviet arsenal was several
orders of magnitude larger than China’s, just as the U.S. arsenal dwarfs China’s today,” sheobserved. After learning that the Soviets had discussed with other countries plans to attack
China with nuclear weapons, Chinese leaders became deeply concerned that a nuclear attack
was imminent despite having no evidence the Soviets intended to follow through on their threat.
China tested a thermonuclear weapon at Lop Nur and placed the country’s nuclear forces on amonths-long alert for the first and only time in China’s history, a risky move given that at thetime the PLA relied on liquid-fueled missiles and rudimentary command and control procedures.
Caitlin Talmadge, oral testimony for the U.S.-China Economic and Security Review Commission,
Hearing on China’s Nuclear Forces, June 10, 2021, 116; Caitlin Talmadge, “Would China Go Nuclear? Assessing the Risk of Chinese Nuclear Escalation in a Conventional War with the UnitedStates,” International Security 41:4 (Spring 2017): 88–90.

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conflict than does China. “The point of nuclear saber rattling in a
Taiwan conflict for them would be to awaken us to the asymmetryof stake,” Dr. Roberts told the Commission.176 He argued that Chinese leaders may not fully appreciate the importance the UnitedStates places on Taiwan as a testament to democracy in Asia andas a bellwether for its extended deterrence commitments.177 “That’s
a large stake and that’s not wished away by the nuclear shadow,”
Dr. Roberts said.178
China’s Shift to Launch-on-Warning Could Result in Accidental
Nuclear Launch
A decision by China to adopt a launch-on-warning posture for its
nuclear forces increases the risk of accidental nuclear use. Disarmament advocates generally regard launch-on-warning as destabilizing because it can produce false alarms about nonexistent attacks
and trigger a nuclear exchange.179 Admiral Richard called China’s
potential shift to launch-on-warning “unsettling” before the Senate
Committee on Armed Services in April 2021 given what he describedas “the immature nature of Chinese strategic forces and compressed
timelines needed to assess and frame a response,” which increase“the potential for error and miscalculation.” 180
Moreover, a shift to launch-on-warning could require the predelegation of launch authority to General Secretary Xi or to the CMC
since there would be too little time to build consensus within the Politburo Standing Committee over whether to launch in response topotentially false reports of an incoming missile. The abandonmentof consensus decision-making over nuclear retaliation, a dynamicthat has already occurred in other policy areas, would mean General
Secretary Xi’s risk tolerance could play an outsized role in determining whether China uses nuclear weapons. While DOD assesses that
China will keep at least a portion of its force on a launch-on-warning posture, Dr. Saunders told the Commission he does not believea force-wide shift is likely given CCP leaders’ historical distrust of
the military and their concern that such a posture could heighten
the risks of escalation or accidental nuclear conflict.181
Increased Potential for Coercion or Conventional Aggression
China’s growing nuclear arsenal could embolden it to pursue coercion or conventional aggression against U.S. allies and partners if
Chinese leaders believe their nuclear arsenal will deter the UnitedStates from intervening on these countries’ behalf. This logic, known
in political science as the “stability-instability paradox,” holds that
because nuclear adversaries cannot afford to fight for fear of mutual
destruction, neither will initiate nuclear war (creating “stability”),
but that because of this, conventional war remains a viable option(creating “instability”).182 Abraham Denmark, director of the Asia
Program at the Wilson Center, argued in testimony before the Commission that U.S. allies and partners are concerned China’s nuclear
modernization could affect the willingness of the United States toprovide extended deterrence in the long term because the potential costs of defending them from conventional aggression against
a more capable nuclear-armed China will be higher than before.183

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Chinese conventional aggression is most plausible against Taiwan and Japan. Mr. Denmark described in testimony one scenario
in which China could attempt to quickly seize Taiwan and present the United States with a fait accompli, threatening nuclear use
should U.S. forces attempt to roll back its gains.184 Other analysts,
especially those in Japan’s strategic community, have argued that
China could extend its presence around or even seize the Senkaku
Islands.185
China’s Proliferation Activities: An Added Nuclear Threat
China continues to facilitate the global proliferation of nuclear
and missile technologies today, presenting the United States and its
allies with another nuclear-related threat. Whereas decades ago theChinese government and SOEs dominated the trade of prohibited
nuclear and missile technologies,* today Chinese private individuals
and companies are the most important vectors for proliferation tocountries of concern, and the goods they export are dual-use rather
than those with pure military applications.186 “The Chinese government has adopted an, at best, passive response to this trade, neither
actively preventing nor punishing private entities for such exportsor re-exports,” Valerie Lincy, executive director of the Wisconsin
Project on Nuclear Arms Control, testified to the Commission.187
U.S. government reports in recent years allege that “China-based
entities” proliferate technologies and materials with nuclear andmissile applications to other countries, and that the Chinese government turns a blind eye to their activities. For example, the 2021
version of the State Department’s annual report, Adherence to andCompliance with Arms Control, Nonproliferation, and Disarmament
Agreements and Commitments, stated, “Chinese entities continued
to supply [Missile Technology Control Regime]-controlled † goods
to missile programs of proliferation concern in 2020,” though it referred readers to a classified annex for details.188 The report notedthat the U.S. government had raised a number of cases with the
Chinese government concerning transfers of missile-related goods
and technology by Chinese entities to countries of concern throughout 2020. “Although the United States has asked that China inves* In the 1980s and 1990s, Chinese SOEs made strategically significant transfers of technology
and knowhow—including the complete design for a nuclear weapon and multiple missile systems—to Pakistan, Iran, and North Korea, among others. China made the transfers despite thesecountries variously refusing to sign the Treaty on the Non-Proliferation of Nuclear Weapons,violating their treaty commitments, or withdrawing entirely from the treaty. The Chinese government began to observe some nuclear nonproliferation norms and multilateral export control
regimes in the mid-1990s, which U.S. government sources at the time assessed led to improvement in the export practices of SOEs and an end to confirmed transfers of nuclear-capable missiles. China acceded to the Treaty on the Non-Proliferation of Nuclear Weapons in 1992, joined
the Zangger Committee in 1997, and joined the Nuclear Suppliers Group in 2004. Valerie Lincy,
written testimony for the U.S.-China Economic and Security Review Commission, Hearing on
China’s Nuclear Forces, June 10, 2021, 3–11; Congressional Research Service, Chinese Nuclear
and Missile Proliferation, May 17, 2021, 1; White House, A Report Relating to the Approval and
Implementation of the Agreement for Nuclear Cooperation between the United States and thePeople’s Republic of China, Pursuant to 42 U.S.C. 2153(d), January 12, 1998.
† The Missile Technology Control Regime is a multilateral export control regime that restricts
the proliferation of missiles, complete rocket systems, unmanned air vehicles, and related technology for systems capable of carrying a 500-kilogram payload at least 300 kilometers as well as
systems intended for the delivery of WMD. China agreed to apply some of the Missile Technology
Control Regime’s guidelines for curbing missile proliferation despite the rejection of its formal
application for Mission Technology Control Regime membership in 2004 on the grounds that
it failed to meet the group’s nonproliferation standards. Wade Boese, “Missile Regime Puts Off
China,” Arms Control Association, November 2004.

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tigate and put a stop to such activities, most of these cases remainunresolved,” the report asserted.189 The report also assessed that
China “has failed to adhere” to a pledge it reportedly made to theUnited States in November 2000 that it would not assist “in any
way, any country in the development of ballistic missiles that canbe used to deliver nuclear weapons.” 190
The U.S. government continues to sanction China-based entities for their facilitation of nuclear and missile proliferation. On atleast two occasions in 2020, for example, the State Department announced sanctions in accordance with the Iran, North Korea, andSyria Nonproliferation Act on a number of Chinese individuals andfirms for transferring sensitive technology and items to Iran’s missile programs.191 More broadly, the U.S. government has placed numerous Chinese SOEs, firms, and individuals involved in China’s
nuclear weapons program and proliferation activities on the U.S.
Department of Commerce’s Entity List.192 Several Chinese individuals have been prosecuted in recent years for conspiring to illicitlytransfer U.S.-origin technologies with nuclear and missile applications to China.193
Proliferation of Dual-Use Items to IranChina-based individuals and private enterprises have played adominant role in publicly documented cases of proliferation to Iranover the last decade.* In some cases, Chinese nationals have engaged in elaborate schemes to transfer dual-use items from China to
Iran. The most notorious of these individual proliferators is Li Fangwei (also known as Karl Lee), a China-based businessman whom
the United States has sanctioned 12 times since 2010, including
most recently in 2019, for transferring sensitive dual-use technologies such as gyroscopes, accelerometers, high-strength alloys, andgraphite cylinders to Iran.194 According to a 2019 statement by the
National Security Council’s senior director for weapons of mass destruction (WMD), Mr. Li’s transfers “contributed to Iran’s development of more advanced missiles with improved accuracy, range, andlethality.” 195 Mr. Li remains at large in China despite U.S. requests
to extradite him and a $5 million reward the U.S. government hasoffered for information leading to his arrest or conviction.196 Another prominent example of a Chinese individual enabling proliferation to Iran is Cheng Sihai, a Chinese businessman who provided
Iran with titanium sheets and tubes, seamless steel tubes, pressure
valves, bellows, flanges, and U.S.-origin pressure transducers for thecountry’s uranium enrichment program.197 Mr. Cheng was arrested* Affiliates or subsidiaries of Chinese SOEs have sometimes been implicated in recent proliferation activities that benefit Iran’s WMD activities. For example, China’s Wuhan Sanjiang Export
and Import Co. Ltd. was sanctioned by the U.S. Department of the Treasury in 2017 for selling
more than $1 million worth of technology, including radars and missile guidance equipment, toa subsidiary of Iran’s Ministry of Defense and Armed Forces Logistics. Wuhan Sanjiang Export
and Import Co. Ltd. is a subsidiary of the large enterprise China Sanjiang Space Group, whichis in turn a subsidiary of the SOE China Aerospace Science and Industry Corporation. In the
1980s and 1990s, the Chinese governemnt reportedly helped Iran explore for uranium, provided
the design for the conversion plant at Isfahan, and made transfers that aided Iran’s developmentof a solid-fuel ballistic missile. Valerie Lincy, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 9; U.S. Department of the Treasury, Treasury Designates the IRGC under Terrorism Authority and Targets IRGC
and Military Supporters under Counter-Proliferation Authority, October 13, 2017; Foreign Trade
Online, “Wuhan Sanjiang Import & Export Co., Ltd.”

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by U.S. authorities in 2014 and sentenced in 2016 to nine years inprison.198
In other cases, Iranian individuals and companies have operated
from inside China to arrange transfers of dual-use items. Ms. Lincy
highlighted the case of Ghobad Ghasempour, an Iranian-born Canadian national who set up front companies in China with the help ofa Chinese partner to transship U.S.-origin items with applications
to missile guidance systems—such as a precision lathe machine,
thermal imaging cameras, and an inertial guidance system—to an
Iranian state-controlled engineering company.199 Mr. Ghasempour
was arrested in the United States in 2017 and sentenced in 2018 to
42 months in prison, but his accomplice remains at large, presumably in China.200
SOEs Share Civil Nuclear and Missile Technologies withPakistan
Beijing was instrumental in helping Pakistan develop its nuclear program in the early 1980s, and Chinese SOEs continue to export dual-use technologies to Pakistan that could further its nuclear
and missile programs.* Chinese SOEs support a variety of projects
linked to China’s provision of fuel and services for nuclear power
plants it has built in Chashma and Karachi.201 In 2012, China National Nuclear Corporation subsidiary China Zhongyuan Engineering Corporation moved ahead with a plan to build two new civil
nuclear reactors in Chashma in addition to the two it had built
there prior to China joining the Nuclear Suppliers Group in 2004.†
Chinese officials made this decision despite the fact that Nuclear
Suppliers Group guidelines ‡ prohibit such assistance to Pakistan
because it is neither a member of the Treaty on the Non-Proliferation of Nuclear Weapons nor does it have all of its nuclear facilities
under International Atomic Energy Agency safeguards.§ 202 One of
the SOEs constructing the Karachi plants, the China Nuclear Energy Industry Corporation, reportedly supplied fuel assemblies andcore components to the Pakistan Atomic Energy Commission, themain Pakistani counterpart for the project that has been on the
U.S. Department of Commerce’s Entity List since 1998 due to proliferation concerns.203 Trade data reviewed by the Wisconsin Project* In the 1980s and 1990s, China provided Pakistan with the complete design of a tested nuclear
weapon; a supply of weapons-grade uranium to fuel that design; the solid-fuel short-range DF-11
ballistic missile system, which likely formed the basis for Pakistan’s Shaheen missile system; and5,000 ring magnets necessary for centrifuges used in uranium enrichment. Shirley A. Kan, “China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues,” Congressional
Research Service, February 26, 2003, 4–5.
† China built two nuclear reactors at Chashma as a result of agreements struck in 1991 and2003. When China joined the Nuclear Suppliers Group in 2004, it informed fellow member statesthat apart from these two reactors at Chashma, it would not supply any further reactors toPakistan. In 2011, however, Beijing asserted that it would “grandfather” a new deal to build two
reactors into the 2003 agreement, which was concluded before China’s entry into the Nuclear
Suppliers Group. Jeff M. Smith, “China and Pakistan’s Nuclear Collusion,” Wall Street Journal,
April 2, 2013; Sharad Joshi, “The China-Pakistan Nuclear Deal: A Realpolitique Fait Accompli,”
Nuclear Threat Initiative, December 11, 2011.
‡ The Nuclear Suppliers Group is a group of nuclear supplier countries that implements two
sets of guidelines for nuclear exports and nuclear-related exports in order to curb the proliferationof nuclear weapons. China joined the Nuclear Suppliers Group in 2004. Nuclear Suppliers Group,“About the NSG;” Nuclear Suppliers Group, “Guidelines;” Nuclear Suppliers Group, “Participants.”§ While Pakistan has International Atomic Energy Agency safeguard agreements in force for all
its Chinese-built civil nuclear reactors, its nuclear weapons facilities in Islamabad do not havesuch safeguards. Congressional Research Service, Chinese Nuclear and Missile Proliferation, May
17, 2021, 2.

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shows that in 2014 and 2017, Wuhan Sanjiang Import and Export
Co. Ltd., which is ultimately subordinate to the SOE China Aerospace Science and Industry Corporation,* shipped items with applications to missile transporters and launchers to Pakistani entities
associated with the country’s ballistic missile work.204
Nuclear relations between China and Pakistan remain “extensive
and problematic,” Ms. Lincy told the Commission.205 China’s civil nuclear cooperation with Pakistan allows the country to devote
more of its unsafeguarded nuclear infrastructure to fissile material
production for nuclear weapons and provides it access to advanced
nuclear technologies that could ultimately benefit the unsafeguarded program.206
Chinese Finance Benefits North Korea’s WMD Programs
Private actors in China indirectly support North Korea’s acquisition of dual-use goods for its nuclear and missile programs
by facilitating its access to the foreign currency required to fundthese programs.† 207 Ms. Lincy argues this support entails hosting
agents for North Korean financial networks that process illicit
transactions to finance North Korea’s nuclear and ballistic missile programs as well as North Korean nationals who remit income ultimately used for the same purposes.208 Then Deputy Assistant Secretary of State and current Commissioner Alex Wongsaid in a November 2020 speech that “China hosts no less than
two dozen North Korean WMD and ballistic missile procurement
representatives and bank representatives” despite a UN Security
Council resolution requiring the expulsion of North Korean diplomats and representatives who assist in the evasion of sanctions
related to the country’s nuclear and missile programs.209 “TheUnited States has provided China with ample actionable information on the ongoing UN-prohibited activities occurring within
its borders,” Deputy Assistant Secretary Wong noted, “but Beijing
has chosen not to act.” 210 North Korean workers also continue toreside in China and earn income for North Korea’s nuclear weapons program. For example, North Korean information technology
workers linked to a UN-sanctioned entity that oversees North
Korea’s nuclear and missile programs—the Munitions Industry
Department—have established Chinese companies and sponsoredvisas for North Korean workers.211* Wuhan Sanjiang Export and Import Co. Ltd. has been sanctioned by the Treasury Department
for its sales of technology with missile applications to Iran; it is not on the Entity List maintainedby the U.S. Department of Commerce. The company is also not on the Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List), presumably because it is not publicly
traded. U.S. Department of Commerce Bureau of Industry and Security, Supplement No. 4 to Part744 - ENTITY LIST, July 19, 2021; U.S. Department of the Treasury Office of Foreign Assets
Control, “Non-SDN Chinese Military-Industrial Complex Companies List,” June 16, 2021; Valerie
Lincy, written testimony for the U.S.-China Economic and Security Review Commission, Hearing
on China’s Nuclear Forces, June 10, 2021, 9–10.
† In the 1990s, Chinese SOEs provided technology and knowhow that furthered North Korea’s
ballistic missile program. For example, in 1998 the Chinese SOE China Academy of Launch
Vehicle Technology, a subsidiary of China Aerospace Corporation, allegedly helped North Korea’s
space program develop satellites that were later used for the North Korean Taepodong-1 MRBM.
Valerie Lincy, written testimony for the U.S.-China Economic and Security Review Commission,
Hearing on China’s Nuclear Forces, June 10, 2021, 10.

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Implications for the United States
The rapid buildup of China’s nuclear arsenal signals a clear departure from the country’s historically minimalist nuclear posture.
It suggests Chinese leaders are more expansively redefining therequirements of their assured retaliation strategy and potentiallyeven contemplating a more ambitious strategy envisioning the firstuse of nuclear weapons to accomplish China’s regional objectives.
As Dr. Roberts observes, the significance of China’s buildup for theUnited States “depends, in part, on China’s answer to the question,‘How much is enough?’ ” and that so far, “China has given us noanswer.” 212
China’s nuclear buildup puts it on a path to become a qualitative
nuclear peer of the United States in around a decade, with a similarly diversified, precise, and survivable force.213 Such a force would
give China a truly secure second-strike capability as well as options
for highly calibrated nuclear use that could support both their current assured retaliation strategy and a new strategy of limited nuclear first use in the region. China could even become a quantitative
nuclear peer if projections for the growth of the land-based leg ofthe nuclear triad are correct. Regardless of what the future holds,
however, several troubling implications are already apparent.
First, China’s growing nuclear capabilities create uncertainty andraise the risk of accidental or unforeseen nuclear escalation duringa regional conflict. Because some of the PLA’s conventional and nuclear forces and supporting infrastructure are either comingled orindistinguishable, the United States might accidentally attack nuclear capabilities in the course of attacking nonnuclear capabilities
during a conventional war in the Indo-Pacific. Such a situation could
lead to “crisis instability” whereby China resorts to nuclear first use
in order to preserve its nuclear deterrent, which it believes to be inserious danger. Reducing the risks stemming from entanglement in
the PLA will be challenging because Chinese leaders may worry they
will undermine deterrence or reduce operational efficiency if theyagree to reduce entanglement.214 Moreover, Chinese leaders may
not believe that accidental nuclear escalation is a serious concern.
The belief that inadvertent escalation is unlikely actually makes it
more probable, however. As several nuclear experts affiliated with
the Carnegie Endowment for International Peace argue, this view“leaves political and military leaders less inclined, in peacetime, totake steps that could mitigate the risks and more inclined, in wartime, to interpret ambiguous events in the worst possible light.” 215
Similar risks of unintentional nuclear escalation could stem from alaunch-on-warning posture, which is prone to false alarms.
Second, China’s growing nuclear capabilities raise the risks that a
conventional conflict in the Indo-Pacific could escalate to a deliberate nuclear exchange, though these risks are still small in absoluteterms. The expansion, modernization, and diversification of China’s
nuclear forces give the PLA greater flexibility, resiliency, and capacity to use its nuclear weapons. According to Dr. Roberts, the resultof these changes “will be a China that’s more confident in runningrisks, military and political, and more risk for the United States in
defending its interests in a conflict over Taiwan or elsewhere in theregion with China.” 216 In a high-stakes conventional war, Chinese372
leaders could conceivably decide to threaten or engage in limited
nuclear use against U.S. conventional forces and bases for fear of
losing the conflict or their grip on power.
Third, China’s growing nuclear capabilities could strain U.S. extended deterrence by emboldening conventional aggression or nuclear coercion against U.S. allies and partners. As China’s nuclear
arsenal grows, Dr. Roberts observes, Chinese leaders could become
confident in their “ability to suppress escalatory responses by theUnited States because of the long shadow of nuclear weapons.” 217
With stability achieved at the strategic level, Chinese leaders may
feel more confident in their ability to use conventional force to resolve territorial disputes over Taiwan, the East China Sea, or theSouth China Sea. They could also stop short of using force and instead rely on their nuclear arsenal for coercion. Chinese leaders’possible interest in threatening nuclear use to deter Japanese involvement in a Taiwan contingency seemed evident in the decision
by a municipal Chinese government authority to repost on social
media a video threatening Japan with nuclear war in July 2021
after Japanese leaders made statements indicating they could cometo Taiwan’s defense.218
Fourth, improvements in China’s nuclear forces could complicate
U.S. nuclear deterrence planning in the future even if they do notpresently threaten the survivability of U.S. nuclear forces. Never before has the United States faced two peer nuclear-armed adversaries at the same time. The pace of China’s nuclear modernization, theexpansion of its nuclear warhead stockpile, and the extent to whichit cooperates with Russia may require the United States to reexamine its deterrence strategies and force posture. Dr. Roberts told
the Commission the major challenges for the United States in thedecades ahead are “whether, as China’s nuclear force grows . . . weneed a strategic force of our own that’s larger as well” and “whether [China and Russia] are an additive problem or whether China
remains a lesser-included problem because it’s a smaller force.” 219
Fifth, China’s expanding nuclear arsenal raises the specter of anarms race. China’s longstanding refusal to engage in arms control
inhibits deeper arms reductions by the United States, exacerbates
the anxiety of U.S. allies, and prompts other countries to hedge intheir nuclear strategies.220 Chinese leaders may be uninterested increating mechanisms for crisis communication and management
because, as Mr. Denmark observes, “the way they make decisions,
the way they share information, does not lend itself well to those
sorts of communications.” 221 Without China’s participation in arms
control, an unbridled arms race between the world’s major nuclear
powers could develop and U.S. allies and partners in the Indo-Pacificcould decide to pursue their own nuclear deterrents.
Finally, the Chinese government’s tolerance for Chinese companies and individuals’ proliferation of dual-use technologies undermines the global nonproliferation regime and poses a different typeof nuclear threat to U.S. allies and partners. The nuclear and ballistic missile technologies provided by various Chinese entities to Iran,North Korea, and Pakistan over the years will continue to threaten
the security of U.S. allies and partners such as Israel, Saudi Arabia,
South Korea, Japan, and India. Combined with the direct threat

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posed by the PLA’s growing nuclear arsenal, the indirect threat
posed by such proliferation will increase the pressures on U.S. allies
and partners to develop missile defenses and credible second-strikecapabilities of their own.

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ENDNOTES FOR SECTION 2
1. Joby Warrick, “China Is Building More than 100 New Missile Silos in Its Western Desert, Analysts Say,” Washington Post, June 30, 2021.
2. Ned Price, “Department Press Briefing—July 1, 2021,” U.S. Department of State,
July 1, 2021.
3. David Brunnstrom and Daphne Psaledakis, “U.S. Calls Build-Up of China’s
Nuclear Arsenal ‘Concerning,’ ” Reuters, July 2, 2021; Ned Price, “Department Press
Briefing—July 1, 2021,” U.S. Department of State, July 1, 2021.
4. Robert Burns, “Pentagon Says China Planning Big Increase in Nuclear Arsenal,”
Associated Press, September 1, 2020.
5. “Cheney Highlights China’s Unprecedented Nuclear Threat & The Need to Defend the U.S.,” website of Congresswoman Liz Cheney, April 21, 2021.
6. M. Taylor Fravel and Evan S. Medeiros, “China’s Search for Assured Retaliation,” International Security 35:2 (Fall 2010): 49–51.
7. M. Taylor Fravel, Active Defense: China’s Military Strategy since 1949, Princeton University Press, 2019, 237; John Wilson Lewis and Xue Litai, China Builds theBomb, Stanford University Press, 1988, 11, 34–37.
8. M. Taylor Fravel, Active Defense: China’s Military Strategy since 1949, Princeton
University Press, 2019, 246–247; Xu Weidi, “China’s Security Environment and theRole of Nuclear Weapons,” in Li Bin and Tong Zhao, eds., Understanding Chinese
Nuclear Thinking, Carnegie Endowment for International Peace, 2016, 24–25.
9. M. Taylor Fravel, Active Defense: China’s Military Strategy since 1949, Princeton
University Press, 2019, 244–245; Xu Weidi, “China’s Security Environment and theRole of Nuclear Weapons,” in Li Bin and Tong Zhao, eds., Understanding Chinese
Nuclear Thinking, Carnegie Endowment for International Peace, 2016, 24–25.
10. John Wilson Lewis and Xue Litai, China Builds the Bomb, Stanford University Press, 1988, 11, 34–37; Xu Weidi, “China’s Security Environment and the Roleof Nuclear Weapons,” in Li Bin and Tong Zhao, eds., Understanding Chinese Nuclear
Thinking, Carnegie Endowment for International Peace, 2016, 22.
11. Xiao Tianliang, ed., The Science of Military Strategy (战略学), Military Science
Press, 2020, 128, 386. Translation; M. Taylor Fravel, Active Defense: China’s Military
Strategy since 1949, Princeton University Press, 2019, 244–246; State Council Information Office of the People’s Republic of China, China’s National Defense in the New
Era (新时代的中国国防), July 2019. Translation; State Council Information Office of
the People’s Republic of China, China’s Military Strategy (中国的军事战略), May 2015.
Translation; State Council Information Office of the People’s Republic of China, The
Diversified Employment of China’s Armed Forces (中国武装力量的多样化运用), April
2013. Translation; State Council Information Office of the People’s Republic of China, China’s National Defense in 2010 (2010年中国的国防), March 2011. Translation;
State Council Information Office of the People’s Republic of China, China’s National
Defense in 2008 (2008年中国的国防), January 2009. Translation; State Council Information Office of the People’s Republic of China, China’s National Defense in 2006
(2006年中国的国防), December 2006. Translation; Yu Xijun, ed., The Science of Second
Artillery Campaigns (第二炮兵战役学), People’s Liberation Army Publishing House,
2004, 297–316. Translation.
12. Xiao Tianliang, ed., The Science of Military Strategy (战略学), Military Science
Press, 2020, 128, 386. Translation.
13. M. Taylor Fravel, Active Defense: China’s Military Strategy since 1949, Princeton University Press, 2019, 238–239; Sun Xiangli, “The Development of Nuclear
Weapons in China,” in Li Bin and Tong Zhao, eds., Understanding Chinese Nuclear
Thinking, Carnegie Endowment for International Peace, 2016, 82–83.
14. Sun Xiangli, “The Development of Nuclear Weapons in China,” in Li Bin andTong Zhao, eds., Understanding Chinese Nuclear Thinking, Carnegie Endowment forInternational Peace, 2016, 83.
15. State Council Information Office of the People’s Republic of China, China’s National Defense in 2006 (2006年中国的国防), December 2006. Translation; State Council Information Office of the People’s Republic of China, China’s National Defense in2002 (2002年中国的国防), February 2002. Translation.
16. Ministry of Foreign Affairs of the People’s Republic of China, Wang Yi Delivers
a Video Speech at the Conference on Disarmament in Geneva, June 11, 2021.
17. Wilson Center History and Public Policy Program Digital Archive, “Statementof the Government of the People’s Republic of China,” October 16, 1964.
18. United Nations, “Letter Dated 7 June 1978 from the Permanent Representativeof China to the United Nations Addressed to the Secretary-General,” June 7, 1978;
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19. David Logan, written testimony for the U.S.-China Economic and Security
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21. Barton Gellman, “U.S. and China Nearly Came to Blows in ’96,” Washington
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22. Joseph Kahn, “Chinese General Threatens Use of A-Bombs if U.S. Intrudes,”New York Times, July 15, 2005.
23. Henrik Stålhane Hiim and Magnus Langset Trøan, “Hardening Chinese Realpolitik in the 21st Century: The Evolution of Beijing’s Thinking about Arms Control,”
Journal of Contemporary China (2021), 6–7, 14.
24. Nancy Gallagher, “China on Arms Control,” in James M. Smith and Paul J.
Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, and Systems, Georgetown
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Understanding Chinese Nuclear Thinking, Carnegie Endowment for International
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Nuclear Arms Talks,” Reuters, May 18, 2021.
26. China’s Ministry of Foreign Affairs, “Briefing by Mr. Fu Cong, Director Generalof the Department of Arms Control and Disarmament of Ministry of Foreign Affairs,”
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27. Xinhua, “China Reiterates Opposition to Multilateralization of INF Treaty,”
July 30, 2019.
28. China’s Ministry of Foreign Affairs, Foreign Ministry Spokesperson Wang Wenbin’s Regular Press Conference on February 5, 2021, February 6, 2021.
29. China’s Ministry of Foreign Affairs, Foreign Ministry Spokesperson Wang Wenbin’s Regular Press Conference on February 5, 2021, February 6, 2021.
30. Hu Gaochen, “An Analysis of China-U.S. Asymmetric Nuclear Stability and the
U.S. Strategic Opportunism” (中美不对称核稳定与美国战略机会主义论析), Journal ofInternational Security 2 (2021). Translation; Zhang Jingquan, “On the Weakening of
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Rajesh Basrur, “The India-China Nuclear Dynamic: India’s Options,” ORF Issue Brief
430 (December 2020); Toby Dalton and Tong Zhao, “At a Crossroads? China-India
Nuclear Relations after the Border Clash,” Carnegie Endowment for International
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34. People’s Liberation Army Daily, “Solidly Develop Strategic Capabilities: Conscientiously Study and Implement Chairman Xi’s Important Speech during His Inspection of the Rocket Force” (扎扎实实把战略能力搞上去—认真学习贯彻习主席视察火箭军
机关时重要讲话), September 27, 2016. Translation.
35. Zhang Changwei, He Tianjin, and Ge Song, “The Rocket Force Convenes the
Fourth Changying Forum in Beijing: Deeply Studying the Issue of Building the Rocket Force’s Strategic Deterrence and Actual Fighting Capabilities, Providing Scientific
Theory Support for the Building, Development and Implementation of the Strategic
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36. Brad Roberts, Director of the Center for Global Security Research at Lawrence
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Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4–5.
37. Roderick Lee, “PLA Likely Begins Construction of an Intercontinental Ballistic
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38. David Logan, “Making Sense of China’s Missiles Forces,” in Phillip C. Saunders,
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42. Kyle Mizokami, “Underwater Dud: China’s First Nuclear Submarine Failed
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中国怎么办?), Guancha, June 15, 2020. Translation.
111. Phillip C. Saunders and David C. Logan, “China’s Regional Nuclear Capability,” in James M. Smith and Paul J. Bolt, eds., China’s Strategic Arsenal: Worldview,
Doctrine, and Systems, Georgetown University Press, 2021, 127; Hans M. Kristensen,
Robert S. Norris, and Matthew G. McKinzie, Chinese Nuclear Forces and U.S. Nuclear
War Planning, Federation of American Scientists and the Natural Resources Defense
Council, November 2006, 98–99; U.S. Central Intelligence Agency, PRC Defense Policy
and Armed Forces, National Intelligence Estimate 13–76, November 11, 1976, 16, 51.
https://www.cia.gov/readingroom/docs/DOC_0001097855.pdf.
112. Hans M. Kristensen, Robert S. Norris, and Matthew G. McKinzie, Chinese
Nuclear Forces and U.S. Nuclear War Planning, Federation of American Scientists
and the Natural Resources Defense Council, November 2006, 99.
113. U.S. Department of Defense, Military and Security Developments Involving thePeople’s Republic of China 2020: Annual Report to Congress, 2020, 88; Chen Feng, “Ifthe United States Resumes Nuclear Testing, What Will China Do?” (如果美国恢复核试验, 中国怎么办?), Guancha, June 15, 2020. Translation; Global Times, “China Should
Seriously Study the Option of Openly Developing Low-Yield Nuclear Weapons” (中国应认真研究公开发展低当量核武器的选项), February 5, 2018. Translation.
114. People’s Daily, “China’s Dongfeng-41 Technology Surpasses the United States
and Russia: Longer Range and Higher Accuracy” (中国东风41部分技术超过美俄: 射程
更远 精度更高), November 24, 2017. Translation.
115. Julian Borger, “China May Have Conducted Low-Level Nuclear Test, U.S.
Claims,” Guardian, April 16, 2020; Jonathan Landy, “U.S. Says China May Have Conducted Low-Level Nuclear Test Blasts,” Reuters, April 15, 2020.
116. Congressional Research Service, “Nuclear Command, Control, and Communications (NC3) Modernization,” December 8, 2020.

380
117. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 2.
118. State Council Information Office of the People’s Republic of China, China’s
Military Strategy (中国的军事战略), May 2015. Translation.
119. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 1–2;
Fiona Cunningham, “Nuclear Command, Control, and Communications Systems of
the People’s Republic of China,” Nautilus Institute, July 18, 2019.
120. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 1–2;
Fiona Cunningham, “Nuclear Command, Control, and Communications Systems of
the People’s Republic of China,” Nautilus Institute, July 18, 2019.
121. Fiona Cunningham, “Nuclear Command, Control, and Communications Systems of the People’s Republic of China,” Nautilus Institute, July 18, 2019.
122. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 2,
4; Fiona Cunningham, “Nuclear Command, Control, and Communications Systemsof the People’s Republic of China,” Nautilus Institute, July 18, 2019; Federation ofAmerican Scientists, “Command and Control,” June 23, 2000. https://fas.org/nuke/
guide/china/c3i/.
123. U.S. Department of Defense, Military and Security Developments Involving thePeople’s Republic of China 2020: Annual Report to Congress, 2020, 88.
124. U.S. Department of Defense, Military and Security Developments Involving thePeople’s Republic of China 2020: Annual Report to Congress, 2020, 88.
125. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4.
126. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4.
127. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 3.
128. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4.
129. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 3; Stephen Chen, “China’s New Antenna Is Five Times the Size of New York City, but Some
Fear It Could Be a Cancer Risk,” South China Morning Post, December 31, 2018.
130. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4.
131. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4.
132. Hans M. Kristensen, “China’s Strategic Systems and Programs,” in James M.
Smith and Paul J. Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, andSystems, Georgetown University Press, 2021, 115–116; Sohu, “This Kind of Early
Warning Radar Must Be Large, with a Detection Distance of More than 5,000 Kilometers” (我国这种预警雷达一定要大, 探测距离超过5000公里, 美日韩躺枪), October 12,
2017. Translation.
133. Hans M. Kristensen, “China’s Strategic Systems and Programs,” in James M.
Smith and Paul J. Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, andSystems, Georgetown University Press, 2021, 116.
134. Hans M. Kristensen, “China’s Strategic Systems and Programs,” in James M.
Smith and Paul J. Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, andSystems, Georgetown University Press, 2021, 116; Liu Zhen, “China’s New High-Frequency Radar System Could Spot Stealth Aircraft from a Long Distance, Creator
Says,” South China Morning Post, June 11, 2019.
135. Zhang Qian, “Space-Based Infrared Early Warning Satellites: The Never
Tired Space ‘Sentinel’ ” (天基红外预警卫星 永不疲惫的太空 “哨兵”), Science and Technology Daily, February 7, 2018. Translation. http://webcache.googleusercontent.com/
search?q=cache:nrScasxTo6oJ:www.xinhuanet.com/mil/2018-02/07/c_129808061.
htm+&cd=1&hl=en&ct=clnk&gl=us.
136. Hans M. Kristensen, “China’s Strategic Systems and Programs,” in James M.
Smith and Paul J. Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, and Systems, Georgetown University Press, 2021, 117; Stephen Clark, “China’s First Launchof 2020 Lofts Mystery Payload,” Spaceflight Now, January 7, 2020.
137. Minnie Chan, “Vladimir Putin Says Russia Is Helping China Build a Missile
Early Warning System,” South China Morning Post, October 4, 2019; U.S. Department of Defense, Military and Security Developments Involving the People’s Republicof China 2020: Annual Report to Congress, 2020, 89.

381138. Hans M. Kristensen, “China’s Strategic Systems and Programs,” in James M.
Smith and Paul J. Bolts, eds., China’s Strategic Arsenal: Worldview, Doctrine, andSystems, Georgetown University Press, 2021, 117; Business Standard, “China’s Eyein the Sky: An Analysis of China’s Satellite Surveillance,” October 30, 2019.
139. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 8.
140. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 8.
141. U.S. Department of Defense, Military and Security Developments Involving thePeople’s Republic of China 2020: Annual Report to Congress, 2020, 73.
142. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 9; U.S.
Department of Defense, Military and Security Developments Involving the People’s
Republic of China 2020: Annual Report to Congress, 2020, 73.
143. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 9.
144. David Santoro, “China: The Forgotten Nuclear Power No More,” Pacific Forum,
July 14, 2021; Christopher Twomey, written testimony for the U.S.-China Economic
and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021,
4–5; Gerald C. Brown, “Understanding the Risks and Realities of China’s Nuclear
Forces,” Arms Control Association, June 2021; Fiona S. Cunningham and M. Taylor
Fravel, “Assuring Assured Retaliation: China’s Nuclear Posture and U.S.-China Strategic Stability,” International Security 40:2 (Fall 2015).
145. Christopher Twomey, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4–5;
David Logan, written testimony for the U.S.-China Economic and Security Review
Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 8; Caitlin Talmadge,
written testimony for the U.S.-China Economic and Security Review Commission,
Hearing on China’s Nuclear Forces, June 10, 2021, 12–13; Hu Gaochen, “An Analysis
of China-U.S. Asymmetric Nuclear Stability and the U.S. Strategic Opportunism” (中美不对称核稳定与美国战略机会主义论析), Journal of International Security 2 (2021).
Translation; Zhang Jingquan, “On the Weakening of Nuclear Deterrence Effect inNortheast Asia and Its Countermeasures” (东北亚 “核威慑效应弱化” 及其应对思考),Asia-Pacific Security and Maritime Affairs 3 (2020). Translation; Fiona S. Cunningham and M. Taylor Fravel, “Assuring Assured Retaliation: China’s Nuclear Postureand U.S.-China Strategic Stability,” International Security 40:2 (Fall 2015): 16, 19; Xu
Weidi, “China’s Security Environment and the Role of Nuclear Weapons,” in Li Bin
and Tong Zhao, eds., Understanding Chinese Nuclear Thinking, Carnegie Endowment
for International Peace, 2016, 34–35.
146. David Santoro, “China: The Forgotten Nuclear Power No More,” Pacific Forum,
July 14, 2021; Fiona S. Cunningham and M. Taylor Fravel, “Assuring Assured Retaliation: China’s Nuclear Posture and U.S.-China Strategic Stability,” International
Security 40:2 (Fall 2015): 10.
147. David Santoro, “China: The Forgotten Nuclear Power No More,” Pacific Forum,
July 14, 2021; Caitlin Talmadge, “China and Nuclear Weapons,” Brookings, September 2019, 2.
148. Brad Lendon, “China Is Building a Sprawling Network of Missile Silos, Satellite Imagery Appears to Show,” CNN, July 2, 2021; Hans Kristensen, “China’s Expanding Missile Training Area: More Silos, Tunnels, and Support Facilities,” Federation of American Scientists, February 24, 2021.
149. Tong Zhao, “Strategic Warning and China’s Nuclear Posture,” Diplomat, May
28, 2015.
150. Tong Zhao, “Modernizing without Destabilizing: China’s Nuclear Posture in a
New Era,” Carnegie-Tsinghua Center for Global Policy, August 25, 2020.
151. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 9.
152. Alastair Iain Johnston, “China’s New ‘Old Thinking’: The Concept of Limited
Deterrence,” International Security 20:3 (Winter 1995–1996): 5–6, 17–20.
153. Christopher P. Twomey, written testimony before the U.S.-China Economic
and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021,
4; Christopher Twomey, “Nuclear Doctrine and Deterrence Concept,” in James M.
Smith and Paul J. Bolt, eds., China’s Strategic Arsenal: Worldview, Doctrine, and Systems, 2021, 55.
154. David C. Logan, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021; Christopher
Twomey, “Nuclear Doctrine and Deterrence Concept,” in James M. Smith and Paul
J. Bolt, eds., China’s Strategic Arsenal: Worldview, Doctrine, and Systems, 2021, 52;

382
U.S. Department of Defense, Military and Security Developments Involving the People’s Republic of China 2020: Annual Report to Congress, 2020, 86; State Council
Information Office of the People’s Republic of China, China’s National Defense in
the New Era, July 2019; Phillip C. Saunders, written testimony for the U.S.-China
Economic and Security Review Commission, Hearing on China’s Cyber and Nuclear
Capabilities, March 26, 2012, 4–5; Larry M. Wortzel, “China’s Nuclear Forces: Operations, Training, Doctrine, Command, Control, and Campaign Planning,” U.S. Army
War College Strategic Studies Institute, 2007, 26–27.
155. U.S. Department of Defense, Military and Security Developments Involving thePeople’s Republic of China 2020: Annual Report to Congress, 2020, 86.
156. Yu Xijun, ed., The Science of Second Artillery Campaigns (第二炮兵战役学),People’s Liberation Army Publishing House, 2004, 294–296. Translation.
157. Xiao Tianliang, ed., The Science of Military Strategy (战略学), Military Science
Press, 2020, 138. Translation.
158. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 9–10;
Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 3; Christopher
Twomey, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4; James Samuel Johnson,“Chinese Evolving Approaches to Nuclear ‘War-Fighting’: An Emerging Intense US–
China Security Dilemma and Threats to Crisis Stability in the Asia Pacific,” Asian
Security (2018): 3–4; Eric Heginbotham et al., “China’s Evolving Nuclear Deterrent:
Major Drivers and Issues for the United States,” RAND Corporation, 2017, 135–137.
159. Christopher P. Twomey, Associate Professor at the Naval Postgraduate School,interview with Commission staff, July 20, 2021.
160. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 3.
161. Chen Feng, “If the United States Resumes Nuclear Testing, What Will China
Do?” (如果美国恢复核试验, 中国怎么办?), Guancha, June 15, 2020. Translation; Global
Times, “China Should Seriously Study the Option of Openly Developing Low-Yield
Nuclear Weapons” (中国应认真研究公开发展低当量核武器的选项), February 5, 2018.
Translation.
162. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 3–4.
163. Charles A. Richard, testimony before the Senate Armed Services Committee,
April 20, 2021, 6.
164. Jacob Stokes, “China’s Missile Program and U.S. Withdrawal from the Intermediate-Range Nuclear Forces (INF) Treaty,” U.S.-China Economic and Security
Review Commission, February 4, 2019, 2.
165. Jacob Stokes, “China’s Missile Program and U.S. Withdrawal from the Intermediate-Range Nuclear Forces (INF) Treaty,” U.S.-China Economic and Security
Review Commission, February 4, 2019, 3–4.
166. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 215.
167. Phillip C. Saunders, oral testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 62–63; David
Logan, “Are They Reading Schelling in Beijing? The Dimensions, Drivers, and Risks
of Nuclear-Conventional Entanglement in China,” forthcoming in Journal of Strategic
Studies (2020): 33.
168. Gerald C. Brown, “Understanding the Risks and Realities of China’s Nuclear
Forces,” Arms Control Association, June 21, 2021; Phillip C. Saunders, oral testimony
for the U.S.-China Economic and Security Review Commission, Hearing on China’s
Nuclear Forces, June 10, 2021, 62; David Logan, “Are They Reading Schelling in Beijing? The Dimensions, Drivers, and Risks of Nuclear-Conventional Entanglement in
China,” forthcoming in Journal of Strategic Studies (2020): 33.
169. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 5–6;
Caitlin Talmadge, oral testimony for the U.S.-China Economic and Security Review
Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 104–105; Caitlin Talmadge, “Would China Go Nuclear? Assessing the Risk of Chinese Nuclear Escalation
in a Conventional War with the United States,” International Security, No. 41, April
1, 2017, 70–73.
170. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 8.
171. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 7.

383172. Xiao Tianliang, ed., The Science of Military Strategy (战略学), Military Science
Press, 2020, 136–138. Translation.
173. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4–5.
174. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 5.
175. Caitlin Talmadge, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 5.
176. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 211.
177. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 211.
178. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 211.
179. Daryl G. Kimball, “Nuclear False Warnings and the Risk of Catastrophe,”Arms Control Association, December 2019; Alan Phillips, “No Launch-on-Warning,”
Nuclear Age Peace Foundation, May 1, 2002.
180. Admiral Charles A. Richard, testimony before the Senate Armed Services
Committee, April 20, 2021, 7.
181. Phillip C. Saunders, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 10.
182. Rajesh Basrur, “China-India: The Stability-Instability Paradox,” RSIS Commentary 128 (June 23, 2020): 2.
183. Abraham Denmark, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 6–7.
184. Abraham Denmark, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 6.
185. Patricia Kim, “Washington’s Allies and Partners Weigh in on U.S.-China Competition,” United States Institute of Peace, June 3, 2021; Sugio Takahashi, “Strategic
Stability and the Impact of China’s Modernizing Strategic Strike Forces,” in JamesM. Smith and Paul J. Bolt, eds., China’s Strategic Arsenal: Worldview, Doctrine, andSystems, Georgetown University Press, 2021, 63–64, 79; Scott W. Harold et al., “TheU.S.-Japan Alliance and Deterring Gray Zone Coercion in the Maritime, Cyber, andSpace Domains,” RAND Corporation, 2017, 30–31.
186. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 2; Daniel
Salisbury and Lucy Jones, “Exploring the Changing Role of Chinese Entities in WMD
Proliferation,” China Quarterly 225 (March 2016): 55–56.
187. Valerie Lincy, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 178.
188. U.S. Department of State, Adherence to and Compliance with Arms Control,
Nonproliferation, and Disarmament Agreements and Commitments, April 2021, 44.
189. U.S. Department of State, Adherence to and Compliance with Arms Control,
Nonproliferation, and Disarmament Agreements and Commitments, April 2021, 44.
190. U.S. Department of State, 2021 Adherence to and Compliance with Arms Control, Nonproliferation, and Disarmament Agreements and Commitments, April 15,
2021, 44.
191. U.S. Department of State, New Sanctions under the Iran, North Korea, andSyria Nonproliferation Act (INKSNA), November 27, 2020; Reuters, “U.S. Sanctions
13 Foreign Entities for Supporting Iran Missile Program,” February 25, 2020; “Imposition of Nonproliferation Measures against Foreign Persons, Including a Ban on
U.S. Government Procurement,” 85 Federal Register 8618–8619 (February 14, 2020).
192. U.S. Department of Commerce Bureau of Industry and Security, Supplement
No. 4 to Part 744 - ENTITY LIST, July 19, 2021.
193. U.S. Department of Justice, “Electrical Engineer Sentenced to More than Five
Years in Prison for Conspiring to Illegally Export to China Semiconductor Chips withMilitary Uses,” July 22, 2021; U.S. Department of Justice, “Four Chinese Nationals
and Chinese Company Indicted for Conspiracy to Defraud the United States andEvade Sanctions,” July 23, 2019.
194. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 15; “Imposition of Nonproliferation Measures against Foreign Persons, Including a Ban on U.S.
Government Procurement,” 84 Federal Register 23627, May 14, 2019.
195. Joel Gehrke, “White House Blames China for Iranian Missile Threat,” Washington Examiner, May 8, 2019.
196. Valerie Lincy, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 16; Eric Tucker,

384“Chinese Man Charged with Avoiding U.S. Sanctions,” AP News, April 30, 2014; U.S.
Department of State, Li Fangwei.
197. Valerie Lincy, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 15; U.S. Department of Justice, “Extradited Chinese National Sentenced to Nine Years for Providing
U.S. Goods to Iran to Support Its Nuclear Program,” January 27, 2016.
198. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 15; U.S. Department of Justice, “Extradited Chinese National Sentenced to Nine Years for Providing U.S. Goods to Iran to Support its Nuclear Program,” January 27, 2016; U.S.
Department of Justice, “Indicted Chinese National Lands at Boston’s Logan Airport
to Face Federal Prosecution for Supplying Iran with Nuclear Production Parts,” December 5, 2014.
199. Valerie Lincy, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 17; Iran Watch,“Illicit Procurement Network Used Firms in China, Portugal, and Turkey to Supply
Iran,” October 31, 2018.
200. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 17; U.S. Department of Justice, “Canadian Sentenced to 3+ Years in Prison for Conspiracy to
Export Restricted Goods and Technology to Iran,” August 22, 2018.
201. Rohan Joshi, “China, Pakistan, and Nuclear Non-Proliferation,” Diplomat,
February 16, 2015; Ananth Krishnan, “China Involved in Six Nuclear Projects inPakistan, Reveals Official,” India Today, February 8, 2015.
202. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, January 10, 2021, 5; Kelsey
Davenport and Marcus Taylor, “Assessing Progress on Nuclear Nonproliferation andDisarmament: Updated Report Card 2010–2013,” Arms Control Association, April
2013, 15.
203. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4–5.
204. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 5–6.
205. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4.
206. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 5.
207. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 12.
208. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 12.
209. U.S. Department of State, Deputy Special Representative for North Korea Delivers Keynote Address at CSIS Conference on North Korea’s Economy, November 30,
2020; United Nations Security Council, “Resolution 2270 (2016),” March 2, 2016, 3–4.
210. U.S. Department of State, Deputy Special Representative for North Korea Delivers Keynote Address at CSIS Conference on North Korea’s Economy, November 30,
2020.
211. Valerie Lincy, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 13.
212. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 188.
213. Brad Roberts, Director of the Center for Global Security Research at Lawrence Livermore National Laboratory, interview with Commission staff, August 27,
2021; Brad Roberts, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 4–5.
214. James M. Acton, Tong Zhao, and Li Bin, “Reducing the Risks of Nuclear Entanglement,” Carnegie Endowment for International Peace, September 12, 2018.
215. James M. Acton, Tong Zhao, and Li Bin, “Reducing the Risks of Nuclear Entanglement,” Carnegie Endowment for International Peace, September 12, 2018.
216. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 188.
217. Brad Roberts, “Taking Stock: U.S.-China Track 1.5 Nuclear Dialogue,” Lawrence Livermore National Laboratory, December 2020, 51.
218. Emily Clark, “ ‘Military Fanboys’ Shared a Video Threatening Nuclear War.
This Is Why China Allowed It,” ABC News, July 19, 2021.
219. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 217.

385
220. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 140.
221. Abraham Denmark, oral testimony for the U.S.-China Economic and Security
Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 214.

CHAPTER 4
A DANGEROUS PERIOD FOR CROSSSTRAIT DETERRENCE: CHINESEMILITARY CAPABILITIES AND
DECISION-MAKING FOR A WAR OVER
TAIWANKey Findings• Cross-Strait deterrence is in a period of dangerous uncertainty.
Improvements in China’s military capabilities have fundamentally transformed the strategic environment and weakened themilitary dimension of cross-Strait deterrence. China’s increasingly coercive approach to Taiwan puts almost daily pressure
on the cross-Strait status quo and increases the potential for a
military crisis.
• Chinese leaders likely set 2020 as a key milestone for the People’s Liberation Army (PLA) to develop the capabilities needed
to invade Taiwan. To achieve this goal, for nearly two decades
the PLA has systematically planned, trained, and built theforces it believes are required to invade the island. The PLA
has already achieved the capabilities needed to conduct an air
and naval blockade, cyberattacks, and missile strikes against
Taiwan. PLA leaders now likely assess they have, or will soon
have, the initial capability needed to conduct a high-risk invasion of Taiwan if ordered to do so by Chinese Communist Party(CCP) leaders. They will continue enhancing this capability inthe coming years.
• Any near-term PLA invasion would remain a high-risk option.
Such an operation would rely on the success of the PLA’s moredeveloped cyberattack, missile strike, and blockade capabilities
to sufficiently degrade, isolate, or defeat Taiwan’s defending
forces as well as its anti-access and area denial capabilities toprevent decisive U.S. intervention. The PLA’s current military
sea and air lift capacity could carry an initial landing force of
25,000 or more troops. China has developed substantial capabilities to use civilian ships in military operations, providing
capacity for the PLA to land additional troops on Taiwan after
securing a beachhead.
• Given these developments, it has become less certain that U.S.
conventional military forces alone will continue to deter China’s
leaders from initiating an attack on Taiwan. A deterrence failure is most likely to occur if Chinese leaders believe the United
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States is not militarily capable of or politically willing to intervene, or if they interpret ambiguities in U.S. policy to meanthat opportunistic Chinese aggression against Taiwan will not
provoke a decisive U.S. response. General Secretary of the CCP
Xi Jinping’s higher tolerance for risk and desire to establish
a lasting legacy could also contribute to a decision by China’s
leadership to attack Taiwan despite U.S. warnings.
• Still, whether and when to invade Taiwan is a political rather
than a military question for CCP leaders, who continue to facesubstantial constraints on any decision to use force. These include the inherent uncertainty of a military confrontation with
the United States, the extensive damage that would likely result to the Chinese economy, and the risk that an attack on
Taiwan could prompt the formation of a coalition of countries
determined to constrain any further growth in China’s power
and influence.
• Taiwan has taken important steps toward asymmetrically defending against a PLA attack, achieving successes in developing indigenous missiles threatening a PLA invasion or blockade.
Nevertheless, Taiwan faces significant challenges from decadesof underinvestment in defense, leaving it with low stockpiles ofcritical resources for enduring a PLA blockade. Some militaryleaders are also resisting steps to adopt a more asymmetric posture.
Recommendations
The Commission recommends:• Congress enhance Taiwan’s ability to purchase U.S. defense articles and accelerate the process for their sale and delivery to
Taiwan by:○ Authorizing and appropriating on a multiyear basis Foreign
Military Financing Program funds for Taiwan to purchase defense articles from the United States and allowing Taiwan
to use Foreign Military Financing funds to purchase arms
through direct commercial contracts;○ Amending the Foreign Assistance Act to make Taiwan eligible
to receive priority delivery of U.S. excess defense articles; and○ Directing the Administration to use the Special Defense Acquisition Fund to reduce defense procurement lead times forarms sales to Taiwan by pre-stocking defense articles needed
to maintain cross-Strait deterrence.
• Congress take urgent measures to strengthen the credibility of
U.S. military deterrence in the near term and to maintain theability of the United States to uphold its obligations establishedin the Taiwan Relations Act to resist any resort to force thatwould jeopardize the security of Taiwan, including:○ Authorizing and funding the deployment of large numbers ofantiship cruise and ballistic missiles in the Indo-Pacific;○ Authorizing and funding the requests of U.S. Indo-PacificCommand (INDOPACOM) for better and more survivable in-389
telligence, surveillance, and reconnaissance in the East andSouth China Seas;○ Authorizing and funding the requests of INDOPACOM for
hardening U.S. bases in the region, including robust missile
defense;○ Authorizing and funding the stockpiling of large numbers of
precision munitions in the Indo-Pacific; and○ Authorizing and funding programs that enable U.S. forces tocontinue operations in the event central command and control
is disrupted.
Introduction
China’s leaders have historically been deterred from attacking
Taiwan by the threat of U.S. intervention and their fears that a war
would disrupt their economy and global standing. Decades of concerted modernization have resulted in a PLA that today either hasor is close to achieving an initial capability to invade Taiwan—one
that remains under development but that China’s leaders may employ at high risk—while deterring, delaying, or defeating U.S. military intervention. The PLA still suffers from significant weaknesses
in joint operations and personnel quality but will continue working
to address these shortfalls. The PLA’s progress toward building aninvasion capability has already undermined cross-Strait deterrenceby diminishing the credibility of the U.S. threat to deny the PLA its
objectives through intervention. The overall state of deterrence is
now undeniably more fragile than before and could fail entirely if
certain specific conditions are met.
Cross-Strait deterrence continues to hold today, however, because
Chinese leaders remain deeply concerned about the risks and consequences of a decision to invade Taiwan. Specifically, Chinese leaders
are currently deterred by the inherent uncertainties of launchingan invasion and fighting the U.S. military. They are also concerned
about the damage a war could do to China’s economy and the possibility that an attack on Taiwan could prompt a U.S.-led coalitionof countries determined to constrain any further growth of Chinese
power and influence. As such, diplomatic and economic tools havealso become increasingly important for maintaining peace and stability in the Taiwan Strait.
This section assesses the state of cross-Strait deterrence and identifies conditions under which it could fail to prevent a Chinese attack on Taiwan. First, the section examines the requirements for
successful deterrence and the history of deterrence in the Taiwan
Strait. Next, it discusses how decades of PLA modernization andplanning have shifted the cross-Strait military balance and why the
PLA either has or may soon have the capability to invade Taiwan,
albeit at great military, economic, and political risk. While the PLA
has the capabilities to execute various military campaigns against
Taiwan, each of which could inflict great damage on the island, thissection focuses on the PLA’s emerging invasion capability as an existential threat facing Taiwan and a sharp challenge to U.S. deterrence.1 Next, the section evaluates the factors in Chinese leaders’decision-making that could persuade them to initiate a war over390
Taiwan or constrain such a decision. Finally, the section considers
the implications of weakened cross-Strait deterrence for the UnitedStates. This section is based on the Commission’s February 2021
hearing on the topic as well as consultations with U.S. government
officials and nongovernmental experts and open source research andanalysis.
Deterrence in the Taiwan Strait
In its simplest form, deterrence refers to the practice of discouraging an opponent from taking an unwanted action, such as military
aggression.* 2 Deterrence relies on credible threats that create fearin the mind of the opponent that it will either suffer unacceptable
retaliation or be unable to achieve its objectives should it undertakethe unwanted action.† 3 States practicing deterrence often employ
threats of military force, but they can also leverage nonmilitary
tools of statecraft such as economic sanctions or diplomatic exclusion to deter aggression against themselves (direct deterrence) or
third parties (extended deterrence).4
Successful deterrence in the Taiwan Strait requires several conditions. First, China must recognize that the United States has thecapability and the will to carry out its threat to intervene in response to a Chinese attack on Taiwan.5 Second, China must believe
there are actions that could lead to a U.S. response and that costs
will be imposed if China takes those actions.6 China is increasingly
testing the resolve of the United States and its allies and partners
through coercive military and economic actions.7 Finally, whether
China can be deterred depends partly on its own reasons for undertaking aggression against Taiwan. These might include opportunism, dissatisfaction with the status quo, fear that the alternative ismore dangerous to its interests, or other factors related to Chinese
leaders’ beliefs or behavioral tendencies that may not appear entirely rational.8
U.S. policies have also shaped Beijing’s attitude toward the useof force over time. The CCP has identified unification with Taiwan
as among its highest priorities.‡ From a political perspective, theUnited States’ One China Policy maintains a diplomatic balancethat accords Beijing official recognition, acknowledges but does not* A state practicing “deterrence” seeks to persuade an opponent to refrain from undertaking a
specific action, whereas a state practicing “compellence” seeks to persuade an opponent to undertake a specific action it otherwise might not want to carry out. Some academics also distinguishbetween strategies of “deterrence,” which involve threats to discourage an action, and strategies
of “dissuasion,” which affect an opponent’s cost-benefit calculus by pairing threats with assurances, concessions, or benefits for the purpose of making alternatives to a certain action more
attractive. Michael J. Mazarr et al., “What Deters and Why: Exploring Requirements for Effective
Deterrence of Interstate Aggression,” RAND Corporation, 2018, 6–7.
† These approaches are known as “deterrence by punishment” and “deterrence by denial,” respectively. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 2; Glenn
Snyder, “Deterrence and Power,” Journal of Conflict Resolution, 4:2 (June 1960): 163.
‡ Chinese officials have publicly described Taiwan’s status as a “core interest” since 2003, andthe country’s legislature passed the Anti-Secession Law in 2005 enshrining “non-peaceful means”
as a legal last resort to prevent “Taiwan independence.” Every Chinese leader from Mao Zedong
onward has threatened Taiwan with war if it declared independence and made the island’s eventual “return” to China a theme of his public rhetoric. Michael Swaine, “China’s Assertive Behavior
Part One: On ‘Core Interests,’ ” China Leadership Monitor 34 (February 22, 2011): 3, 7–8; Murray
Scott Tanner and Peter W. MacKenzie, “China’s Emerging National Security Interests and Their
Impact on the People’s Liberation Army,” CNA Corporation, 2014, 21; Paul H.B. Godwin andAlice L. Miller, China’s Forbearance Has Limits: Chinese Threat and Retaliation Signaling and
Its Implications for a Sino-American Military Confrontation, NDU Press, April 2013, 69–104.

391
recognize Beijing’s position on Taiwan sovereignty, and provides fora robust unofficial relationship between Taipei and Washington. *From a military perspective, the United States has explicitly
leveraged credible threats of intervention to deter a Chinese invasion of Taiwan in the past.† Between the early 1950s and 1979, theUnited States expressed its capability and will to defend Taiwan bycommitting itself to a formal alliance, maintaining a military command on the island, routinely sailing warships through the Taiwan
Strait, training Taiwan’s military, selling Taiwan arms, and threatening to use nuclear weapons against China on Taiwan’s behalf.‡ 9
The United States threatened to intervene with overwhelming military superiority, both conventional and strategic, to prevent CCP
leaders from seizing Taiwan’s offshore islands during the so-called“First Taiwan Strait Crisis” (1954–1955) and “Second Taiwan Strait
Crisis” (1958).10 In 1979, the U.S. Congress passed the Taiwan Relations Act (TRA), which committed the United States to provide
Taiwan with defensive arms and services and required the UnitedStates to maintain the capacity to resist any efforts by China tochange Taiwan’s political status through force or coercion.11 During
the “Third Taiwan Strait Crisis” (1995–1996), the United States
leveraged military threats to deter Chinese leaders from escalating
their use of force beyond missile tests by deploying two aircraft carrier battle groups and an amphibious assault ship to waters near
the island.12
Irrespective of the U.S. threat to intervene militarily during theThird Taiwan Straits Crisis, CCP leaders may also have decided
against further provocation at that time because they worried a war
over Taiwan could derail their efforts to build up China’s wealth,power, and international status. In the mid-1990s, Chinese leaders
were focused on acceding to the WTO, reforming the PLA, and repairing their tarnished image in the wake of the Tiananmen Square
Massacre.13 Cai Xia, a former professor at the CCP’s Central Party
School and dissident now living in exile, argues that Chinese leaders
did not challenge the United States during the Third Taiwan Strait
Crisis or after the 1999 bombing of the Chinese Embassy in Belgrade because they were anxious the United States could suppress
China’s rise if it chose to exercise all levers of national power.14 “TheCCP earnestly avoided sticking its neck out internationally for the* The U.S. One China Policy is embodied in the three Joint Communiques, the TRA, and theSix Assurances. For more, see Congressional Research Service, “China/Taiwan: Evolution of the“One China” Policy—Key Statements from Washington, Beijing, and Taipei,” January 5, 2015, 5–6.
† At the same time, the United States has attempted to deter Taiwan leaders from declaring
independence. Observers have termed the U.S. strategy of attempting to deter both China andTaiwan from taking steps that undermine prospects for a peaceful resolution of Taiwan’s politicalstatus “dual deterrence.” David Keegan, “Strengthening Dual Deterrence on Taiwan: The Key to
U.S.-China Strategic Stability,” Stimson Center, July 6, 2021; Richard Bush, “A One-China Policy
Primer,” Brookings Institution, March 2017, 22.
‡ To deter further Chinese aggression after the first Taiwan Straits Crisis (1954–1955), President Dwight D. Eisenhower went to Congress in January 1955 for an authorization to use force.
Congress subsequently passed a joint resolution that gave the U.S. president broad authority toemploy the military “as he deems necessary” for the specific purpose of protecting Taiwan and the
Pescadores from attack. The so-called “Formosa Resolution” was open-ended enough to allow thepossible use of nuclear weapons, though it was never actually invoked. In the years afterward,
President Eisenhower made several public threats to use nuclear weapons against the PRC if it
attempted to invade Taiwan. Matthew Waxman, “Remembering Eisenhower’s Formosa AUMF,”
Lawfare, January 29, 2019; Joint Resolution Authorizing the President to Employ the Armed
Forces of the United States for [H. J. Res. 159] Protecting the Security of Formosa, the Pescadores
and Related Positions and Territories of That Area, H.J. Res. 159, introduced January 28, 1955.

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twenty years from 1989 to 2008, because the CCP needed time tobecome bigger and stronger,” Ms. Cai wrote in a 2021 essay.15 “Realizing that the power disparity between China and the U.S. was too
great and that China was unable to directly confront the U.S., the
CCP practiced ‘forbearance’ in [bilateral] encounters.” 16
Since the 2000s, however, the deterrent power of U.S. military
threats has weakened as China’s capabilities for invading Taiwan
have grown. For the last two decades, Beijing has engaged in a purposeful and well-resourced effort to improve the PLA’s capabilities,
organization, training, and joint operations. As a result, the U.S. Department of Defense (DOD) assesses the PLA is now able to mounta full air and naval blockade of Taiwan and is capable of punishing
the people of the island through missile, air, and cyberattacks.17
Moreover, the PLA has developed sea denial and power projection
capabilities to potentially counter a U.S. intervention.* 18 CaptainThomas H. Shugart III, USN (Ret.), adjunct senior fellow with theCenter for a New American Security, testified before the Commission that these capabilities create “uncertainty as to the spectrumof possible results in a cross-Strait conflict.” 19 Taken together, thesechanges have shifted the conventional military balance in China’sfavor and highlight the diminishing efficacy of military threats as
one of several tools the United States can leverage to deter China
from invading Taiwan.
The Changing Cross-Strait Military Balance
As the Commission has documented in its past Reports, China
has been engaged for decades in a well-resourced campaign to modernize the PLA, with the explicit goal of developing the capability
to forcibly annex Taiwan through a cross-Strait invasion. As a result, the PLA can today execute a range of missions against Taiwan,
including a full air and naval blockade, with a high confidence of
success.
In addition, the PLA is nearing or already has an initial operational capability for a successful cross-Strait invasion—though at
high risk of failure if the United States commits its forces to defend
Taiwan. According to DOD, “initial operational capability” is “thefirst attainment of the capability to employ effectively a weapon,
item of equipment, or system of approved specific characteristics
that is manned or operated by an adequately trained, equipped, andsupported military unit or force.” 20 Initial operating capability is incontrast to full operational capability, a point at which a weapon orsystem’s capabilities are mature and when the military is able tomaintain the system, modernize it, and deploy it when needed.21
The PLA’s development in this regard is the result of consistentand explicit planning over the last two decades. Executing those
directives has required years of operational planning, dedicated investment (particularly in China’s shipbuilding industrial base), sustained growth in the PLA’s amphibious capability, the adaptation ofcivilian sealift to military purposes, and comprehensive advances inanti-access and area denial capabilities to deter, delay, or defeat U.S.
* For more on power projection, see U.S.-China Economic and Security Review Commission,
Chapter 3, Section 2, “China’s Growing Power Projection and Expeditionary Capabilities,” in 2020
Annual Report to Congress, December 2020, 404–405.

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military intervention. Moreover, the PLA—again at the direction of
the highest level of CCP authority—is continuing to develop its capabilities so as to enhance the confidence of Chinese leaders that it
can successfully execute an invasion campaign.
For over a decade, the PLA has been able to prosecute a growing
range of campaigns short of invasion intended to coerce Taiwan into
submission. In 2008, DOD assessed that the PLA had achieved thecapabilities necessary for firepower strikes and a limited blockade of
Taiwan.22 The PLA’s plans for a joint firepower strike campaign involve launching missiles, rockets, and other munitions at targets in
Taiwan to force Taiwan’s leaders to submit to unification * with China.
In 2015, the DOD annual report on China’s military power did notinclude prior reports’ assessment that the PLA could not enforce a fullmilitary blockade, suggesting the PLA had achieved that capability.23
A PLA island blockade campaign would involve seizing control of the
air and waters around Taiwan and shutting down Taiwan’s economy bypreventing the import of energy, food, and other essential goods until
Taiwan’s leadership capitulates. Between 2008 and 2015, the PLA began demonstrating the capability to conduct offensive cyber operations
against military networks and critical infrastructure in Taiwan and thecontinental United States.24 Cyber operations can bolster China’s othercampaign options or stoke social unrest that may compromise Taiwan
public trust in its government or military.25
In testimony before the Commission, Lonnie Henley, former defense intelligence officer for East Asia with the Defense Intelligence Agency, assessed that China’s government probably ordered
the PLA to have an initial Taiwan invasion capability by 2020.26
The 2020 milestone, which then General Secretary Hu Jintao established in 2004, reflects Chinese leaders’ understanding that a
military invasion of Taiwan is the most escalatory in a range ofpotential campaigns requiring years of focused planning, training,
and technological innovation.† 27 These efforts appear to have borne
fruit. Since 2018, DOD has suggested that China may have an invasion capability by noting the PLA has a military “option” to invade
Taiwan.28 In its latest report on China’s military power, issued in
2020, DOD reiterated that China’s military options include a “fullscale amphibious invasion to seize and occupy some or all of Taiwan
or its offshore islands” and added new language suggesting China is* The Chinese government maintains that Taiwan is an inalienable part of the state called“China” ruled by the PRC. For that reason, it refers to the process of absorbing Taiwan as “unification” or “reunification.”† General Secretary Hu established 2020 as an important milestone for other military modernization targets. In 2004, he also ordered the PLA to achieve “major progress” in being capable offighting “modern local wars under informatized conditions” by 2020. These orders were publicizedwith additional detail in China’s 2006 Defense White Paper, which elaborated a three-step modernization process in which the PLA must “lay a solid foundation” for modernization by 2010,“make major progress” toward becoming an informationized force by 2020, and be “capable ofwinning informationized wars” by mid-century. General Secretary Hu added further detail tothe 2020 milestone in his work report to the CCP’s 18th National Congress in 2012, calling on
the PLA to “basically accomplish mechanization and make significant progress in information
construction” by 2020. Joel Wuthnow, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on U.S.-China in 2020: Enduring Problems and Emerging
Challenges, September 9, 2020, 24–25; Wanda Ayuso and Lonnie Henley, “Aspiring to Jointness:
PLA Training, Exercises, and Doctrine, 2008–2012,” in Roy Kamphausen, David Lai, and Travis
Tanner, eds., Assessing the People’s Liberation Army in the Hu Jintao Era, Strategic Studies
Institute, 2014, 171–173, 187.

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now “capable” of such an invasion.* 29 Similarly, Mr. Henley testified
that as of 2020, the PLA has already built the initial capabilities
it believes are necessary to invade Taiwan and win a war againstintervening U.S. forces.30
While some other experts offer differing assessments of whether
the PLA is currently ready to invade Taiwan, there is general consensus that the PLA is actively developing and quickly approachingan invasion capability. For example, in March 2021 then Commander of U.S. Indo-Pacific Command Admiral Philip S. Davidson testified before Congress that the PLA may be able to conquer Taiwan
by 2027.31 Former Central Intelligence Agency analyst and former
national intelligence officer for Asia John Culver suggested the milestone was further out, in 2030 or 2035.† 32 By contrast, in October
2021, Taiwan Minister of National Defense Chiu Kuo-cheng told Taiwan’s legislature that China currently has the capability to invade
Taiwan, and that it will have a “comprehensive” invasion capability
by 2025.33
Taiwan’s leaders are working to blunt the PLA threat. After her
election in 2016, President Tsai Ing-wen and her Administration
have taken important first steps toward mitigating the PLA’s advantages, but Taiwan’s military continues to face large gaps in size,
funding, and capabilities compared to the PLA. Taiwan’s militarycapabilities extend the time Taiwan can effectively resist a PLA attack, but given the disparity with the PLA’s size and resources, Taiwan will likely only be capable of resisting an invasion long enoughfor the United States and other partners to come to its aid.34
The PLA Reshapes Itself into an Invasion ForceThe PLA’s modernization, military training, and investments in
its defense industrial base have demonstrated significant progress
toward its 2020 invasion milestone. U.S. analyses published in 2000
determined the PLA would not be able to invade Taiwan even without U.S. military support of the island.35 Since then, the PLA’s advancements in power projection and precision strike capabilities, as* Beginning in 2018, DOD introduced language in its annual report on China’s military power
stating that China has a military option for a full-scale amphibious invasion of Taiwan. The introduction of this language, which was not included in prior versions of DOD’s report, was significant
and suggested the PLA may have had or was nearing the capability to invade Taiwan. In its 2020
report, DOD strengthened its assessment by reiterating that China had a military option for afull-scale invasion while suggesting the PLA also had the capability to invade Taiwan. Following
a lengthy discussion of China’s approach to a full invasion of the island, the report continued that
China is “capable of accomplishing various amphibious operations short of a full-scale invasionof Taiwan as well,” (emphasis added) implying these capabilities exist in addition to a full-scaleinvasion capability. Each year, DOD has caveated its assessment by explaining such an operation
would carry “significant political and military risk.” U.S. Department of Defense, Annual Report toCongress: Military Power of the People’s Republic of China 2020, August 21, 2020, 114.
† Why ADM Davidson proposed 2027 is not immediately clear, but it is likely associated with
the CCP’s 19th Party Congress Fifth Plenum communique, released in 2020, introducing a vague
benchmark of army-building in 2027, the centenary of the PLA’s founding. While some publishedanalysis argues this represents an acceleration of PLA modernization that pushes modernization
targets from 2035 to 2027, there is no publicly available evidence that suggests such a change to
the PLA’s timetable. The 2027 centennial is more likely a symbolic benchmark for the PLA than a
new step in military modernization. Similarly, while he did not provide his reasoning, Mr. Culver
may have been referencing the PLA’s existing 2035 benchmark to become a fully modern militaryfor his estimate of when the PLA will achieve an invasion capability. John Culver and Ryan Haas,“Understanding Beijing’s Motives Regarding Taiwan, and America’s Role,” Brookings Institution,
March 30, 2021; Meia Nouwens, “Is China Speeding Up Military Modernisation? It May, But Not
Yet,” Interpreter, November 4, 2020; Xinhua, “Authorized Release: Communique from the Fifth
Plenary Session of the Nineteenth CCP Central Committee” ((受权发布) 中国共产党第十九届中央委员会第五次全体会议公报), October 29, 2020. Translation.

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well as the general modernization of the PLA Navy and Air Force,
have eroded Taiwan’s defensive advantages while posing a credible
threat to intervening U.S. forces. The PLA continues to suffer fromperennial weaknesses, including poor officer quality, a lack of warfighting experience, and what U.S. analysts consider a critical lack ofamphibious lift for a direct beach assault of Taiwan. Nevertheless,the PLA is keenly aware of its shortcomings and is working to rectify them with continued modernization and training. Furthermore,
PLA doctrine suggests civilian sealift may close the critical gap in
amphibious lift.
Building an Invasion ForceToday, public sources suggest the PLA has the military air and sea
lift capacity for a first-echelon invasion force of more than 25,000
troops.* The PLA’s amphibious sealift capacity can transport approximately 20,000 troops in mechanized battalions, including hundredsof infantry fighting vehicles and main battle tanks (see Table 1).†One expert analysis found that a PLA Air Force airborne campaign
would likely be able to contribute an additional light infantry brigade of approximately 5,000‡ troops with lightly armored vehicles
and artillery.36 The PLA Army also has two air assault brigades
able to deploy approximately 3,200 troops by helicopter.37 These
numbers do not include either the PLA’s expected combat losses orforces delivered by civilian air and sealift. It is unclear whether PLA
planners assess the first-echelon landing force they could currently
transport is large enough to set conditions for follow-on forces toinvade and occupy Taiwan.
Table 1: China’s Amphibious Capacity in 2021
NATO
Designator

Vehicle Type

Count

Type 067A

YUNNAN

Landing craft,utility~30

1 tank or 2 infantry
fighting vehicles or 1
infantry unit

Type 071

YUZHAO

Amphibioustransport dock6

800 troops; 60
armored vehicles; 4helicopters

Type 072-II

YUKAN

Landing ship,tank

4

200 troops; 10 tanks

Type 072-II/III YUTING I

Landing ship,tank

9

250 troops; 10 tanks;
2 helicopters

Type 072A/B

Landing ship,
tank

15

250 troops; 10 tanks

Class

YUTING II

Troops and Vehicle
Capacity* Using a force of this size to invade Taiwan would likely restrict PLA planners to limited
circumstances in which the force could survive in the face of Taiwan’s defenses and accomplish
its mission. These circumstances almost certainly include a prerequisite condition that the PLA
is able to attrite or otherwise make irrelevant to the initial conflict large parts of Taiwan’s military, including through blockade, bombardment, and cyberattacks. Another prerequisite condition
would almost certainly be that the PLA is able to prevent, delay, or deter military intervention
from the United States or any other intervening country.
† Data compiled by Commission analysts in Table 1. International Institute for Strategic Studies,“The Military Balance 2021,” 2021, 253–255.
‡ The PLA has enough medium- and heavy-lift aircraft to transport more than 5,000 troops, but
not all of these aircraft would likely be dedicated to transporting an invasion force, nor will allof the PLA’s transport aircraft be configured to maximum troop capacity.

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Table 1: China’s Amphibious Capacity in 2021—Continued
NATO
Designator

Vehicle TypeCount

Troops and Vehicle
CapacityType 073 II

YUDENG

Landing ship,
medium

1

500 troops or 5 tanks

Type 073A

YUNSHU

Landing ship,
medium10

6 tanks

Type 074

YUHAI

Landing ship,
medium

10250 troops; 2 tanks

Type 074A

YUBEILanding ship,
medium11

150 troops or 1 tankType 075

YUSHEN

Landing helicopter dock3

900 troops witharmored vehicles; 30
helicopters

Type 726

YUYI

Air-cushioned
landing craft

10+

1 tank or 2 infantry
fighting vehicles

Zubr

POMORNIK

Air-cushioned
landing craft

4360 troops or 3 tanks
or 8 infantry fighting
vehiclesClass

AMPHIBIOUS TOTAL~20,000 troops witharmored vehicles; 105
helicopters

Source: International Institute for Strategic Studies, “The Military Balance 2021,” 2021, 253–
255; Chad Peltier, Tate Nurkin, and Sean O’Connor, “China’s Logistics Capabilities for Expeditionary Operations,” Jane’s (prepared for the U.S.-China Economic and Security Review Commission), April 15, 2020, 54; ArmyStar, “First Generation Domestic Production: Type 067 Small
Landing Craft” (国产第一代: 067系列小型登陆艇), April 26, 2012. Translation; David Lague, “China
Expands Its Amphibious Forces in Challenge to U.S. Supremacy beyond Asia,” Reuters, July 20,
2020; Naval Technology, “Zubr Class (Pomornik)”; Military Today, “Shaanxi Y-8”; Military Factory,“Type 726,” October 8, 2018; edited and compiled by Commission staff.

China’s Civilian Fleet Can Deliver Follow-On Forces
The PLA may be able to use China’s civilian fleet to deliver thefollow-on forces needed to defeat Taiwan’s defenses and conquer theisland. The initial invasion force does not need to occupy the entire
island. Instead, it needs to secure the beachheads and port facilities
to allow civilian ships cooperating with the PLA to transport andsafely unload follow-on forces.38 Roll-on/roll-off (RORO) vessels aredesigned to quickly load and unload vehicles at a port facility, andthey would likely be among the most important civilian ships for
an invasion campaign. Civilian RORO crews assigned to transport
second-echelon invasion forces can train for this operation at China’s first dual-use RORO dock,* which began operations in December 2020.39 All Chinese RORO ships built after the 2015 TechnicalStandards for New Civilian Ships to Implement National Defense
Requirements are already tailored to military specifications, whichaccording to state media serve to “convert the considerable potentialof [China’s] civilian fleet into military strength.” 40 In 2018, Chineseexperts on the PLA estimated China had 63 civilian RORO ships
suitable for military operations.41 China’s militarily useful RORO
fleet includes the Bohai Ferry Group’s 11 “large-scale” ships, each
* The Qingdao Port is securely located in the Yellow Sea, where the majority of PLA Navy
exercises reported by the Maritime Safety Administration are said to take place.

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able to carry approximately 200–300 vehicles and 1,100 to 2,000
passengers.42 According to independent analyst and former U.S. military attaché in Beijing Dennis Blasko, the largest of these has “asingle-lift capacity of multiple infantry battalions or nearly an entire armored or artillery brigade.” 43
The PLA is also likely to combine civilian and military transports
to land follow-on forces over beaches secured during the initial assault. While civilian ships typically rely on ports to offload, the PLA
began developing the capability to unload troops and materiel at
artificial piers as early as 2014.44 It recently practiced this capability in 2020 during a PLA Joint Logistics Support Force exercise
focused on using civilian vessels for sea crossing and the emergency
disembarkation of infantry, trucks, and armored vehicles at a temporary dock.45 A state media video of the exercise revealed the title“Eastern Transportation-Projection 2020A,” with the “A” designationsuggesting the PLA conducted other iterations of the exercise in
2020.46 The exercise also included at least one Chinese RORO outfitted with a reinforced ramp system allowing amphibious fighting
vehicles to deploy directly into the water without the need for adock.47 The PLA’s ongoing efforts to develop this capability strongly
suggest the military threat facing Taiwan will continue to sharpen
in the coming years.
China’s Defense Industry Can Surge Construction of a Future
Invasion Fleet
China’s defense industrial base has demonstrated the ability toquickly produce large amphibious assault vessels that would add
significant additional lift capacity for an invasion force.48 China
has undertaken a massive shipbuilding drive that in 2019 alone
produced more civilian and military ships than the United States
produced over the four years of World War II.* 49 Among the ships
launched in the last three years are three 30,000- to 40,000-ton
Type 075 Landing Helicopter Dock amphibious assault ships.50
Each Type 075 has an initial capacity of up to 30 helicopters andone mechanized battalion of 900 troops with landing craft.51 Notably, the PLA Navy and Marine Corps do not currently have sufficient helicopters to fully exploit the Type 075’s capacity, nor does
the PLA yet have any short takeoff and vertical landing jets able totake off from the ship’s flight deck.52 Analysis from Jane’s suggests
China may operate a total of 12 Type 075 ships by 2030, providing
amphibious lift capacity for an additional 8,100 mechanized troops
to China’s current fleet.53
The PLA is also greatly expanding its strategic airlift capacity.
Jane’s estimates the PLA Air Force may expand its current air fleet
of deployable Y-20 heavy-lift aircraft to roughly 50 by 2025 andmore than 100 by 2030.54 This expansion would bring the total Y-20
airlift capacity to 6,000 and 12,000 fully equipped troops by 2025
and 2030, respectively.55 The PLA is also expanding the infrastruc* The scale of China’s shipbuilding industry has implications beyond building an invasion fleet.
In 2020, U.S. Marine Corps Commandant General David Berger warned that in a protracted conflict, “the United States will be on the losing end of a production race—reversing the advantage
we had in World War II when we last fought a peer competitor.” Paul McLearty, “In War, Chinese
Shipyards Could Outpace U.S. in Replacing Losses; Marine Commandant,” Breaking Defense,
June 17, 2020.

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ture needed to support its growing air assault capacity, including
at the Longtian and Huian airbases, both of which are within 200
kilometers (125 miles) of Taipei.56
Training an Invasion ForceThe PLA has maintained a regular schedule of training events
simulating a Taiwan invasion since 1994. Exercises within the lastyear demonstrate capabilities for a range of operations from the initial sea crossing to ground operations on Taiwan. Amphibious combined arms brigades regularly hold exercises maneuvering dozens
of armored vehicles and hundreds of crew members in the Taiwan
Strait off Guangdong Province to ensure quick battlefield access despite hazardous weather conditions in the Strait.57 A 2020 exercise
involved one thousand PLA soldiers responsible for defeating enemy
antitank units to secure a landing zone for amphibious assault vehicles.58 In a similar multiday exercise held in 2021, PLA forces defended a Type 071 amphibious transport dock against enemy beachdefenses and aircraft before launching a beach assault.59
PLA exercises simulating a Taiwan invasion demonstrate significant improvements in joint operations. PLA landing forces in the
Eastern and Southern Theater Commands regularly hold exercises pairing amphibious and air assaults with joint fire strikes from
warplanes, artillery, and tanks.60 A 2021 exercise featuring PLA airground coordination included phases in which a landed ground force
identified targets, artillery launched firepower strikes against thosetargets, and PLA Army aviation rapidly airdropped additional forcesfrom helicopters to advance the PLA’s position.61 PLA Army, Navy,and Air Force units have jointly participated in several exercises.
For example, a 2019 joint exercise involved PLA aircraft circumnavigating Taiwan while PLA Navy vessels simulated striking adversaries and helicopters simulated an amphibious landing.62 The PLA
conducted a similar exercise in April 2021, when the PLA Navy’s
Liaoning carrier group was engaged in exercises east of Taiwan anda PLA Y-8 anti-submarine warfare aircraft took an extended flightpath through the southern half of Taiwan’s air defense identification zone, likely coordinating communications between the Liaoning
carrier group and other PLA land-based aircraft around Taiwan.63
Chinese state media has reported gradual improvements to the
PLA’s amphibious forces. For example, when the PLA Navy Marine
Corps was expanded to seven brigades in 2017, DOD reported thatnone of the new units were equipped to conduct amphibious landing exercises.64 By 2020, state media began describing the service
as having completed a years-long transition toward meeting basic
standards such as concurrent air, land, and sea operations.65 Similarly, PLA Army air assault exercises have mobilized dozens of attack and transport helicopters and may continue developing intoa larger airlift capability.66 The PLA Air Force’s decision to equip
its airborne corps with ZBD-03 amphibious infantry armored fighting vehicles and ongoing exercises with diverse transport aircraft
similarly indicate PLA airlift will be an improving capability for a
Taiwan invasion.67
The PLA’s most mature capabilities for a joint island invasion arethose it has exercised and incrementally improved for decades: am-

399
phibious landing, countering U.S. intervention, and naval strike, thelatter targeting either Taiwan’s land defenses or U.S. naval assets
in the theater. Between 1994 and 2004, the PLA conducted ninelarge-scale joint exercises with amphibious invasion components on
Dongshan, a small peninsula in the Taiwan Strait.68 During this period, the PLA also began transitioning some of its traditional groundforces to amphibious assault forces, and by 2003 it had produced
more PLA Army amphibious forces than were in the PLA Navy Marines.69 The PLA then shifted to combine its amphibious landing
exercises with naval strikes, with one joint PLA exercise held in2007 specifically reported to simulate striking Taiwan’s defenses insupport of a landing operation’s second wave.70 Since 2010, the annual Mission Action transregional joint exercises continued cultivating the amphibious landing capability prioritized in the Dongshan
exercises in joint operation with naval strike.71 Ensuring Taiwan
and other observers did not miss the point of these preparations, a2015 PLA landing exercise included an assault on what appears to
be a replica of Taiwan’s presidential palace.72 Similarly, the PLA’s
Zhurihe Training Base includes full-size replicas of parts of downtown Taipei, including elaborate mockups of the presidential palaceand Ministry of Foreign Affairs building.73
Denying a U.S. Military Response
Approaching its 2020 invasion milestone, the PLA developed
mature sea denial capabilities that can likely delay U.S. forces approaching the theater.* These delays would extend an already protracted timeline, giving the PLA a longer window of opportunity
to shape battlefield conditions in a war against Taiwan. In March
2021, Admiral Davidson testified before Congress that U.S. militaryforces deploying from the west coast of the United States would
need three weeks of transit to conduct operations west of Guam.74
U.S. forces based in Japan would have a significantly shorter response time but may be hindered by early or preemptive missile
strikes. For a preemptive attack on U.S. forces in Japan, the PLA
has demonstrated the precision strike capability and missile inventory it would need to strike nearly every U.S. ship in port; morethan 200 grounded U.S. aircraft; and all major fixed headquarters,
logistics facilities, and runways in U.S. airbases.75 The PLA Rocket
Force trains for these scenarios, particularly to target high-value
U.S. military aircraft while they remain parked.76
An attack on U.S. forces in Japan would be an extreme step thatall but ensures a coordinated military response from the UnitedStates, Japan, and likely many other partner countries. CCP leaders would need to weigh the military benefits of such an attack
against its serious military and political consequences. In addition
to threatening U.S. and Japanese forces, a preemptive PLA attack* The PLA considers its campaigns against Taiwan to necessarily involve war with the UnitedStates. Chinese policymakers became convinced that the United States is their greatest obstacle
to unifying with Taiwan after the U.S. intervened in the 1995–1996 Taiwan Strait Crisis, andsince then the PLA has explicitly planned for U.S. intervention in a future Taiwan campaign.
Robert S. Ross, “The 1995–1996 Taiwan Strait Confrontation: Coercion, Credibility, and the Useof Force,” International Security 25:2 (Fall 2000): 87–123, 120–121; Arthur S. Ding, “The Lessonsof the 1995–1996 Military Taiwan Strait Crisis: Developing a New Strategy toward the UnitedStates and Taiwan,” in Laurie Burkitt, Andrew Scobell, and Larry M. Wortzel, eds., The Lessonsof History: The Chinese People’s Liberation Army at 75, Strategic Studies Institute, 2003, 369.

400
on U.S. bases in Japan would threaten international forces making
up UN Command-Rear headquartered at the base in Yokota, one ofseven UN-designated bases in Japan.* 77
The Possibility of Preemptive PLA Strikes on Taiwan and
U.S. Forces
PLA doctrine suggests it may initiate an invasion of Taiwan
with preemptive strikes targeting both Taiwan and U.S. basesin the region. The PLA anticipates U.S. intervention in such a
conflict, suggesting it has a limited window of opportunity to set
battlefield conditions or achieve objectives before the U.S. militaryarrives in force. Oriana Skylar Mastro, fellow at Stanford University’s Freeman Spogli Institute for International Studies, testified
before the Commission that PLA strategists believe victory in a
Taiwan conflict is unlikely if the United States is given time tomobilize and respond in the theater, creating an imperative for
the PLA to escalate rapidly.78 An attack on U.S. forces in Japan,
particularly preemptive strikes on ships in port and planes stillon the ground, would severely delay and degrade a U.S. response.
PLA strategists likely anticipate that the United States willbe less effective in expelling a concentrated † landing force thanin destroying an amphibious fleet crossing the Taiwan Strait. According to Science of Campaigns, the invasion’s sea crossing andlanding phase is significantly more difficult than the ground operations following a landing.79 The sea crossing’s success depends
on the PLA’s ability to gain superiority over the information, air,and maritime domains.‡ PLA doctrine describes seizing these
conditions by launching targeted cyberattacks and a “surprise,
fierce, and continuous” firepower campaign bombarding an adversary’s command infrastructure, air and naval bases, missiles,
and air defense systems.80
The PLA Rocket Force has extended its strike range as far as
Guam by amassing a stockpile of intermediate-range ballistic missiles (IRBMs) and launchers. DOD estimates China had 20 IRBMs
in 2011 and “200+” in 2020.81 The PLA Rocket Force’s mass production of IRBM launchers suggests China may have a larger stockpileof IRBMs than DOD has explicitly stated (see Table 2). If the PLA
maintained the 2:1 missile-to-launcher ratio it had in 2019, it would
have a stockpile of approximately 400 IRBMs as of 2020, double the* UN Command-Rear, currently led by an Australian officer, is subordinate to UN Command(which is based in Korea) and coordinates the transit of troops and supplies into Japan from
Australia, Canada, France, Italy, New Zealand, the Philippines, Thailand, Turkey, and the United
Kingdom (UK). Although UN Command-Rear only has five personnel at Yokota, it maintains
key relationships between allied militaries and countries that participated in the Korean War.
Seth Robson, “Bringing Up the Rear: U.S. Bases in Japan Support UN Command in S. Korea,”
Stars and Stripes, January 7, 2021; HQ United Nations Command-Rear, “United Nations Command-Rear Fact Sheet,” November 25, 2014.
† The Science of Campaigns instructs invasion commanders to exert all efforts to concentrate
their forces at landing points and achieve a preponderance of forces at those points, even if theoverall invasion force cannot achieve theater-wide superiority. Zhang Yuliang, Science of Campaigns, National Defense University Press, 2006, 312–316. Translation.
‡ Information superiority, air superiority, and maritime superiority are temporary conditions inwhich no adversary, such as Taiwan or U.S. forces, can effectively contest or deny the PLA’s useof these domains.

401“200+” DOD confirms.82 These weapons can strike U.S. forces moving into the theater as well as the U.S. command and logistics facilities supporting them.83 As early as 2015, a RAND study assessed
the PLA could deliver enough ordinance on Guam to close Andersen
Air Force Base to any large aircraft for over a week.84 China’s mass
production of IRBMs magnifies that threat.
Table 2: China’s Inventory of Ballistic Missile Launchers, 2018–2020
2018

2019

2020

Short-range launchers

300

250

250

Medium-range launchers

125

150

150

Intermediate-range launchers

30

80

200

Source: U.S. Department of Defense Annual Reports to Congress, 2018 through 2020; compiled
by Commission staff.

The PLA has important capabilities to counter U.S. intervention
using its long-range bomber force and naval expansion. The PLA’slong-range bomber fleet, which has grown to more than 230 aircraftin 2020, is expanding its combat radius and increasing its capacity
for long-range air-launched antiship or land-attack missiles.85 Additionally, PLA Navy destroyers carry the YJ-18 antiship cruise missile, which boasts an operational range of 290 nautical miles (nm),dramatically beyond the U.S. equivalent Harpoon or Naval Strike
Missile, which range 70 nm and 100 nm, respectively.* 86
Recently, Chinese state media have significantly increased theirattention on PLA aviators training to intercept U.S. forces at sea.
State media reports from late 2020 onward repeatedly describe large
groups of PLA helicopter and fixed-wing aircraft pilots practicing
long-range “sea skimming” flight paths, staying low to avoid enemy
detection, to strike distant maritime targets.87 While the PLA has
conducted similar exercises for years, the spike in their reports may
indicate a new focus or greater frequency of exercises developing
this capability.88 One of the recent reports describes PLA forces targeting a “powerful enemy,” using the common Chinese euphemism
for the United States.89 Reports also indicate a sharp increase in
PLA maritime strike exercises that incorporate airborne early warning and control aircraft to identify targets and relay intelligence toother warplanes. State media claimed the PLA conducted hundredsof such exercises in the first quarter of 2021 alone.90
PLA Weaknesses Undermine Beijing’s Confidence in Invasion
China’s leaders note persistent weaknesses in the PLA’s operational effectiveness and harbor significant concerns about its invasion capability despite the PLA’s focused efforts to resolve these* Earlier this year the U.S. Navy received the Block V Tomahawk, which likely outranges the
YJ-18. Tomahawk missiles have previously been used for land-attack functions, and open sources
have not confirmed that the Block V Tomahawk can accurately strike ships at sea. This capability
may be reserved for the Block V Maritime Strike Tomahawk, which the U.S. Navy is not scheduled to receive until late 2023. Richard Scott, “USN Receives First Block V Tomahawk Cruise
Missile,” Jane’s, March 26, 2021; Xavier Vavasseur, “Raytheon Delivers First Batch of Block V
Tomahawk Missiles to US Navy,” Naval News, March 26, 2021.

402
weaknesses.* The PLA has yet to train commanders and staff able
to plan, coordinate, and conduct the joint operations necessary to
invade Taiwan.91 For an invasion to succeed, commanders leading
PLA forces responsible for air control, sea control, and amphibious
assault must be able to achieve their operational objectives and secure access for follow-on forces while facing communications disruptions and incoming fire. These operations require a highly adaptable force led by commanders able to make battlefield decisions,
yet it is precisely these qualities Chinese leaders have repeatedly
found to be lacking in the PLA.92 For over a decade, Chinese leaders have used varying slogans pointing to the low aptitude of some
PLA personnel, resistance to new operational concepts, and unrealistic training.93 One report describes a chronic reluctance toward
improvements in which “many leaders went through the motions ofreform without internalizing it; their uniforms have changed, but
their mindsets have not; and their ideas cannot keep up with theneeds of a strong military.” 94 The decade-long persistence of theseweaknesses suggests the PLA faces continued challenges in training
the force needed to assure a successful invasion.
In addition to poor commander quality, PLA leaders continue toidentify joint operations as another critical weakness that may undermine Chinese leaders’ confidence in the PLA’s ability to invade
Taiwan. The PLA’s plans for war require a joint capability that
RAND Corporation senior international defense researcher Mark
Cozad assessed to be a “massive and underappreciated departurefrom the mechanized, attrition-based model that the PLA has reliedon since the People’s Republic of China’s (PRC) founding.” 95 Developing this joint operational capability was an important objective of
the major military reorganization General Secretary Xi announced
in 2015. More than five years after the reorganization began, however, Chinese state media continues to identify PLA jointness asa weakness to be mediated.96 For example, the PLA’s weaknesses
in coordinating between its units undermines the PLA Air Force’s
ability to provide ground forces with close air support, which would
be vital in an amphibious assault on Taiwan.97
The PLA’s shortcomings extend to industrial and logistical system
failures that could compromise the deployment or sustainment ofChina’s invasion force. According to Mr. Cozad, PLA support capabilities, such as its defense industrial base and the logistical sustainment necessary to maintain a large urban warfare operation,
remain lacking.98 Ongoing technological challenges in China’s defense industrial base make the PLA wholly dependent on Russian
imports † for the military high-bypass turbofan engines used in its* One of Chinese leaders’ most prevalent criticisms of the PLA is the “Five Incapables,” whichhighlight that PLA officers cannot make judgments about battlefield situations, understand theirsuperiors’ intentions, make operational decisions, effectively deploy troops, or handle unexpected
situations. The PLA considers these weaknesses to undermine the PLA’s combat leadership capabilities at every level of command. For more on Chinese leaders’ criticism of PLA weaknesses, see
U.S.-China Economic and Security Review Commission, Chapter 2, “Beijing’s Internal and External Challenges” in 2019 Annual Report to Congress, November 2019, 119–168; Dennis J. Blasko,
written testimony for the U.S.-China Economic and Security Review Commission, Hearing on
What Keeps Xi Up at Night: Beijing’s Internal and External Challenges, February 7, 2019, 7.
† Russia is not the only country assisting Chinese aeroengine development. French helicoptersand helicopter engines are the predecessors of Chinese Z-8, Z-9, and Z-11 military utility helicopters, and France’s Safran Helicopter Engines continues to cooperate closely with the state-owned
Aero Engine Corporation of China on production supply chains. Peter Wood, Alden Wahlstrom,403
strategic transport aircraft.99 While the PLA Joint Logistics Support
Force demonstrated an early capability to deploy and sustain troops
for several weeks in response to the novel coronavirus (COVID-19)
pandemic, it has not yet demonstrated these capabilities beyond
China’s borders or under the pressures of war.100 Further, state media regularly report that PLA support units commit mistakes surprising for a professional military. One notable report from early2021 described a specialized transport company neglecting to apply
antifreeze to its trucks, leading gas lines to freeze ahead of a training exercise.101
Taiwan Takes Initial Steps toward an Asymmetric Defense
PostureAs the PLA became larger and better prepared for invasion overthe last decade, Taiwan’s military shrank as a result of an extended
period of flatline defense spending. Between 2011 and 2020, Taiwan’s number of ground personnel, artillery pieces, and coastal patrol vessels declined while the PLA produced new aircraft carriers,
destroyers, and the large tank landing ships needed for an amphibious invasion (see Table 3). To confront this challenge, since 2017
Taiwan’s government has taken initial steps to adopt an asymmetricdefense strategy such as the one outlined in the Overall Defense
Concept (ODC).* 102 The Tsai Administration also began making
regular increases to Taiwan’s defense budget. Still, the Taiwan military continues to face significant challenges. In testimony before theCommission, Kharis Templeman, research fellow at Stanford University’s Hoover Institution, argued that the capability gap between
China and Taiwan has become so great that Taiwan can no longer
deter a PLA attack using only military means.103
Table 3: The Cross-Strait Military Balance, 2011 and 2020

TaiwanChina(in-theater)

China(total)Taiwan2011

China(in-theater)

China(total)2020

Ground Personnel

130,000

400,000

1,250,000

88,000412,000

1,030,000

Artillery Pieces

1,600

3,400

8,000

1,100

N/A

6,300

Aircraft Carriers

0

0

0

0

1

2

Destroyers

4

16

26

4

23

32

Frigates

22

44

53

22

37

49

and Roger Cliff, “China’s Aeroengine Industry,” China Aerospace Studies Institute, March 2020,
35.
* The future of the ODC is not clear. Although it was referenced in Taiwan’s 2017 and 2019
National Defense Reports, no reference to the ODC has appeared in the 2017 or 2021 Quadrennial
Defense Review. Both documents are published by Taiwan’s Ministry of National Defense. The
Quadrennial Defense Review gives a strategic vision for Taiwan’s defense and military strategy,
while the National Defense Report describes Taiwan’s current national defense policy and its
implementation. Taiwan Ministry of National Defense, Quadrennial Defense Review 2021, March
2021; Taiwan Ministry of National Defense, Quadrennial Defense Review 2017, March 2017; Taiwan Ministry of National Defense, National Defense Report, September 2019, 6; Taiwan Ministryof National Defense, National Defense Report, December 2017, 138.

404
Table 3: The Cross-Strait Military Balance, 2011 and 2020—Continued

TaiwanChina(in-theater)

China(total)Taiwan2011

China(in-theater)

China(total)2020

Tank Landing
Ships

12

25

27

14

35

37

Medium Landing
Ships

4

21

28

0

16

21

Attack Submarines

4

35

54

2

34

52

Coastal Patrol
Vessels

61

68

86

44

68

86

Fighter Aircraft

388

330

1,680

400

600

1,500

Bomber Aircraft

22

160

620

0

250

450

Transport Aircraft

21

40

450

30

20

400

Source: U.S. Department of Defense, Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2020, August 21, 2020, 164–166; U.S. Departmentof Defense, Annual Report to Congress: Military and Security Developments Involving the People’s
Republic of China 2011, May 6, 2011, 72–78; compiled by Commission staff.

Progress and Challenges in Taiwan’s Military Reforms
Taking office in 2016, the Tsai Administration began urging
changes to Taiwan’s defense policies toward an asymmetric posture,
characterized by large numbers of low-cost weapons and warfighting concepts that emphasize denying an invading PLA force fromreaching its objectives.104 The Tsai Administration embraced an approach that envisions saturating the waters closest to Taiwan withsea mines, shore-based firepower, and air strikes while concentrating fire on landing beaches to prevent the PLA from establishing abeachhead.105 Civilian infrastructure such as offshore wind farms
would be constructed as obstacles where beaches are most vulnerable, and Taiwan’s reserve forces would wage urban and guerilla warfare should these measures fail.106 President Tsai’s embrace of anasymmetric posture is a significant break from prior defense plans,
which envisioned defeating the PLA by maintaining command of the
air and seas around Taiwan with expensive traditional platforms
such as fighters, frigates, and submarines.107
The Tsai Administration also ended Taiwan’s history of flat defense spending since the early 2000s.108 As shown in Figure 1,
Taiwan’s defense budget has steadily increased between 2 and 5
percent every year since 2016, with one exception in 2017.109 In
September 2021, the Tsai Administration announced that in addition to its annual defense budget, Taiwan will spend $8.6 billion
between 2022 and 2026 to enhance its naval and air defense capabilities.110 Nevertheless, Taiwan’s recent spending increases areprimarily important as a long-term trend that bolsters but is insufficient to uphold cross-Strait deterrence. U.S. experts, including
then Acting Assistant Secretary of Defense for Indo-Pacific Security
Affairs David Helvey, generally caution that the current increases,405
taken alone, would leave Taiwan’s defense spending too low to maintain a strong defensive posture against China.111

12

12%

10

10%

8

8%

6

6%

4

4%

2

2%

0

0%

-2

2010

2011

2012

2013

2014

2015

2016

Taiwan's Defense Budget

2017

2018

2019

2020

2021

Percent Change Year-on-Year

US$ billions

Figure 1: Taiwan’s Defense Budget, 2010–2021-2%

Percent Change

Source: Various.112

President Tsai has called for sweeping reforms to Taiwan’s military to address longstanding deficits in readiness and military
efficiency.113 Central to Taiwan’s military reforms is the problemof an all-volunteer recruitment model that constantly falls shortof its quotas, leaving many units understrength.114 Some frontline ground combat units are reportedly at 60 percent of theirauthorized end strength.115 Furthermore, Taiwan’s military must
recruit from a society in which military service is often regarded
with disdain and military careers are often seen as a last resort.116 Despite these challenges, President Tsai has endeavored
to reverse the Taiwan public’s negative perception of its military,
including by urging soldiers to wear their uniforms in public andby personally donning a helmet and flak jacket in view of news
cameras.117
Taiwan’s military also suffers significant shortfalls in active
duty and reserve force training. Recruits spend more time on administrative briefs and yard work than on combat tactics, andthe combat training they do undergo remains highly scripted.118
These problems are most acute in Taiwan’s reserve forces, where
Taiwan’s defense ministry assesses that only one-third of its 2.3
million reservists were demobilized recently enough to be effective if they were to be mobilized for conflict.119 Of that fraction,over 40 percent have only completed basic training and another 45 percent were conscripts who served for no more than fourmonths.120 Nor does Taiwan have the requisite bureaucratic
capacity to mobilize most of its reserves. Taiwan’s Ministry of
National Defense can mobilize only 260,000 reservists quickly
enough to respond to a crisis, though its capacity will likely improve under the new Defense Reserve Mobilization Agency set tobegin operations in January 2022.121

406
Gauging the Taiwan Public’s Will to Fight
Public opinion data on how willing the Taiwan public is to fighta potential PLA invasion show uneven results. For example, in2016 the World Value Survey found 81.1 percent of Taiwan citizens
would support Taiwan in a war through actions such as taking up
arms or providing logistical support, while the Chengchi University Election Research Center survey found only 22.8 percent of
Taiwan citizens would fight for Taiwan in a war against China.122
The Taiwan National Security Survey, conducted regularly since
2002, shows that the percentage of Taiwan citizens who would
fight against a Chinese attack by joining the military, resist without joining the military, or otherwise comply with government
decisions doubled from 15.2 percent in 2018 to approximately 32
percent in 2020.123 Between 2019 and 2020, the percentage of
respondents who stated that they would instead flee the country,
surrender, or accept the situation declined from approximately
45 percent to 32 percent, and approximately one-quarter of all
respondents did not know how they would react.124
Dr. Templeman identified several trends from public opinion
surveys in Taiwan. He found that while the Taiwan public is notconfident in its own military’s ability to repel a PLA attack, it
is generally confident that the United States will intervene andthat at least two-thirds of all other Taiwan citizens will also join
the fight.125 If Taiwan’s civilians do not have visible evidence of
both, however, they report being much less likely to support a war
effort or resist an invader themselves.
Austin Wang, assistant professor of political science at University of Nevada, Las Vegas, conducted research into Taiwan public opinion that reached similar findings. According to his study,
the Taiwan public’s will to fight may increase or decrease by asmuch as 10 percent if it is told whether other Taiwan citizens will
join the fight.126 In Dr. Wang’s control group, this represented anincrease from 50 percent to 60 percent of respondents who arewilling to fight if told others would do the same.127
Successes and Setbacks in Aligning Taiwan’s Military Procurements
and Defense Strategy
The Tsai Administration has begun to align its military procurements with an asymmetric posture, with the most significant successin tactical missile development.128 In 2021, Taiwan accelerated themass production of its Hsiung Feng-3 sea-skimming antiship missiles and completed production of Tien Kung-3 interceptor missiles,
used to strike incoming missiles and aircraft, ahead of schedule.129
Taiwan has also begun mass production of multiple long-range missile variants * that are likely to be mobile and able to strike targets* At least one of these missile variants is very likely to be Taiwan’s Yun Feng land attack cruise
missile, which the National Chung-Shan Institute of Science and Technology tested for the firsttime in April 2020. With an upper operational range of 2,000 kilometers, the Yun Feng will beable to reach multiple targets within China, including Beijing. In 2019, Taiwan began developingat least 20 Yun Feng missiles and 10 mobile launch platforms. Alessandra Giovanzanti, “Update:Taiwan Prioritising Development of Long-Range, Precision-Strike Capabilities,” Jane’s Defence
Weekly, March 26, 2021; Gavin Phipps, “Taiwan Test-Fires Locally Developed Yun Feng LACM,”
Jane’s Defence Weekly, April 28, 2020.

407
within China as far away as Beijing.130 These capabilities directly
challenge the PLA’s land-based air and missile defense systems, a
key strength that Mr. Henley testified would be the center of gravity
in a conflict over Taiwan.131 Taiwan has also begun indigenous production of other asymmetric platforms, recently launching the firstof four planned fast minelayer ships.132
Taiwan’s adoption of an asymmetric military posture remains an
ongoing process. Writing in Foreign Affairs in October 2021, President Tsai wrote, “in addition to investments in traditional platforms
such as combat aircraft, Taiwan has made hefty investments inasymmetric capabilities, including mobile land-based antiship cruise
missiles.” 133 Taiwan’s arms purchases from the United States since
President Tsai took office show that Taiwan’s government currently
spends more heavily on platforms typically considered to be traditional capabilities than on capabilities viewed as asymmetric.* Since
2017, Taiwan spent approximately $19.03 billion on U.S. arms (seeTable 4).134 Taipei spent approximately $6.3 billion, or 34.4 percentof the total, on capabilities typically viewed as asymmetric such as
coastal defense cruise missiles and the survivable High Mobility Artillery Rocket Systems (HIMARS).135 In contrast, it invested $12.1
billion, or 64 percent of the total, on traditional capabilities suchas F-16 fighters, submarine-launched torpedoes, and Abrams tanks.
Two purchases in the same time period, worth approximately $680
million, went toward logistics or communications support ($400 million for logistics support and $280 million for communications systems) that do not neatly fit either category.136
Table 4: Taiwan’s Arms Purchases from the United States,
2017–2021, Year-to-Date
Approximate Cost
(USD)

Year

Purchased Arms

2017

Upgrades to electronic warfare systems supporting four KEELUNG-class destroyers$80 million

2017

56 AGM-154C JSOW air-to-ground missiles$186 million

2017

Converting 168 MK-46 Mod 5 aerial anti-submarine torpedoes to MK-54 lightweight torpedoes$175 million

2017

46 MK 48 Mod 6AT submarine-launched torpedoes$250 million

2017

16 SM-2 missiles$125 million

2017

50 AGM-88B high-speed antiradiation missiles$148 million

2017

Logistics support$400 million

2018

Spare parts and repair for F-16, C-130, F-5, andother aircraft systems$330 million* Characterizations of modern weapons as “traditional” and “asymmetric” are widely used but
imprecise. Distinguishing between traditional and asymmetric weapons can be challenging. For
this section, arms are loosely considered “traditional” if they more closely fit use of Taiwan’s airforce to seize command of the air space around Taiwan and its navy to retain command of theseas around the island. “Asymmetric” arms are those that more closely fit employment of large
numbers of relatively inexpensive weapons to deny the PLA’s unimpeded use of the air and seasaround Taiwan.

408
Table 4: Taiwan’s Arms Purchases from the United States,
2017–2021, Year-to-Date—Continued
Year

Purchased Arms

Approximate Cost
(USD)

2019

F-16 pilot training, maintenance, and logistics
support$500 million

2019

250 Block I-92F man-portable air-defense system
Stinger missiles$224 million

2019

108 M1A2T Abrams tanks, 122 M2 machine$2 billion
guns, 216 M240 machine guns, transport vehicles,
and tank rounds

2019

66 F-16C/D aircraft$8 billion

2020

18 MK 48 Mod 6 submarine-launched torpedoes$180 million

2020

Recertification, test, and repair of Patriot missiles$620 million

2020

11 HIMARS launchers and 64 Army Tactical
Missile Systems missiles$436 million

2020

135 AGM-84H Standoff Land Attack Missile
Expanded Response missiles$1.008 billion

2020

6 MS-110 reconnaissance pod aircraft attachments$367 million

2020

100 Harpoon coastal defense cruise missiles, 400
RGM-85L-4 Harpoon antiship missiles$2.37 billion

2020

4 MQ-9B drones$600 million

2020

Field Information Communication System$280 million

2021

40 M109A6 Paladin Medium Self-Propelled Howitzer Systems$750 million

Source: Various.137

Taiwan’s continued purchases of expensive traditional platforms
from the United States indicates bureaucratic resistance against
the ODC. George Mason University assistant professor Michael
Hunzeker told the Commission that resistance from high-ranking
Taiwan military and defense officials leaves the ODC’s future “indoubt” as they creatively interpret the ODC’s guidance to adopt anasymmetric posture to instead maintain the traditional program ofrecord.138 Maintaining some traditional capabilities does continue toserve Taiwan’s defense, and Taiwan’s Ministry of National Defense
emphasizes synergizing asymmetric and traditional capabilities.139
Dr. Templeman testified that the ODC itself calls for maintaining
a “low quantity of high-quality platforms” to conduct peacetime
missions.140 He further noted, however, that Taiwan’s continued
procurement of traditional platforms threatens to dominate muchof Taiwan’s procurement budget for years, leaving fewer resources
available to realize the ODC’s emphasis on asymmetric systems.141
The asymmetric systems that Taiwan does receive from the United States are subject to long delays in the U.S. foreign military sales
process. For example, the U.S. government approved a sale of 56
air-to-ground missiles, an urgently needed asymmetric capability,

409
to Taiwan in June 2017. DOD, however, is not likely to award acontract to manufacture these missiles until 2022, with expectedcompletion some time in 2025.142 Similarly, the HIMARS system is
not expected to arrive in Taiwan until 2027, seven years after the
U.S. government first approved the sale.143 Further, procuring andfielding asymmetric systems is only the first step in a years-longtransition to an asymmetric posture. Taiwan’s military will need tomake changes to doctrine, training, and culture after procurement
to implement the ODC.144
The traditional platforms Taiwan’s military continues to purchase from the United States are also highly vulnerable to PLA
Rocket Force attack. As early as 2009, a RAND study had determined that a combination of PLA Rocket Force and Air Force strikes
could largely neutralize Taiwan’s air force and pose similar risks
to its navy.* Taiwan’s missile defenses are highly unlikely to prevent these strikes.145 Taiwan’s Patriot missile defense batteries arelikely to fire two interceptors at each incoming missile, meaning
its current stockpile is sufficient to target approximately 322 PLA
short-range ballistic missiles. The actual number of interceptions
will likely be lower as interceptors miss their targets or batteries
are destroyed.† 146 Taiwan’s missile defenses may improve by 2022,
when Taiwan is expected to field 12 indigenously developed Tien
Kung-III missile defense batteries, though Taiwan analysts consider
these to be less accurate than Patriot systems.147 Taiwan’s traditional platforms and air defense interceptors are also vulnerable to
the PLA’s electronic warfare capabilities. In 2021, Taiwan’s Ministryof National Defense assessed in a public report on China’s military
power that the PLA now has the initial capability to paralyze Taiwan’s operations systems for air defense, sea control, and countermeasures against the PLA.148
Taiwan’s government has not yet matched its investment in expensive platforms with corresponding investment in a logistics andsupply system needed to operate those platforms during war. Dr.
Hunzeker told the Commission that Taiwan’s munitions stockpiles
are insufficient for an extended conflict, referencing one report indicating Taiwan’s policy is to maintain less than half of the munitions necessary for two days of air combat during peacetime.149 The
shortages extend to Taiwan’s ground force. Taiwan soldiers reportchronic shortages of ammunition, fuel, and repair services, noting
these are only provided during major exercises.150 Due to a lack ofreplacement parts, fewer than half of Taiwan’s foreign-purchased* The RAND study found that 60 to 200 short-range ballistic missiles could temporarily close
most of Taiwan’s fighter bases, preventing most of its fourth-generation fighters from getting off
the ground. A later RAND study found a follow-on attack of 100 fourth-generation strike fighterswith 600 precision-guided munitions would then be able to destroy all of Taiwan’s parked aircraft except for approximately 200 sheltered in an underground facility, which would be pinned
down and unable to operate. Michael J. Lostumbo et al., “Air Defense Options for Taiwan: An
Assessment of Relative Costs and Operational Benefits,” RAND Corporation, 2016, 16–17; David
A. Shlapak et al., “A Question of Balance: Political Context and Military Aspects of the China-Taiwan Dispute,” RAND Corporation, 2009, 51.
† Past assessments determined Taiwan has at most 200 PAC-2 and 444 PAC-3 interceptors
across nine deployed Patriot batteries, with one battery held in reserve. Some media reportssuggest Taiwan’s stockpile of PAC-3 interceptors has dwindled to 300. Wang Jionghua, “Ministryof National Defense Invests 20 Billion Yuan to Purchase Approximately 300 PAC-3 Anti-Aircraft
Missiles to Counter CCP Aircraft” (國防部投200億採購近300枚愛三防空飛彈 抗中防共機), Apple
Daily, December 6, 2020. Translation; William S. Murray, “Asymmetric Options for Taiwan’s Deterrence and Defense,” in Ming-chin Monique Chu and Scott L. Kastner, Globalization and Security Relations across the Taiwan Strait: In the Shadow of China, Routledge, 2015, 65.

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armored vehicles are fully operational at any point in time. If the
PLA imposed a full air and sea blockade, Taiwan’s military and populace would only be able to resist invasion with dilapidated, poorly
maintained equipment, much of which is reportedly not mission capable.151 Moreover, few estimates of Taiwan’s current stockpiles ofcritical materials and its estimated wartime consumption rate exist
in the open source, leaving Taiwan’s ability to resist a PLA blockade
unclear.152
Taiwan’s Ability to Endure a PLA Blockade: Trade andInfrastructure Vulnerabilities
As a small, trade-dependent island, Taiwan’s economy is highly vulnerable to a Chinese naval and air blockade. In 2019, forexample, Taiwan imported nearly 68 percent of its annual foodconsumption and 97.9 percent of its energy supply.153 Taiwan
government estimates suggest the island could rely on domestic
stockpiles of food and energy for several months in the event of a
blockade. According to an April 2020 study by the Taiwan Council of Agriculture, the island had enough food on hand to cover domestic needs for approximately six months.154 In contrast,
in June 2020 Taiwan’s Ministry of Economic Affairs estimatedthe island’s stores of foodstuffs such as flour and canned food
could last just one to three months.155 The Bureau of Energy at
Taiwan’s Ministry of Economic Affairs estimated in August 2021
that domestic oil reserves could last for 158 days.* 156 Stockpilesof these resources could last longer than official estimates suggest if Taiwan authorities rationed their distribution amid a PLA
blockade.
Taiwan’s economy is exposed to more immediate vulnerabilities
that could be exploited by China in the event of a cross-Strait contingency. Short-term power outages in May 2021 revealed fragilities in the island’s aging power infrastructure and highlighted its
vulnerability to a potential cyberattack or kinetic disruption by
China.157 Chinese threat actors have demonstrated the capability to execute such disruptions. For example, an investigation by
cybersecurity firm Recorded Future found Chinese state-backed
cyber actors successfully hacked into India’s power sector in mid2020 amid conflict on the Sino-Indian border. The investigation
found the attack suggested an ability to “pre-position [power grid]
access to support China’s strategic objectives . . . like geostrategic
signaling during heightened tensions or as a precursor to kinetic escalation.” 158 In testimony before the Commission, assistantprofessor of political science and international affairs at George
Washington University Fiona Cunningham noted Taiwan’s civilian critical infrastructure would be among the main targets ofcyber operations in the event of a cross-Strait contingency.159* According to Taiwan’s Petroleum Administration Act, oil refinery operators and importers are
required to maintain an oil security stockpile of no less than 60 days’ supply, while the government must also maintain an oil security stockpile of no less than 30 days’ supply. Taiwan’s
Ministry of Economic Affairs Bureau of Energy, Management of Oil Security Stockpile, December
24, 2019.

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Chinese Decision-Making for a War over Taiwan
The PLA’s growing capabilities undermine deterrence because
they diminish the credibility of the United States’ threat to deny
the PLA its objectives through military intervention. The state ofcross-Strait deterrence is undeniably more fragile today as a result.
Even so, whether and when to attack Taiwan is ultimately a political rather than a military question for CCP leaders. Factors such asa judgment by CCP leaders that the U.S. threat to intervene militarily is not credible, their misreading of ambiguities in U.S. policy, orGeneral Secretary Xi’s ambition could all contribute to a deterrence
failure whereby the leadership orders the PLA to attack Taiwan.
Such an attack could include a variety of military campaigns, but
this section focuses specifically on decision-making for a blockade oran invasion of the island.
Nonetheless, cross-Strait deterrence continues to hold for now
because Chinese leaders still face substantial constraints on any
decision to use force. These include the inherent uncertainty of aconfrontation with the U.S. military, the damage a war would do
to the Chinese economy, and the risk that the United States couldorganize a determined coalition of countries to counter any further
expansion of the CCP’s power and influence. Chinese leaders would
also need to consider the difficulty and expense of controlling Taiwan’s population of 23 million people after an invasion. Moreover,
Chinese leaders may independently decide against an invasion of
Taiwan if they prioritize other policy objectives over resolving the
Taiwan issue or they yield to pressure from other actors in the Chinese political establishment who oppose a conflict.
Factors That Could Lead to Deterrence Failure
Chinese officials have repeatedly stated that they will attack Taiwan if the island declares independence.160 Short of such a declaration by Taiwan, the United States’ efforts to deter China from attacking Taiwan could fail if any of the following conditions are met.
If CCP Leaders Judge the Threat of U.S. Military Intervention Is Not
Credible
China must believe the United States has both the capability andthe will to credibly carry out its threats if it is to be successfully
deterred from invading Taiwan.161 The PLA’s progress toward capabilities for invasion and sea denial over the last 20 years could lead
Chinese leaders to view the U.S. threat as less credible than before.
Chinese leaders could decide to invade Taiwan if they arrive at theconclusion that the U.S. threat to intervene militarily has lost credibility altogether. That in turn could occur if Chinese leaders judge
the U.S. military is too weak to mount an effective intervention, or
if they believe U.S. leaders are unwilling to intervene for fear of thecosts associated with imposing punishment.
CCP leaders could judge the U.S. military is incapable of denying
the PLA its objectives when they believe their initial invasion capability has matured or when they have achieved a highly favorable
local balance of forces. They could assess that the local balance offorces is highly favorable to China if U.S. forces within the first andsecond island chains are either so minimal or so vulnerable to the412
PLA’s anti-access and area denial capabilities that they are unlikely
to create risks of escalation or prevent a fait accompli.* 162 If Beijing
judges the United States is “distracted” by another military conflict,or U.S. allies signal that they will not allow the U.S. military to
use their bases or forces for operations in a Taiwan conflict, Beijing
could also conclude the United States is incapable of carrying out
the threat to intervene.
CCP leaders today believe an asymmetry of stakes exists between
China and the United States, failing to appreciate the importancethe United States places on Taiwan’s democracy and its own reputation in the eyes of allies.163 They could interpret future U.S. foreign
policy developments, debate among U.S. policymakers about whether defending Taiwan is “worth it,” or calls by segments of the U.S.
public to avoid conflict with China as evidence the U.S. government
lacks the will to intervene. For example, the Chinese state tabloid
Global Times argued in several August 2021 editorials that theUnited States’ withdrawal from Afghanistan shows it cannot not be
trusted to come to Taiwan’s defense during a war.164
If CCP Leaders Misread U.S. Policy, Predicting There Will Be No
Decisive U.S. Response
To avoid a breakdown of deterrence, China must believe there areactions that could lead to a U.S. response and that costs will be imposed if China takes those actions.165 A lack of clarity in U.S. policy
could contribute to a deterrence failure if Chinese leaders interpretthat policy to mean opportunistic aggression against Taiwan might
not provoke a quick or decisive U.S. response.
Many in Washington credit the longstanding practice of “strategic
ambiguity” with preserving stability in the Taiwan Strait for decades, but some would argue that it could lead China to perceive an
inconsistent or hesitant U.S. commitment to Taiwan.† By remaining
opaque about U.S. intentions, strategic ambiguity aims to create sufficient uncertainty among leaders in Beijing and Taipei to deter an
unprovoked Chinese attack on Taiwan as well as rash moves by Taiwan’s leaders that could entrap the United States in a war.166 This
“dual deterrence” approach maximizes the United States’ freedomof action, but U.S. gestures and statements intended to deter bothparties could potentially cause Chinese leaders to perceive a contradictory, changeable, or reluctant U.S. commitment.167 Moreover,
U.S. officials have suggested that an unprovoked Chinese attack on
Taiwan might result in U.S. intervention, but they have not specified how the United States would react to other belligerent Chinese* Though the local balance of forces is often viewed as an important proxy for the defender’scapability to deny a potential aggressor its military objectives, it is not strictly necessary forsuccessful deterrence. The potential aggressor may have the military advantage but choose not topursue an aggressive course of action in a locality because of its concern for the broader ramifications of that course of action. By the same token, potential aggressors have faced a defender thathas clear advantages in the local balance of forces and have chosen to attack anyway. According
to Michael J. Mazarr of RAND, a defender need only have local forces sufficient to raise the costof a potential attack, create escalation risks, and deny the aggressor a quick and easy victory.
Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 5–6.
† “Strategic ambiguity” refers to an informal policy the U.S. government has practiced since
the late 1970s whereby the United States does not explicitly state whether it will come to Taiwan’s defense in the event of a Chinese attack. Michael J. Mazarr et al., “What Deters and Why:
The State of Deterrence in Korea and the Taiwan Strait,” RAND Corporation, 2021, 48; Richard
C. Bush, “Untying the Knot: Making Peace in the Taiwan Strait,” Brookings Institution, 2005,
255–256.

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activities below that threshold, such as a blockade or coercive activities in the gray zone.168
The TRA is another element of U.S. policy that contains ambiguities Chinese leaders might mistakenly interpret as signs the United States will not respond decisively to aggression against Taiwan.
The TRA describes efforts to determine the future of the people of
Taiwan by nonpeaceful means as a matter of “grave concern” to theUnited States, language that intentionally evokes similar clauses
in mutual defense treaties and implies the potential for military
costs.169 It also requires the U.S. military to maintain the capacity“to resist any resort to force or other forms of coercion that would
jeopardize the security, or the social or economic system, of the people on Taiwan.” 170 Moreover, the TRA implies that China might incur significant diplomatic costs for aggression, stating that “diplomatic relations with the People’s Republic of China rests upon the
expectation that the future of Taiwan will be determined by peaceful means.” 171 But the TRA does not obligate the U.S. government
to respond militarily to an attack, leaving as open questions how
quickly and with what level of force the United States would react
to Chinese aggression.
Some Chinese scholars and commentators have argued that ambiguities in U.S. policy undermine deterrence, but it is not clear how
the top Chinese leadership views this question.* 172 The perceived
lack of clarity in U.S. policy toward Taiwan may be less relevant todeterrence failure than other factors, however, given that Chinese
leaders already assume U.S. intervention.
If a Risk-Tolerant and Ambitious General Secretary Xi Discounts
U.S. Intervention
Some deterrence theorists identify specific leaders’ biases, beliefs,
and cognitive styles as important factors that affect whether thestates they lead are successfully deterred from pursuing aggression.173 General Secretary Xi’s heightened tolerance for risk and his
ambition to leave his mark as one of the greatest leaders in PRC
history could increase the likelihood that China attacks Taiwan.
General Secretary Xi has displayed an appetite for risk that
could motivate him to order an invasion of Taiwan despite U.S.
deterrent threats. Under General Secretary Xi’s watch, China has
regularized its intrusions into waters around Japan’s Senkaku
Islands; successfully militarized the South China Sea; rammed
fishing boats from other South China Sea claimant countries; constructed roads, villages, and security installations on territory belonging to Bhutan; and imposed a so-called National Security Law
in Hong Kong despite international protestation and warnings.174
Equally striking is that he has chosen to pursue China’s interests
aggressively on multiple fronts at the same time. General Secretary Xi may therefore be more willing than Chinese leaders before
him to take the risk of invading Taiwan, especially if he believes
he may already have the military capability to do so.175 He could* For example, Yan Xuetong, director of the Institute of International Studies at Tsinghua University, argues that decisions by both the United States and China to adopt “strategic clarity”
would stabilize cross-Strait relations by making clear to each side the other party’s “red lines.”
Georgetown University Initiative for U.S.-China Dialogue on Global Issues, “America’s Taiwan
Policy: Debating Strategic Ambiguity and the Future of Asian Security,” October 12, 2020.

414
even believe that China’s diplomatic influence and economic heft
will largely insulate it from the fallout over a Chinese attempt toinvade Taiwan. China has successfully wielded both in the past
to force other countries to cease arms sales to Taiwan and punish
them for engagement with the island.176
General Secretary Xi could also order an invasion of Taiwan if
he decides unification is necessary to secure his personal legacy
before he leaves office. In public speeches, General Secretary Xi
has emphasized Taiwan’s importance, warned that the cross-Strait
political impasse “cannot be passed on from generation to generation,” and linked unification to his signature project of “national
rejuvenation.” 177 Dr. Mastro argues that this linkage has “moved
the goalpost from preventing Taiwan independence, which means
living with the 40-year-long status quo, to an actual change in thenature of the cross-Strait relationship, which is substantially lessachievable without the use of force.” 178 Because General Secretary
Xi abolished term limits on the presidency in 2018 and has so far
not nominated a successor, it is unclear when he intends to retire orif he plans to do so at all.179 He may believe that only he is capableof steering China through a complex international environment tosolve some of the country’s most important internal and external
challenges.180 That sense of unique historical mission could very
well mean General Secretary Xi views unifying Taiwan with theMainland as a problem he must solve within the next ten to 15
years, before old age precludes him from leadership.181
Finally, strategic or political events could heighten General Secretary Xi’s sense of urgency to achieve Taiwan’s unification with
the Mainland while he believes conditions are still relatively favorable. 182 For example, if future deployments of U.S. forces and new
weapons systems in the Indo-Pacific suggest a negative shift in thebalance of power is imminent, he may feel urgency to invade Taiwan
before the military balance becomes less advantageous. Alternatively, if both major political parties in Taiwan utterly reject eventual
unification with China in any form under any circumstance, and amajority of the Taiwan public continues to identify as exclusively“Taiwanese,” General Secretary Xi may conclude that there is not—or soon will not be—any future in which the Taiwan public will
accept unification on Beijing’s terms.183 With all “peaceful means”
exhausted, he may believe force is his only option left.
Factors Sustaining Deterrence
The following discussion of factors sustaining deterrence assumes
that the basic political settlement underpinning U.S. relations withboth Taiwan and China has not changed. This includes, for example,
the United States’ One China Policy, which refers to the U.S. government position that the PRC—rather than the Republic of China government on Taiwan—is the sole legal government of the state called“China.” 184 It also includes the U.S. government position that Taiwan’s political status is unresolved, rather than a recognition thatthe island is an independent country.185 These policies historicallycontributed to a political environment in which deterrence succeeded by tempering Beijing’s impulse to achieve unification through theuse of force.

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Uncertainty about Winning a War against the U.S. Military
Because the PLA’s initial invasion capability only allows the force
to accomplish its operational goals under limited conditions and athigh risk, CCP leaders may still be deterred from ordering an attack
on Taiwan at present by the uncertainty inherent in a war with the
U.S. military. Failed attempts by the PLA to invade Taiwan or tocounter U.S. intervention could unleash a chain of events that undermine the CCP’s popular legitimacy and generate calls for political change.186 CCP leaders’ desires to avoid uncertainty and ensureinternal stability are important considerations constraining theirdecision to initiate armed conflict, providing the United States with
an opportunity to bolster deterrence by amplifying the factors thatmake a PLA victory uncertain.187 According to Mr. Cozad, Chinese
leaders do not dismiss U.S. military capabilities, and they recognize
the United States “possesses considerable strength that can be deployed globally with the support of a vast network of global bases,
allies, and partners.” 188 He argues that Beijing will need to weighthe costs of action seriously before “placing an inexperienced, untested military with widely acknowledged shortcomings into an environment that is intensely hostile toward China and which would
likely involve the support of the United States.” 189 Chinese leaders
may also recognize it would be difficult to prevent a conflict with
the U.S. military from escalating or spreading beyond the Taiwan
Strait.190
Uncertainty about the PLA’s ability to prevail in a war over Taiwan would become even more acute if the United States successfully persuades key allies, such as Japan, to join military operations against China. Japan maintains a highly professional militaryequipped with modern hardware and intelligence, surveillance, andreconnaissance capabilities.191 Recent events suggest Japaneseleaders are deeply concerned about a crisis in the Taiwan Strait andcould act with the United States to bolster deterrence. At a meetingof the “2+2” ministerial dialogue in March 2021, Japanese and U.S.
defense chiefs agreed to closely cooperate in the event of a military clash between China and Taiwan.* 192 In July 2021, Japanese
Deputy Prime Minister Taro Aso said his country would need todefend Taiwan with the United States if the island was invaded.193
Joint statements released after U.S.-Japan and U.S.-South Korea
presidential summits in 2021 explicitly referred to the importanceof peace and stability in the Taiwan Strait, underscoring growing
allied concern.194
Another key U.S. ally with a highly professional military, Australia, has also made statements reflecting its concern about thepotential for Chinese aggression toward Taiwan. In March 2021,
the U.S. Embassy in Australia’s Chargé d’Affaires Michael Goldman
confirmed that the United States and Australia were undertaking“strategic planning” to consider potential joint responses to a war
over Taiwan.195 A month later, Australian Defense Minister Peter
Dutton told news media that a conflict involving China over Taiwan* In April 2021, news media cited Japanese government sources indicating that Japan was
studying how the Japanese Self-Defense Force could respond to a military conflict between the
United States and China over Taiwan within the confines of the country’s security laws. For
more, see Japan Times, “Japan Studies SDF Response in Event of a Taiwan Strait Conflict,”
April 25, 2021.

416“should not be discounted” and that Australia maintains high levelsof readiness to meet any threats against its allies in the region.196
Economic Costs of a War and Disruptions to Global Trade
When deciding whether to invade Taiwan, another importantconsideration for China’s leaders will be the costs of resulting disruption to the Chinese economy. The most productive segments ofChina’s economy stand to be directly affected by the destabilization of global supply chains and trade flows in the Indo-Pacific region. According to the World Bank, goods trade equaled roughly athird ($4.6 trillion) of China’s gross domestic product (GDP) in 2020($14.7 trillion).* 197 China’s Indo-Pacific neighbors who would be exposed to any cross-Strait contingency participate in much of thistrading activity, with ASEAN becoming China’s top trading partnerin 2020 and Japan and South Korea serving as China’s fourth- andfifth-largest trading partners, respectively, in that same year.198
A Chinese invasion of Taiwan would particularly affect the economies of China’s coastal provinces, whose roles as global manufacturing and trade hubs contribute significantly to China’s overall
economic strength. For example, in the first half of 2021 the coastal provinces of Guangdong, Fujian, Jiangsu, and Shandong as wellas the Shanghai municipality accounted for 36.5 percent of China’s
GDP.199 The nonstate sector in these provinces also employed 155.8
million workers in 2019, with more than half of them working in
the manufacturing and wholesale and retail trade sectors.† 200 In
the same period, these coastal provinces processed $2.8 trillion, or
62 percent, of China’s $4.5 trillion worth of global goods trade.‡ 201
China’s decision to invade Taiwan would severely disrupt all of
this trading activity, with repercussions spreading to China’s entire
economy and straining domestic political stability.
Invasion Risks Derailing China’s Competitiveness inElectronics Manufacturing
While China’s leaders may prioritize the political objective of
unification ahead of undamaged access to Taiwan’s semiconductor
capabilities, a Chinese invasion will disrupt, at least temporarily, industrial activity in China’s globally competitive electronics
manufacturing sector. This is because China’s leadership in electronics manufacturing is attributable to supply chain links with
Taiwan and other Indo-Pacific economies. As the world’s main
manufacturing hub for electronics, China is the destination for
approximately 35 percent of total global semiconductor sales,with many of these semiconductors re-shipped overseas in devices* China’s $4.6 trillion worth of goods trade accounted for 13.1 percent of global goods exports
and imports ($35.6 trillion) in 2020, the largest share of any country. World Trade Organization,“Merchandise Imports (Current US$),” World Bank, September 15, 2021; World Trade Organization, “Merchandise Exports (Current US$),” World Bank, September 15, 2021.
† In 2019, there were 405.2 million private enterprise employees and self-employed individuals
in China. China’s National Bureau of Statistics reports that a total of 774.7 million persons
were employed in China in 2019. China’s National Bureau of Statistics, 2020 China Statistical
Yearbook: Employment and Wages: 4-6 Number of Industrial and Commercial Registered Employed Persons in Private Enterprises and Self-Employed Individuals by Sector and Region (Endof 2019), 2020.
‡ Unless noted otherwise, this section uses the following exchange rate throughout: $1 = renminbi (RMB) 6.43.

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Invasion Risks Derailing China’s Competitiveness inElectronics Manufacturing—Continued
made in China and exported to other countries.202 China is the
top importer of Taiwan semiconductors, with Taiwan accounting
for 35.3 percent ($124.1 billion) of China’s total semiconductor
imports in 2020 ($350.8 billion).* 203
A Chinese invasion of Taiwan would likely halt production at
the island’s foundries, putting cross-Strait production networks
and trillions of dollars in mainland electronics manufacturingassets and revenues at risk. In 2020, China’s information andcommunication technology equipment manufacturing sector
generated some $1.9 trillion in revenue, with total manufacturing assets in the industry standing at $2 trillion.204 Taiwan’s singular leadership in the global semiconductor supply
chain would be difficult for China to recreate in the short term.
Taiwan is home to the world’s most advanced semiconductor
manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC),† and it hosts 20 percent of global semiconductor
manufacturing capacity (for more information on the locationof advanced semiconductor manufacturing capabilities, see Addendum: Selected Advanced Semiconductor Foundries by Location).205
If China invaded Taiwan, damage inflicted on the island’s foundries during a conflict would prevent their immediate use once
seized.206 For example, uncontrolled shutdowns to semiconductor
manufacturing facilities would damage equipment, the repair or
replacement of which would take months or years depending on
the equipment involved.207 Additionally, U.S. allies and partners
that serve as chief suppliers to Taiwan’s semiconductor industry
could impose sanctions and embargoes following a Chinese invasion of the island.‡ This would leave Beijing with highly advanced* China’s imports of semiconductors grew from $305.9 billion in 2019 to $350.8 billion in 2020,
up 14.7 percent year-on-year, suggesting China is struggling to achieve semiconductor self-sufficiency. Semiconductor market research firm IC Insights estimates Chinese semiconductor manufacturers produced only 6 percent of the semiconductors used by Chinese firms in 2020. IC
Insights, “China Forecast to Fall Far Short of Its ‘Made in China 2025’ Goals for ICs,” January
6, 2021; UN Comtrade database.
† TSMC’s leadership in advanced semiconductor manufacturing is attributable to the firm’s decision to pioneer the “pure-play” foundry model of semiconductor production. A pure-play foundryfocuses exclusively on semiconductor device fabrication, leaving chip design to other firms. Thismodel contrasts with the “integrated device manufacturer” model, in which firms both design andfabricate semiconductors. While U.S. firms such as Qualcomm and Nvidia specialize in the designof advanced semiconductors, they contract foundries to manufacture them, including those owned
by TSMC. This is because the United States otherwise lacks the capacity to manufacture at theleading edge. According to the Semiconductor Industry Association, the U.S. share of global semiconductor manufacturing has declined from 37 percent in 1990 to 12 percent in 2020. Antonio
Varas et al., “Strengthening the Global Semiconductor Supply Chain in an Uncertain Era,” Semiconductor Industry Association, April 2021, 47; Jan-Peter Kleinhans and Nurzat Baisakova, “TheGlobal Semiconductor Value Chain,” Stiftung Neue Verantwortung, October 2020, 6; John VerWey,“Chinese Semiconductor Industrial Policy: Prospects for Future Success,” United States International Trade Commission Journal of International Commerce and Economics, August 2019, 6.
‡ Taiwan’s semiconductor foundries rely on an array of complex global supply lines using
advanced manufacturing equipment developed in the United States and Japan, specialized lithography equipment produced exclusively in the Netherlands, and silicon ingots refined in a
multistage process conducted across Japan and South Korea using silicon dioxide mined in the
United States. Antonio Varas et al., “Strengthening the Global Semiconductor Supply Chain in
an Uncertain Era,” Semiconductor Industry Association, April 2021, 27; Tim De Chant, “The Chip
Choke Point,” Wire China, February 7, 2021.

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Invasion Risks Derailing China’s Competitiveness inElectronics Manufacturing—Continued
semiconductor manufacturing assets but without the resources
needed to operate them in the immediate term.* 208
In the long run, China’s leaders are aware of the vulnerability
their dependence on Taiwan semiconductors creates and are prioritizing the pursuit of technological self-sufficiency in mitigating
it. In time, China’s progress in technological development could
alter Chinese leaders’ perception of the costs of damage to Taiwan foundries and China’s economy in the event of invasion. The
speed with which China could restore the productive capacity of
Taiwan foundries will also shape Chinese leaders’ perceptions ofthese costs.
The United States Could Mobilize a Broad Coalition to Oppose CCP
Global Ambitions
The United States’ ability to marshal a coalition of countries opposed to the further expansion of China’s international power andinfluence could also deter Chinese leaders from invading Taiwan.
Such a coalition would be deeply concerning to Chinese leaders because it could frustrate their efforts to build a consensus around
Chinese global leadership, promote China’s agenda in internationalorganizations, and increase the global flow of goods, services, technology, and talent to China from business and academic exchanges.
A coalition could be especially effective if it encompassed countries
beyond the United States’ traditional partners in Europe, Asia, andNorth America.
Statements by Chinese officials at the highest levels already betray anxiety about a coalition of countries opposing China, attesting to the deterrent power of diplomatic threats. General Secretary
Xi warned against attempts to build an alliance of democracies tocounter China in his January 2021 speech at the Davos World Economic Forum.209 “To build small circles or start a new Cold War, toreject, threaten or intimidate others, to willfully impose decoupling,
supply disruption or sanctions, and to create isolation or estrangement will only push the world into division and even confrontation,”
he said in a veiled reference to U.S. efforts rallying allies and partners around a common China-focused agenda.210 Before the acrimonious March summit in Anchorage, Alaska, then Chinese Ambassador to the United States Cui Tiankai expressed dissatisfaction at
U.S. talks with allies in advance of the meeting, implying they were
aimed at China and harmful to the U.S.-China relationship.211 Afterthe summit, China’s foreign ministry insisted in a statement that it“has always resolutely opposed the U.S. side . . . ganging up to form
* For example, according to customer and supplier data aggregated by S&P Global, TSMC relies on 26 companies to supply it with manufacturing equipment, specialty gases, chemicals, rawmaterials, and other inputs necessary for semiconductor manufacturing. Only six of these 26
suppliers are based in Taiwan. Separately, U.S. allies and partners dominate key supply chain
segments for semiconductor manufacturing. For example, Germany is the sole global supplier ofextreme ultraviolet laser amplifiers and mirrors used in lithography, while Japan accounts for
95 percent of crystal machining tools used in silicon wafer manufacturing and handling. John
VerWey, “From TSMC to Tungsten: Semiconductor Supply Chain Risks,” Semi-Literate, May 3,2021; S&P Capital IQ database.

419
anti-China cliques” and complained that other countries should “not[be] reduced to being anti-China tools of the U.S.” 212
U.S. allies and partners took steps in 2021 that increased theirpresence in the Indo-Pacific and suggested that such a coalition may
be starting to coalesce. France, the United Kingdom (UK), Germany,
the Netherlands, Canada, Japan, India, Australia, and New Zealand
all sent warships to the South China Sea over the course of theyear, signaling their concerns with Beijing’s aggressive behavior in
the region.213 In September 2021, the United States, the UK, andAustralia also jointly announced a trilateral security pact known as
AUKUS that most observers perceived as a move to counterbalance
China.214 (For more on AUKUS, see Chapter 3, Section 1, “Year in
Review: Security, Politics, and Foreign Affairs.”) In October 2021, theUnited States, Japan, and the UK also conducted a joint naval patrol involving four allied aircraft carriers in the Western Pacific.216
Chinese Leaders Prefer to Prioritize Goals Other than Taiwan
Independent of the United States’ deterrent threats, Chinese leaders may decide against a military attack on Taiwan if they believe
unification is a less urgent priority than other policy goals, such as
the political and economic requirements for national rejuvenation.
Chinese leaders may also rule out such an operation if they believe
their current coercive strategy toward Taiwan will eventually succeed.
General Secretary Xi has warned that resolving Taiwan’s status
cannot be postponed indefinitely, but he has neither specified a timeline for unification nor focused his energies on cross-Strait issues.
Rather, General Secretary Xi has committed himself to the two centenary goals of achieving a moderately prosperous society by 2021
and transforming China into a modern socialist country by 2049,
both of which constitute the foundation for his “Chinese dream”
of national rejuvenation.217 To that end, General Secretary Xi has
spent much of his tenure consolidating domestic political control,
investing resources into poverty alleviation programs, promoting theBelt and Road Initiative, modernizing the PLA, and overseeing adrive for technological self-sufficiency.218 Chinese leaders may view
Taiwan as an important but less urgent priority than other initiatives.219 More broadly, they understand that initiating a war overTaiwan would lead to a diversion of resources and focus from thesemore urgent priorities.220
Past Chinese leaders have often set aside the task of resolving
the Taiwan issue to focus on priorities they deemed more pressing.
During a secret meeting to negotiate normalization with the UnitedStates in 1973, Chairman Mao Zedong suggested his government
was in no hurry to take the island forcibly, remarking to then Secretary of State Henry Kissinger, “I say that we can do without Taiwan
for the time being, and let it come after one hundred years.” 221 On
January 1, 1979, the same day U.S.-China relations became “official,” the National People’s Congress released a “Message to Compatriots in Taiwan” declaring an end to Beijing’s periodic shellingof Taipei-controlled islands and establishing peaceful cross-Strait
exchange as a guiding principle for the “reunification of the motherland.” 222 Soon afterward, then paramount leader Deng Xiaoping

420
proposed a political solution for eventual unification called “onecountry, two systems,” and in the decades afterward a raft of newpolicies deepened economic and cultural ties across the Strait.223
Deng himself reportedly remarked that China could wait one thousand years to unify Taiwan with the Mainland.224 Underscoring thisshift of priorities, Chinese foreign policy from the late 1970s onward
focused not on resolving Taiwan’s status but rather on economic development, a task that sometimes came at the expense of the PLA’sbudget.225 General Secretaries Jiang Zemin and Hu Jintao boththreatened force to deter what they regarded as provocative moves
by Taiwan presidents toward independence, but they did not takeproactive steps to compel unification.226
Chinese leaders may also continue to decide against an invasionof Taiwan if they believe unification can be accomplished throughtheir current coercive strategy. China’s official policy statements on
Taiwan, such as its proposal for the 14th Five-Year Plan and Premier Li Keqiang’s annual government work report, continue to refer
to unification by “peaceful” means.227 Chinese leaders may judge
their current strategy toward Taiwan, which some have termed “coercion without violence,” is succeeding in demoralizing Taiwan’s people and demonstrating that other countries can do little to mitigate
its interference.228 If so, they may be willing to wait patiently until their coercive strategies cause Taiwan’s people to lose hope andbloodlessly capitulate to Beijing.
Domestic Constituencies Could Oppose an Invasion
A final constraint on Chinese decision-making is the potential for
certain constituencies within the domestic political establishment
to oppose an invasion. Some high-ranking Party officials frustratedby General Secretary Xi’s unilateral leadership style and confrontational approach to foreign policy issues might voice their opposition to a war (for more on disagreements among Chinese elites, see
Chapter 1, Section 1, “The Chinese Communist Party’s Ambitions
and Challenges at Its Centennial”). Accountable for hitting certain
domestic growth targets, the Party secretaries of Guangdong, Fujian, Jiangsu, Shanghai, and Shandong might express concerns to the
top CCP leadership that a war could devastate economic activity
in their provinces.229 The owners of private Chinese businesses inthose provinces would have similar concerns. Though the PLA isoften portrayed as a belligerent institution pushing for war, someof its high-ranking officials and strategists may also oppose an invasion due to the difficulties of controlling a hostile population of
23 million people and overseeing post-war reconstruction on the island. For example, Major General Qiao Liang, a notoriously hawkish
professor at China’s National Defense University, argued in a 2020
commentary that such realities would make an invasion of Taiwan
in the near term “a heavy burden on our backs” and stymie China’s
larger ambitions of national rejuvenation.230
Because General Secretary Xi has made himself the top authority
within China’s governance system, he will also need to consider thata failed Taiwan campaign could threaten his hold on power. While
General Secretary Xi has consolidated power during his tenure, becoming the so-called “chairman of everything,” he still requires the421
support of a coalition of elites and interest groups to stay in office.231
Richard McGregor of the Lowy Institute and Jude Blanchette of theCenter for Strategic and International Studies argue that this coalition’s support is conditional on “shifting domestic and internationalvariables” that presumably affect these various elites’ agendas andlivelihoods. “While the precise bargain between [General Secretary]
Xi and members of the political, economic, or military elite are unknown, a dramatic economic slowdown or the repeated mishandlingof international crises would likely make [General Secretary] Xi’s
job of managing his ruling coalition more difficult and tenuous,” Mr.
McGregor and Mr. Blanchette write.232 A failed military operation
against Taiwan could produce either of these conditions, potentiallyalienating many of General Secretary Xi’s supporters.
Implications for the United States
For the first time, the United States and Taiwan face Chinese
leaders who have or will soon have an initial military capability
to invade Taiwan despite U.S. intervention. While U.S. and Taiwan
military capabilities were once insurmountable challenges for the
PLA, decades of focused efforts to build an invasion capability havesubstantially shifted the military balance in China’s favor. Just as
General Secretary Xi and other Chinese leaders cannot be certain
the PLA would prevail in a war, leaders in the United States andTaiwan cannot be sure their militaries would deter or defeat the
PLA. Nonetheless, Chinese leaders remain deeply concerned about
the risks associated with a failed invasion as well as the economic
disruptions and diplomatic backlash that would follow. Cross-Strait
relations have therefore entered a dangerous period of uncertainty
in which the military means of deterrence the United States relied
upon in the past will not be as effective for sustaining deterrencein the future.
The deterrence challenges for U.S. and Taiwan leaders are becoming more acute. Over the next five years, U.S. plans to retire older
platforms in anticipation of a smaller, more modern force may appear to Chinese leaders as a “window of opportunity” during which
the U.S. military’s ability to intervene is at its weakest. The UnitedStates has scheduled a mass retirement of 48 active duty ships and
256 aircraft by 2026, including one aircraft carrier, 11 cruisers, and13 submarines.233 Moreover, Chinese leaders’ political will to bring
Taiwan under PRC control will endure, and all trends suggest theirmilitary capabilities will continue to grow.
The stakes of maintaining cross-Strait deterrence also extend to
the integrity of the U.S.-led security architecture in the Indo-Pacific region. Taiwan is an important U.S. partner and a beacon for
democracy in the region. Losing a war over Taiwan, or losing thecredibility to defend a vibrant democracy and important security
partner, will undermine perceptions of U.S. security guarantees forcountries in the Indo-Pacific region. Similarly, a PLA that has successfully conquered Taiwan will have done so despite U.S. politicaland potentially military opposition, effectively establishing Chinaas the dominant power in Asia and diminishing U.S. influence inthe region.

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The maintenance of cross-Strait deterrence is also consequential
to the global economy given the centrality of Taiwan’s semiconductor foundries to global technology supply chains. The loss of or damage to Taiwan’s semiconductor industry in a Chinese invasion would
be nearly impossible to replace in the short term. The United States,
China, and the world are highly dependent on Taiwan-produced
semiconductors and vulnerable to risks stemming from broader disruptions to global supply chains. According to the Semiconductor
Industry Association, a complete disruption of Taiwan’s semiconductor foundries for one year could result in a $490 billion loss in revenue for the global consumer electronics industry.234 Shortfalls in the
supply of semiconductors used in automobiles in late 2020 and early2021 underscored the vulnerability of concentrated semiconductor
production in Taiwan, as automobile manufacturers scrambled tomeet resurgent demand and U.S., German, and Japanese government officials urged Taipei to resolve the shortages.235 As China intensifies its military intimidation of Taiwan, U.S. policymakers andbusinesses will need to understand the risks wrought by their exposure to Taiwan’s semiconductor manufacturing sector. U.S. efforts todiversify technology supply chains away from Taiwan may deepen
the island’s economic dependence on the Mainland, effectively undermining the security of a valued U.S. partner.
These heightened stakes may require U.S. policymakers to reassess elements of longstanding U.S. policy toward Taiwan. Commentators are debating whether the United States should discard
strategic ambiguity, which critics say now invites China to test thestatus quo in the Taiwan Strait, in favor of “strategic clarity,” or apublic, unambiguous commitment to defend Taiwan.236 The mainsticking point is whether successful deterrence depends more on expressions of political will or on demonstrations of military capacity.
Most proponents of strategic clarity argue that Beijing would interpret a public U.S. commitment to defend Taiwan as an expressionof steadfast political will that might in itself be sufficient to deter
an attack on the island.237 Proponents of strategic ambiguity tend
to respond that an unambiguous commitment to Taiwan’s defense
will not be credible in the absence of major shifts to U.S. force posture and capabilities in the Indo-Pacific; it may also disincentivize
Taiwan from making needed investments in defense and could evenincrease the risk of war by provoking a Chinese preemptive attack
on U.S. and Taiwan forces.238
The United States has historically leaned on its conventional military advantages to deter China, at times overlooking other viableoptions to strengthen deterrence. Economic and diplomatic measures offer alternative means to shape Beijing’s perception of theinternational environment or the potential consequences of an invasion.239 Maintaining cross-Strait stability in the future may require
the United States to leverage a range of diplomatic and economic
tools to convince Chinese leaders that an increasingly capable andconfident PLA cannot win a war over Taiwan at acceptable levels of
cost or risk. The question is whether and to what extent those tools
will be effective if the PLA continues to consolidate its military advantages within the first island chain.

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Addendum: Selected Advanced Semiconductor Foundries by Location

Foundry
Location

Company
Headquarters

Company

Operating
Model
Chip Type

Most
Advanced
Process
Technology(Nanometer
Size)

TaiwanTaiwanTSMCFoundry

Logic

3 nm

United States

MicronIDM

Memory

16 nm

South
Korea

South Korea

Samsung

IDM

Logic,
Memory5 nm

UnitedStatesUnited States

Intel

IDM

Logic

10 nm

South Korea

Samsung

Foundry

Logic

11 nm

China

Semiconductor Manufacturing
International Corporation

Foundry

Logic

14 nm

TaiwanTSMCFoundry

Logic

16 nm

South Korea

SK Hynix

IDM

Memory18 nm

United States

Intel

IDM

Memory20 nm

UnitedStates/Japan

Flash Alliance *IDM

Memory

15 nm

Japan

Renesas

IDM

Logic, DAO

40 nm

China

Japan

Note: DAO = discrete, analog, and optoelectronics and sensors. Bold text indicates most advanced process technology based on foundry location.
Source: Mathieu Duchâtel, “The Weak Links in China’s Drive for Semiconductors,” Institut
Montaigne, January 2021, 11–12; Saif M. Khan, “Securing Semiconductor Supply Chains,” Center
for Security and Emerging Technology, January 2021, 44–45; John VerWey, “Chinese Semiconductor Industrial Policy: Past and Present,” United States International Trade Commission Journalof International Commerce and Economics, July 2019, 5; Flash Ventures, “Commitments, Contingencies and Guarantees,” U.S. Securities and Exchange Commission, September 27, 2016; S&P
Capital IQ database.

* As of June 1, 2017, Flash Alliance operates as a subsidiary of U.S. data storage firm Western
Digital. S&P Capital IQ database.

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ENDNOTES FOR CHAPTER 4
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February 18, 2021, 3.
2. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 2;
National Research Council, Post-Cold War Conflict Deterrence, National Academies
Press, 1997, 12; Paul Huth and Bruce Russet, “What Makes Deterrence Work? Casesfrom 1900 to 1980,” World Politics 36:4 (July 1984): 496; Alexander L. George andRichard Smoke, Deterrence in American Foreign Policy: Theory and Practice, Columbia University Press, 1974, 11; Glenn Snyder, “Deterrence: A Theoretical Introduction,” in J. Garnett, ed., Theories of Peace and Security, Palgrave Macmillan, 1970,
106; Thomas C. Schelling, Arms and Influence, Yale University Press, 1966, 69.
3. U.S. Joint Chiefs of Staff, DOD Dictionary of Military and Associated Terms,
2021, 63; Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018,2.
4. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 4;National Research Council, Post-Cold War Conflict Deterrence, National Academies
Press. 1997, 12; Alexander L. George and Richard Smoke, Deterrence in American
Foreign Policy: Theory and Practice, Columbia University Press, 1974, 51–52.
5. William Kaufmann, “The Evolution of Deterrence 1945–1958,” unpublishedRAND research, 1958, 2, cited in Austin Long, “Deterrence: From Cold War to Long
War: Lessons from Six Decades of RAND Research,” RAND Corporation, 2008, 8.
6. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 9; Alexander L. George and Richard Smoke, Deterrence in American Foreign Policy: Theory
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Patrick M. Morgan, Deterrence Now, Cambridge University Press, 2003, 31, 134–147;
Richard Ned Lebow, “The Deterrence Deadlock: Is There A Way Out?” Political Psychology 4:2 (June 1983): 334–335; Robert Jervis, “Deterrence and Perception,” International Security 7:3 (Winter 1982/1983): 3; Bruce M. Russett, “Pearl Harbor: Deterrence Theory and Decision Theory,” Journal of Peace Research 4:2 (1967): 89–90, 94.
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16. Cai Xia, “China-U.S. Relations in the Eyes of the Chinese Communist Party: An
Insider’s View,” Hoover Institution, June 2021, 12.

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17. U.S. Department of Defense, Annual Report to Congress: Military Power of thePeople’s Republic of China 2020, 2020, 113.
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February 18, 2021, 2.
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February 18, 2021, 8.
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23. U.S. Department of Defense, Annual Report to Congress: Military and Security
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27. Lonnie Henley, written testimony for the U.S.-China Economic and Security
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18, 2021, 2.
28. U.S. Department of Defense, Annual Report to Congress: Military Power of thePeople’s Republic of China 2020, August 21, 2020, 112, 114; U.S. Department of Defense, Annual Report to Congress: Military Power of the People’s Republic of China
2019, May 2, 2019, 83, 85; U.S. Department of Defense, Annual Report to Congress:
Military Power of the People’s Republic of China 2018, May 16, 2018, 94–95.
29. U.S. Department of Defense, Annual Report to Congress: Military Power of thePeople’s Republic of China 2020, August 21, 2020, 112.
30. Lonnie Henley, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 1–2.
31. Philip S. Davidson, oral testimony before the Senate Committee on Armed Services, Hearing on U.S. Indo-Pacific Command, March 9, 2021. (1:20:30).
32. John Culver and Ryan Haas, “Understanding Beijing’s Motives Regarding Taiwan, and America’s Role,” Brookings Institution, March 30, 2021.
33. Chen Peijun, “The Most Severe Moment in Forty Years of Military Service!
Qiu Guozheng: the Chinese Communist Party will Have a Comprehensive Capability
to Invade Taiwan in 2025” (從軍40年以來最嚴峻！邱國正: 2025年中共具全面犯台能力),
Newtalk, October 5, 2021. Translation.
34. Oriana Skylar Mastro, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 7.
35. David A. Shlapak, David T. Orletsky, and Barry A. Wilson, “Dire Strait? Military Aspects of the China-Taiwan Confrontation and Options for U.S. Policy,” RAND
Corporation, 2000, xvi; Michael O’Hanlon, “Why China Cannot Conquer Taiwan,” International Security 25:2 (Fall 2000): 51–86, 53.
36. Rod Lee, “PLA Airborne Campaign Limiting Factors in 2020,” CAPS-RANDNDU Conference on Growing PLA Capabilities: Deterrence, Strategy, and Taiwan’s
Security, virtual, November 18–20, 2020.
37. Reference News, “PLA Army Air Assault Forces Exposed for the First Time” (解放军首次曝光陆军空中突击部队), June 30. Translation.
38. Thomas H. Shugart III, written response to question for the record for the
U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC
Aggression toward Taiwan, March 15, 2021, 216–217.
39. PLA Daily, “Qingdao Port Has Been Rebuilt with a Dual-Use Roll-On/Roll-Off
Dock” (青岛港改建滚装泊位实现军民两用), December 18, 2020. Translation.
40. Zhao Lei, “New Rules Mean Ships Can Be Used by Military,” China Daily,
June 18, 2015; Ni Dawei, “ ‘Technical Standards for New Civilian Ships to Implement
National Defense Requirements’ Is Promulgated and Implemented” (《新造民船贯彻
国防要求技术标准》颁布实施), PLA Daily, February 19, 2016. Translation.

426
41. Li Peng, Sun Hao, and Zhao Xiqing, “Impact of National Strategic Delivery Capability Development on Construction of Synthetic Forces and Countermeasures” (国家战略投送能力发展对合成部队建设的影响与对策), Journal of Military Transportation
University 8 (2019). Translation.
42. Liu Kaicai and Tang Zhongchao, “Observing the ‘Bohai Ferry’ Phenomenon in
Yantai City in Shandong Province: Industry Embraces the Military and Endeavors
to Launch a Thousand Ships” (山东省烟台市 “渤海轮渡” 现象观察: 行业拥军千帆竞发),
PLA Daily, December 21, 2019. Translation; Dennis J. Blasko, “China’s MerchantMarine,” CNA, July 28, 2015, 24.
43. Liu Kaicai and Tang Zhongchao, “Observing the ‘Bohai Ferry’ Phenomenon in
Yantai City in Shandong Province: Industry Embraces the Military and Endeavors
to Launch a Thousand Ships” (山东省烟台市 “渤海轮渡” 现象观察: 行业拥军千帆竞发),
PLA Daily, December 21, 2019. Translation; Dennis J. Blasko, “China’s MerchantMarine,” CNA, July 28, 2015, 24.
44. CCTV, “[Video] Guangzhou Military Region’s First Full-Scale Loading and Unloading Exercise with a Civilian Ship” (广州军区首次民船成建制实兵装卸演练), June20, 2014. Translation.
45. CCTV, “Eastern Theater Command Joint Military and Civilian Cross-Sea
Transportation and Protection Exercise” (东部战区军地联合演练跨海投送), August 13,
2020. Translation.
46. CCTV, “Eastern Theater Command Joint Military and Civilian Cross-Sea
Transportation and Protection Exercise” (东部战区军地联合演练跨海投送), August 13,
2020. Translation.
47. Conor Kennedy, “Ramping the Strait: Quick and Dirty Solutions to Boost Amphibious Lift,” China Brief, July 16, 2021.
48. Office of Naval Intelligence, UPDATED China: Naval Construction Trends visà-vis U.S. Navy Shipbuilding Plans, 2020–2030, February 6, 2020.
49. Brad Lendon, “China Has Built the World’s Largest Navy. Now What’s Beijing
Going to Do with It?” CNN, March 5, 2021.
50. Xavier Vavasseur, “China Launches 3rd Type 075 LHD for the PLAN,” Naval
News, January 29, 2021; Xavier Vavasseur, “China’s Third Type 075 LHD Taking
Shape in Shanghai,” Naval News, December 29, 2020.
51. David Lague, “China Expands Its Amphibious Forces in Challenge to U.S. Supremacy beyond Asia,” Reuters, July 20, 2020.
52. Chad Peltier, Tate Nurkin, and Sean O’Connor, “China’s Logistics Capabilities
for Expeditionary Operations,” Jane’s (prepared for the U.S.-China Economic and Security Review Commission), April 15, 2020, 48.
53. Chad Peltier, Tate Nurkin, and Sean O’Connor, “China’s Logistics Capabilities
for Expeditionary Operations,” Jane’s (prepared for the U.S.-China Economic and Security Review Commission), April 15, 2020, 44.
54. Chad Peltier, Tate Nurkin, and Sean O’Connor, “China’s Logistics Capabilities
for Expeditionary Operations,” Jane’s (prepared for the U.S.-China Economic and Security Review Commission), April 15, 2020, 54.
55. Chad Peltier, Tate Nurkin, and Sean O’Connor, “China’s Logistics Capabilities
for Expeditionary Operations,” Jane’s (prepared for the U.S.-China Economic and Security Review Commission), April 15, 2020, 54.
56. Keoni Everington, “China Expands Its 2 Air Force Bases Closest to Taiwan,”
Taiwan News, March 8, 2021.
57. Wang Yangshi, “PLA Army’s New Equipment Undergoes Multi-Subject Assessment, Test the Real Combat Ability of the Armored Forces” (陆军新装备多课目考核 检
验装甲兵实战水平), CCTV, April 14, 2021. Translation; CCTV, “China’s Group Armies:
74th Group Army: A New-Type ‘Steel Unit’ for Trans-Theater Operations” (中国集团军·第74集团军 全域作战的新型 “钢铁部队”), July 31, 2019. Translation; PLA Daily,“ ‘Hard Boned Warriors’ Charge into Forbidden Sea Area—An Eyewitness Report ofan Amphibious Fighting Vehicle Offensive Operation Drill under Complex Sea Conditions by Unidentified Combined Arms Brigade of the 74th Group Army” (“硬骨勇士”, 蹈海踏浪闯禁区——直击第七十四集团军某合成旅两栖战车复杂海况下进攻战斗演练),May 8, 2019. Translation.
58. CCTV, “73rd Group Army Brigade Maritime Live-Fire Assessment” (第73集团
军某旅展开海上实弹射击考核), August 7, 2020. Translation.
59. CCTV, “Southern Theater Command Navy Detachment Begins an Exercise byFighting Hard! Multiple Amphibious Landing Ships Train in the South China Sea” (南部战区海军某支队 开训就打硬仗！多艘登陆舰艇在南海实训), January 27, 2021. Translation.
60. PLA Daily, “PLA Conducts Joint Land Assault Exercises off China’s Southeast
Coast,” September 9, 2019; PLA Daily, “Eastern Theater Command Conducts Joint

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Training Exercise in Waters East of Taiwan” (东部战区在台岛以东海域举行联合演练),April 16, 2019. Translation.
61. Wang Yangshi, “72nd Group Army: Multi-Arms Air-Ground Coordination, Forge
Defense Penetration Capabilities” (第72集团军: 多兵种空地协同, 锻造突防能力), CCTV,
April 4, 2021. Translation.
62. U.S. Department of Defense, Annual Report to Congress: Military and Security
Developments Involving the People’s Republic of China 2020, August 21, 2020, 95;
People’s Daily, “Eastern Theater Command Response on Air and Naval Joint Exercise
East of Taiwan” (东部战区回应海空兵力在台岛以东某海域举行联合演练), April 16, 2019.
Translation.
63. China Arms, “Chinese Lt. Gen.: PLA Is Like a Giant Python Wrapped aroundTaiwan,” April 8, 2021; Brad Lendon, “China Flanks Taiwan with Military Exercisesin Air and Sea,” CNN, April 8, 2021; Taiwan Ministry of National Defense, Air Activities in the Southwestern ADIZ of R.O.C., April 7, 2021. Translation; Joseph Yeh andChung Yu-chen, “PLA Warplanes Enter Taiwan’s ADIZ for Fifth Consecutive Day in
April,” CNA, April 7, 2021.
64. U.S. Department of Defense, Annual Report to Congress: Military and Security
Developments Involving the People’s Republic of China 2018, May 16, 2018, 103.
65. Ji Mengnan, Xu Fengjia, and Han Liang, “Marine Corps Brigade: Deep Blue
Coast, from ‘Amphibious Elites’ to ‘Tri-Domain Elites’ ” (海军陆战队某旅: 深蓝海疆, 从“两栖尖兵” 到 “三栖精锐”), PLA Daily, January 8, 2020. Translation; Xia Dewei, “Marine Corps: Deep Blue Coast, Tri-Domain Elites” (海军陆战队: 深蓝海疆, 三栖劲旅砺锋蓄锐), PLA Daily, July 17, 2019. Translation; Chen Guoquan and Wu Haoyu, “Transformation! The Marine Corps Builds a New Type of Combat Force from “Amphibious”
to “Multidimensional” (转型重塑！海军陆战队打造从 “两栖” 到 “多维” 新型作战力量),PLA Daily, May 5, 2020. Translation; U.S. Department of Defense, Annual Reportto Congress: Military and Security Developments Involving the People’s Republic ofChina 2019, May 2, 2019, 118; Dennis J. Blasko and Roderick Lee, “The Chinese
Navy’s Marine Corps, Part 1: Expansion and Reorganization,” China Brief, February
1, 2019; U.S. Department of Defense, Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2018, May 16, 2018, 103.
66. PLA Daily, “Multi-Type Helicopters Hover over Field,” May 4, 2021; Qian Xiaohu and Yang Yuanqing, “Growing Air Assault Force Makes Chinese PLA Army Stronger,” PLA Daily, April 22, 2020.
67. PLA Daily, “Aircraft in Joint Transportation Training Exercise,” May 26, 2021;
Ta Kung Pao, “Airborne Corps Vertical Delivery, Armed with Heavy Equipment” (空降兵垂直投送 配备重装机械), November 11, 2019. Translation.
68. Christopher H. Sharman, “China Moves Out: Stepping Stones toward a New
Maritime Strategy,” National Defense University, 2015, 9; David Shambaugh, Modernizing China’s Military: Progress, Problems, and Prospects, University of California
Press, 2002, 325; Bernard D. Cole, “China’s Navy Prepares: Domestic Exercises, 2000–
10,” in Roy Kamphausen, David Lai, and Travis Tanner, eds., Learning by Doing: The
PLA Trains at Home and Abroad, Strategic Studies Institute, 2012, 40.
69. Dennis J. Blasko, “PLA Ground Forces Lessons Learned: Experience and Theory,” in Laurie Burkitt, Andrew Scobell, and Larry M. Wortzel, eds., The Lessonsof History: The Chinese People’s Liberation Army at 75, Strategic Studies Institute,2003, 77.
70. Christopher H. Sharman, “China Moves Out: Stepping Stones toward a New
Maritime Strategy,” National Defense University, 2015, 16–17.
71. Xinhua, “The Curtain Rises for the ‘Mission Action-2013’ Transregional Military Exercise on the 10th” (“使命行动—2013” 跨区战役演习10日拉开序幕), September
10, 2013. Translation; Edmund J. Burke et al., “Assessing the Training and Operational Proficiency of China’s Aerospace Forces,” RAND Corporation, 2016, 42; U.S. Department of Defense, Annual Report to Congress: Military and Security Developments
Involving the People’s Republic of China 2014, April 24, 2014, 12.
72. J. Michael Cole, “Chinese PLA Simulates ‘Attack’ on Taiwan’s Presidential Office,” Diplomat, July 22, 2015.
73. Joseph Trevithick, “China’s Largest Base Has Replicas of Taiwan’s Presidential
Building, Eiffel Tower,” Drive, May 27, 2020.
74. Philip S. Davidson, oral testimony before the Senate Committee on Armed Services, Hearing on U.S. Indo-Pacific Command, March 9, 2021. (0:43:20).
75. Thomas Shugart and Javier Gonzalez, “First Strike: China’s Missile Threat to
U.S. Bases in East Asia,” Center for a New American Security, June 2017, 13.
76. Thomas H. Shugart III, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 3.

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77. HQ United Nations Command-Rear, “United Nations Command-Rear Fact
Sheet,” November 25, 2014.
78. Oriana Skylar Mastro, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 3.
79. Zhang Yuliang, Science of Campaigns, National Defense University Press,
2006, 312. Translation.
80. Zhang Yuliang, Science of Campaigns, National Defense University Press,
2006, 310–323. Translation.
81. U.S. Department of Defense, Annual Report to Congress: Military and Security
Developments Involving the People’s Republic of China 2020, August 21, 2020, 166.
82. U.S. Department of Defense, Annual Report to Congress: Military and Security
Developments Involving the People’s Republic of China 2019, May 2, 2019, 117; U.S.
Department of Defense, Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2020, August 21, 2020, 166.
83. Thomas H. Shugart III, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 2–3.
84. Eric Heginbotham et al., “The U.S.-China Military Scorecard: Forces, Geography, and the Evolving Balance of Power 1996–2017,” RAND Corporation, 2015, 64.
85. Thomas H. Shugart III, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 3.
86. Missile Defense Project, “YJ-18,” Missile Threat, Center for Strategic and International Studies, June 25, 2020, last modified June 25, 2020; Missile Defense Project,“Harpoon,” Missile Threat, Center for Strategic and International Studies, September
5, 2017, last modified June 23, 2020; Raytheon Missiles & Defense, “Naval Strike
Missile”; David B. Larter, “US Navy Deploys New Ship-Killer Missile to China’s Backyard,” DefenseNews, September 5, 2019.
87. CCTV, “New Year Training in the Southern Theater Command Includes LargeScale Air War and Maritime Defense Penetration” (南部战区 新年开训 大批量实施空
战和海上突防), January 6, 2021. Translation; Xinhua, “73rd Group Army PLA Army
Aviation Brigade Organizes a Large-Scale Long Distance Maritime Defense Penetration Exercise” (第73集团军某陆航旅组织大机群远距离海上突防训练), December 10,
2020. Translation.
88. Bernard D. Cole, “China’s Navy Prepares: Domestic Exercises, 2000–10,” in Roy
Kamphausen, David Lai, Travis Tanner, eds., Learning by Doing: The PLA Trains at
Home and Abroad, Strategic Studies Institute, 2012, 77.
89. PLA Daily, “An Eastern Theater Command PLA Army Brigade Conducts Maritime Flight Drills to Confront a Powerful Enemy” (东部战区陆军某旅海上飞行训练对抗强敌), January 10, 2021. Translation.
90. Wang Limin and Duan Yanbing, “Precision Guidance from a PLA Navy Aviation Brigade Improves Quality and Effectiveness in an Assault Exercise” (海军航空兵
某旅精准引导提升突击训练质效), PLA Daily, April 6, 2021. Translation.
91. Mark Cozad, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 5.
92. Mark Cozad, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression Toward Taiwan, February
18, 2021, 6.
93. PLA Daily, “Unceasingly Initiate Officer Specialization to Foster a New Situation” (不断开创军官专业化培养新局面), January 11, 2021. Translation; Dennis J. Blasko, written testimony for the U.S.-China Economic and Security Review Commission,
Hearing on What Keeps Xi Up at Night: Beijing’s Internal and External Challenges,
February 7, 2019, 5–7; Dennis J. Blasko, “The ‘Two Incompatibles’ and PLA Self-Assessments of Military Capability,” China Brief, May 9, 2013.
94. Qiao Hui, “ ‘Blue Strike’: Welcome New Life in the Labor Pains of Transformation” (《蓝军出击》: 在转型的阵痛中迎接新生), Guangming Daily, October 2, 2020.
Translation.
95. Mark Cozad, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 7.
96. PLA Daily, “Promote Innovation in Military Training Methods with Effort” (着力推进军事训练方法创新), December 3, 2020. Translation; Joel Wuthnow and Phillip
C. Saunders, “Chairman Xi Remakes the PLA,” in Phillip C. Saunders et al., eds.,
Chairman Xi Remakes the PLA: Assessing Chinese Military Reforms, National Defense University Press, 2019, 13.

429
97. Derek Solon, “The Improvement of the PLA’s Close Air Support Capability,”
China Aerospace Studies Institute, December 17, 2020, 5–7.
98. Mark Cozad, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 7.
99. Peter Wood, Alden Wahlstrom, and Roger Cliff, “China’s Aeroengine Industry,”
China Aerospace Studies Institute, March 2020, 32.
100. Joel Wuthnow, “A New Era for Chinese Military Logistics,” Asian Security,
February 11, 2021, 11.
101. PLA Daily, “Why Does the Military Vehicle ‘Lay Prone’ after Making Sufficient Preparations” (做足了准备, 车辆为何 “趴窝”), February 28, 2021. Translation.
102. Tsai Ing-wen, “The Taiwan Relations Act at Forty and U.S.-Taiwan Relations,”
Center for Strategic and International Studies, April 9, 2019; Taiwan Ministry of National Defense, National Defense Report, September 2019, 6; Taiwan Ministry of National Defense, National Defense Report, December 2017, 138.
103. Kharis A. Templeman, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 3–4.
104. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 8.
105. Lee Hsi-min and Eric Lee, “Taiwan’s Overall Defense Concept, Explained,”
Diplomat, November 3, 2020; Taiwan Ministry of National Defense, “National Defense Report,” 2019, 69; Drew Thompson, “Hope on the Horizon: Taiwan’s Radical
New Defense Concept,” War on the Rocks, October 2, 2018.
106. Lee Hsi-min and Eric Lee, “Taiwan’s Overall Defense Concept, Explained,”
Diplomat, November 3, 2020.
107. Arthur S. Ding and Paul A. Huang, “Taiwan’s Paradoxical Perceptions of theChinese Military,” China Perspectives, December 30, 2011, 43–51, 47–48; Jim Wolf,“Taiwan Renews Push for U.S. F-16 Fighters,” Reuters, March 14, 2009; Joseph Yeh,
“President Thanks U.S. for Sale of Submarines,” Taiwan News, December 19, 2007;
Brian Hsu, “Navy Looking for a Replacement for Its Knox-Class Frigates,” Taipei
Times, January 3, 2004.
108. Kharis A. Templeman, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 3, 14.
109. Taiwan 2021 Central Government Budget for the Ministry of National Defense (中華民國110年度中央政府總預算案國防部所屬單位預算), 2021, 37. Translation;
Taiwan 2020 Central Government Budget for the Ministry of National Defense(中華民國109年度中央政府總預算案國防部所屬單位預算), 2020, 37. Translation; Taiwan
2019 Central Government Budget for the Ministry of National Defense (中華民國108
年度中央政府總預算案國防部所屬單位預算), 2019, 37. Translation; Taiwan Ministry of
National Defense, National Defense Report, 2019, 131.
110. Jon Grevatt and Andrew MacDonald, “Taiwan Proposes USD8.6 Billion for
Defence ‘Special’ Fund,” Jane’s, September 17, 2021.
111. David Brunnstrom, “U.S. Says Taiwan Military Budget Boost Insufficient for‘Resilient Defense,’ ” Reuters, October 6, 2020; John Grady, “Panel: Taiwan Defense
Spending Doesn’t Back Up Taipei’s Rhetoric,” USNI News, May 31, 2018.
112. Taiwan 2021 Central Government Budget for the Ministry of National Defense (中華民國110年度中央政府總預算案國防部所屬單位預算), 2021, 37. Translation;
Taiwan 2020 Central Government Budget for the Ministry of National Defense (中華民國109年度中央政府總預算案國防部所屬單位預算), 2020, 37. Translation; Taiwan
2019 Central Government Budget for the Ministry of National Defense (中華民國108
年度中央政府總預算案國防部所屬單位預算), 2019, 37. Translation; Taiwan Ministry of
National Defense, National Defense Report, 2019, 131.
113. Stacy Hsu, “Tsai Touts ‘Drastic’ Reforms of Military,” Taipei Times, July 5, 2016.
114. Kevin McCauley, “Taiwan’s Military Reforms and Strategy: Reset Required,”
China Brief, August 22, 2016.
115. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 4.
116. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 7.
117. Taipei Times, “Tsai Urges Soldiers to Don Uniforms on Armed Forces Day,”
August 31, 2016; Formosa TV English News, “Tsai Ing-wen Watches Han Kuang Exercises for First Time as Commander-in-Chief,” August 26, 2016.

430
118. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 6.
119. Kathrin Hille, “Taiwan Strives to Bolster Forces in Response to Beijing Sabre-Rattling,” Financial Times, July 11, 2020.
120. Kathrin Hille, “Taiwan Strives to Bolster Forces in Response to Beijing Sabre-Rattling,” Financial Times, July 11, 2020.
121. Focus Taiwan, “Taiwan to Set Up Reserve Mobilization Agency, Expand
Scope,” April 20, 2021; Taiwan News, “Taiwan Can Mobilize 450,000 Soldiers upon
President’s Order,” October 22, 2020.
122. Austin Wang, “When Meeting Conflict, Will the People of Taiwan Support a
War? Public Opinion Polls Show Very Different Results” (台灣民眾遇到戰爭時會支持作
戰嗎？民調結果十分分歧), November 2, 2017. Translation.
123. Dennis V. Hickey, “More and More Taiwanese Favor Independence—and Thinkthe U.S. Would Help Fight for It,” Diplomat, December 3, 2020; Dennis V. Hickey,“Taiwan Public Opinion and National Security,” China Focus, May 4, 2018.
124. Dennis V. Hickey, “More and More Taiwanese Favor Independence—and Thinkthe U.S. Would Help Fight for It,” Diplomat, December 3, 2020; Dennis V. Hickey,“What the Latest Opinion Polls Say about Taiwan,” Pacnet, March 8, 2019.
125. Kharis A. Templeman, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 84.
126. Austin Horng-En Wang, “Surveying the Taiwanese Psychology on Self-Defense
and Self-Determination,” Global Taiwan Institute, December 2019, 6.
127. Austin Horng-En Wang, “Surveying the Taiwanese Psychology on Self-Defense
and Self-Determination,” Global Taiwan Institute, December 2019, 6.
128. John Dotson, “Taiwan Pursues Upgrades to Its Tactical Missile Systems,”
Global Taiwan Brief, May 5, 2021.
129. You Kaixiang, “MND: All 23 TK-3 Missiles to Be Produced This Year Are
Completed Ahead of Schedule” (國防部: 今年度23枚弓三飛彈全數完成 進度超前), CNA,
March 31, 2021. Translation; Luo Tianbin, “MND’s MIT: Welcoming the Peak Season
for Missile Mass Production, National Chung-San Institute of Science and Technology
Dean Requires Safety First” (《國防MIT》迎接飛彈量產任務高峰期 中科院長要求安全第一), Liberty Times, February 17, 2021. Translation; National Chung-Shan Instituteof Science and Technology, “HF III Supersonic Anti-Ship Missile.”
130. Ben Blanchard, “Taiwan Says Has Begun Mass Production of Long-Range
Missile,” Reuters, March 25, 2021.
131. Lonnie Henley, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 6; Wei Dongsheng and Feng Lin, “Major General Qiao Liang: The PLA Fully
Possesses the Ability to Precisely Strike ‘Taiwan Independence!’ ” (乔良少将: 解放军完
全具备精准打击 “台独” 能力!), Sohu, February 1, 2019. Translation.
132. Gabriel Dominguez and Matteo Scarano, “Update: Taiwan Launches First‘Fast Minelayer’ for RoCN,” Jane’s, August 7, 2020.
133. Tsai Ing-wen, “Taiwan and the Fight for Democracy,” Foreign Affairs, November/December 2021.
134. Calculated by Commission analysts using the data in Table 4.
135. Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—155MM
M109A6 PALADIN MEDIUM SELF-PROPELLED HOWITZER SYSTEM,” August 4,2021; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURALREPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—FIELD INFORMATION COMMUNICATIONS SYSTEM (FICS),” December 7, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVEOFFICE IN THE UNITED STATES (TECRO)—MQ-9B REMOTELY PILOTED AIRCRAFT,” November 3, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES(TECRO)—RGM-84L-4 HARPOON SURFACE LAUNCHED BLOCK II MISSILES,”
October 26, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND
CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—
MS-110 RECCE POD SYSTEM,” October 21, 2020; Defense Security Cooperation
Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN
THE UNITED STATES (TECRO)—AGM-84H STANDOFF LAND ATTACK MISSILE-EXPANDED RESPONSE (SLAM-ER) MISSILES,” October 21, 2020; Defense
Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—HIMARS, SUPPORT, AND
EQUIPMENT,” October 21, 2020; Defense Security Cooperation Agency, “TAIPEI431
ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITEDSTATES (TECRO)—REPAIR AND RECERTIFICATION OF PATRIOT ADVANCEDCAPABILITY-3 MISSILES,” July 9, 2020; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE
UNITED STATES (TECRO)—MK 48 MOD 6 ADVANCED TECHNOLOGY (AT)HEAVY WEIGHT TORPEDO (HWT),” May 20, 2020; Defense Security Cooperation
Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN
THE UNITED STATES (TECRO)—F-16C/D BLOCK 70 AIRCRAFT AND RELATED EQUIPMENT AND SUPPORT,” August 20, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE
IN THE UNITED STATES (TECRO)—M1A2T ABRAMS TANKS AND RELATEDEQUIPMENT AND SUPPORT,” July 8, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE
UNITED STATES (TECRO)—STINGER MISSILES AND RELATED EQUIPMENT
AND SUPPORT,” July 8, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES(TECRO)—CONUS BASED F-16 TRAINING,” April 15, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—FOREIGN MILITARY SALES ORDER(FMSO) II CASE,” September 24, 2018; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE
UNITED STATES - SURVEILLANCE RADAR PROGRAM (SRP) OPERATION AND
MAINTENANCE SUPPORT,” June 29, 2017; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN
THE UNITED STATES - AGM-88B HIGH-SPEED ANTI-RADIATION MISSILES(HARM),” June 29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITEDSTATES - SM-2 BLOCK IIIA STANDARD MISSILES AND COMPONENTS,” June29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITED STATES - MK
48 MOD 6AT HEAVYWEIGHT TORPEDO (HWT),” June 29, 2017; Defense Security
Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVEOFFICE (TECRO) IN THE UNITED STATES -MK 54 LIGHTWEIGHT TORPEDO(LWT) CONVERSION KITS,” June 29, 2017; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN
THE UNITED STATES - AGM-154C JOINT STANDOFF WEAPON (JSOW) MISSILES,” June 29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC
AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITED STATES- AN/SLQ-32(V23 UPGRADE,” June 29, 2017.
136. Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—155MM
M109A6 PALADIN MEDIUM SELF-PROPELLED HOWITZER SYSTEM,” August 4,2021; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURALREPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—FIELD INFORMATION COMMUNICATIONS SYSTEM (FICS),” December 7, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVEOFFICE IN THE UNITED STATES (TECRO)—MQ-9B REMOTELY PILOTED AIRCRAFT,” November 3, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES(TECRO)—RGM-84L-4 HARPOON SURFACE LAUNCHED BLOCK II MISSILES,”
October 26, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND
CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—
MS-110 RECCE POD SYSTEM,” October 21, 2020; Defense Security Cooperation
Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN
THE UNITED STATES (TECRO)—AGM-84H STANDOFF LAND ATTACK MISSILE-EXPANDED RESPONSE (SLAM-ER) MISSILES,” October 21, 2020; Defense
Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—HIMARS, SUPPORT, AND
EQUIPMENT,” October 21, 2020; Defense Security Cooperation Agency, “TAIPEIECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITEDSTATES (TECRO)—REPAIR AND RECERTIFICATION OF PATRIOT ADVANCEDCAPABILITY-3 MISSILES,” July 9, 2020; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE
UNITED STATES (TECRO)—MK 48 MOD 6 ADVANCED TECHNOLOGY (AT)HEAVY WEIGHT TORPEDO (HWT),” May 20, 2020; Defense Security Cooperation
Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN
THE UNITED STATES (TECRO)—F-16C/D BLOCK 70 AIRCRAFT AND RELAT-432
ED EQUIPMENT AND SUPPORT,” August 20, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE
IN THE UNITED STATES (TECRO)—M1A2T ABRAMS TANKS AND RELATEDEQUIPMENT AND SUPPORT,” July 8, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE
UNITED STATES (TECRO)—STINGER MISSILES AND RELATED EQUIPMENT
AND SUPPORT,” July 8, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES(TECRO)—CONUS BASED F-16 TRAINING,” April 15, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—FOREIGN MILITARY SALES ORDER(FMSO) II CASE,” September 24, 2018; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE
UNITED STATES - SURVEILLANCE RADAR PROGRAM (SRP) OPERATION AND
MAINTENANCE SUPPORT,” June 29, 2017; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN
THE UNITED STATES - AGM-88B HIGH-SPEED ANTI-RADIATION MISSILES(HARM),” June 29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITEDSTATES - SM-2 BLOCK IIIA STANDARD MISSILES AND COMPONENTS,” June29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITED STATES - MK
48 MOD 6AT HEAVYWEIGHT TORPEDO (HWT),” June 29, 2017; Defense Security
Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVEOFFICE (TECRO) IN THE UNITED STATES -MK 54 LIGHTWEIGHT TORPEDO(LWT) CONVERSION KITS,” June 29, 2017; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN
THE UNITED STATES - AGM-154C JOINT STANDOFF WEAPON (JSOW) MISSILES,” June 29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC
AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITED STATES- AN/SLQ-32(V23 UPGRADE,” June 29, 2017.
137. Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—155MM
M109A6 PALADIN MEDIUM SELF-PROPELLED HOWITZER SYSTEM,” August 4,2021; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURALREPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—FIELD INFORMATION COMMUNICATIONS SYSTEM (FICS),” December 7, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVEOFFICE IN THE UNITED STATES (TECRO)—MQ-9B REMOTELY PILOTED AIRCRAFT,” November 3, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES(TECRO)—RGM-84L-4 HARPOON SURFACE LAUNCHED BLOCK II MISSILES,”
October 26, 2020; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND
CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—
MS-110 RECCE POD SYSTEM,” October 21, 2020; Defense Security Cooperation
Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN
THE UNITED STATES (TECRO)—AGM-84H STANDOFF LAND ATTACK MISSILE-EXPANDED RESPONSE (SLAM-ER) MISSILES,” October 21, 2020; Defense
Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—HIMARS, SUPPORT, AND
EQUIPMENT,” October 21, 2020; Defense Security Cooperation Agency, “TAIPEIECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITEDSTATES (TECRO)—REPAIR AND RECERTIFICATION OF PATRIOT ADVANCEDCAPABILITY-3 MISSILES,” July 9, 2020; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE
UNITED STATES (TECRO)—MK 48 MOD 6 ADVANCED TECHNOLOGY (AT)HEAVY WEIGHT TORPEDO (HWT),” May 20, 2020; Defense Security Cooperation
Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN
THE UNITED STATES (TECRO)—F-16C/D BLOCK 70 AIRCRAFT AND RELATED EQUIPMENT AND SUPPORT,” August 20, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE
IN THE UNITED STATES (TECRO)—M1A2T ABRAMS TANKS AND RELATEDEQUIPMENT AND SUPPORT,” July 8, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE
UNITED STATES (TECRO)—STINGER MISSILES AND RELATED EQUIPMENT
AND SUPPORT,” July 8, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES433(TECRO)—CONUS BASED F-16 TRAINING,” April 15, 2019; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE IN THE UNITED STATES (TECRO)—FOREIGN MILITARY SALES ORDER(FMSO) II CASE,” September 24, 2018; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE
UNITED STATES - SURVEILLANCE RADAR PROGRAM (SRP) OPERATION AND
MAINTENANCE SUPPORT,” June 29, 2017; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN
THE UNITED STATES - AGM-88B HIGH-SPEED ANTI-RADIATION MISSILES(HARM),” June 29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITEDSTATES - SM-2 BLOCK IIIA STANDARD MISSILES AND COMPONENTS,” June29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITED STATES - MK
48 MOD 6AT HEAVYWEIGHT TORPEDO (HWT),” June 29, 2017; Defense Security
Cooperation Agency, “TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVEOFFICE (TECRO) IN THE UNITED STATES -MK 54 LIGHTWEIGHT TORPEDO(LWT) CONVERSION KITS,” June 29, 2017; Defense Security Cooperation Agency,“TAIPEI ECONOMIC AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN
THE UNITED STATES - AGM-154C JOINT STANDOFF WEAPON (JSOW) MISSILES,” June 29, 2017; Defense Security Cooperation Agency, “TAIPEI ECONOMIC
AND CULTURAL REPRESENTATIVE OFFICE (TECRO) IN THE UNITED STATES- AN/SLQ-32(V23 UPGRADE,” June 29, 2017.
138. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 8.
139. Taiwan Ministry of National Defense, Quadrennial Defense Review 2021,
2021, 27.
140. Kharis A. Templeman, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 7.
141. Kharis A. Templeman, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 7.
142. Jeremy Binnie, “Raytheon to Prepare to Produce JSOWs for Bahrain, Taiwan,”Jane’s, April 19, 2021.
143. Kelvin Chen, “Taiwan Finalizes Missile Systems Deal with U.S.,” Taiwan
News, June 17, 2021.
144. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 9.
145. Michael J. Lostumbo et al., “Air Defense Options for Taiwan: An Assessmentof Relative Costs and Operational Benefits,” RAND Corporation, 2016, 5; William S.
Murray, “Asymmetric Options for Taiwan’s Deterrence and Defense,” in Ming-chin
Monique Chu and Scott L. Kastner, Globalization and Security Relations across the
Taiwan Strait: In the Shadow of China, Routledge, 2015, 75.
146. William S. Murray, “Asymmetric Options for Taiwan’s Deterrence and Defense,” in Ming-chin Monique Chu and Scott L. Kastner, Globalization and Security
Relations across the Taiwan Strait: In the Shadow of China, Routledge, 2015, 65.
147. Matt Yu and Joseph Yeh, “Taiwan to Buy Upgraded PAC-3 Missiles, to Be
Deployed by 2026,” CNA, March 31, 2021; Michael Mazza, “Taiwan: The ‘ROC’ in a
Hard Place,” in Gary J. Schmitt, A Hard Look at Hard Power; Assessing the Defense
Capabilities of Key US Allies and Security Partners, Strategic Studies Institute, October 2020, 343–344.
148. Taiwan Ministry of National Defense, 2021 CCP Military Power Report (110
年中共軍力報告), 2021, 29. Translation.
149. Michael A. Hunzeker, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 5.
150. Paul Huang, “Taiwan’s Military Has Flashy American Weapons but No
Ammo,” Foreign Policy, August 20, 2020.
151. Paul Huang, “Taiwan’s Military Has Flashy American Weapons but No
Ammo,” Foreign Policy, August 20, 2020.
152. Lonnie Henley, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 6.

434153. Taiwan Ministry of Economic Affairs Bureau of Energy, Energy Statistics
Handbook, September 10, 2021, 32; Taiwan’s Council of Agriculture, Food Self-Sufficiency Ratios, 2020.
154. Troy Lai and Lucas Blaustein, “Taiwan Confident in Food Stocks as COVID-19
Disrupts International Trade,” U.S. Department of Agriculture Foreign Agricultural
Service, April 13, 2020.
155. Cindy Wang, Samson Ellis, and Miaojung Lin, “As China Fights Second Wave,
Taiwan Starts Stockpiling Again,” Bloomberg, June 15, 2020.
156. Bureau of Energy at Taiwan’s Ministry of Economic Affairs, Domestic Oil Safety
Stock Monthly Statistics (國內石油安全存量月資料), August 2021. Translation. https://www.moeaboe.gov.tw/ECW/populace/content/wfrmStatistics.aspx?type=4&menu_
id=1302.
157. J. Michael Cole, “Critical Infrastructure Remains a Blind Spot in Taiwan’s
Defense Preparedness,” Global Taiwan Institute Global Taiwan Brief, June 2021, 6–9.
158. Recorded Future, “China-Linked Group RedEcho Targets Indian Power Sector
amid Heightened Border Tensions,” February 28, 2021.
159. Fiona S. Cunningham, written testimony, Hearing on Deterring PRC Aggression toward Taiwan, February 18, 2021, 3.
160. Yew Lun Tian, “Attack on Taiwan an Option to Stop Independence, Top China
General Says,” Reuters, May 28, 2020; Congressional Research Service, “China/Taiwan: Evolution of the “One China” Policy—Key Statements from Washington, Beijing,
and Taipei,” January 5, 2015, 20; Philip P. Pan, “China Puts Threat to Taiwan into
Law,” Washington Post, March 14, 2005; Xinhua, “Anti-Secession Law Adopted by the
NPC (Full Text),” March 14, 2005; John Pomfret, “China Issues New Taiwan Ultimatum,” Washington Post, February 22, 2000.
161. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018,
5–7; William Kaufmann, “The Evolution of Deterrence 1945–1958,” unpublishedRAND research, 1958, 2, cited in Austin Long, “Deterrence: From Cold War to Long
War: Lessons from Six Decades of RAND Research,” RAND Corporation, 2008, 8;
National Research Council, Post-Cold War Conflict Deterrence, National Academies
Press, 1997, 13.
162. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 6.
163. Brad Roberts, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on China’s Nuclear Forces, June 10, 2021, 211; Steve
Chan, “Extended Deterrence in the Taiwan Strait: Discerning Resolve and Commitment,” American Journal of Chinese Studies 21 (June 2014): 84.
164. Liu Caiyi and Liu Xin, “US Reaffirming Commitment Only to ‘Fool Taiwan
Separatists’ in Face of Its Afghan Fiasco,” Global Times, August 18, 2021; Global
Times, “Afghan Abandonment a Lesson for Taiwan’s DPP,” August 16, 2021.
165. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018,
9; Robert Jervis, “Deterrence and Perception,” International Security 7:3 (Winter1982/1983), 3; Alexander L. George and Richard Smoke, Deterrence in American Foreign Policy: Theory and Practice, Columbia University Press, 1974, 561–562.
166. Richard C. Bush, Untying the Knot: Making Peace in the Taiwan Strait, Brookings Institution, 2005, 256.
167. Michael J. Mazarr et al., “What Deters and Why: The State of Deterrence in
Korea and the Taiwan Strait,” RAND Corporation, 2021, 52.
168. Michael J. Mazarr et al., “What Deters and Why: The State of Deterrence in
Korea and the Taiwan Strait,” RAND Corporation, 2021, 52.
169. Taiwan Relations Act, Pub. L. No. 96–8, 1979.
170. Taiwan Relations Act, Pub. L. No. 96–8, 1979.
171. Taiwan Relations Act, Pub. L. No. 96–8, 1979.
172. Chen Feng, “Strategic Ambiguity vs Strategic Clarity: America Chooses between Two Difficulties on the Taiwan Question” (战略模糊vs战略清晰 美国在台湾问题上的 “两难” 选择), Guancha, May 9, 2021. Translation; Georgetown University Initiative for U.S.-China Dialogue on Global Issues, “America’s Taiwan Policy: Debating
Strategic Ambiguity and the Future of Asian Security,” October 12, 2020.
173. Michael J. Mazarr, “Understanding Deterrence,” RAND Corporation, 2018, 7;
Patrick M. Morgan, Deterrence Now, Cambridge University Press, 2003, 31.
174. Hal Brands, “China’s Land Grab in Bhutan Is the New Face of War,”
Bloomberg News, May 16, 2021; Masaya Kato, “Surge in Chinese Incursions Leaves
Japan Scrambling on Senkakus,” Nikkei Asia, March 3, 2021; Shashank Bengali andVo Kieu Bao Uyen, “Sunken Boats. Stolen Gear. Fishermen Are Prey as China Conquers a Strategic Sea,” Los Angeles Times, November 12, 2020; Chris Buckley and
Keith Bradsher, “Brushing Aside Opponents, Beijing Imposes Security Law on Hong
Kong,” New York Times, June 30, 2020; Derek Grossman, “Military Build-Up in theSouth China Sea,” RAND Corporation, January 22, 2020, 3.

435
175. John Culver and Ryan Hass, “Understanding Beijing’s Motives Regarding Taiwan, and America’s Role: A 35-Year CIA Officer’s View,” Brookings Institution, March
30, 2021.
176. Kharis Templeman, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 4; Mark Cozad, written testimony for the U.S.-China Economic
and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February 18, 2021, 9; Bonny Lin, written testimony for the U.S.-China Economic
and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February 18, 2021, 4–5; Bonnie S. Glaser, “Time for Collective Pushback against
China’s Economic Coercion,” Center for Strategic and International Studies, January
13, 2021; Jake Chung, “Czech Magnate Buys Piano Order Canceled by PRC,” Taipei
Times, September 10, 2020; BBC News, “Taiwan Loses Diplomatic Ally as Dominican
Republic Switches Ties to China,” May 1, 2018.
177. Oriana Skylar Mastro, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 5; Xinhua, “Xi Jinping: Speech on the Fortieth Anniversary of the
Message to Taiwan Compatriots” (习近平: 在《告台湾同胞书》发表40周年纪念会上的讲话), January 2, 2019. Translation.
178. Oriana Skylar Mastro, written testimony for the U.S.-China Economic andSecurity Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 5.
179. Richard McGregor and Jude Blanchette, “After Xi: Future Scenarios for Leadership Succession in Post Xi-Jinping Era,” Lowy Institute, April 22, 2021.
180. Jude Blanchette, “Xi’s Gamble: The Race to Consolidate Power and Stave Off
Disaster,” Foreign Affairs (July/August 2021).
181. Jude Blanchette, “Xi’s Gamble: The Race to Consolidate Power and Stave Off
Disaster,” Foreign Affairs (July/August 2021).
182. Michael J. Mazarr et al., “What Deters and Why: Exploring Requirements for
Effective Deterrence of Interstate Aggression,” RAND Corporation, 2018, 19; Richard
Ned Lebow, “The Deterrence Deadlock: Is There a Way Out?” Political Psychology 4:2(June 1983): 334.
183. John Culver and Ryan Haas, “Understanding Beijing’s Motives Regarding Taiwan, and America’s Role: A 35-Year CIA Officer’s View,” Brookings Institution, March
30, 2021; Taiwan’s Mainland Affairs Council, “People’s Views on the Current State of
Cross-Strait Relations:” Routine Poll Results and Distribution Table (「民眾對當前兩岸關係之看法」例行民調結果配布表), August 1, 2020. Translation.
184. Richard C. Bush, Untying the Knot: Making Peace in the Taiwan Strait, 2006,
254.
185. Congressional Research Service, “China/Taiwan: Evolution of the ‘One China’
Policy—Key Statements from Washington, Beijing, and Taipei,” January 5, 2015, 7.
186. Lonnie Henley, written testimony for the U.S.-China Economic and Security
Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 5; Andrew Scobell et al., “China’s Grand Strategy Trends, Trajectories, andLong-Term Competition,” RAND Corporation, 2020, 26; Richard Bush, Bonnie Glaser,
and Ryan Haas, “Don’t Help China by Hyping Risk of War over Taiwan,” National
Public Radio, April 8, 2021; Andrew Scobell, written testimony before the U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations in
2020: Enduring Problems and Emerging Challenges, September 9, 2020, 3.
187. Thomas H. Shugart III, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 138.
188. Mark Cozad, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 9.
189. Mark Cozad, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan, February
18, 2021, 8.
190. Richard Bush, Bonnie Glaser, and Ryan Haas, “Don’t Help China by Hyping
Risk of War over Taiwan,” National Public Radio, April 8, 2021.
191. Scott W. Harold et al., “U.S.-Japan Alliance Conference: Meeting the Challenge of Amphibious Operations,” RAND Corporation, 2018, 9–10; Japan Ministry of
Defense, National Defense Program Guidelines for FY 2019 and Beyond, December
18, 2018, 12; Eric Heginbotham and Richard J. Samuels, “Active Denial: Redesigning
Japan’s Response to China’s Military Challenge,” International Security 40:4 (May2018): 128–169, 152.

436
192. Nikkei Asia, “Japan, U.S. Defense Chiefs Affirm Cooperation over Taiwan
Emergency,” March 21, 2020.
193. Reuters, “Japan Deputy PM Comment on Defending Taiwan if Invaded Angers
China,” July 6, 2021.
194. White House, “U.S.- Japan Joint Leaders’ Statement: ‘U.S.—JAPAN GLOBALPARTNERSHIP FOR A NEW ERA,’ ” April 16, 2021; White House, “U.S.-ROK Leaders’ Joint Statement,” May 21, 2021.
195. Jason Scott, “U.S. in Talks with Australia on Responses to War over Taiwan,
Diplomat Says,” Bloomberg, March 31, 2021.
196. Lidia Kelly, “Chance of China, Taiwan Conflict Should Not Be Discounted –Australian Defense Minister,” Reuters, April 26, 2021.
197. World Trade Organization, “Merchandise Imports (Current US$),” World
Bank, September 15, 2021; World Trade Organization, “Merchandise Exports (Current US$),” World Bank, September 15, 2021; World Bank and OECD, “GDP (CurrentUS$)—China,” World Bank, September 15, 2021.
198. China’s Ministry of Foreign Affairs, “Overview of China-ASEAN Economic
and Trade Relations, Opportunities and Challenges,” September 16, 2021; China’s
Ministry of Commerce, China’s Trade with BRI Countries Reaches RMB 9.37 Trillion in 2020 (2020年我国对 “一带一路” 沿线国家进出口9.37万亿元), January 18, 2021.
Translation.
199. Frank Tang, “China’s Provincial GDPs Show Widening Gap between Coastal
and Inland Regions, as Second-Half Economic Concerns Loom,” South China Morning
Post, July 23, 2021.
200. China’s National Bureau of Statistics, “2020 China Statistical Yearbook: Employment and Wages: 4-6 Number of Industrial and Commercial Registered Employed Persons in Private Enterprises and Self-Employed Individuals by Sector andRegion (End of 2019),” 2020.
201. World Trade Organization, “Merchandise Imports (Current US$),” World
Bank, September 15, 2021; World Trade Organization, “Merchandise Exports (Current US$),” World Bank, September 15, 2021; China’s National Bureau of Statistics,
2020 China Statistical Yearbook: International Trade and Economic Cooperation: International Trade in Goods by Region (2019), 2020.
202. Antonio Varas et al., “Strengthening the Global Semiconductor Supply Chain
in an Uncertain Era,” Semiconductor Industry Association, April 2021, 11–12; Jonathan Woetzel et al., “China and the World: Inside the Dynamics of a Changing Relationship,” McKinsey Global Institute, July 2019, 57.
203. UN COMTRADE database, 2020.
204. China’s National Bureau of Statistics via CEIC database.
205. Antonio Varas et al., “Strengthening the Global Semiconductor Supply Chain
in an Uncertain Era,” Semiconductor Industry Association, April 2021, 35.
206. John Lee and Jan-Peter Kleinhans, “Would China Invade Taiwan for TSMC?”
Diplomat, December 15, 2020.
207. Matthew Brazil, “The Prize: Why Taiwan and Its Place in the Global Semiconductor Supply Chain Matter to the United States,” Jamestown Foundation, May
2021, 20–21.
208. Semiconductor industry executive, briefing to the Commission, April 14, 2021;
John Lee and Jan-Peter Kleinhans, “Would China Invade Taiwan for TSMC?” Diplomat, December 15, 2020.
209. China’s Ministry of Foreign Affairs, Xi Jinping Attends World Economic Forum Virtual Event of the Davos Agenda and Delivers a Special Address, January 25,
2021.
210. China’s Ministry of Foreign Affairs, Xi Jinping Attends World Economic Forum Virtual Event of the Davos Agenda and Delivers a Special Address, January 25,
2021.
211. Kinling Lo, “US Efforts to Rally Allies against China Are Not Useful or Effective, Says Beijing on Eve of Alaska Talks,” South China Morning Post, March 18,
2021.
212. Gabriel Crossley and Yew Tian, “Analysis: Beijing Huddles with Friends,
Seeks to Fracture U.S.-Led ‘Clique,’ ” Reuters, April 19, 2021.
213. UK Ministry of Defense, “Carrier Strike Group Looks Forward to a Busy Autumn in Indo-Pacific and Middle East,” October 5, 2021; Sanjeev Miglani, “India Deploys Warships in South China Sea as Part of ‘Act East’ Policy,” Reuters, August 4,2021; Mirna Galic, “As China Poses Challenges, Europe Makes its Presence Knownin the Indo-Pacific,” United States Institute of Peace, August 3, 2021; Dzirhan Mahadzir, “U.K. Carrier HMS Queen Elizabeth Now on the Edge of the South China Sea,”
USNI News, July 25, 2021; David Crowe and Anthony Galloway, “Australian Frigatesto Join Britain in Naval Exercises in Indo-Pacific, as Morrison Builds Ties at G7,”

437
Sydney Morning Herald, June 14, 2021; Jamie Ensor, “New Zealand Warship Sailing
Disputed South China Sea as Taiwan Warns ‘We Will Fight to End’ if China Attacks,”
News Hub, June 10, 2021; CBC News, “Canadian Warship Transits South China Sea
as Diplomatic Tensions Remain High,” March 31, 2021.
214. Alexander Ward and Paul McLeary, “Biden Announces Joint Deal with U.K.
and Australia to Counter China,” Politico, September 15, 2021; Julian Borger, “US,UK and Australia Forge Military Alliance to Counter China,” Guardian, September
15, 2021.
215. Alexander Ward and Paul McLeary, “Biden Announces Joint Deal with U.K.
and Australia to Counter China,” Politico, September 15, 2021; Julian Borger, “US,UK and Australia Forge Military Alliance to Counter China,” Guardian, September
15, 2021.
216. Dzirhan Mahadzir, “U.S., U.K. Aircraft Carriers Drill with Japanese Big Deck
Warship in the Western Pacific,” USNI News, October 4, 2021.
217. Xinhua, “CPC Q&A: What Are China’s Two Centennial Goals and Why Do
They Matter?” October 17, 2017.
218. Reuters, “China’s Xi Trumpets ‘Victory’ in Campaign to End Rural Poverty,”
February 24, 2021; Paul Triolo et al., “Xi Jinping Puts ‘Indigenous Innovation’ and‘Core Technologies’ at the Center of Development Priorities,” New America Foundation, May 1, 2018; Christopher K. Johnson, “President Xi Jinping’s ‘Belt and Road’
Initiative: A Practical Assessment of the Chinese Communist Party’s Roadmap for
China’s Global Resurgence,” Center for Strategic and International Studies, March
2016, 2; Cheng Li, Chinese Politics in the Xi Jinping Era: Reassessing Collective Leadership, Brookings Institution, 2016, 12; Timothy Heath, written testimony for the
U.S.-China Economic and Security Commission, Hearing on What Keeps Xi Up at
Night: Beijing’s Internal and External Challenges, February 7, 2019, 2–3.
219. Michael J. Mazarr et al., “What Deters and Why: The State of Deterrence in
Korea and the Taiwan Strait,” RAND Corporation, 2021, 46.
220. Richard Bush, Bonnie Glaser, and Ryan Haas, “Don’t Help China by Hyping
Risk of War over Taiwan,” National Public Radio, April 8, 2021.
221. Wilson Center Digital Archive, “Memorandum of Conversation between Mao
Zedong and Henry Kissinger,” November 12, 1973.
222. China’s National People’s Congress, Message to Compatriots in Taiwan, January 1, 1979.
223. China’s Ministry of Foreign Affairs, “A Policy of ‘One Country, Two Systems’on Taiwan”; Ezra N. H. Chen, “The Economic Integration of Taiwan and China and
Its Implications for Cross-Strait Relations,” Harvard University, July 2003, 14–20;
Junhao Hong, “Cultural Relations of China and Taiwan: An Examination of Three
Stages of Policy Change,” Intercultural Communication Studies VI:1 (1996): 90–96.
224. Congressional Research Service, “China/Taiwan: Evolution of the ‘One China’
Policy—Key Statements from Washington, Beijing, and Taipei,” January 5, 2015, 45.
225. Jacques de Lisle and Avery Goldstein, “China’s Economic Reform and Opening
at Forty: Past Accomplishments and Emerging Challenges,” in To Get Rich Is Glorious: Challenges Facing China’s Economic Reform and Opening at Forty, Brookings
Institution, 2019, 2–3; Thomas J. Bickford, “The Chinese Military and Its Business
Operations: The PLA as Entrepreneur,” Asian Survey 34:5 (May, 1994): 462.
226. Paul H. B. Godwin and Alice L. Miller, China’s Forbearance Has Limits: Chinese Threat and Retaliation Signaling and Its Implications for a Sino-American Military Confrontation, NDU Press, April 2013, 69–104.
227. Li Keqiang, Report on the Work of the Government Delivered at the Fourth Session of the 13th National People’s Congress of the People’s Republic of China, March 5,2021; Xinhua, “Proposal of the Central Committee of the Chinese Communist Partyon Drawing Up the 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2030,” November 30, 2020, 30.
228. Richard Bush, Bonnie Glaser, and Ryan Haas, “Don’t Help China by Hyping
Risk of War over Taiwan,” National Public Radio, April 8, 2021.
229. Larry M. Wortzel, interview with Commission staff, July 15, 2021.
230. Qiao Liang, “The Taiwan Issue Is Critical to the Nation’s Fortunes” (乔良：台湾问题攸关国运不可轻率急进), U.S.-China Perceptions Monitor, May 4, 2020. Translation.
231. Richard McGregor and Jude Blanchette, “After Xi: Future Scenarios for Leadership Succession in Post Xi-Jinping Era,” Lowy Institute, April 22, 2021; Kevin Rudd,“China Has Politics Too,” Asia Society Policy Institute, December 9, 2020.
232. Richard McGregor and Jude Blanchette, “After Xi: Future Scenarios for Leadership Succession in Post Xi-Jinping Era,” Lowy Institute, April 22, 2021.

438
233. Sam LaGrone, “$715B FY22 Defense Budget Cuts $2.8B in ‘Legacy’ Systems,
Reduces Troop Strength,” USNI News, June 1, 2021; Richard R. Burgess, “Navy Plans
to Retire 48 Ships during 2022–2026,” Seapower, December 11, 2020.
234. Antonio Varas et al., “Strengthening the Global Semiconductor Supply Chain
in an Uncertain Era,” Semiconductor Industry Association, April 2021, 40–41.
235. Lauly Li and Cheng Ting-fang, “Taiwan Asks TSMC and Other Chipmakers
to Help Ease Global Crunch,” Nikkei Asia, January 24, 2021.
236. Simon Cotton, “The False Dichotomy between Strategic Clarity and Dual Deterrence on Taiwan,” ASPI Strategist, December 23, 2020; Walter Lohman and Frank
Jannuzi, “Preserve America’s Strategic Autonomy in the Taiwan Strait,” War on theRocks, October 29, 2020; Andy Zeleke, “ ‘Strategic Clarity’ Won’t Solve the UnitedStates’ Taiwan Dilemma,” Diplomat, October 9, 2020; Bonnie S. Glaser et al., “DireStraits: Should American Support for Taiwan Be Ambiguous?” Foreign Affairs, September 24, 2020; Richard Haas and David Sacks, “American Support for Taiwan Must
Be Unambiguous,” Foreign Affairs, September 2, 2020; Mike Gallagher, “It’s Time toStand with Taiwan,” National Review, May 11, 2020; Michael Hunzenker and Mark
Christopher, “It’s Time to Talk about Taiwan,” Defense One, February 24, 2020; Joseph
Bosco, “Time to End U.S. Strategic Ambiguity on Taiwan,” Diplomat, June 14, 2017;
J. Michael Cole, “Time to End U.S. ‘Ambiguity’ on Taiwan,” Diplomat, July 6, 2012.
237. Richard Haas and David Sacks, “American Support for Taiwan Must Be Unambiguous,” Foreign Affairs, September 2, 2020; Mike Gallagher, “It’s Time to Stand
with Taiwan,” National Review, May 11, 2020; Michael Hunzenker and Mark Christopher, “It’s Time to Talk about Taiwan,” Defense One, February 24, 2020; Joseph
Bosco, “Time to End U.S. Strategic Ambiguity on Taiwan,” Diplomat, June 14, 2017;
J. Michael Cole, “Time to End U.S. ‘Ambiguity’ on Taiwan,” Diplomat, July 6, 2012.
238. Andy Zeleke, “ ‘Strategic Clarity’ Won’t Solve the United States’ Taiwan Dilemma,” Diplomat, October 9, 2020; Bonnie Glaser, “A Guarantee Isn’t Worth the Risk,”
in in “Dire Straits: Should American Support for Taiwan Be Ambiguous?” Foreign
Affairs, September 24, 2020; Michael J. Mazarr, “A Guarantee Won’t Solve the Problem,” in “Dire Straits: Should American Support for Taiwan Be Ambiguous?” Foreign
Affairs, September 24, 2020.
239. Shelley Rigger, statement for the record for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward Taiwan,
February 18, 2021, 4–6; David Keegan, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on Deterring PRC Aggression toward
Taiwan, February 18, 2021, 11–12; Walter Lohman and Frank Jannuzi, “Preserve
America’s Strategic Autonomy in the Taiwan Strait,” War on the Rocks, October 29,
2020.

CHAPTER 5
HONG KONG’S GOVERNMENTEMBRACES AUTHORITARIANISMKey Findings• In the past year, the Chinese Communist Party (CCP)-controlled
Hong Kong government’s implementation of the National Security Law upended the city’s social and political environment.
The government now views peaceful political participation as
inherently subversive, and the authorities are targeting many
across a broad cross-section of the population under the newlaw.
• Changes to Hong Kong’s elections and the composition of its
legislature now ensure pro-Beijing lawmakers will always havea majority, turning the once competitive Legislative Council(LegCo) into a rubber-stamp parliament.
• In the year since the imposition of the National Security Law,
Hong Kong experienced a net outflow of 87,100 permanent andnonpermanent residents. A new immigration bill that enteredinto force in August 2021 gives the Hong Kong government thepower to block travel. The government now has the legal authority to enact “exit bans” or to prevent critics of the Hong
Kong government or China’s central government from entering
the territory.
• Changes to Hong Kong’s educational curricula under the National Security Law now require teachers to promote the CCP’sinterpretation of history, and authorities are using these new
powers to fire them for unapproved speech. Educators are forced
to distort reality and history to portray the Party in a positive
light.
• Judges overseeing national security cases in Hong Kong are
now chosen from a list compiled under the supervision of theterritory’s new national security apparatus, effectively stripping the Hong Kong judiciary of its former independence. Thechanges enable the Hong Kong government to ensure all national security cases are assigned to preferred progovernment
judges, guaranteeing outcomes favorable to the government andthe CCP.
• The National Security Law allows the Hong Kong government
to curtail the city’s freedoms with little notice or process. Authorities introduced strict film censorship rules overnight inJune 2021, and independent and prodemocracy media organizations have been systematically dismantled. Prodemocracy
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Chinese-language newspaper Apple Daily was shut down after
the government froze its assets and arrested senior personnel,
having previously arrested its owner. Remaining media organizations have lost key staff and resources, and in other cases
mainland investors are acquiring control of publishers. The city
can introduce comprehensive internet censorship similar to theMainland’s Great Firewall at any time.
• Strict implementation of the National Security Law is stripping
Hong Kong of long-held advantages that made it a global financial center. While Beijing relies on Hong Kong to boost capital flows and innovation in the Guangdong-Hong Kong-Macau
Greater Bay Area, foreign companies are now more likely tofind it advantageous to operate elsewhere in Asia, including in
mainland China. Changes diminishing corporate transparency
and weakening rule of law endanger U.S. businesses in Hong
Kong.
• Hong Kong’s business environment is increasingly “Mainlandized,” which is likely to increase as the city is integrated further into the Greater Bay Area. Chinese companies are growing
their presence in Hong Kong as both the Chinese and Hong
Kong governments build greater incentives for mainland immigration into the territory.
Recommendations
The Commission recommends:• Congress amend the Hong Kong Autonomy Act to add to thecontents of the annual report required by the act a determination of whether the Beijing-controlled Government of Hong
Kong has violated freedom of emigration from Hong Kong. The
report should assess whether the Government of Hong Konghas:
○ Denied Hong Kong residents’ right or opportunity to emigrate;○ Imposed more than a nominal tax on emigration or on thevisas or other documents required for emigration, for any purpose or cause whatsoever; or○ Made emigration contingent on receiving official approvalthat is not practicably possible to obtain or is otherwise obstructed by authorities.
• Congress amend section 421 of the U.S.-China Relations Act
of 2000 to require the U.S. Trade Representative to include anassessment of Hong Kong’s treatment as a separate customs
territory in its annual report on China’s compliance with commitments made in connection with its accession to the World
Trade Organization (WTO). This additional section of the report
should consider:○ Hong Kong’s compliance to its commitments under the WTO;
○ Whether mainland Chinese entities operating in Hong Kong
are using the Special Administrative Region’s status as atransshipment hub to circumvent U.S. duties on China;

441○ Whether Hong Kong “possesses full autonomy in the conductof its external commercial relations” and if the United Statesshould continue to recognize Hong Kong’s rights as a separate
customs territory under the WTO pursuant to section 201 of
the U.S.-Hong Kong Policy Act of 1992; and○ Whether the United States should apply tariffs and all othertrade treatment to Hong Kong equivalent to that of the People’s Republic of China (PRC). The U.S. Trade Representative
should consult the secretary of state’s determination of Hong
Kong’s autonomy when making this recommendation to thepresident.
• Congress, in consideration of the plight of prodemocracy activists from the Hong Kong Special Administrative Region, should
encourage the secretary of homeland security to exercise theirauthority under the Immigration and Nationality Act on thebasis of both a “compelling emergency” and “urgent humanitarian reason[s]” to parole into the United States aliens who areresidents of Hong Kong and who are applying for admission to
the United States.
• Congress require the U.S. Department of Justice and the U.S.
Department of Commerce to collect information from U.S. companies operating in Hong Kong concerning requests from theGovernment of Hong Kong for content takedowns, access todata, and law enforcement assistance. The departments shallreport their findings to Congress every 180 days specifying:○ The number of requests fulfilled and by which companies;○ Where such requests involved user data; and○ Which local laws the requests invoked.
• Congress direct the Department of Justice to require media outlets operating in the United States that are majority owned by
the Government of the PRC or the Government of Hong Kongto register under the Foreign Agents Registration Act. Congressshould also direct the U.S. Department of State to determine
whether such outlets qualify as a foreign mission of the PRC.
Introduction
Guardrails designed to protect Hong Kong’s autonomy have been
destroyed since 2020 when China approved a National Security Law
for the territory in violation of its international commitment to respect Hong Kong’s high degree of autonomy. The law solidified the
CCP’s control over Hong Kong’s government and judiciary, which
the territory’s pro-Beijing government exploited to implement draconian policies silencing Hong Kong’s once robust civil society andprodemocracy movement. The Hong Kong government’s persecutionof anyone deemed a political threat has effectively transformed theterritory into a police state. Authorities hunt down anyone suspected of advocating for democracy or open political discourse in Hong
Kong or interacting with foreign organizations and individuals. Thechanges to election laws mean the legislature can neither advocate
for the interests of the Hong Kong people nor act as a check against
the pro-Beijing Hong Kong government’s agenda.

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Political tensions coupled with weak economic recovery from thenovel coronavirus (COVID-19) pandemic have clouded the outlook
for Hong Kong’s economy. Many foreign businesses are taking a“wait and see” approach that may prove unsustainable as risks escalate. Foreign companies have introduced some new safeguards toweather perceived political sensitivities, while some have chosen to
move out of the city for other opportunities in the Asia Pacific region, including in the Mainland. Hong Kong is no longer a necessaryor even safe gateway into China for foreign firms.
This chapter begins by examining the People’s Republic of China’s (PRC) control of Hong Kong’s governance, including throughnew electoral changes designed to ensure that critics of the CCP orof the Hong Kong government cannot win seats in the legislature.
It then addresses the Hong Kong government’s implementation of
pro-Beijing “patriotic education,” which the National Security Law
has made possible after years of popular resistance, and the government’s aggressive new attempts to control civil society, media,
and the formerly independent judiciary. It also assesses the effectsof Hong Kong’s political changes on the city’s business environment
and the progress of the Greater Bay Area project that links Hong
Kong with multiple mainland cities. Finally, it considers the implications of these developments for the United States. This chapter isbased on consultations with U.S. government officials and nongovernmental experts, open source research and analysis, and findings
from the Commission’s September 2021 hearing.
Emergence of a Police State
Since implementing the National Security Law in June 2020, Hong
Kong authorities have swiftly and dramatically upended the city’s
formerly free and open society. The Beijing-controlled Hong Kong
government has repeatedly stressed the National Security Law’s
dictum that the central government’s authority over Hong Kong
must always take precedence over the city’s limited autonomy andthe rights and freedoms guaranteed by Hong Kong law.1 The Hong
Kong authorities have enthusiastically and zealously sought out violations of the National Security Law “to please Beijing,” according
to Michael Davis, global fellow at the Woodrow Wilson Center for International Scholars.2 Mr. Davis testified at the Commission’s September 2021 hearing that Hong Kong’s rapid transformation since
the National Security Law’s implementation is an example of Beijing “bringing a form of government extremism to an open society.” 3Angeli Datt, a Hong Kong expert and senior research analyst at
Freedom House, testified, “Hong Kong is not dead, but the territoryis nearly unrecognizable under the National Security Law.” 4
The introduction of the National Security Law destroyed the legal system that had prevailed in Hong Kong since 1997, rendering
the rights enshrined in the Basic Law, Hong Kong’s mini constitution, meaningless in practice. In promulgating the law and imposing absolute control over Hong Kong’s affairs, Beijing createda “constitutional rupture” in Hong Kong’s governance, according toDennis Kwok, former Hong Kong legislator, and Elizabeth Donkervoort, expert on the rule of law at the American Bar Association.5
The fact that the National Security Law overrides Hong Kong’s laws

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subsumes Hong Kong’s governance under the political interests of
the CCP. In June 2021, at a forum co-organized by Beijing’s Liaison
Office in the territory to celebrate the CCP’s centennial the following month, Liaison Office Director Luo Huining asserted that it is“imperative to uphold the [CCP’s] leadership . . . [because it] is thetrue pioneer, leader, practitioner, and defender” of Hong Kong’s governance system.6 He added that those who reject the CCP’s leadership and work to end one-party rule in China pose “existential
threats” to the foundations of Hong Kong’s governance, underliningthat multiparty governance is unacceptable.7
National Security Law Overrides Basic Law’s Protection of
RightsUnder the National Security Law, the authority of the central Chinese government in Beijing now takes precedence over the rights
guaranteed by Hong Kong laws, despite the explicit assurances in
the Basic Law that these rights and freedoms should be protected.8
Under this new normal of the central government’s overt interference in Hong Kong’s legal system via the National Security Law,
Hong Kongers no longer possess key democratic rights:
Freedom of Speech: The National Security Law has criminalized speech that could be broadly interpreted as violating China’s
national security interests. At least four educators have been barredfrom teaching for life, including one who assigned study on a banned
pro-independence political party. In July 2021, Hong Kong policearrested five members of a speech therapists’ union who published achildren’s book that allegedly depicted activists as sheep and police
as wolves.9
Freedom of Assembly: Prodemocracy advocates have been repeatedly prosecuted for participating in unauthorized protests
and denied assemblies overall, with authorities bringing multiple
charges in succession against peaceful activists.10 Since the startof the anti-extradition bill protests in 2019, the Hong Kong government has arrested more than 10,000 individuals and prosecuted atleast 2,600 for protest-related activities, according to Samuel Chu,
founder and former managing director of the Hong Kong Democracy
Council.11 The Hong Kong government now treats any dissent, including grassroots political organizations, as criminal.12 Long established civil society groups have disbanded as a result of persecution
by Hong Kong authorities and the imprisonment of key leaders.13
Right to a Fair Trial: Under the National Security Law, defendants are no longer guaranteed fair trials. They may only be granted bail if a judge decides they are likely not to continue committing vaguely defined crimes endangering national security.14 As of
July 2021, only 12 of 56 individuals charged with crimes under the
National Security Law have received bail.15 Judges have also denied some defendants in national security cases the right to a trialby jury, choosing instead to issue decisions directly, and they have
moved cases to higher jurisdictions to avoid abiding by sentencing
caps.16
Right to Representation: Prodemocracy candidates can no longer run for elected office, denying representation to Hong Kong res-

444
idents who believe the special administrative region (SAR) shouldpreserve the limited degree of autonomy guaranteed by the Basic
Law. Recent changes to election rules ensure only “patriotic” proCCP candidates can run for the LegCo, and directly elected district
councilors can no longer participate in the committee that elects
the city’s chief executive.17 Armed with the broad mandate of the
National Security Law, the central government of the PRC and its
allies in the Hong Kong government have quickly implemented policies designed to enforce support for the CCP and silence its critics,
establishing a political environment that brooks no dissent. Ministry of State Security forces answering directly to the central government have expanded and made permanent their operations inHong Kong, making clear that their ubiquitous presence is now apart of everyday life in the territory. In October 2020, the government began requiring all civil servants who joined the government
on or after July 1, 2020, to swear a loyalty oath to the increasingly authoritarian Beijing-controlled Hong Kong government and to
the PRC. In January 2021, the rule was extended retroactively tothose who began their government employment before July 1, 2020,
covering all 170,000 of the city’s civil servants.18 Refusing to takethe oath bears significant consequences: in April 2021, authorities
announced that 129 government employees who refused to sign thepledge would be fired.19
Retroactive Application despite Government’s Assurances
The National Security Law presents unique challenges to the ruleof law by enabling prosecutors to penalize defendants for conductthat predates its implementation. Hong Kong Chief Executive Carrie Lam Yuet-ngor pledged in a June 2020 address to the UN Human Rights Council that the law would not be applied retroactively,
but the Hong Kong government has in effect done so by using activity the National Security Law prohibits as a basis for prosecution
under other laws.20 Mr. Davis argued at the Commission’s hearingthat authorities investigate suspects under the National Security
Law on the basis that “all the things [they] did before the law was
passed show what [their] views are.” 21 For example, in July 2020
the Hong Kong government disqualified 12 LegCo candidates, citing activities that partially predated the National Security Law but
arguably fell under its definitions of secession, subversion, and collusion with “foreign forces.” * Ms. Datt testified to the Commissionthat police cited Apple Daily articles written before 2020 as evidenceof alleged collusion with foreign forces.22
In order to prosecute activists on the basis of their now-illegal prodemocracy views, Hong Kong authorities use older laws to
charge defendants for conduct that was not illegal before the National Security Law took effect.23 In August 2021, authorities used
* Among other reasons for disqualifying these candidates, the government cited their “advocating or promoting Hong Kong independence, self-determination or changing the system of the
HKSAR by supporting Hong Kong independence as an option for self-determination; soliciting
intervention by foreign governments or political authorities in relation to the HKSAR’s affairs;[and] expressing an objection in principle to the enactment of the National Security Law by theStanding Committee of the National People’s Congress and its subsequent promulgation as anational law listed in Annex III to the [Basic Law].” Government of the Hong Kong SAR, HKSAR
Government Supports Returning Officers’ Decisions to Invalidate Certain Nominations for Legislative Council General Election, July 30, 2020.

445
an older anticorruption ordinance to justify prosecuting a musician
for a 2018 performance at a campaign rally.* In September 2020,
authorities cited a colonial-era sedition law that had not been usedin decades, but was technically still in effect, to charge a suspect
for conduct that partially predated the National Security Law.24 In
addition to using this kind of retroactive prosecution, Hong Kong’s
Commissioner of Police, Raymond Siu, suggested in August 2021
that outright retroactive charges explicitly under the National Security Law itself were still possible, though the government has not
yet pursued any.25
United States Responds to Beijing’s Interference in Hong Kong
The U.S. government views the Chinese government’s interferencein Hong Kong as “an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States,”and since 2020 it has taken actions to both address these risks andpunish officials deemed responsible.26 These actions are consistent
with changes in U.S. policy toward Hong Kong under the Hong
Kong Autonomy Act, which mandates assessments of Hong Kong’s
autonomy. Such actions also align with Executive Order (EO) 13936,
signed by then President Donald Trump in 2020, which declared anational emergency with respect to Hong Kong.27 In July 2021, theBiden Administration formally extended the declaration of a national emergency for another year.28• In August 2020, U.S. Customs and Border Protection requiredthat products shipped from Hong Kong be labeled with a “Madein China” designation.29 In October 2020, the Hong Kong government brought a case to the WTO to oppose the U.S. government’s “Made in China” labeling requirement.† 30• In December 2020, the U.S. Department of the Treasury released a report mandated by the Hong Kong Autonomy Act of2020 on foreign financial firms that transacted with foreign
persons materially contributing to the erosion of Hong Kong’s
autonomy. The department did not find any institution that“knowingly conducted a significant transaction” with any of theforeign persons identified through EO 13936, but the report will
be regularly updated.31• In the same month, the Department of Commerce’s Bureau
of Industry and Security eliminated Hong Kong as a separate
destination under the Export Administration Regulations. The
removal means that for the purposes of export controls, theU.S. government classifies all exports, reexports, and in-country
transfers to Hong Kong the same as the rest of China.32 The
rule change followed a July 2020 elimination of licensing excep* See “Hong Kong Locks Up Dissidents and Rigs Elections” below for more on this incident.
Independent Commission against Corruption, Hong Kong SAR, “Duo Charged with ProvidingEntertainment at 2018 LegCo By-Election,” August 2, 2021.
† The case is still in its early stages, as the WTO formed a panel in April 2021 at Hong Kong’s
request and no action has been taken since. Brazil, Canada, China, the EU, India, Japan, South
Korea, Norway, the Russian Federation, Singapore, Switzerland, Turkey, and Ukraine have reserved third-party rights in the case, meaning they have some substantial interest in the proceedings and have the right to comment on arguments of the complainant and respondent. World
Trade Organization, “DSB597 United States—Origin Marking Requirement,” April 29, 2021.

446
tions specific to the SAR. The bureau also added 23 new Hong
Kong persons to its Entity List throughout 2021.33• In its 2020 Annual Report for the Committee on Foreign Investment in the United States (CFIUS), the Treasury Department
clarified that in accordance with EO 13936, all CFIUS transactions originating from Hong Kong after July 14, 2020, would begrouped with those originating from mainland China.34 In 2020,
U.S. foreign direct investment (FDI) to Hong Kong increased
from the previous year by 3.4 percent to total $92.5 billion,
while Hong Kong FDI to the United States rose 8.5 percent
from the previous year, reaching $16.5 billion.35• In its March 2021 annual report pursuant to the United StatesHong Kong Policy Act of 1992, the Department of State sustained its determination that Hong Kong was no longer sufficiently autonomous to warrant special treatment.36• In July 2021, Treasury’s Office of Foreign Assets Control added
30 Hong Kong persons to its Specially Designated Nationals
and Blocked Persons List in accordance with EO 13936, making
a total of 57 individuals.37• In July 2021, the Departments of State, Treasury, Commerce,and Homeland Security issued a joint business advisory, Risks
and Considerations for Businesses Operating in Hong Kong. The
advisory highlighted risks of the National Security Law, data
privacy, transparency and access to information, and exposure
to conflicting sanctions regimes between the United States andChina.38• In August 2021, President Joe Biden issued a memorandum
deferring for 18 months the enforced departure of most Hong
Kong residents currently in the United States, which may number approximately 30,000, according to Samuel Chu.* 39 The
memorandum was the first U.S. action granting extended stays
to Hong Kong residents in light of the National Security Law.
U.S.-Hong Kong Trade an Outlier of Special Treatment
Despite the requirement that goods from Hong Kong be marked
with a “Made in China” label, U.S. Customs and Border Protection
continues to recognize Hong Kong as separate from China whenassessing customs duties.40 Hong Kong imports are therefore notsubject to the Section 301 tariffs levied since 2018† that apply
duties between 7.5 and 25 percent to more than $550 billion in
U.S. imports of Chinese goods.41 U.S. application of China-related
Section 301 tariffs to Hong Kong could be considered a violationof U.S. obligations under the WTO.42* Information concerning how many of these 30,000 Hong Kong residents will actually benefit
from deferred enforced departure is not publicly available.
† These tariffs were applied to Chinese goods imports based on the findings of the U.S. Trade
Representative’s Section 301 investigation, concluded in March 2018, into China’s technology
transfer, intellectual property theft, and other practices. U.S. Trade Representative, “Notice ofModification of Section 301 Action: China’s Acts, Policies, and Practices Related to Technology
Transfer, Intellectual Property, and Innovation,” Federal Register 84: 169 (August 30, 2019).

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U.S.-Hong Kong Trade an Outlier of Special Treatment—
Continued
As of 1986, Hong Kong enjoys its own membership in the WTO
and is currently considered a separate customs territory from
China that “possesses full autonomy in the conduct of its external
commercial relations.” 43 Application of China-related Section 301
tariffs would run counter to most-favored nation treatment under the WTO’s General Agreement on Tariffs and Trade.44 At thesame time, according to the U.S.-Hong Kong Policy Act of 1992,
the United States may no longer recognize treaties or other international agreements between the United States and Hong Kong
should the president determine that Hong Kong is “not legallycompetent to carry out its obligations under any such treaty.” 45
U.S. determination of Hong Kong’s legal competency has no direct
effect on Hong Kong’s membership in the WTO; however, changes
to Hong Kong’s autonomy over its commercial relations could impact its status as a separate customs territory.* 46
Hong Kong Locks Up Dissidents and Rigs Elections
Changes over the past year have not only made Hong Kong opposition candidates and activists ineligible to run for office but also
subjected them to political persecution. The Hong Kong government
has signaled that intending to run for office on a platform in opposition to policies the CCP has sanctioned is now tantamount to thecrime of subversion. In January 2021, the Hong Kong Police Force(HKPF) arrested 53 former legislators and prodemocracy activists,
accusing them of plotting to destabilize the government. The former
legislators had allegedly planned to gain a majority in the LegCoand veto all bills tabled by the authorities, up to and including thecity’s budget, to force the chief executive to resign. The Basic Law
specifically allows LegCo to exercise oversight over Hong Kong’s executive branch by forcing the chief executive to resign in specificcircumstances like this,† but since the National Security Law overrides the Basic Law, the government is now using it to prevent thisoversight.47
In light of mass resignations of opposition lawmakers in November 2020 and the subsequent arrests of dozens of political candidates
in January 2021, opposition lawmakers and activists now have nolegal means of advocating for their views. In July 2021, at least 170of the city’s more than 400 district councilors resigned en masse
to protest a new requirement to take a loyalty oath to the city.48
In this environment, opponents of the regime or its policies are no* Entities can become parties to the WTO contingent on “autonomy in commercial relations”
rather than status as a single sovereign state. For instance, the EU is considered a separate customs territory from its 28 member states. Under the WTO, there are four “China” memberships
where Taiwan, Macau, Hong Kong, and mainland China are each considered separate customs
territories. Zeng Huaqun, “ ‘One China, Four WTO Memberships’: Legal Grounds, Relations andSignificance,” Journal of World Investment and Trade 8:5 (January 1, 2007): 671–690.
† Under article 52 of the Basic Law, one of several circumstances in which Hong Kong’s chief
executive must resign is “when, after the Legislative Council is dissolved because it refuses topass a budget or any other important bill, the new Legislative Council still refuses to pass theoriginal bill in dispute.” Basic Law, Art. 52 (Government of the Hong Kong SAR of the PRC).

448
longer guaranteed legally protected activism, leading some to seek
emigration and asylum overseas.
Convictions of multiple prodemocracy advocates for unauthorized
assembly, including many of the city’s well-known prodemocracy leaders, were an especially dire indicator that the Hong Kong
government has no tolerance for opposition and criminalizes freespeech. The government has also piled on multiple separate charges
to secure serial convictions against dissidents. According to Mr. Chu,
prosecutors have adopted a strategy of “working their way throughthe ladder of what they can do” to bring additional charges, with thegoal of detaining people indefinitely.49 In April 2021, a Hong Kong
court handed down sentences for participating in unauthorized assemblies to many of the city’s most prominent prodemocracy activists, including Apple Daily owner Jimmy Lai; rights lawyer Albert
Ho; and former LegCo members Margaret Ng, Leung Kwok-hung,
Leung Yiu-chung, Democratic Party founder Martin Lee, and union
leader Lee Cheuk-yan, some of whom received multiple overlapping
sentences.50
In another case in August 2021, authorities charged Anthony
Wong Yiu-ming, a musician, under the Elections (Corrupt and Illegal
Conduct) Ordinance for having performed at a 2018 campaign rally
for Au Nok-hin, a prior LegCo member.51 Hong Kong’s Independent
Commission Against Corruption asserted that Mr. Wong’s provisionof entertainment at the rally was “corrupt conduct at the election . . .
to induce others to vote for the candidate,” even though the election
occurred eight days after the rally.52 Mr. Au is currently serving aten-month prison sentence in connection with a 2019 protest and isfacing charges connected to the January 2021 mass arrests.53 As aresult of these now routine uses of the law to punish democracy advocates, activists in Hong Kong, accustomed for years to advocating
for full representation in a democracy that allowed such debate, arenow treated like dissidents in mainland China, fighting for theircivic freedoms at great risk. Pro-establishment legislator Alice Mak
Mei-kuen expressed pride in Hong Kong’s new normal, arguing in
June 2021 that there “isn’t any problem with a police state.” 54
New Election Rules Prevent Prodemocrats from Running
New electoral rules designed to increase the CCP’s already considerable control over Hong Kong’s elections effectively turned LegCo
into a Mainland-style rubber-stamp legislature. In March, China’s
National People’s Congress approved new rules designed to ensurethat those who govern Hong Kong are “patriots” who “love China,”
according to Chinese state media.55 The rules ensure that prodemocratic legislators, or pandemocrats, will never be able to get elected.56 Chinese state media compared the new rules, which are clearly
intended to subvert Hong Kong’s democracy, to legitimate election
oversight in democracies.57 Central government officials falsely
equating any criticism of the Chinese government with being “anti-China” claimed these rules are necessary to prevent “anti-China,
destabilizing elements” and “radical localists” from exploiting loopholes to take power in Hong Kong and obstruct governance.58
Hong Kong’s electoral changes both increase the overall numberof decision-makers loyal to the central government and make it im-449
possible for peaceful critics of the CCP to run for office. The newrules, which will take effect in the December 2021 LegCo elections,mean the basic operations of LegCo now fall under the central government’s national security interests. They expand LegCo from 70
members—35 of whom are elected by popular vote once every four
years—to 90, with only 20 directly elected members.59 They also
enlarge the Election Committee, which chooses the city’s chief executive, from 1,200 to 1,500 and further pack it with pro-Beijing
stakeholders. The rules remove from the election committee the six
LegCo seats derived from the District Council and the 117 District
Council seats. Until the July 2021 mass resignations, prodemocracy
councilors held almost 90 percent of the District Council seats, following record voter turnout in the 2019 elections.60
Furthermore, a new vetting committee comprising pro-Beijing
Hong Kong officials * will work with the Committee for Safeguarding National Security, which oversees Hong Kong’s security affairs
without judicial review or public transparency, to approve all candidates for public office.† 61 Since the Committee for Safeguarding
National Security is “under the supervision of and accountable to”
China’s State Council, ultimately the central government in Beijing has a deciding say in approving candidates for office in HongKong.62
Immigration Bill Grants Broad New Powers Blocking Free
Movement
Prodemocracy advocates fear that a new immigration bill granting the Hong Kong government broad powers to block travel in andout of the territory may be used to introduce Mainland-style arbitrary extrajudicial “exit bans” and bar entry to those the government deems a threat.63 Prior to passing this law, the Hong Kong
government had already prevented some Hong Kong activists fromleaving the territory, such as the so-called “Hong Kong 12” who tried
to flee by boat to Taiwan in 2020.‡ The new law grants the power
to block travel for any reason, interfering with rights of free movement guaranteed by Hong Kong’s Basic Law and Bill of Rights.64* Chief Secretary John Lee Ka-chiu will lead the committee, which will include Constitution Affairs head Erick Tsang Kwok-wai, Security Secretary Chris Tang Ping-keung, Home Affairs Minister Caspar Tsui Ying-wai, former Justice Secretary Elsie Leung Oi-sie, former LegCo President
Rita Fan Hsu Lai-tai, and former Chinese University of Hong Kong Vice-Chancellor Lawrence
Lau Juen-yee. Lee, Tsang, and Tang are currently subject to U.S. sanctions for their roles in undermining Hong Kong’s autonomy. Lilian Cheng and Tony Cheung, “Hong Kong Chief Secretary
John Lee to Lead Vetting Committee for Would-Be Election Candidates,” South China Morning
Post, July 6, 2021; U.S. Department of the Treasury, Treasury Sanctions Individuals for Undermining Hong Kong’s Autonomy, August 7, 2020.
† The Committee for Safeguarding National Security, established by the National Security Law
and directly under the supervision of the central government, is the chief interagency body inHong Kong responsible for overseeing all national security affairs. Under article 13 of the law,the committee’s members comprise the chief executive, the chief secretary for administration, thefinancial secretary, the secretary for justice, the secretary for security, the commissioner of police,
the head of the HKPF’s newly created national security department, the director of immigration,
the commissioner of customs and excise, and the director of the chief executive’s office. The Lawof the People’s Republic of China on Safeguarding National Security in the Hong Kong Special
Administrative Region (China), 2020, 6.
‡ In August 2020, the China Coast Guard intercepted 12 Hong Kong residents attempting toflee to Taiwan by boat. Two who were minors were sent back to Hong Kong, and the other ten
were sentenced in December 2020 to between seven months and three years in jail on charges ofillegal border crossing. In January 2021, Hong Kong authorities arrested 11 more people, including a district councilor and the mother of a pro-democracy activist, for suspected crimes related toassisting the initial group’s planned flight. Deutsche Welle, “Police Make New Arrests over ‘Hong
Kong 12’ Flee-Attempt,” January 14, 2021.

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The legislation, which entered into force on August 1, 2021, makes
information available to Hong Kong’s Director of Immigration concerning all passengers and crew on any carriers * crossing the Hong
Kong border and empowers the director to prohibit the entry or exitof any passenger or crew member.65
Hong Kong Security Secretary John Lee attempted to provide aveneer of legality to the new powers, arguing they are necessary to
respond to increasing numbers of illegal immigrants and potentiallyfraudulent asylum applicants.66 According to the Hong Kong Bar
Association, however, it is not clear what deficiency the new “extraordinary” powers are designed to address, and the bill includes
no safeguards against abuse.67 Furthermore, the new law could
be used to require personnel outside Hong Kong, such as airport
ground staff, to prevent prohibited passengers from boarding Hong
Kong-bound aircraft.†
Status of Hong Kong Asylum Seekers
Since the introduction of Hong Kong’s National Security Law
in 2020, Taiwan has sharply increased residence permits granted to Hong Kong residents, despite the great risk of provoking
Beijing. In June 2020, Taiwan’s Mainland Affairs Council createdthe Taiwan-Hong Kong Service Exchange Center to assist Hong
Kong residents seeking refuge in Taiwan.68 In 2020, the Taiwan
government issued 10,813 residence permits and 1,576 permanent residence permits to Hong Kong residents, almost double
the number of residence permits issued in 2019.69 From January to July 2021, the Taiwan government issued 5,482 residence
permits, meaning 2021’s total may exceed the total for 2020.70
In May 2021, despite Taipei’s attempt to avoid overtly antagonizing the Chinese government, Hong Kong closed its decade-old defacto consulate in Taiwan in retaliation for Taiwan’s “provocativeacts” supporting asylum seekers from Hong Kong.71
The number of residence permits Taiwan granted to Hong
Kongers has been high relative to the island’s population in comparison with measures other countries have adopted. For example, in Q1 2021, Taipei granted residency to 3,011 Hong Kongers,
or about one per every 7,830 Taiwan residents.72 In the same period, under a new immigration scheme for British National (Overseas) passport holders, the United Kingdom (UK) granted 5,600
visas outside the country and 1,600 visas inside the country, ora total of about one per every 9,400 UK residents, with Hong
Kong passport holders composing 86 percent of the total.‡ In Q2* The legislation defines “carrier” as “an aircraft or any other means of transportation” determined by regulation, and thus it could affect travel by bus, train, or hired car, the other main
methods of crossing the border currently available. The regulations could likely affect pedestrian travel if necessary. According to the Hong Kong Transportation Department, there are fiveroad-based crossings between Hong Kong and Shenzhen, though it is not clear whether any ofthem allow crossing by foot. Hong Kong Transportation Department, Land-Based Cross Boundary
Transport, May 12, 2021; Immigration (Amendment) Ordinance 2021 (Hong Kong), 2021, A101.
† According to the relevant provision of the law, regulations “may require the carrying out of
any act by a person (wherever the person may be) and regulate any act or matter . . . wholly or
partly outside Hong Kong.” Immigration (Amendment) Ordinance 2021 (Hong Kong), 2021, A101.
‡ British Nationals (Overseas) are Commonwealth citizens but not British citizens. On January 31, 2021, the UK activated a new immigration scheme to allow British National (Overseas)
passport holders or those eligible for one—which include those born in Hong Kong before the451
Status of Hong Kong Asylum Seekers—Continuedof 2021, the number of visas granted under this scheme sharply increased to 29,400 out-of-country and 10,700 in-country, with
Hong Kong passport holders composing 68 percent of the total.73
As of January 2021, under a new immigration scheme, Australia
had granted five-year extensions to about 3,000 out of 10,000 eligible temporary skilled, graduate, and student visa holders from
Hong Kong, or about one per every 8,450 Australian residents.74
As of May 2021, almost 6,000 Hong Kong residents had applied
for a similar Canadian visa program, though it is not clear how
many have succeeded.75 In addition to these new programs, Australia, the UK, and Canada have respectively accepted 305, 121,
and 21 asylum applications from Hong Kongers since the 2019
protests.76
Hong Kong Government Flaunts New Control over Society
Hong Kong observed its first National Security Education Day
on April 15, 2021, organized by the territory’s new Committee for
Safeguarding National Security.77 The day’s activities involved different branches of Hong Kong’s security services and featured a live
demonstration of a dramatized counterterrorism operation. The activities prioritized engagement with Hong Kong’s youth to help them
“form correct values and national identity,” according to one school
principal.78 Then HKPF Commissioner Chris Tang Ping-keung * argued the outreach was necessary because subversive foreign forceswere deliberately targeting young people in Hong Kong to “plantanti-China ideas” in their hearts and “ignite . . . hatred for their government.” 79 More than half of the attendees at these events wereconnected to Hong Kong’s disciplined services,† however, indicatinga lack of genuine interest among the public.80
The day’s activities also saw specially trained members of Hong
Kong’s disciplined services perform the “goose step” marching styleused in the Mainland, a new marker of Beijing’s success in impressing a more authoritarian culture upon Hong Kong’s security services. The central government has previously attempted to pressure
Hong Kong’s youth cadet organizations to adopt the goose step, but
most of these organizations have resisted out of a preference to continue expressing British heritage rather than mainland China’s culture.‡ According to the South China Morning Post, People’s Liberaterritory returned to the People’s Republic of China in July 1997—to live, work, and study in the
United Kingdom. Mainland Affairs Council, Hong Kong and Macao Residents Granted Residence& Permanent Residence in Taiwan, 2021; Home Office of the UK, How Many People Come to the
UK Each Year (Including Visitors)? June 18, 2021.
* Tang became Hong Kong’s secretary for security on June 25, 2021. Lilian Cheng and Tony
Cheung, “Hong Kong Security Minister John Lee Promoted to Chief Secretary, Police Head Chris
Tang Fills Cabinet Post in Move Reflecting Focus on Law and Order,” South China Morning Post,
June 25, 2021.
† According to Xinhua, the five disciplined services that performed the goose step during theiropen day events included the HKPF, the Fire Services, the Correctional Services, Customs andExcise, and Immigration. Xinhua, “Feature: Hong Kong Police March in Chinese-Style Goose-Stepping on National Security Education Day,” April 15, 2021.
‡ In 2018, Hong Kong newspaper Ming Pao reported that the central government’s Hong Kongliaison office asked representatives from seven uniformed youth groups to adopt the Chinese
goose step during that year’s Bauhinia Square flag-raising ceremony commemorating the May
Fourth Movement. Thirteen out of 14 youth groups chose to keep using the British marching style452
tion Army personnel have trained Hong Kong Police College officers
in the goose step ahead of the 2022 parade marking the 25th anniversary of Hong Kong’s 1997 handover from the UK.81 Then HKPF
Commissioner Tang appeared to favorably associate the militaristic
display with the Mainland when he praised the officers’ April 15
demonstration, saying it showed their “pride of being Chinese.” 82
Forced Nationalism and an Orwellian School System
Hong Kong authorities have ordered sweeping revisions to educational curricula to promote national security, infusing nationalism
and revisionist history into even seemingly apolitical topics. These
revisions mark a victory for the Hong Kong government in its yearslong campaign to impose “patriotic education” to increase popularsupport for the CCP.* In February 2021, Hong Kong’s Education
Bureau issued new guidelines on promoting national security education in accordance with article 10 of the National Security Law.83
A government circular, which argued national security education is“part of, and inseparable from, national education,” called for universities to develop in students “a sense of belonging to the country,
an affection for the Chinese people, a sense of national identity . . .
and a sense of responsibility for safeguarding national security.” 84
According to Reuters, the central government’s plan to bring Hong
Kong more politically in line with the rest of China amounts to
an attempted “societal overhaul” for Hong Kong.85 The guidelines
alter curricula to fit a nationalistic narrative and affect students
beginning at age six and continuing through university, including
students at some international schools. For example, the geography
curriculum framework for middle school through high school calls
for teaching that “the South China Sea islands and related maritime
areas . . . have been a part of China’s territory since ancient times.” 86
The biology curriculum framework stresses the central and Hong
Kong governments’ successful protection of the country during the
COVID-19 pandemic.87
The curricula changes require educators to actively promote the
CCP’s concept of national security in addition to censoring prohibthat year because it reflected their culture and traditions, while the Hong Kong Army Cadets
Association, which has used the Chinese style since its founding in 2015, continued to do so.
However, in March 2019, after the pro-Beijing Committee of Youth Activities organized a training
for some of the groups at the PLA’s Fanling barracks and then requested that cadet groups adopt
the goose step to “show respect to China,” four out of 16 total groups did so in that year’s May
Fourth parade. Naomi Ng, “Hong Kong Cadet Groups Switch from British Military Drills to Chinese Goose Stepping at May Fourth Event in Wan Chai—but Who Gave the Marching Orders?”
South China Morning Post, May 4, 2019; Ming Pao, “Uniformed Group: Liaison Office of theCentral People’s Government in the Hong Kong Special Administrative Region Urges Adoptionof Chinese-Style Marching, Causes Worry about ‘Decolonization.’ Youth Army Federation’s Chen
Zhengbin: Only Offered Assistance, Not Requested” (制服團體﹕ 中聯辦促轉中式步操 惹「去殖化」
憂慮 青少年軍陳振彬﹕ 只協助非要求), February 9, 2018. Translation; South China Morning Post,“Hong Kong Youth Groups Reject Chinese-Style Marching Drills,” May 7, 2018.
* In 2012, the Hong Kong government attempted to implement patriotic education but withdrew its plans in the face of widespread opposition. In 2019, as historic numbers of prodemocracy activists protested in what many felt was a last stand against the central government’s
encroachment in Hong Kong, Chinese officials resolved to implement patriotic education in the
territory. Shen Chunyao, director of the Legislative Affairs Commission of the National People’s
Congress Standing Committee, said in October 2019 that the CCP must “strengthen national
education for Hong Kong . . . people, especially civil servants and youth . . . to boost their national
consciousness and patriotic spirit.” Anna Fifield, “China Thinks ‘Patriotic Education’ Built a Loyal
Generation. But in Hong Kong? Not So Fast,” Washington Post, November 29, 2019; U.S.-China
Economic and Security Review Commission, 2019 Annual Report to Congress, November 2019,481; U.S.-China Economic and Security Review Commission, 2018 Annual Report to Congress,
November 2018, 387.

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ited acts, creating a culture of fear and distrust between educatorsand students.88 Mr. Davis testified to the Commission that thechanges in Hong Kong’s academic culture are having a “profound
impact” and could cause an “enormous” loss to the quality of “education [and research] in Asia.” 89 In this climate, according to one
teacher quoted by the Financial Times, it has become necessary to“stop teaching reality . . . to avoid violating the rules.” 90 The Hong
Kong Education Bureau ordered schools to prevent “political or other illegal activities” in their institutions, which resulted in the firings of some outspoken professors.91 In October 2020, an educator
was barred from teaching for life after allegedly assigning students
to study the pro-independence Hong Kong National Party.92 As of
April 2021, according to the South China Morning Post, at least
four teachers had been deregistered from the profession for life forpolitical reasons, including one visual arts teacher who had posted
cartoons online satirizing Hong Kong’s authorities.93
Hong Kong authorities are now openly hostile to student unions,which they view as encouraging opposition to the government, anduniversity administrations have begun to constrain their operations.
In addition to punishing students for political activities such as participating in prodemocracy protests and even mourning a student
who fell to his death during a protest in 2019, university administrators in some institutions have impeded student unions from collecting dues.94 After Hong Kong University’s student union passed
a motion in July 2021 that authorities claimed glorified violence,
the university derecognized the union even though those responsible
for the motion apologized and resigned.95 Officers from the HKPF’s
national security unit cordoned off the offices of the student unionand seized documents.96 The university’s decision to cut ties withthe student union caused at least one lecturer to resign in protest.97
In light of the government and administrators’ punitive approachto student unions, one student union leader at Lingnan University,
Yanny Chan, told the New York Times that unions now feel like they
are “just waiting to die.” 98Some teachers described policy changes introduced in 2020, suchas the censorship of protest slogans, references to separation of
powers, and illustrations of protesters, as reminiscent of China’s
Cultural Revolution.99 The 95,000-member Professional Teachers’
Union, once the biggest single-industry union in the city, was forced
to disband in August 2021. Chinese state media and Hong Kong
officials, respectively, had accused it of being a “poisonous tumor”
and “dragging schools into politics,” and state media continued tourge further punitive actions against it.100 Fearful of losing theirjobs, Hong Kong teachers must now self-censor in a way that would
have been unthinkable prior to the National Security Law. Overall, according to Tin Fong-Chak, then a vice president of the Hong
Kong Professional Teachers’ Union, the new policies are intended
to control everything that happens in schools and will “destroy theteacher-student relationship.” 101 The mandate to actively promote
the National Security Law now permeates all stages of personnel
selection and management at all levels in universities.102
Officials have signaled that complying with the new rules could
affect universities’ funding, emphasizing the requirement to warn

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students about “foreign interference” and train faculty in national
security education. Publicly funded universities are especially vulnerable to this pressure to step up national security training. In
March, Hong Kong’s University Grants Committee, which supervises all publicly funded institutions, reportedly warned universities
that increased funding could be tied to implementation of compulsory education on the National Security Law.103 In April, the newpresident of the government-run Open University of Hong Kong,
Paul Lam Kwan-sing, suggested adding national security education
to the mandatory curriculum, following earlier comments by his
predecessor suggesting the city lacked such education.104 In June
2021, Chief Executive Lam claimed external forces had “penetrated”
academic institutions, describing a recent study that paid students
to count turnout in prodemocracy protests as allegedly incentivizing
participation in protests.105 She called on university administrators
to ensure their students are not “brainwashed” or “indoctrinated”
by external forces, portraying academic inquiry into Hong Kong’s
protests as inherently subversive.106
Hong Kong Authorities Crush Civil Society and MediaIn 2021, Hong Kong authorities interfered with peaceful civil society activities, demonstrating a Mainland-style “rule by law” approach in which the law is merely a means to the political end of
suppressing dissent. In April, the Hong Kong police launched an
inquiry into the Civil Human Rights Front, a group known for organizing the city’s annual Tiananmen Massacre vigil, after the Global Times claimed the group may be shut down due to suspicionsof receiving foreign funding.107 The police cited the group’s alleged
failure to register under the 110-year-old Societies Ordinance, which
prohibits secret societies such as Triad gangs,* and ordered it tosubmit 15 years’ worth of financial information within nine days.108
The group’s organizer, Figo Chan Ho-wung, denied having received
foreign funds and refused to cooperate with the police on principle,
claiming the group’s operations have been legal under the Basic
Law and that in the past even pro-Beijing former Chief Executive
C.Y. Leung described the group as “friends.” 109 Mr. Chan was sentenced to 18 months in prison in May 2021 along with others over
his participation in the October 2019 protest, and the Civil Human
Rights Front disbanded in August.110 The sudden hostility toward
the group in light of the changed political situation, according to Mr.
Chan, demonstrates the government’s willingness to use any excuse
to target an organization or person it has decided to condemn.111
Authorities in Hong Kong are also increasing scrutiny over charities. In September 2021, the government amended the tax guideto remove exemptions for charitable organizations whose activities
might be deemed contrary to national security.112 Christopher Hui,
* Triads are organized criminal groups active in Greater China and in Chinese communities
around the world. Various Chinese governments have enlisted these gangs, many of which trace
their origins to Qing dynasty-era secret societies and trade associations, to carry out violenceagainst political opponents. For example, in 2014 during the Occupy Hong Kong protests, as manyas 200 suspected Triad members attacked demonstrators and tried to stir up violence to discredit
them, and in July 2019, a mob of suspected Triad members assaulted protesters and bystanders
at Yuen Long, injuring at least 45 people. U.S.-China Economic and Security Review Commission,
2019 Annual Report to Congress, November 2019, 494; Austin Ramzy, “What Are the Triads, andWhat Is Their History of Violence?” New York Times, July 24, 2019.

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secretary for Hong Kong’s Financial Services and Treasury Bureau,
wrote that the government “must prevent people with ulterior motives from using the name of charity to actually endanger national
security.” 113 With the amendment of the tax guide, Secretary Huialso announced that the Inland Revenue Department will perform
comprehensive reviews to determine whether an organization “participate[s] in or use[s] its resources to support or promote activities
that are not conducive to national security.” 114 Two groups ceased
operations as the amendment was developed: the Apple Daily Charitable Foundation, a nonprofit arm of the prodemocracy newspaper,and the 612 Humanitarian Relief Fund, a group supporting legal
and medical fees for 2019 Hong Kong protestors.115
The Hong Kong government has constrained and shut down media organizations and threatened or sought to coerce their employees, contributing to sharply decreased media freedoms for the press
since the crackdowns began in 2019 and the National Security Law
was implemented in 2020. According to the Hong Kong Journalists
Association’s 2021 Press Freedom Index, between 2018 and 2020 thepress freedoms rating for journalists in Hong Kong, which is basedon public opinion polling, plummeted eight points to a record low of
32.1 out of 100.116 The press freedom report cited a police searchat the premises of Apple Daily parent Next Digital in August 2020
as particularly harmful.117 In June 2021, Apple Daily was forced tocease operations entirely after authorities froze its assets, raided
its newsroom, and arrested seven of its senior staff, detaining one
as he attempted to leave Hong Kong.118 Seventy-three-year-old Apple Daily owner Jimmy Lai was repeatedly arrested and ultimately
sentenced to a total of 20 months in jail.119 Other particularly concerning developments included the HKPF’s exclusion of Hong Kong
Journalist and Press Photographer Associations members from officially recognized “media representatives” and mass layoffs at thenews department of i-Cable, a Cantonese-language channel.120 In
addition to the legal obstruction of news organizations, Chinese security forces reportedly targeted individual media workers directly.
The State Department’s 2021 Hong Kong Policy Act Report cited“credible reports” that central government security forces have “harassed, threatened, and arrested” journalists and other media workers.121
Beijing Undermines Independent MediaThe Hong Kong government and pro-Beijing entities have used
several tactics to strip Hong Kong media organizations of their independence, mimicking the Mainland’s heavily constrained media
environment.122 In June 2021, authorities froze $2.32 million in assets belonging to Apple Daily and two affiliated companies, leaving
the publisher with funds for only a few days.123 In Hong Kong, it
is illegal not to pay employees within seven days following a pay
period.124 Lacking any means of paying the salaries of its 1,300 employees or covering normal operating costs, the paper had no choice
but to shut down.125
Partnerships with Chinese state media are another tactic thegovernment has deployed successfully to interfere with independent media. In August 2021, Chief Executive Lam announced

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Hong Kong’s state-funded broadcaster Radio Television Hong Kong
(RTHK) would partner with China Media Group, the holding groupfor PRC state media firms China Central Television and China Radio International, to air “patriotic” content.126 According to Chief
Executive Lam, the agreement allows RTHK’s Chinese-language
channel to air Mainland-produced content and produce its own programming to advocate for “safeguarding national security” and “promote a better understanding of developments on the Mainland.” 127
In practice, this ensures promotion of the CCP’s preferred politicalnarratives.128 Reporters Without Borders described this partnershipas providing a “perfect pretext to force RTHK to distribute Chinese
propaganda.” 129
In other cases, the CCP has taken direct control of Hong Kongbased media in order to influence the tone of ostensibly independent organizations. In April 2021, Liu Changle, chairman of Hong
Kong-based Phoenix Media Investment, announced he would sellhis stake in the company to Bauhinia Culture, a firm administeredby the central Chinese government, and to a company owned by
Pansy Ho, a businesswoman with reported ties to Triad gangs.130
Phoenix has long been “the most important media asset under the[United Front in Hong Kong],” according to former City Universityof Hong Kong professor Joseph Cheng.131
The Chinese government has increased control of media entities
through other sweeping purchases in the recent past. The Central
Liaison Office, Beijing’s official representative office in Hong Kong,
gained control of 80 percent of Hong Kong’s publishing industry
when it purchased Sino United Publishing Ltd. in 2015.132 The Liaison Office owns several prominent Chinese-language papers, including Wen Wei Po, Ta Kung Pao, and Hong Kong Commercial Daily;
major bookstore chains Joint Publishing HK, Chung Hwa Book Co.,
and Commercial Press; at least 30 publishing houses and brands;
and 60 retail bookstores in Hong Kong and Macau (see Figure 1).133
Having solidified control over the majority of print publications andmany online sources in the city, the Chinese government can ensure
messaging in textbooks and papers supports its goals. For example,
in 2020 pro-Beijing Hong Kong tycoons advocated for the National
Security Law in the pages of Ta Kung Pao and Wen Wei Po.134
Film Censorship Introduced Overnight
The Hong Kong government’s decision to implement strict film
censorship rules overnight illustrates how the city’s remaining freedoms can be removed at a moment’s notice under the National Security Law. In June, the city amended its film classification standards to prohibit content that may violate the National Security
Law.135 The new guidelines, published on the same day they wereannounced, now require censors to “be vigilant to [content] which
may amount to endangering national security, or . . . jeopardize thesafeguarding of national security.” 136 The rules require censors toprohibit any material that violates “the common responsibility ofthe people of Hong Kong to safeguard the sovereignty, unification,and territorial integrity of the [PRC].” 137 These changes, which formally bring censorship standards more in line with those in the
Mainland, followed several cancelations of high-profile film events

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Figure 1: Media Entities Owned by the Liaison Office of the Central
Government, 2020

Source: Blake Schmidt, “The Publishing Empire Helping China Silence Dissent in Hong Kong,”Bloomberg, August 17, 2020.

in Hong Kong, including a protest documentary. Filmmakers andactivists in Hong Kong argued the new policy is so broad as to restrict all films in Hong Kong, not just those related to politics oractivism, and will give authorities wide latitude to enforce it as theysee fit.138 In July 2021, Hong Kong Commerce Secretary Edward
Yau Tang-wah clarified that films may still be deemed illegal evenafter censors in the civil service approve them, since it is up to Hong
Kong law enforcement to decide whether or not content breaches
the law.139
Central Government Security Forces Expand Presence inHong Kong
The central government in Beijing expanded the presence of personnel tasked with overseeing national security operations in Hong
Kong as the city took steps to streamline its ability to prosecute the
National Security Law. In April 2021, the Office for Safeguarding
National Security, the new super-agency directly under the central
government established to enforce the law, announced plans to moveto new purpose-built office spaces across government compounds inWest Kowloon, an upgrade from the converted hotel its more than
200 personnel have occupied since July 2020.* 140 The Office for Safe* The compounds, which comprise two sites totaling 1.15 square kilometers (0.72 square miles)
near a People’s Liberation Army naval base and government dockyard at Stonecutters Island, will
host “permanent office premises and ancillary facilities,” according to a government statement.
Government of the Hong Kong Special Administrative Region Press Releases, Land for OfficePremises of Office for Safeguarding National Security of the Central People’s Government in the
HKSAR, April 23, 2021.

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guarding National Security will cover the construction costs for thefacilities, but Hong Kong’s $1.03 billion ($8 billion Hong Kong dollars[HKD]) national security budget for 2021–2022 may be used to cover
the salaries of Hong Kong disciplined services personnel seconded tothe agency and other expenses.141 Article 19 of the National Security Law allows a “special fund” for national security expenditures tobe approved by the chief executive without oversight from LegCo or
any other restrictions, so this $1.03 billion fund could theoretically be
used for whatever the chief executive deems necessary.142 The city is
now incentivizing the national security bureaucracy in the territory
to continue to justify its own existence by carrying out more arrests,
harassment, and surveillance in order to secure more funds.
In May 2021, the South China Morning Post reported that the Hong
Kong and Macau Affairs Office, which coordinates Beijing’s policy on
the two SARs, would add two new departments overseeing national
security issues and propaganda, both led by Chinese government officials.143 According to the South China Morning Post, which quotes
multiple anonymous mainland sources, Wang Zhenmin, former legal
affairs director in the central government’s Hong Kong liaison office,will head the former department, and Yang Guang, a previous Hong
Kong and Macao Affairs Office spokesperson, will head the latter.144
The South China Morning Post’s sources claim these new departments are necessary due to the increased workload under the National Security Law. The new propaganda department would absorb
some of the Liaison Office’s duties in managing Hong Kong media.
Finally, the paper reported that the changes correspond to the 2020
elevation of Beijing’s central coordination group on Hong Kong and
Macau Affairs to a higher-level “central leading group” led by Politburo Standing Committee member Han Zheng, reflecting the increased
scrutiny Beijing is placing on the two regions.145
Judiciary Independent in Name Only
Hong Kong’s historically independent judiciary is no longer reliably impartial on cases related to matters the Chinese government
deems sensitive, since the National Security Law has cemented Beijing’s right to determine which judges hear national security cases inwhich jurisdiction, almost guaranteeing outcomes the CCP prefers.
The changes to the judiciary are like an “unstoppable sandstorm”
sweeping away constitutional rights, according to an anonymous
Hong Kong defense lawyer quoted by Agence France-Presse.146 The
law allows the Office for Safeguarding National Security to exercise jurisdiction in cases involving foreign countries or external
elements, if a “serious situation” occurs that inhibits Hong Kong’s
ability to exercise jurisdiction, or if there is a “major and imminent”
threat to national security.147 At the decision of the Office for Safeguarding National Security, Chinese courts can extradite defendants
to the opaque mainland Chinese legal system, which has a conviction rate of over 99 percent.148 Charles Falconer, who was previously
the UK’s most senior court official, argued article 55 of the National
Security Law is a key indicator that Hong Kong’s rule of law is
now “gone” and “a charade” because it allows Chinese authorities toresolve cases outside Hong Kong’s legal system for any reason andwithout oversight.149

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Hong Kong’s chief executive now has absolute power to funnel national security cases toward select individual judges who then determine how the cases proceed, ensuring outcomes favorable to Beijing.
The chief executive, who is also chairperson of the Committee for
Safeguarding National Security and answers directly to the central
government, is now required to compile a list of all judges approved
to handle national security cases.150 This allows the pro-Beijing leader to exclusively list judges likely to punish alleged national security
offenses harshly.151 Furthermore, once placed on the list, any judge
can be removed from it if they criticize the National Security Law orcommit other vaguely defined national security offenses.* The judges
on this list oversee all national security cases, not only those brought
under the National Security Law, and in several cases they have already exercised broad discretion in determining jurisdiction.152
For example, in April 2021 District Court Judge Stanley Chan
Kwong-chi ruled he had jurisdiction to try a sedition case in his lower court. This decision deprived the defendant of the trial by jury ina higher court that this serious indictable offense † would normallyrequire and thus cut out a historically important check on the judiciary.153 In a similar demonstration of alignment with Beijing, in
May 2021 Chief Magistrate Victor So Wai Tak granted prosecutors’request to move to the High Court the subversion cases of 47 of the
53 activists who had been arrested en masse in January over theirplans to gain a majority in LegCo; the High Court has no cap on
sentencing.154 Furthermore, the now common practice of denying
bail in national security cases due to the National Security Law’s
strict standard ‡ means defendants can be imprisoned for several
years as their cases progress.155 According to Jerome Cohen, a leading U.S. expert on Chinese law, the prospect of facing three years inprison even if acquitted threatens to “ruin the lives” of Hong Kong
residents, deterring them from engaging in activities that might beinterpreted as violating the National Security Law.156
Since the January arrests, Hong Kong’s use of the National Security Law has expanded dramatically to include peaceful political
opposition, and authorities have signaled their intent to hand down
severe sentences. As of August 31, 2021, according to a fact sheet
published by the U.S. Consulate General for Hong Kong and Macau, there had been 133 arrests for alleged National Security Law
offenses, 64 people and companies charged, and three people convicted.157 The arrests of mainstream politicians mean there are “nodiscernible limits” regarding whom the authorities may target. Even
* Article 44 of the National Security Law states, “A designated judge shall be removed from thedesignation list if he or she makes any statement or behaves in any manner endangering national security during the term of office.” The Law of the People’s Republic of China on Safeguarding
National Security in the Hong Kong Special Administrative Region (China), 2020, 20.
† In Hong Kong and other judiciaries that follow British legal traditions, less serious summary
offenses may be heard in Magistrates’ Courts, while more serious indictable offenses are almost
always heard in higher courts. Summary and indictable offenses are roughly analogous to misdemeanors and felonies, respectively, in the U.S. legal system. Pringle Chivers Sparks Teskey,“What Is the Difference between Summary and Indictable Offences?” 2021; Hong Kong Legislative Council Panel on Administration of Justice and Legal Services, Reform of the Current System
to Determine Whether an Offence Is to Be Tried by Judge and Jury or by Judge Alone, April 22,
2014, 1–2.
‡ Article 42 of the law specifies that “no bail shall be granted to a criminal suspect or defendantunless the judge has sufficient grounds for believing that the criminal suspect or defendant will
not continue to commit acts endangering national security.” The Law of the People’s Republicof China on Safeguarding National Security in the Hong Kong Special Administrative Region(China), 2020, 18.

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peaceful advocacy, such as Jimmy Lai’s 2019 meeting with then U.S.
Secretary of State Mike Pompeo and his calls for the release of the
12 Hong Kongers intercepted as they fled by boat in 2020, is now
sufficient for a charge of foreign collusion.158 In July 2021, Hong
Kong police even arrested five members of a speech therapists’union who published a children’s book telling the story of the 12
activists using depictions of sheep and wolves to portray the activists and the police, respectively.159 In addition to the broad scope oftargets for these charges, the potentially severe sentencing raises
concerns. Under article 29 of the National Security Law, foreign collusion convictions can result in sentences of between three and ten
years or, for more severe cases, ten years to life.160
The Hong Kong government has already made ample use of the
National Security Law’s criminalization of vaguely defined “collusion with foreign forces” to crack down on activists’ contact withinternational interlocutors, including consulate staff. Despite claims
by some observers that this provision was necessary to ensure thenational government can intervene if Hong Kong cannot enforce the
National Security Law, in practice the Hong Kong government has
used it to punish engagement with foreigners.161 The Hong Kong
government has used the law to deliberately “break ties between the
Hong Kong pro-democracy movement and its [international] supporters,” according to the Georgetown Law report.162
In April 2021, a Hong Kong judge denied bail to former lawmaker Jeremy Tam Man-ho because U.S. Consulate staff had sought tomeet with him, even though he ignored the invitations, demonstrating that even the perceived interest of foreign actors can be enoughto endanger a defendant.163 According to the U.S. Consulate Generalfor Hong Kong and Macau’s fact sheet, 19 of 133 National Security Law cases brought in Hong Kong since July 1, 2020, involved
charges of colluding with foreign or external actors to endanger national security, and six involved “collusion with foreign forces” specifically, demonstrating that the government has interpreted thischarge fairly broadly.164 This broad charge can apply to interactions
with any foreign entity, not just those with foreign governments
specifically. For example, Samuel Chu testified to the Commissionthat Hong Kongers can be charged with collusion for engaging withMembers of Congress, the UN, and overseas diaspora groups.165
Overseas Judges Lose Confidence in Court of Final Appeal
It is no longer certain that overseas judges serving in nonpermanent posts on the Court of Final Appeal (CFA) can still protect therule of law in Hong Kong. Since 1997, the Basic Law has allowed
the CFA to invite judges from other common law jurisdictions to join
the court and hear cases, a practice that has long been regarded asa means of ensuring the independence and professionalism of the
judiciary.166 In light of the National Security Law, however, the UK
has begun examining whether it should continue participating inthis tradition.* In a mid-2020 report to Parliament on Hong Kong,
UK Foreign Secretary Dominic Raab revealed that consultations had* According to the Hong Kong Judiciary, judges may be recruited from other common law jurisdictions, such as the UK, Canada, Australia, and New Zealand. The CFA currently includes
nonpermanent overseas judges from Australia, Canada, South Africa, and the UK. Hong Kong
Court of Final Appeal, Overseas Non-Permanent Judges.

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begun with Robert Reed, president of the UK Supreme Court, on
when it might become necessary to review the longstanding practiceof sending British judges to the CFA.167 Lord Reed then announcedin October 2020 that the UK’s practice of sending judges was underreview.168 In August 2021, Lord Reed and his deputy Patrick Hodge
decided to continue serving in their nonpermanent posts after assessing that the Hong Kong judiciary continued to operate free ofgovernment interference and in accordance with the rule of law.169
Whether or not commonwealth countries continue sending judges
to the CFA, some foreign CFA judges have already determined they
can no longer in good faith participate in a court system the Mainland’s interference has so thoroughly undermined. Australian judge
James Spigelman resigned in September 2020 and UK judge Brenda Hale announced in June 2021 she intended to resign from herpost at the end of her term in July, citing concerns over the law’s interference in the judiciary.170 The Hong Kong Bar Association asked
for foreign judges to continue serving in nonpermanent CFA posts,
but Professor Cohen testified to the U.S. Congressional-Executive
Commission on China in June 2021 that foreign judges are now
mere “decorations” in an abusive legal system and should resign.171
The Hong Kong government and some former Hong Kong lawyers
have repeatedly dismissed the concerns about foreign judges’ role on
the CFA as politically motivated, claiming instead that the judiciary
should reduce its reliance on foreign legal perspectives. British barrister Grenville Cross, former director of public prosecutions in Hong
Kong, published an editorial in Chinese state media praising British
judges for resisting political pressure to resign from the CFA andclaiming UK “anti-China elements” have long sought to undermine
UK judges’ participation.172 Some pro-establishment legislators haveeven suggested that making negative comments about the National
Security Law should disqualify foreign judges from appointments.173
In June, LegCo subcommittee members argued that the Hong Kong
government should look to other Asian common law countries such
as Malaysia and Singapore to fill nonpermanent CFA posts instead of
relying on judges from commonwealth countries who might quit due
to concerns about the National Security Law.174 Pro-Beijing lawmaker Junius Ho suggested during the debate that Hong Kong should
allow more permanent judges on the top court, which would give the“patriotic” legislature more power to tilt the high court’s balance inthe government’s favor.175 The subcommittee simultaneously recommended pro-establishment judge Johnson Lam for a long-open permanent position on the CFA, an appointment that will increase thepower of the CFA’s progovernment camp.176
Threats to Hong Kong’s Economic Future on the Rise
The passage of the National Security Law in July 2020 and subsequent intrusion of mainland oversight into Hong Kong’s economic
and legal systems have raised concerns about the city’s future as a
global financial hub. Although foreign firms have not left the city ingreat numbers, they have adopted a “wait and see” approach while
avoiding activity that could be deemed politically sensitive.

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Businesses Approach the “New Normal” with Caution
Many businesses have been adjusting to what Tara Joseph, president of the American Chamber of Commerce in Hong Kong (AmCham Hong Kong), described as the “compounded new normal”:
heightened political risk, a restrictive COVID-19 response, andcontinued U.S.-China tensions that have affected the business environment in Hong Kong.177 AmCham Hong Kong’s survey data
show some foreigners and foreign businesses reconsidering Hong
Kong as a safe haven, but as of 2021 there is no clear consensus
on how foreign companies and residents will deal with Hong Kong’s
changes.178 Some financial firms are increasing their presence inHong Kong as they seek to expand opportunities in the Asia Pacificmarket. For example, in 2021 Citigroup will expand its Hong Kong
staff by 1,500 on top of its current roster of 4,000 employees in
the SAR, while Goldman Sachs plans to add 400 personnel to its
current Hong Kong staff of 2,000.179 Bank of America, UBS, andMorgan Stanley have also announced expanded operations in thecity.180 HSBC relocated senior management from London to Hong
Kong in 2021, indicating a particular focus on growth in the city.181
Some companies have chosen to leave but faced unusual scrutiny
from Hong Kong authorities.182 The Securities and Futures Commission of Hong Kong (SFC), the Hong Kong Monetary Authority,
the Hong Kong Financial Services and the Treasury Bureau, andthe Financial Services Development Council called executives of departing companies to question them about their decision to leave,something executives described as “new and unusual.” 183 Executives also told the Financial Times that the level of interest fromagencies other than the SFC was atypical, as only the SFC normallycontacts companies changing residency to follow up on any appropriate licensing changes.184
Foreign companies and expats who once viewed Hong Kong as anecessary gateway and preferred legal center for doing business in
the Mainland no longer see a distinct difference between operatingin either jurisdiction as Hong Kong’s legal system becomes less independent. Foreign companies in the retail sector, such as luxury
brands and other consumer goods, moved northward to have closer
proximity to customers in mainland Chinese cities.185 At the sametime, expats can also no longer expect to be shielded from government scrutiny and even arrest. For example, Samuel Bickett, arrested in 2019 for intervening in an assault perpetrated by a plainclothes policeman, was sentenced in June 2021 to more than fourmonths in prison. Mr. Bickett, a former lawyer for Bank of America,
believed he was stopping a crime in progress only to find himself
charged with one because prosecutors felt he “embarrassed” Hong
Kong authorities, according to a former prosecutor on his case.186
Retaining employees, particularly non-Chinese nationals withmore flexibility to leave the city, is likely to become more difficult
for companies operating in Hong Kong due to increased personalrisk and erosion of the rule of law. In the first 12 months since thepassage of the National Security Law, the Hong Kong Census andStatistics Department reported a decline in the population totaling
87,100 people, including both permanent and nonpermanent Hong
Kong residents.187 In the same period, the overall population de-463
creased by 1.16 percent, shrinking for the first time since 2003.188
While the outflow reflects COVID-19-related movement and ongoingborder restrictions, it can also be attributed to increased migrationof Hong Kongers and foreign residents due to increasing dissatisfaction with political tensions.189
AmCham Hong Kong Surveys: To Leave, or Not to Leave?
During 2021, AmCham Hong Kong published two surveys thatshowed a small but steadily increasing number of foreign companies and individuals seriously considering or ready to leave Hong
Kong as a result of ongoing changes to the environment. While
only representative of 15 percent of its membership, AmCham
Hong Kong’s January 2021 business outlook survey demonstrated
companies’ lack of consensus on risk assessment and the economic trajectory in Hong Kong (see Figure 2).190
Figure 2: AmCham Hong Kong Member Business Expectations, 2021–2023
Unsure9%

Gradually Reduce
20%

Business As Usual48%

Expand Business
23%

Source: Adapted from American Chamber of Commerce in Hong Kong, “2021 Hong Kong
Business Outlook Survey,” January 11, 2021.

Among the survey’s 181 respondents, over 60 percent said thebusiness environment had become worse in 2020, and 40 percent
expected the business environment in Hong Kong to remain unstable or worsen further in 2021 from the prior year.191 Meanwhile, only 4 percent of respondents said they would move their
headquarters out of Hong Kong.
Another AmCham Hong Kong member survey conducted in
May 2021 focused on plans to remain in or leave Hong Kong,
garnering a total of 325 responses (24 percent of membership). Of
the 42 percent of respondents considering departure, 62 percent
said they were motivated by the National Security Law while 49
percent also noted COVID-19-related complications.192 For thosewith the intention of leaving Hong Kong, 52 percent indicated amore immediate departure by the end of the year or as soon as
it became feasible.193

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The National Security Law has induced some changes in company
practice. Many foreign companies have long chosen to sign contracts
in Hong Kong instead of mainland China, trusting that courts will
abide by rule of law for disputes against Chinese companies.194 Witherosion of rule of law in Hong Kong and the loss of this guarantee,
foreign companies are far more exposed to commercial and financial
damages. The Financial Times reported that some foreign companies remaining in Hong Kong have sought to amend contracts, removing Hong Kong as a preferred location for arbitration and opting
for courts in Singapore.195 From the AmCham Hong Kong January
2021 survey, 53 percent of respondents answered that they wereless likely to use Hong Kong as a center for arbitration.196 This
reflects declining confidence in the Hong Kong legal system’s ability
to adjudicate cases impartially under the National Security Law,even from a commercial perspective.197 While the direct effect ofthese changes may be better understood in years to come, the Hong
Kong International Arbitration Center still handled 318 arbitration
cases in 2020, a marginal increase from 308 cases in 2019.198 In
Asia, Singapore and Hong Kong have long vied for the top ranking
in international arbitration. Although it does not directly reflect achoice of parties to move away from Hong Kong, the caseload at theSingapore International Arbitration Center more than doubled from
416 cases in 2019 to 1,018 in 2020; cases with U.S. parties increased
eightfold from 65 in 2019 to 545 in 2020.199
COVID-19 and Hong Kong’s Economy
The outlook for businesses is mixed as Hong Kong seeks to recoverfrom the pandemic, while the uneven growth and unequal distribution of assistance have exacerbated economic anxieties for low- andmiddle-income citizens in Hong Kong.200 The number of low-income
households in Q1 2021 grew 40.9 percent year-on-year.201 In spiteof early successes in economic recovery, efforts to move beyond the
pandemic have been beset by continued outbreaks, subsequent
lockdowns, and sustained restrictions on economic activity. Intense
distrust of government vaccination efforts initially stymied vaccination rates despite adequate supplies being ordered and available
for Hong Kong residents.202 By the end of September 2021, thevaccination rate for one dose was 60.8 percent, falling short of thegovernment’s previously stated goal of 70 percent vaccination.203 In
the same month, David Hui, chair of the Hong Kong government’s
Scientific Committee on Emerging and Zoonotic Diseases, said thecity would only open its borders and ease other restrictions once thevaccination rate is at least 80 percent, reflecting current mainland
Chinese policy.204 Bernard Chan, a top financial advisor to Chief Executive Lam, said that despite the effect on business, Hong Kong isconstrained by “China’s zero-tolerance approach” that it has deemednecessary for travel between the SAR and the Mainland.205
Hong Kong’s gross domestic product (GDP) shrank a record 6.1
percent in 2020, reflecting not only a pandemic-related slowdown
but also contractions attributed to social unrest in 2019 and 2020.206
Q1 2021 reversed the trend of economic contraction beginning in Q3
2019 associated with both the pandemic and the protests. As theQ2 2021 GDP rose by 7.6 percent year-on-year, performance expec-

465
tations of large businesses for Q3 2021 were positive for the timesince 2018.207 Consumption was buoyed by a government voucher
program in Q2 2021 but remained low compared to pre-pandemic
levels as the city navigates additional COVID-19 outbreaks, social
distancing measures, and other safety requirements.208 Financial
sector performance led the recovery with the expansion of financial
services through Q2 2021.209
Foreign portfolio flows also appear to be rebounding as the economy gradually recovers. In Q1 2021, foreign portfolio investment
reached a level similar to Q1 2019 after two years of an overall
outflow (see Figure 3).* 210 The 2021 resurgence of foreign holdingsin Hong Kong indicates renewed investor faith in the city’s financial
future and confidence in its financial system. Strong inflows also
support the continued peg of the HKD to the U.S. dollar, which has
been in place since 1983.211
Figure 3: Foreign Portfolio Flows into and out of Hong Kong,
Q1 2019–Q2 2021
6
4

US$ billions

2
0
-2
-4
-6
-8
-10

Q1

Q2

Q3
2019

Q4

Q1

Q2

Q3
2020

Q4

Q1

Q2
2021

Note: Positive values show a capital inflow into Hong Kong. Negative values show a capitaloutflow out of Hong Kong. A (positive) capital inflow occurs as entities purchase assets in Hong
Kong and pay Hong Kong entities for those assets. A (negative) capital outflow occurs as entities
sell their Hong Kong assets and repatriate their payment from the sale. Note these amounts only
show portfolio investment, not FDI.
Source: Hong Kong Census and Statistics Department, Balance of Payments, Table 44, September 23, 2021.

Alongside the financial sector, trade increased 20.2 percent yearon-year in Q2 2021.212 Other industries, however, have been slow
to return to even pre-pandemic levels. Retail and hospitality sector* In the first six months of 2020, Hong Kong’s portfolio investment abroad increased overall by
5.1 percent year-on-year, with top recipients being the Cayman Islands, mainland China, and theUnited States. While Hong Kong portfolio investment in the United States grew by 5.6 percent
in the same period, such investment to mainland China decreased by 7.2 percent. The Cayman
Islands, a global tax haven, saw a 22.9 percent increase. Coordinated Portfolio Investment Survey,“Table 1: Reported Portfolio Investment Assets by Economy of Nonresident Issuer: Total Portfolio
Investment,” International Monetary Fund, September 15, 2021.

466
recovery has especially faltered in the face of minor COVID-19 outbreaks and reinstated lockdown and quarantine policies.213 Combined, these two industries compose 14 percent of the labor force.214
Tourism, which made up 4.5 percent of the 2018 GDP, reflects theoverall economic trend, with growth faltering in 2019 and shrinking even more dramatically in 2020.215 Between January and June
2020, tourist arrivals shrank 89.9 percent year-on-year and thendropped a further 99 percent over the same period in 2021.216
Mainland Company Presence on the Rise
The Greater Bay Area, which links Hong Kong, Macau, and ninecities in southern China, has developed more rapidly in recent years
to expand the area’s commercial opportunities and further integrate
Hong Kong into the Mainland. In addition to expanding business potential in the region, the Hong Kong government has also made a concerted effort to strengthen incentives for wealthy residents to stay inthe city by proposing tax breaks and other policies to facilitate greater
wealth retention and financial opportunities.217 Along with the newtax exemptions,* Hong Kong’s government has introduced new licensing procedures to encourage the development of “family offices,” private
wealth management firms specifically designed for affluent families
and individuals.218 The territory’s government also approved measures
to subsidize the return of certain investment and trust funds, a moveintended to incentivize more financial sector growth.219
As the Hong Kong government enacts more policies to support
business and finance, more mainland Chinese companies are moving into Hong Kong. With increased Chinese listings on the Hong
Kong Stock Exchange (HKEX), Chinese companies see benefits tosetting up physical operations near financial and business services
in Hong Kong. The territory’s importance as a commercial hub andclose proximity to other bustling cities in the Greater Bay Area continue to be key advantages.220 Larger Chinese purchases of Hong
Kong property in 2021 follow office expansions of Chinese banks
and Hong Kong branches of other prominent Chinese firms like ByteDance in the previous year.221 In 2020, the number of mainland
Chinese company headquarters and regional offices † increased by
12.1 percent compared to a decline of 6.1 percent in U.S. offices.222
Compliance Burdens and Legal Risks Escalate for Foreign Companies
Chinese government efforts to retaliate against foreign criticism
and sanctions will force foreign companies into a difficult compromise between different legal systems. U.S. companies are navigatingchanges in Hong Kong just like many other foreign firms are, but
U.S. technology companies—particularly social media platforms—* As of April 2021, Hong Kong’s Inland Revenue Department reduced carried interest taxes tozero percent for certain gains made from investment in private companies. The change largely
benefits private equity and asset management industries in Hong Kong. In June 2021, the Hong
Kong government reintroduced rules to allow for tax exemption in the territory for foreign taxes
assessed elsewhere on a gross income basis. Anthony Pak et al., “Carried Interest Tax Concessions Set to Strengthen Hong Kong SAR’s Private Equity Industry,” International Tax Review,
August 18, 2021; Ernst & Young, “Hong Kong Enacts Legislation to Allow a Tax Deduction for
Foreign Taxes Charged on Gross Income Basis,” June 22, 2021.
† This estimate includes only regional headquarters and regional offices, which have parent
companies located outside of Hong Kong and regional responsibilities for business in the region.
Regional headquarters also manage other branches of the business in the region. Hong Kong Census and Statistics Department, Foreign-Affiliated Companies in Hong Kong, November 27, 2020.

467
will be especially vulnerable as the Hong Kong government’s security apparatus grows even more stringent. The National Security
Law specifically requires telecommunications and related technology companies to assist law enforcement with requests for data andtakedowns of content that violates the National Security Law, similar to other laws in mainland China.223
As early as 2019, coinciding with the prodemocracy protests, Facebook began to cooperate less frequently with the Hong Kong government’s requests to provide data, but since the imposition of the
National Security Law it has stopped entirely.224 The Hong Kong
government’s requests for information from Facebook increased
by 20.8 percent from 2019 to 2020, particularly in the latter halfof the year following the implementation of the National Security
Law.225 In September 2021, the Hong Kong Free Press reported that
Google was the first U.S. tech company to disclose compliance with
Hong Kong authorities over three requests.226 The company said
that two requests were related to human trafficking while the otherwas an emergency request with a “credible threat to life.” 227 Appleand Twitter have stopped responding to content requests since the
National Security Law took effect.228 While Hong Kong authorities
have not yet penalized tech companies for lack of cooperation, U.S.
tech firms could be fined or forced to cease operations in Hong Kong
under the broad scope of the National Security Law.* In its Hong
Kong business advisory, the Biden Administration specifically notes
China’s growing data and cybersecurity apparatus, cautioning thepotential for Chinese laws to be applied in Hong Kong.229
Short of adopting the Mainland’s cybersecurity and censorship rules,
the Hong Kong government can already order companies and organizations to censor specific content for vague reasons. In September
2021, the Hong Kong Alliance, the group that organized Hong Kong’s
annual Tiananmen vigils, announced it would comply with police orders to remove content from its website and social media that violated
the National Security Law.230 While U.S. companies have stated theirintentions to resist law enforcement data requests originating from
Hong Kong, Ms. Datt noted during the Commission’s September hearing that U.S. companies have not pledged to deny content takedown
requests.231 Police orders for takedown requests could apply not only
to online content provision, but also to app stores and digital services.
The Hong Kong government could order app stores such as Apple or
Google to remove virtual private network programs from app stores inHong Kong, similar to Chinese government requirements in the Mainland.232 Such measures might also extend to other applications withprivacy features that have become increasingly popular among Hong
Kong mobile users, such as Signal, a chat app with encrypted messaging capabilities.233 These potential restrictions would render iPhone
and many Android users, including U.S. citizens and employees of U.S.
businesses, suddenly without a means of browsing the internet safely
and without censorship.
* Even without the cooperation of U.S. tech firms, the Hong Kong government has been able touse social media information—even information shared in ostensibly private conversations—toprosecute protestors and prodemocracy figures. For example, in May 2021 Hong Kong courts
were able to use private WhatsApp messages between former prodemocracy lawmaker Claudia
Mo and foreign journalists to deny her bail, characterizing the exchanges as a “threat to national
security.” Rhoda Kwan, “Social Media Messages from Hong Kong Democrat Claudia Mo to Int’lMedia ‘a Threat to National Security,’ ” Hong Kong Free Press, May 28, 2021.

468
Vague Data Privacy Rules Complicate Compliance and Threaten
Press
Upcoming changes to Hong Kong’s data privacy policies present
another obstacle to operations of U.S. tech companies and otherforeign firms that handle personal data. In May 2021, the Hong
Kong Office of the Privacy Commissioner for Personal Data (PCPD)
proposed amendments to specifically address doxxing, or disclosureof personal information for malicious purposes,* under the SAR’s
regulations on privacy protection, the Personal Data Ordinance.234
The proposed amendment would make it a violation of the Personal Data Ordinance to disclose personal data without the subject’s
consent “with an intent to threaten, intimidate or harass the data
subject or any immediate family member, or being reckless as towhether the data subject or any immediate family member would
be threatened, intimidated or harassed.” 235 Disclosure of personal
information with intent to cause psychological harm or “being reckless” to the potential for such harm carries a similar penalty.236 The
PCPD cited that it received over 5,700 complaints related to doxxing
between June 2019 and April 2021.237 A bill to codify the amendments is expected to come before LegCo in October 2021.238 The bill
also grants the Hong Kong privacy commissioner, the government’s
chief authority on implementation and enforcement of data protection, the right to engage in searches without a warrant to investigate possible doxxing cases.239 Penalties for violating the proposed
amendments include a maximum fine of $129,000 ($1 million HKD)
and five years of jail time.240
In addition to increased risk of liability and potential difficulty ofcompliance, U.S. companies may be forced to play a part in selective enforcement efforts on the part of the Hong Kong government.
As Ms. Datt said in her testimony before the Commission, “American companies may find that they are forced to choose between
complying with censorship requests, having their employees jailed
in a standoff, or in the long-term quitting the Hong Kong market,
leaving it open to being dominated by compliant mainland companies.” 241 U.S. tech companies have criticized the amendments’ language for being overly broad with a vague definition of doxxing that
could result in a “disproportionate and unnecessary response.” 242
The Wall Street Journal reported that companies have subsequently
indicated to the Hong Kong government that they may not be able
to offer services in Hong Kong should the amendments go through,though Chief Executive Lam assured companies that their fears, aswith the National Security Law, will not come to pass.243 The risk
exists that the Hong Kong government would deploy data protection
rules to target journalists and activists. According to multiple media
reports, doxxing became an extensive problem during the 2019 protests, where both sides were targeted, but prodemocracy protestors
and journalists were particularly vulnerable.244 Journalists investigate and expose public or influential figures through their reporting,and as a result they are more likely to be unfairly targeted by theamendment.
* Doxxing refers to the disclosure of an individual’s personally identifiable information, or “documents,” for malicious purposes such as stalking, harassment, or public humiliation. U.S. Department of Homeland Security, How to Prevent Online Harassment from “Doxxing,” April 2017.

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New Chinese Legal Tools Increase Risks for Affiliates, Employees,
and Family Members
China’s National People’s Congress explicitly created the Anti-Foreign Sanctions Law in June 2021 as a means to retaliate against
sanctions that countries enacted in response to China’s repression in
Hong Kong as well as Xinjiang.245 AmCham China described the law’s
potential application to Hong Kong as “further erod[ing] the city’s autonomy.” 246 The National People’s Congress would still need to passa motion to include the Anti-Foreign Sanctions Law in Hong Kong’s
Basic Law, now essentially a legal formality that would be seamless to
implement with or without consultation from the Hong Kong government.247 Along with prohibiting companies from complying with foreign sanctions, the Anti-Foreign Sanctions Law provides that the Chinese government may sue entities for any related compensation loss
resulting from compliance with foreign sanctions targeting Chinese
entities.248 In August 2021, the National People’s Congress delayed
adopting the Anti-Foreign Sanctions Law into Hong Kong’s Basic Law
to avoid shaking confidence in the business and investment environment..249 In October, Chief Executive Lam said that the government
had no timetable for introducing the law and would do so in consideration of Hong Kong’s status as an international financial center.250
Days later, Chief Executive Lam’s top financial advisor Bernard Chansaid he was “pretty sure that the law is going to be enacted” after thegovernment could resolve final details.251 The law’s adoption in Hong
Kong would mean the Chinese government could punish U.S. and other foreign financial firms that comply with U.S. laws, including thosetargeting the loss of Hong Kong’s autonomy.252 (For more on China’s
actions to counter foreign sanctions, see Chapter 2, Section 1, “Year in
Review: Economics and Trade.”)Obscuring Public Registers Threatens Corporate Transparency
The Hong Kong government introduced new restrictions on theavailability of public registers and other government data, sparking
concerns about transparency and potential risks to foreign shareholders. In April 2021, the Hong Kong government announced a rule
restricting public availability of company registry information forcompany directors, citing a need to protect directors’ privacy.253 Prior to the rule change, company director names, identification numbers, and home addresses were publicly listed, preventing directors
from obscuring their identity across documents and entities.254 The
new rule will be implemented in three phases beginning in August2021 and ending in December 2023 to gradually obscure company
directors’ data.255 By the final stage, the restrictions could allow
companies to obscure all private information of directors such that
only a narrow set of people (liquidators, company officers, bankers,
and lawyers) could gain access to those companies’ documents fordesignated professional purposes, such as due diligence.256 Manyin the business community, including Gordon Jones, former head of
the Companies Registry (which administers the company register),criticized the move over concerns it would decrease transparency
and enable more corruption and fraud.257
Although the rule has been predicated on concerns over privacy
and potential doxxing, the Hong Kong PCPD offered no evidence

470
demonstrating that company registries were a source of privacy
violations.258 A similar rule was proposed in 2013 but was withdrawn after significant pushback from the business community. The
government’s attempt to introduce the change in 2013 followed reporting that connected high-level CCP members to significant assets
held in Hong Kong.259 CCP officials were highly sensitive to these
disclosures, which even exposed General Secretary of the CCP Xi
Jinping and his relatives. Reporting on the wealth accumulation ofthese CCP elites garnered Chinese and international scrutiny.260
The increasing restrictions on the availability of government records
further constrains Hong Kong’s public discourse. Journalists have long
relied on public registry data in order to uncover fraud and other abuses. Law firms, civil society groups, and nongovernmental organizations
have used such publicly available data for due diligence and other key
reporting.261 The Hong Kong Journalists Association condemned therule, but Chief Executive Lam has asserted that no one should havesuch privilege to access personal information.262 Suzanne Nossel, former U.S. deputy assistant secretary of state for international organizations, cautioned that “the withering of press freedom has direct implications for Hong Kong’s business sector.” 263
Hong Kong’s Stock Exchange Remains Robust
While the Chinese government promotes more open onshore financial markets, such as the high-tech startup hub of the Shenzhen
stock market, it views Hong Kong as the preferred alternative to
U.S. exchanges for Chinese company listings.264 Prominent Chinesecompanies like tech giant Baidu and video-sharing platform Bilibili
were already flocking to the HKEX. Increased activity on the HKEX
followed a number of Chinese company de-listings in the UnitedStates spurred by U.S. policies to block investment in Chinese military-related companies (for more on Chinese company de-listings,
see Chapter 2, Section 4, “U.S.-China Financial Connectivity and
Risks to U.S. National Security”).265 At the same time, the Chinese
government has thrown the future of listings into question, beginning with its November 2020 suspension of the Ant Group’s planned
initial public offering (IPO) on the HKEX and extending to a broader tightening of restrictions on tech companies.266 The rush of IPOs
between the end of 2020 and the beginning of 2021 has slowed, with
IPO offerings declining by 78.1 percent from Q1 to Q2.267
Hong Kong is introducing rules to promote new listings. In July
2021, the HKEX formally introduced the Fast Interface for New Issuance (FINI) platform to digitize and streamline the IPO settlement
process in Hong Kong, which the HKEX expects “to help reduce thetotal money locked up in the largest IPOs by up to 70 percent to 80
percent.” * 268 FINI is expected to be effective by Q4 2022 and will
shorten the time between pricing and trading to match the global
average.269 Additionally, Hong Kong regulators are contemplating
broadening the scope of allowable dual-class share listings on the* The FINI will only streamline the initial process allowing investors to buy shares following acompany’s IPO. Introduction of the FINI will not alter preexisting standards and rules for lockup
agreements, which prohibit investors in an IPO from selling their shares for a certain amountof time. Peter Alleston, “IPO Lock Up Agreements,” IHS Markit, July 2021; Jiayue Huang, “HongKong to Shorten IPO Settlement Process to Align More with Global Practice,” S&P Global, July
6, 2021.

471
city’s stock exchange, which currently is limited to tech firms in“emerging and innovative sectors.” * Hong Kong approved this modelin 2018, and it has since attracted prominent Chinese tech firms
like Xiaomi and Alibaba.270
Alongside broader systemic changes, Hong Kong introduced new investment channels to tighten links between financial markets in Hong
Kong and the Mainland. In September 2021, the long-awaited southbound Bond Connect opened with an annual cap of $77 billion, linking the HKEX, China Central Depository and Clearing, and Shanghai
Clearing House through 41 approved mainland Chinese banks and 15
Hong Kong banks.271 The northbound Bond Connect opened in 2017and its mainland insurance investment assets reached a value of $3.37
trillion at the end of 2020.272 Given the success of the northbound link,
the southbound link is expected to strengthen HKD- and USD-denominated bonds.273 The northbound Bond Connect experienced an 82 percent increase in activity over the course of 2020, building up confidence
in the southbound Bond Connect’s potential to attract investment.274
Alongside the Bond Connect, the Stock Connect linking Hong Kong to
Shanghai and Shenzhen saw renewed life in 2020, with northboundtraffic up 119 percent and southbound traffic up 128 percent.275 In thefirst six months of 2021, total revenue of the Stock Connect was up 78
percent year-on-year from the same period in 2020, while the average
trading volume increased five-fold (see Figure 4).276 The performanceof these channels demonstrates Hong Kong’s continued importance as
China’s offshore finance hub, presenting Chinese investors with reliable investment options.
Figure 4: Stock Connect Average Trading Volume, Q1 2020–Q2 2021
90
80

US$ billions

70
60
50
40
30
20
10
0

Q1

Q2

Q3

Q4

2020
Northbound

Q1

Q2
2021

SouthboundSource: Hong Kong Exchanges and Clearing, “2021 Interim Results Presentation,” August 11,2021.
* Dual-class share listings enable companies to sell shares that are differently weighted andcan provide founders with greater control in the company. Yen Nee Lee, “Hong Kong Is Considering ‘Dual-Class’ Share Listings for Non-Tech Firms, Says Official,” CNBC, March 30, 2021.

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Accelerating “Mainlandization” via the Greater Bay Area
Deepening integration of the Greater Bay Area is critical to fulfilling the CCP’s vision of facilitating technology and innovation
growth articulated in its 14th Five-Year Plan.277 The Greater Bay
Area is the Chinese government’s plan to strengthen links between
Hong Kong, Macau, and nine other Chinese cities around the Pearl
River Delta, including the prominent business centers of Shenzhen
and Guangzhou. Covering a population of approximately 86 million
people, the initiative is focused on increasing economic opportunity through deeper commercial and transportation integration.278
The Chinese government introduced the initiative through its 13thFive-Year Plan in 2015 and announced formal policies to support
the initiative in 2017 along with a development plan in 2019.279 In
April 2021, China’s National Development and Reform Commission
announced a funding plan to boost projects in the Greater Bay Area,
particularly those related to science and technology.280 Though theplan did not disclose precise amounts, the fund will come directlyfrom the central government budget.281 The CCP focused on the
Greater Bay Area and two other regional urban clusters in its 14th
Five-Year Plan, emphasizing their role in facilitating China’s international openness as well as science and technology advantages.* 282
Recent momentum has made the Greater Bay Area a source ofbusiness confidence, enabling more foreign investment in Hong
Kong and the surrounding region. According to AmCham Hong
Kong’s 2021 outlook survey, 15 percent of respondents were “veryoptimistic” about the Greater Bay Area’s growth prospects while 44
percent were “cautiously optimistic.283 Domestic and foreign businesses are calibrating an approach to split up operations across theregion and take advantage of new funding mechanisms and otherinfrastructure projects in the region. Alongside proposals for deepertransportation integration, respective real estate markets have alsoswelled. Some mainland Chinese developers anticipate that growthin Shenzhen will make Hong Kong into its “backyard.” 284 Midland,a mainland realtor, reported that mainland Chinese purchases ofresidential property in Hong Kong increased 40 percent year-onyear in the first two months of 2021.285 Shenzhen’s status as a tech
hub has made some parts of the city even pricier than Hong Kong,
particularly for real estate near the Shenzhen-Hong Kong border.286
Fitting Hong Kong into Dual Circulation
Chinese and Hong Kong policymakers see great potential for
Hong Kong’s role in driving both tracks of the CCP’s dual circulation strategy, which is aimed at reorienting China’s growth toward
domestic consumption while remaining open to global markets instrategic sectors (for more on dual circulation, see Chapter 1, Sec* The Chinese government has bolstered efforts to integrate urban agglomerations in recent
years, with the Chongqing-Chengdu cluster in the west of China being the latest plan formulated in 2019 and described in greater detail over the course of 2020. In addition to supporting
innovation goals, the government views these urban agglomerations as platforms for increased
domestic consumption and production to enable China’s dual circulation strategy. James Alexander and Deng Zhang, “Chengdu-Chongqing Economic Circle to Drives High-Quality Development| Chongqing Opportunity,” iChongqing, December 11, 2020; U.S.-China Economic and Security
Review Commission, November 2020 Trade Bulletin, November 9, 2020; Hannah Zhihan Zheng,“How China’s New ‘City Cluster’ of Cheng-Yu Can Become Fourth Powerhouse to Drive Nation’s
Economic Growth,” South China Morning Post, September 21, 2020.

473
tion 1, “The Chinese Communist Party’s Ambitions and Challenges at Its Centennial”). Under its dual circulation strategy, the CCP
aims to create “port clusters” among each of its urban agglomeration
projects, including the Greater Bay Area. The Chinese government
envisions Greater Bay Area cities leveraging Hong Kong’s expertiseand experience as a port city, especially as opportunities for trade
increase with the buildout of the Belt and Road Initiative and implementation of the Regional Comprehensive Economic Partnership(RCEP) (for more on China’s participation in RCEP, see Chapter 2,
Section 1, “Year in Review: Economics and Trade”).* Beijing alsosees Hong Kong’s universities and international orientation as assets to increasing the rest of China’s basic research capabilities as
it looks to strengthen its innovation capacity.
Strengthening Financial Ties with New Instruments
The Chinese government has launched or prepared new financial mechanisms to deepen ties within the Greater Bay Area andelevate Hong Kong’s role as an offshore finance hub for Chinesecompanies. Among them is the GBA Wealth Management Connect,a cross-border investment scheme to enable the sale of investment
products among the 11 cities of the Greater Bay Area.† The investment channel launched in September 2021 with 100 to 200 funds
eligible to sell products on the Wealth Management Connect and 20
banks interested in seeking approval in the first week of opening.287
Investment sales will be limited to just over $23.3 billion (150 billion renminbi [RMB]) each direction for a total of $46.7 billion (300billion RMB), but regulators are open to raising the quota gradually
to attract more investors.288 According to analysts at BNP Paribas
and KPMG, the financial products sold through the Wealth Management Connect will be particularly helpful for funding startups
and tech companies.289 These developments build on the Chinese
government’s efforts to grow the wealth management industry togain foreign expertise and access much-needed funding as Chinese
regulators strive to rein in debt. Hong Kong’s open financial systempresents Chinese regulators with a more flexible testing ground for
new products and services and remains a valuable funding channel
for Chinese firms.
Complementing the Wealth Management Connect, the Insurance
Connect will likely launch in 2021 as well. The Insurance Connect
will allow Hong Kong insurers to expand into other Greater Bay
Area cities, allowing mainland Chinese to purchase products from
Hong Kong more easily and vice versa. Mainland Chinese purchases of insurance products in Hong Kong slumped between 2019 and2020 due to widespread protests and then the pandemic, but in 2018
there were close to $1.3 billion in new policy sales and $6.2 billion
in premium payments.290 Mainland purchases were at their peak in2016 at a total of $9.4 billion, a figure that insurance executives in* As of August 2021, RCEP is expected to enter into force sometime in the first half of 2022
once six countries have ratified the agreement. Hong Kong trade officials have expressed an expectation to join the agreement once it has been fully ratified. Wang Tianyu, “Hong Kong Actively
Applying to Join RCEP, Says Financial Chief,” CGTN, June 24, 2021; Economist Intelligence Unit,“RCEP Unlikely to Become Effective until 2022,” August 4, 2021.
† China’s government has accelerated its work to develop a domestic wealth management industry. For more, see U.S.-China Economic and Security Review Commission, June 2021 Trade
Bulletin, 7–10.

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Hong Kong can aspire to as investment-linked insurance products
grow with economic recovery in mainland China and Hong Kong.291
As of 2018, Hong Kong ranked first in Asia and is the third-most-developed global insurance market in terms of the concentration of offerings and insurers.292 Life, health, and annuities policies are someof the most purchased Hong Kong insurance products among mainland Chinese.293 With the continued expansion of financial productofferings, the Insurance Connect is expected to grow Hong Kong’s
profile as a risk management hub. According to reporting by theSouth China Morning Post, it is unlikely that new products will
be offered immediately after its opening, but financial analysts anticipate the Insurance Connect will be able to manage claims andgradually add more products for sale in a steadily growing insurance market.294
Sovereign Digital Currency Will Boost China’s Greater Bay Area
Plans
Chinese policymakers see great potential in the digital RMB
streamlining transactions throughout the Greater Bay Area andboosting the RMB’s internationalization.295 They also hope the digital RMB will help the Mainland and the SAR governments of Hong
Kong and Macau reduce crime. Greater Bay Area cities were someof the first to test China’s digital RMB, with payments issued toShenzhen residents in December 2020. Beijing envisions the Greater Bay Area as key to increasing the digital RMB’s use as a settlement and payment currency.296 In April 2021, the People’s Bankof China (PBOC) and the Hong Kong Monetary Authority (HKMA)
were working on “technical testing” of the digital RMB as a meansof preparing the sovereign digital currency for further cross-borderrollout.297 The PBOC also proposed a regulatory testing ground between Shenzhen and Hong Kong that would allow for experimentation of financial offerings based on the digital RMB and create
an “expressway” for cross-border finance between the two cities.298
Foreign observers are skeptical the digital RMB would significantly
advance its internationalization.299 (For an in-depth discussion, see
Chapter 2, Section 2, “The Chinese Communist Party’s Economic
and Technological Ambitions: Synthetic Biology, New Mobility, Cloud
Computing, and Digital Currency.”)
Beijing also sees the digital RMB as a key tool in eliminating
crimes like cross-border gambling (which is legal in Macau but
not mainland China), money laundering, and tax evasion. Use ofa traceable currency recorded and maintained by China’s central
government would likely reduce crime, but Macau casino operators
fear the digital currency may shrink business even further after anearly 80 percent decline in gaming revenue in 2020 due to borderclosures.300
As Hong Kong works with the PBOC on building out the digital
RMB, regulators are also considering the development of a digital
HKD.301 While the HKMA has said a digital HKD would not change
the currency’s peg to the U.S. dollar, its development raises several concerns for regulators.302 In June 2021, the HKMA launched a
12-month study of a digital HKD that would advance alongside continued testing of the digital RMB.303 It is unclear, however, which

475
institution would be responsible for issuing the digital HKD, asHong Kong’s banking system currently relies on three commercial
banks—Standard Chartered, HSBC, and the Bank of China (HongKong)—for authorized banknote issuance. Development of a sovereign digital currency issued by the HKMA could prove detrimental
to the financial system in Hong Kong by draining commercial bankdeposits, constraining banks, and concentrating deposits within the
HKMA.304 Popularized use of sovereign digital currencies from either Beijing or Hong Kong will carry an increased likelihood of monitoring and surveillance.
Implications for the United States
The extensive restrictions on freedom of speech, assembly, and association have turned Hong Kong from an open society into a police
state. This transformation has been in direct violation of Beijing’s
international commitments. Fears over widespread enforcement of
the National Security Law have become real, affecting everythingfrom Hong Kong residents’ access to information totheir freedomof movement. The Beijing and Hong Kong governments are intervening in nearly every aspect of life in the city, including businessand commerce. U.S. diplomats in Hong Kong cannot carry out theirduties to engage with Hong Kong residents without endangering
their interlocutors because the Hong Kong government now views
any such contact as evidence of collusion with foreign forces. U.S.
citizens visiting or transiting Hong Kong are also now subject to theterritory’s unpredictable and opaque law enforcement.
As Hong Kongers must now contend with the government’s authoritarian policies, U.S. companies, investors, travelers, and students who once relied on Hong Kong’s transparency, rule of law,and international culture no longer have a “safe haven” alternative
to mainland China. Diminishing access to real-time and uncensored
information, ambiguous legal interpretation, and selective enforcement of broad new laws increase risks of doing business for the
1,283 U.S. companies in the city.305 U.S. companies that have usedHong Kong as a gateway to mainland China are now vulnerable tofinancial and legal exposure. Contracts formed under Hong Kong’s
legal system are no longer reliable as the SAR’s court system is now
politicized and new rules can be introduced without regard to public
consultation.
U.S. companies cannot count on a clear separation between matters of security and commerce or ensure protection against discriminatory treatment or disproportionate punishments. Both local andforeign employees of U.S. firms are now vulnerable to arrest under
the National Security Law, potentially resulting in long prison sentences for what would be a minor offense in the United States. The
Bickett case demonstrates that foreign citizens in Hong Kong, regardless of affiliation, nationality, and even relationship to the business community, are susceptible to punishments from the sweeping
nature of the National Security Law. Foreign companies operatingin Hong Kong may ultimately find it more difficult to hire foreign
staff as more foreigners choose to leave the city. Local staff may also
be hesitant to work alongside foreign colleagues due to the SAR
government’s broad interpretation of collusion with foreign forces.

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Hong Kong’s government is now more likely to adopt Mainland-style restrictions on movement, such as informal “exit bans”
that prevent certain individuals or their relatives, including U.S.
citizens, from leaving China.306 Hong Kong’s new immigration billhas given the SAR the tools to impose a blanket ban on emigration
for political dissidents. This development raises the specter of travel
constraints similar to those of the former Soviet Union that could
ensnare U.S. citizens or employees of U.S.-based businesses.
Foreign and local residents of Hong Kong face daily pressures toself-censor alongside increasingly restrictive constraints to information and communication. Authorities in Hong Kong can quickly
and arbitrarily extinguish the city’s remaining freedoms, such as
when they implemented new film censorship rules. Blocking majorsocial media sites could be an early indicator of moving toward more
systematic internet censorship and restriction of digital communication. Such restrictions would impair the ability of Hong Kong’s
residents, including 85,000 U.S. citizens, from communicating withthose outside the city and potentially prevent U.S. businesses fromreaching their customers in Hong Kong.307 The Hong Kong government could also ban programs like virtual private networks, leaving
U.S. citizens in Hong Kong without a means of accessing the internet safely and without censorship.
China’s imposition of its government extremism in Hong Kong
imperils the future of democracy in the region more broadly. With
its robust free market and democratic spirit, Hong Kong was once
viewed as a model for a broader shift in China and the region toward free and open societies and markets. The Mainland’s destruction of Hong Kong’s freedom and autonomy attests not only tothe dim prospects for moderation of the political system in China,
but also to the prospects of other democratic societies Beijing has
pledged to bring under its control, such as Taiwan. The CCP’s violent response toward mass protests against its actions and violationof its legal obligation to protect Hong Kong’s freedoms reflects theParty’s determination to stamp out any opposition it perceives asthreatening its interests and political control. Beijing’s disregard for
its international obligations is a disturbing precedent, signaling toother countries that the rules-based order is unreliable and that
authoritarians can crack down on their populations at any time.

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ENDNOTES FOR CHAPTER 5
1. Dennis Kwok and Elizabeth Donkervoort, “The Risks for International Businessunder the Hong Kong National Security Law,” Harvard University Ash Center for
Democratic Governance and Innovation, July 2021, 2.
2. Suzanne Sataline, “Hong Kong Awaits Verdict in First National Security Trial,”
Al Jazeera, July 27, 2021.
3. Michael C. Davis, oral testimony for the U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 16.
4. Angeli Datt, oral testimony for the U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021, 26.
5. Dennis Kwok and Elizabeth Donkervoort, “The Risks for International Businessunder the Hong Kong National Security Law,” Harvard University Ash Center for
Democratic Governance and Innovation, July 2021, 2.
6. Tony Cheung and Natalie Wong, “Hong Kong Politics: Communist Party Is Pioneer and Defender of ‘One Country, Two Systems,’ Beijing Official Declares,” South
China Morning Post, June 12, 2021.
7. Apple Daily, “Calls to End One-Party Rule Makes You an ‘Enemy of Hong Kong’:
Top Beijing Official,” June 12, 2021; Tony Cheung and Natalie Wong, “Hong Kong
Politics: Communist Party Is Pioneer and Defender of ‘One Country, Two Systems,’
Beijing Official Declares,” South China Morning Post, June 12, 2021; Gary Cheung,“Silence No Longer Golden as Beijing Heralds Communist Party’s Key Role in Hong
Kong,” South China Morning Post, June 13, 2021; Xinhua, “HKSAR Chief Executive
Emphasizes CPC’s Support for Hong Kong’s Development,” June 13, 2021.
8. Government of the Hong Kong Special Administrative Region Office for Film,
Newspaper and Article Administration, Film Guide for Censors, June 11, 2021, 2; The
Law of the People’s Republic of China on Safeguarding National Security in the Hong
Kong Special Administrative Region (China), 2020, 3; Basic Law of the Hong Kong
Special Administrative Region (Hong Kong), Articles 4, 6, 11, 26, 38.
9. Austin Ramzy and Tiffany May, “The Latest Target of Hong Kong’s Crackdown:Children’s Books,” New York Times, July 22, 2021; Chan Ho-him, “Freedom of Speechor Hong Kong Independence? More Details Emerge of Education Row over Deregistered Teacher,” South China Morning Post, October 6, 2020.
10. Lau Siu Fung, Lu Xi, and Chan Yun Nam, “Hong Kong Jails Prominent Democrats, Activists for ‘Illegal Assembly,’ ” Radio Free Asia, April 16, 2021; China Labor
Bulletin, “Prominent Hong Kong Labour Leader Sentenced to 14 Months’ Imprisonment,” April 16, 2021.
11. Samuel Chu, written testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021, 3.
12. Senator Jeff Merkley and Representative James P. McGovern, “Hong Kong:
Chairs Condemn Political Prosecutions of Democracy Advocates,” Congressional-Executive Commission on China, April 16, 2021.
13. Kari Soo Lindberg and Denise Wee, “Hong Kong Protest Group Disbands under
Government Pressure,” Bloomberg, August 15, 2021; BBC, “Hong Kong: Jimmy Lai
Jailed Again for Pro-Democracy Protests,” May 28, 2021; Selina Cheng, “DisbandedHong Kong Teachers’ Union Faces Further State Media Attacks; Confederation ofTrade Unions in Crosshairs,” Hong Kong Free Press, August 11, 2021.
14. The Law of the People’s Republic of China on Safeguarding National Security
in the Hong Kong Special Administrative Region (China), 2020, 18; Jen Kirby, “China’s National Security Legislation Is Destroying Hong Kong’s Rule of Law,” Vox, July
1, 2021.
15. Thomas E. Kellogg and Eric Yan-ho Lai, “Hong Kong’s National Security Law
and the Right to a Fair Trial: Mission Impossible?” Lawfare, July 15, 2021.
16. Brian Wong, “National Security Law: 47 Hong Kong Opposition Figures
Charged with Subversion Facing Potential Life Sentences after Trial Moved to High
Court,” South China Morning Post, May 31, 2021; Jasmine Siu, “District Court Does
Have Jurisdiction to Hear Sedition Cases, Hong Kong Judge Rules, despite Questions
Raised by National Security Law,” South China Morning Post, April 9, 2021.
17. Yew Lun Tian and Clare Jim, “China Formalises Sweeping Electoral Shake-Up
for Hong Kong, Demands Loyalty,” Reuters, March 30, 2021.
18. Government of the Hong Kong Special Administrative Region of the People’s
Republic of China Administration of the Civil Service, Oath-Taking/Declaration Requirement for Civil Servants, May 20, 2021.

478
19. Chan Yun Nam and Lau Siu Fung, “Hong Kong to Fire 129 Civil Servants Who
Refused to Pledge Allegiance,” Radio Free Asia, April 19, 2021.
20. Radio Television Hong Kong, “Law Won’t Be Retroactive, Carrie Lam Tells theUN,” June 30, 2021.
21. Michael C. Davis, oral testimony for the U.S.-China Economic and Security
Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 52.
22. Angeli Datt, oral testimony for the U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021.
23. Michael C. Davis, oral testimony for the U.S.-China Economic and Security
Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 51–53.
24. Chris Lau, “Explainer: What Is Hong Kong’s Colonial-Era Sedition Law, andHow Does It Fit into Landscape of National Security Legislation?” South China
Morning Post, September 9, 2020; Tony Cheung, “Hong Kong Opposition Activist Tam
Tak-chi Arrested by Police’s National Security Unit amid Calls for Protest in Kowloon,” South China Morning Post, September 6, 2020.
25. Tom Grundy, “Hong Kong Authorities Evade Questions over ‘Retrospective’ Security Law, despite Lam Comments to UN,” Hong Kong Free Press, August 18, 2021;
Candice Chau, “Hong Kong Coalition’s Demos May Have Violated Security Law, Says
Police Chief, despite Holding No Rallies since Law’s Enactment,” Hong Kong Free
Press, August 14, 2021.
26. Executive Office of the President, “Continuation of the National Emergency
with Respect to Hong Kong,” Federal Register 86:36479 (July 9, 2021).
27. Executive Office of the President, “The President’s Executive Order on Hong
Kong Normalization,” Federal Register 85:43413 (July 14, 2020).
28. Executive Office of the President, “Continuation of the National Emergency
with Respect to Hong Kong,” Federal Register 86:36479 (July 9, 2021).
29. U.S. Department of Homeland Security Customs and Border Protection, “Country of Origin Marking of Products of Hong Kong,” Federal Register 85:48551 (August
11, 2020).
30. World Trade Organization, “Hong Kong, China Initiates Dispute Complaint
against US Origin Marking Requirements,” November 3, 2020.
31. U.S. Department of the Treasury, Report Pursuant to Section 5(b) of the Hong
Kong Autonomy Act, December 11, 2020.
32. U.S. Department of Commerce Bureau of Industry and Security, “Removal of
Hong Kong as a Separate Destination under the Export Administration Regulations,”
Federal Register 85:83765 (December 23, 2020).
33. U.S. Department of Commerce Bureau of Industry and Security, “Supplement
No. 4 to Part 744 - ENTITY LIST,” Export Administration Regulations, July 6, 2021.
34. U.S. Department of the Treasury, Committee on Foreign Investment in the United States Annual Report to Congress CY 2020, July 2021.
35. U.S. Department of Commerce Bureau of Economic Analysis, Hong Kong - International Trade and Investment Country Facts, July 22, 2021.
36. U.S. Department of State, 2021 Hong Kong Policy Act Report, March 31, 2021.
37. Antony Blinken, “Marking One Year of Hong Kong’s National Security Law,”
U.S. Department of State, July 16, 2021; U.S. Department of the Treasury Office ofForeign Assets Control, Specially Designated Nationals and Blocked Persons List,
July 2, 2021.
38. U.S. Department of State, Risks and Considerations for Businesses Operatingin Hong Kong, July 16, 2021.
39. Samuel Chu, founder and former managing director, Hong Kong Democracy
Council, interview with Commission staff, August 17, 2021; White House, Memorandum on the Deferred Enforced Departure for Certain Hong Kong Residents, August
5, 2021.
40. U.S. Customs and Border Protection, Section 301 Trade Remedies Frequently
Asked Questions, October 19, 2020; U.S. Department of Homeland Security Customs
and Border Protection, “Country of Origin Marking of Products of Hong Kong,” Federal Register 85:48551 (August 11, 2020).
41. U.S. Trade Representative, China Section 301-Tariff Actions and Exclusion Process.
42. Nina Palmer, “Revoking Hong Kong’s Preferential Trade Status: Legal Framework and Implications,” Congressional Research Service, April 2, 2021, 4.
43. General Agreement on Tariffs and Trade, “Admission of Hong Kong as a Contracting Party,” April 24, 1986.

479
44. World Trade Organization, “General Agreement on Tariffs and Trade,” 1947,
Article I.
45. United States-Hong Kong Policy Act of 1992 § 201, Pub. L. No. 102-383, 1992.
46. Nina Palmer, “Revoking Hong Kong’s Preferential Trade Status: Legal Framework and Implications,” Congressional Research Service, April 2, 2021, 4.
47. Zen Soo, “Hong Kong Arrests 53 Activists under National Security Law,” Associated Press, January 6, 2021.
48. Zen Soo, “Hong Kong District Councilors Must Take Oath despite Exodus,” Associated Press, July 13, 2021.
49. Samuel Chu, oral testimony for the U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021; BBC, “Hong Kong: Jimmy Lai Sentenced to 14 Months for Pro-Democracy
Protests,” April 16, 2021.
50. Lau Siu Fung, Lu Xi, and Chan Yun Nam, “Hong Kong Jails Prominent Democrats, Activists for ‘Illegal Assembly,’ ” Radio Free Asia, April 16, 2021; China Labor
Bulletin, “Prominent Hong Kong Labour Leader Sentenced to 14 Months’ Imprisonment,” April 16, 2021.
51. Independent Commission Against Corruption, Hong Kong SAR, “Duo Charged
with Providing Entertainment at 2018 LegCo By-Election,” August 2, 2021.
52. Independent Commission Against Corruption, Hong Kong SAR, “Duo Charged
with Providing Entertainment at 2018 LegCo By-Election,” August 2, 2021.
53. Austin Ramzy, “He Sang 2 Songs at an Election Rally. Hong Kong Says He
Violated the Law,” New York Times, August 2, 2021.
54. Standard, “Nothing Wrong with HK Being a Police State, Says Lawmaker,”
June 25, 2021.
55. Yew Lun Tian and Clare Jim, “China Formalises Sweeping Electoral Shake-Up
for Hong Kong, Demands Loyalty,” Reuters, March 30, 2021; John Sudworth, “HongKong: China Approves ‘Patriotic’ Plan to Control Elections,” BBC, March 11, 2021;
Xinhua, “China Adopts Decision to Improve Hong Kong Electoral System,” March
11, 2021.
56. Yew Lun Tian and Clare Jim, “China Formalises Sweeping Electoral Shake-Up
for Hong Kong, Demands Loyalty,” Reuters, March 30, 2021; John Sudworth, “HongKong: China Approves ‘Patriotic’ Plan to Control Elections,” BBC, March 11, 2021;
Xinhua, “China Adopts Decision to Improve Hong Kong Electoral System,” March
11, 2021.
57. Xinhua, “Xinhua Commentary: Why ‘Patriots Governing Hong Kong’ Makes
Perfect Sense,” March 8, 2021.
58. Xinhua, “China Adopts Decision to Improve Hong Kong Electoral System,” May
17, 2021; Xinhua, “Improving Hong Kong’s Electoral System Constitutional, Lawful
and Justified: Chinese Envoy,” March 10, 2021; Frank Chen, “HK Activists’ Budget
Plan Is Subversion: Beijing,” Asia Times, July 15, 2020.
59. Tommy Walker, “Beijing-Led Electoral Reforms for Hong Kong Redefine ‘Democracy,’ Critics Say,” Voice of America, March 31, 2021; Xinhua, “China Adopts Decision to Improve Hong Kong Electoral System,” March 11, 2021.
60. Yew Lun Tian and Clare Jim, “China Formalises Sweeping Electoral Shake-Up
for Hong Kong, Demands Loyalty,” Reuters, March 30, 2021.
61. Yew Lun Tian and Clare Jim, “China Formalises Sweeping Electoral Shake-Up
for Hong Kong, Demands Loyalty,” Reuters, March 30, 2021; U.S. Department of theTreasury, Treasury Sanctions Individuals for Undermining Hong Kong’s Autonomy,
August 7, 2020.
62. The Law of the People’s Republic of China on Safeguarding National Security
in the Hong Kong Special Administrative Region (China), 2020, 5–6.
63. Nikkei Asia, “Hong Kong Passes Immigration Bill, Raising Alarm over ‘Exit
Bans,’ ” April 28, 2021.
64. Hong Kong Bar Association, “Further Submission of the Hong Kong Bar Association on the Immigration (Amendment) Bill 2020 in Respect of Clause 3 of theBill,” February 2, 2021, 2.
65. Immigration (Amendment) Ordinance 2021 (Hong Kong), 2021, A97, A99.
66. Nikkei Asia, “Hong Kong Passes Immigration Bill, Raising Alarm over ‘Exit
Bans,’ ” April 28, 2021; Reuters, “Hong Kong Passes Immigration Bill, Raising Alarmover ‘Exit Bans,’ ” April 28, 2021.
67. Hong Kong Bar Association, “Further Submission of the Hong Kong Bar Association on the Immigration (Amendment) Bill 2020 in Respect of Clause 3 of theBill,” February 2, 2021, 4.
68. Helen Davidson, “Number of Hong Kong Residents Moving to Taiwan Nearly
Doubles in 2020,” Guardian, February 25, 2021; Mainland Affairs Council Republicof China (Taiwan), “MAC Announces the “Hong Kong Humanitarian Aid and Care

480
Action Project” and Establishes the “Taiwan-Hong Kong Service Exchange Office” toProvide Hong Kongers Needed Assistance” (陸委會公布「香港人道援助關懷行動專案」,
成立「臺港服務交流辦公室」, 提供港人必要協助), June 18, 2020. Translation; Gerry
Shih, Shibani Mahtani, and Alicia Chen, “As Protesters Flee Hong Kong, Taiwan
Quietly Extends a Helping Hand,” Washington Post, May 14, 2021; Immigration Act,
Article 18 (Taiwan), January 27, 2021.
69. Helen Davidson, “Number of Hong Kong Residents Moving to Taiwan Nearly
Doubles in 2020,” Guardian, February 25, 2021.
70. Mainland Affairs Council, Hong Kong and Macao Residents Granted Residence& Permanent Residence in Taiwan, 2021.
71. Gary Cheung, “Hong Kong Accuses Taiwan of Interfering in Local Affairs as
Row over Office Closure Heats Up,” South China Morning Post, May 21, 2021.
72. Mainland Affairs Council, Hong Kong and Macao Residents Granted Residence& Permanent Residence in Taiwan, 2021.
73. Home Office of the United Kingdom, How Many People Come to the UK EachYear (Including Visitors)? August 26, 2021.
74. Daniel Hurst and Paul Karp, “Australia Urged to Ramp Up Assistance to Hong
Kong People amid Mass Pro-Democracy Arrests,” Guardian, January 9, 2021; Australian Office of Home Affairs, New Visa Options for Hong Kong, July 17, 2020.
75. Reuters, “Canada’s New Immigration Path for Hongkongers Attracts Strong
Interest,” May 21, 2021.
76. Natalie Wong, “Goodbye, Hong Kong: Protesters Seeking Asylum Abroad from
National Security Law Vow to Fight On, but Feel ‘Survivor’s Guilt,’ ” South China
Morning Post, June 21, 2021.
77. Xinhua, “Hong Kong Embraces 1st National Security Education Day after Related Law Takes Effect in 2020,” April 15, 2021.
78. Xinhua, “Hong Kong Embraces 1st National Security Education Day after Related Law Takes Effect in 2020,” April 15, 2021.
79. Brad Lendon, “Hong Kong Marks National Security Education Day with
Goose-Stepping Police and Souvenirs,” April 16, 2021.
80. FactWire, “Disciplinary Forces Connections Cover over Half of NSED Open Day
Visitors,” April 23, 2021.
81. Christy Leung, “Hong Kong Police Will Stick with Traditional British Foot
Drills, Chief Says, although PLA Is Training Officers on Chinese-Style Marching for
Handover Events Next Year,” South China Morning Post, February 23, 2021.
82. Brad Lendon, “Hong Kong Marks National Security Education Day with
Goose-Stepping Police and Souvenirs,” CNN, April 16, 2021.
83. Government of the Hong Kong Special Administrative Region Education Bureau, National Security Education in School Curriculum - Implementation Mode andLearning and Teaching Resources, February 4, 2021, 2.
84. Government of the Hong Kong Special Administrative Region Press Releases,
EDB Announces Guidelines and Curriculum Arrangements for Safeguarding National Security and National Security Education, February 4, 2021.
85. Pak Yiu and Sarah Wu, “Hong Kong to Teach Children as Young as Six about
Subversion, Foreign Interference,” Reuters, February 4, 2021; Nicolle Liu and Primrose Riordan, “Hong Kong to Impose ‘National Security’ Schools Curriculum,” Financial Times, February 4, 2021.
86. Government of the Hong Kong Special Administrative Region Education Bureau, National Security Education Curriculum Framework for Geography (地理科國家安全教育課程框架), April 2021, 6. Translation.
87. Government of the Hong Kong Special Administrative Region Education Bureau, National Security Education Curriculum Framework for Biology (S.4-6) (生物科
(中四至中六)國家安全教育課程框架),” April 2021, 2, 9. Translation.
88. Pak Yiu and Sarah Wu, “Hong Kong to Teach Children as Young as Six about
Subversion, Foreign Interference,” Reuters, February 4, 2021; Nicolle Liu and Primrose Riordan, “Hong Kong to Impose ‘National Security’ Schools Curriculum,” Financial Times, February 4, 2021.
89. Michael C. Davis, oral testimony for the U.S.-China Economic and Security
Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 64.
90. Nicolle Liu and Joe Leahy, “Beijing Wrestles for Control of Hong Kong’s Classrooms,” Financial Times, October 6, 2020.
91. Government of the Hong Kong Special Administrative Region Education Bureau, Education Bureau Circular No. 3/2021 National Security: Maintaining a Safe
Learning Environment Nurturing Good Citizens, February 4, 2021, 4; Vivian Wang,“As Hong Kong Law Goes after ‘Black Sheep,’ Fear Clouds Universities,” New YorkTimes, November 12, 2020.

481
92. Chan Ho-him, “Will National Security Law Force Exodus of Hong Kong’s Teachers, Students over Fears of Shrinking Academic Freedom?” South China Morning
Post, April 22, 2021; Chan Ho-him, “Freedom of Speech or Hong Kong Independence?
More Details Emerge of Education Row over Deregistered Teacher,” South China
Morning Post, October 6, 2020.
93. Chan Ho-him, “Hong Kong Visual Arts Teacher Facing Disciplinary Action over‘Inappropriate’ Political Cartoons Shared Online,” South China Morning Post, April
30, 2021.
94. Vivian Wang, “ ‘It Feels Like We’re Just Waiting to Die’: Hong Kong Targets
Student Unions,” New York Times, August 1, 2021.
95. Priscilla Ng, “Students’ Union Is Dead to Us: Hong Kong University,” Radio
Television Hong Kong, July 13, 2021.
96. Vivian Wang, “ ‘It Feels Like We’re Just Waiting to Die’: Hong Kong Targets
Student Unions,” New York Times, August 1, 2021.
97. Gigi Lee et al., “Law Lecturer Quits Hong Kong University Council over Union
Ban,” Radio Free Asia, August 5, 2021.
98. Vivian Wang, “ ‘It Feels Like We’re Just Waiting to Die’: Hong Kong Targets
Student Unions,” New York Times, August 1, 2021.
99. Helen Davidson, “Hong Kong Censorship Fears as Protest Slogans Removed
from Some Textbooks,” Guardian, August 19, 2020; Verna Yu, “ ‘Like in the Cultural
Revolution’: Hong Kong’s Educators Fear Being Purged,” Guardian, July 31, 2020.
100. Selina Cheng, “Disbanded Hong Kong Teachers’ Union Faces Further StateMedia Attacks; Confederation of Trade Unions in Crosshairs,” Hong Kong Free Press,
August 11, 2021.
101. Nicolle Liu and Primrose Riordan, “Hong Kong to Impose ‘National Security’
Schools Curriculum,” Financial Times, February 4, 2021.
102. Government of the Hong Kong Special Administrative Region Education Bureau, Education Bureau Circular No. 3/2021 National Security: Maintaining a Safe
Learning Environment Nurturing Good Citizens, February 4, 2021, 6, 8.
103. Mimi Leung and Yojana Sharma, “Universities Pressed to Implement ‘Security Law’ Education,” University World News, March 24, 2021.
104. Chan Ho-him, “Hong Kong’s Open University Head Suggests National Security Law Courses Could Be Mandatory for Students,” South China Morning Post, April
15, 2021; Nadia Lam, “Outgoing President of Open University of Hong Kong Tells
Students to Be Engaged and Express Themselves, but Don’t Cross the Line,” South
China Morning Post, March 22, 2021.
105. Kelly Ho, “Hong Kong Universities ‘Penetrated by Foreign Forces’ Intent on‘Indoctrinating’ Students, Claims Chief Exec. Carrie Lam,” Hong Kong Free Press,
June 8, 2021.
106. Government of the Hong Kong Special Administrative Region Education Bureau, Education Bureau Circular No. 3/2021 National Security: Maintaining a Safe
Learning Environment Nurturing Good Citizens, February 4, 2021, 6, 8.
107. Global Times, “HK Civil Human Rights Front Is Disbanding amid Probe into
Sources of Funding,” March 15, 2021.
108. Hong Kong Police Force, About Registration of a Society, June 2021; Chris
Lau, “Hong Kong Protests: Civil Human Rights Front Refuses to Cooperate with
Police Investigation into Its Activities,” South China Morning Post, May 4, 2021; Government of Hong Kong, Societies Ordinance, September 20, 2018, 4, 5; Hong Kong
University, “Historical Laws of Hong Kong: Societies Ordinance.”
109. Chris Lau, “Hong Kong Protests: Civil Human Rights Front Refuses to Cooperate with Police Investigation into Its Activities,” South China Morning Post, May
4, 2021; Standard, “The Civil Human Rights Front Denies Foreign Funding,” March
5, 2021.
110. Kari Soo Lindberg and Denise Wee, “Hong Kong Protest Group Disbands under Government Pressure,” Bloomberg, August 15, 2021; BBC, “Hong Kong: Jimmy
Lai Jailed Again for Pro-Democracy Protests,” May 28, 2021.
111. Standard, “The Civil Human Rights Front Denies Foreign Funding,” March
5, 2021.
112. Hong Kong Financial Services and Treasury Bureau, Having Both National Security and Charity (國安慈善 兩者兼得), Secretary’s Blog, September 13, 2021.
Translation.
113. Hong Kong Financial Services and Treasury Bureau, Having Both National Security and Charity (國安慈善 兩者兼得), Secretary’s Blog, September 13, 2021.
Translation.
114. Hong Kong Financial Services and Treasury Bureau, Having Both National Security and Charity (國安慈善 兩者兼得), Secretary’s Blog, September 13, 2021.
Translation.

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115. Candice Chau, “Foundation Linked to Apple Daily Removed from Charities
List as Hong Kong Announces ‘National Security’ Exclusion,” Hong Kong Free Press,
September 14, 2021.
116. Hong Kong Journalists Association, “Hong Kong Press Freedom Index for
Journalists Hits Record Low—HKSAR Blamed as Hong Kong’s Press Freedom Plunges to Worst Record,” May 3, 2021.
117. Hong Kong Journalists Association, “Hong Kong Press Freedom Index for
Journalists Hits Record Low—HKSAR Blamed as Hong Kong’s Press Freedom Plunges to Worst Record,” May 3, 2021.
118. Louisa Lim, “Hong Kong’s Last Gasp,” New Yorker, June 29, 2021; Helen Davidson, “Hong Kong Police Arrest Senior Apple Daily Journalist at Airport,” Guardian, June 27, 2021; Austin Ramzy and Tiffany May, “Hong Kong Cracks Down on a
Pro-Democracy Newspaper,” New York Times, June 16, 2021.
119. BBC, “Hong Kong: Jimmy Lai Jailed Again for Pro-Democracy Protests,” May
28, 2021.
120. Hong Kong Journalists Association, “Hong Kong Press Freedom Index for
Journalists Hits Record Low—HKSAR Blamed as Hong Kong’s Press Freedom Plunges to Worst Record,” May 3, 2021; Xinhua, “Hong Kong Police to Amend Definition of‘Media Representatives’ under Police General Orders,” September 23, 2020.
121. U.S. Department of State, 2021 Hong Kong Policy Act Report, March 31, 2021.
122. Angeli Datt, written testimony for the U.S.-China Economic and Security Review Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September 8, 2021, 4.
123. Emily Feng, “Hong Kong’s Apple Daily to Shut Down This Weekend after Having Its Assets Frozen,” NPR, June 23, 2021; Tony Cheung, “Final Edition of Hong
Kong’s Apple Daily Could Come on Saturday,” June 21, 2021.
124. Austin Ramzy, “In Hong Kong, Jimmy Lai’s Media Company Moves to Close
Down,” New York Times, September 5, 2021; Mayer Brown, “Guide to Employment
Law in Hong Kong,” May 2021; Hong Kong Special Administration Region Labour
Department, The Employment Ordinance, Cap. 57.
125. Shibani Mahtani, Timothy McLaughlin, and Theodora Yu, “Hong Kong’s
Pro-Democracy Apple Daily Newspaper to Shut under Government Pressure,” Washington Post, June 23, 2021.
126. Rhoda Kwan, “Hong Kong’s RTHK Will Become State Media after Partnershipwith China’s CCTV, Says Press Group Chief,” Hong Kong Free Press, August 11, 2021.
127. Rhoda Kwan, “Hong Kong’s RTHK Will Become State Media after Partnershipwith China’s CCTV, Says Press Group Chief,” Hong Kong Free Press, August 11, 2021.
128. Ng Kang-chung, “Hong Kong’s RTHK to Partner with State-Owned MediaGroup, Air More Mainland China-Produced Shows, City Leader Says,” South China
Morning Post, August 9, 2021.
129. Reporters Without Borders, “Hong Kong: RSF Concerned by Future ‘Partnership’ between Public Broadcaster RTHK and Chinese State Media,” August 10, 2021.
130. Man Hoi Yan and Qiao Long, “Publishing, Media Takeovers Part of China’s
Two-Pronged Grip on Hong Kong,” Radio Free Asia, May 10, 2021; Eric Ng, “Phoenix
Media Founder Sells Almost All His Shares to Beijing-Backed Publisher and Pansy
Ho’s Shun Tak in Deals Worth US$149.2 Million,” South China Morning Post, April
18, 2021.
131. Man Hoi Yan and Qiao Long, “Publishing, Media Takeovers Part of China’s
Two-Pronged Grip on Hong Kong,” Radio Free Asia, May 10, 2021.
132. Blake Schmidt, “The Publishing Empire Helping China Silence Dissent inHong Kong,” Bloomberg, August 17, 2020.
133. Man Hoi Yan and Qiao Long, “Publishing, Media Takeovers Part of China’s
Two-Pronged Grip on Hong Kong,” Radio Free Asia, May 10, 2021; Blake Schmidt,“The Publishing Empire Helping China Silence Dissent in Hong Kong,” Bloomberg,
August 17, 2020.
134. Kari Soo Lindberg, “How China Is Tightening Its Grip on Hong Kong’s Media
Scene,” June 8, 2021; Blake Schmidt, “The Publishing Empire Helping China Silence
Dissent in Hong Kong,” Bloomberg, August 17, 2020.
135. Rebecca Davis, “China’s National Security Rules Injected into Hong Kong
Film Censorship System,” Variety, June 10, 2021.
136. Government of the Hong Kong Special Administrative Region, Amendments
to Guidelines for Censors under Film Censorship Ordinance Gazette, June 10, 2021.
137. Government of the Hong Kong Special Administrative Region, Amendments
to Guidelines for Censors under Film Censorship Ordinance Gazette, June 10, 2021.
138. Raymond Wong, “Hong Kong to Censor Films under China’s Security Law,”
New York Times, June 11, 2021; Rhoda Kwan, “Hong Kong Gov’t Can Now Censor
Films on National Security Grounds,” Hong Kong Free Press, June 11, 2021; Rebecca

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Davis, “China’s National Security Rules Injected into Hong Kong Film Censorship
System,” Variety, June 10, 2021.
139. Radio Television Hong Kong, “Films That Get by Censors May Still Be Illegal:
Govt,” July 12, 2021.
140. Christy Leung and Tony Cheung, “Beijing’s National Security Permanent Office Gets New Site at Hong Kong’s West Kowloon Waterfront after Land Grant from
City Government,” South China Morning Post, April 23, 2021.
141. Government of the Hong Kong Special Administrative Region Press Releases,
Land for Office Premises of Office for Safeguarding National Security of the Central
People’s Government in the HKSAR, April 23, 2021; South China Morning Post, “Exclusive | Beijing’s National Security Office in Hong Kong ‘to Move Out of Causeway
Bay,’ ” February 26, 2021.
142. The Law of the People’s Republic of China on Safeguarding National Security
in the Hong Kong Special Administrative Region (China), 2020, 9–10; Nikkei Asia,“Hong Kong Passes Immigration Bill, Raising Alarm over ‘Exit Bans,’ ” April 28, 2021.
143. Natalie Wong, Gary Cheung, and William Zheng, “Beijing to Expand Hong
Kong Office with Two New Departments Focusing on National Security and Propaganda,” South China Morning Post, May 24, 2021.
144. Natalie Wong, Gary Cheung, and William Zheng, “Beijing to Expand Hong
Kong Office with Two New Departments Focusing on National Security and Propaganda,” South China Morning Post, May 24, 2021.
145. Natalie Wong, Gary Cheung, and William Zheng, “Beijing to Expand Hong
Kong Office with Two New Departments Focusing on National Security and Propaganda,” South China Morning Post, May 24, 202; Beijing News, “Central LeadingGroup on Hong Kong and Macau Affairs Makes Its Debut” (中央港澳工作领导小组亮相), June 3, 2020. Translation.
146. Xinqi Su, “ ‘Unstoppable Storm’: Rights Take Back Seat under Hong Kong
Security Law,” Agence France-Presse, June 28, 2021.
147. The Law of the People’s Republic of China on Safeguarding National Security
in the Hong Kong Special Administrative Region (China), 2020, 23–24.
148. Tony Cheung, “National Security Law: Ex-Chief Justice Geoffrey Ma Defends
Role of Foreign Judges in Hong Kong, Argues They Should Help Enforce Mini-Constitution,” South China Morning Post, May 6, 2021; Reuters, “China Sets Court Hearingsfor 2 Canadians on Alleged Spying Charges,” March 18, 2021; The Law of the People’s
Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (China), 2020, 23–24.
149. Espie Angelica A. de Leon, “Is There a Hole in the Rule of Law in Hong
Kong?” Asia IP (13:5), May 2021, 38–43.
150. The Law of the People’s Republic of China on Safeguarding National Security
in the Hong Kong Special Administrative Region (China), 2020, 5–6.
151. U.S. Department of State, 2021 Hong Kong Policy Act Report, March 31, 2021;
Jennifer Creery, “No Separation of Powers in Hong Kong Says Chief Exec. Carrie
Lam, despite Previous Comments from Top Judges,” Hong Kong Free Press, September 1, 2020.
152. Ng Kang-chung, “Hong Kong National Security Law: School Clerk, Student
Remanded over Conspiring to Create Leaflets Advocating Independence,” South China Morning Post, June 8, 2021; Standard, “DoJ Condemns Death Threats against
National Security Judge,” December 5, 2020.
153. Jasmine Siu, “District Court Does Have Jurisdiction to Hear Sedition Cases,
Hong Kong Judge Rules, despite Questions Raised by National Security Law,” South
China Morning Post, April 9, 2021.
154. Brian Wong, “National Security Law: 47 Hong Kong Opposition Figures
Charged with Subversion Facing Potential Life Sentences after Trial Moved to High
Court,” South China Morning Post, May 31, 2021.
155. Jen Kirby, “China’s National Security Legislation Is Destroying Hong Kong’s
Rule of Law,” Vox, July 1, 2021; BBC, “Hong Kong Activists: 15 of 47 Granted Bail but
Remain Detained Pending Appeal,” March 4, 2021; Simon Young, “Hong Kong’s Highest Court Reviews the National Security Law—Carefully,” Lawfare, March 4, 2021.
156. Jerome Cohen, oral testimony for the Congressional-Executive Commission on
China, Hearing on One Year of the National Security Law’s Repression of Fundamental Freedoms in Hong Kong, June 29, 2021.
157. U.S. Consulate General for Hong Kong and Macau, Bearing Witness, August
31, 2021.
158. Lydia Wong and Thomas E. Kellogg, “Hong Kong’s National Security Law: A
Human Rights and Rule of Law Analysis,” Georgetown Law Center for Asian Law,
February 2021, 38.

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159. Austin Ramzy and Tiffany May, “The Latest Target of Hong Kong’s Crackdown: Children’s Books,” New York Times, July 22, 2021.
160. The Law of the People’s Republic of China on Safeguarding National Security
in the Hong Kong Special Administrative Region (China), 2020, 13–14.
161. Tony Cheung, “National Security Law: Retired Hong Kong Judge Says It’s
‘Reasonable’ for Beijing to Take Jurisdiction in Exceptional Cases,” South China
Morning Post, May 14, 2021; U.S.-China Economic and Security Review Commission,
2020 Annual Report to Congress, December 2020, 496; The Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (China), 2020, 13–14.
162. Lydia Wong and Thomas E. Kellogg, “Hong Kong’s National Security Law: A
Human Rights and Rule of Law Analysis,” Georgetown Law Center for Asian Law,
February 2021, 8.
163. Brian Wong, “Hong Kong Judge Denied Bail to Ex-Lawmaker Charged under
National Security Law after Learning He Was Invited by US Consulate ‘for Coffee,’
Judiciary Reveals,” South China Morning Post, April 22, 2021.
164. U.S. Consulate General for Hong Kong and Macau, Bearing Witness, August
31, 2021.
165. Samuel Chu, oral testimony for the U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021, 34.
166. Reuters, “UK Considers Whether to Remove British Judges from Hong Kong
Court,” November 23, 2020; Basic Law of the Hong Kong Special Administrative Region (Hong Kong), Article 82.
167. Dominic Raab, Six-Monthly Report on Hong Kong, 1 January to 30 June 2020,
United Kingdom Parliament, November 23, 2020, 4.
168. Primrose Riordan, Nicolle Liu, and Jane Croft, “Pressure Is Building on UK
Judges after Beijing Imposed a Security Law on the Territory,” Financial Times, October 5, 2020.
169. Tony Cheung, “Hong Kong’s Judicial Independence Gets Vote of Confidence
from Top British Judges, with Pair Deciding to Continue Serving on City’s Top
Court,” South China Morning Post, August 27, 2021.
170. Jonathan Ames, “Lady Hale Quits Hong Kong Court as China Tightens Grip,”Times, June 4, 2021; Greg Torode and Swati Pandey, “Australian Judge Quits Hong
Kong Court, Citing National Security Law,” Reuters, September 18, 2020.
171. Jerome Cohen, oral testimony for the Congressional-Executive Commission on
China, Hearing on One Year of the National Security Law’s Repression of Fundamental Freedoms in Hong Kong, June 29, 2021; Primrose Riordan, Nicolle Liu, and Jane
Croft, “Pressure Is Building on UK Judges after Beijing Imposed a Security Law on
the Territory,” Financial Times, October 5, 2020.
172. Grenville Cross, “Judicial Independence: CFA Judges Show Their Mettle andReject Political Pressure,” China Daily, March 23, 2021.
173. Tony Cheung, “National Security Law: Hong Kong Should Appoint Judges
from Singapore, Malaysia to Limit City’s Reliance on Western Jurists, Lawmakers
Say,” South China Morning Post, June 7, 2021.
174. Tony Cheung, “National Security Law: Hong Kong Should Appoint Judges
from Singapore, Malaysia to Limit City’s Reliance on Western Jurists, Lawmakers
Say,” South China Morning Post, June 7, 2021.
175. Tony Cheung, “National Security Law: Hong Kong Should Appoint Judges
from Singapore, Malaysia to Limit City’s Reliance on Western Jurists, Lawmakers
Say,” South China Morning Post, June 7, 2021.
176. Tony Cheung, “National Security Law: Hong Kong Should Appoint Judges
from Singapore, Malaysia to Limit City’s Reliance on Western Jurists, Lawmakers
Say,” South China Morning Post, June 7, 2021; Daniel Cheng. Daniel Cheng to theHon. Starry LEE Wai-king, SBS, JP, May 21, 2021. https://www.legco.gov.hk/yr2021/english/hc/papers/hc-let-da20210512-e.pdf.
177. Sumati Bala, “Hong Kong Businesses Are ‘Rethinking’ Risks as New Challenges Arise, Says AmCham President,” CNBC, April 16, 2021.
178. American Chamber of Commerce in Hong Kong, “2021 Hong Kong Business
Outlook Survey,” January 11, 2021.
179. Kane Wu et al., “Banks Hulk Up in Hong Kong as China Business Overshadows Politics,” Reuters, June 4, 2021.
180. Kane Wu et al., “Banks Hulk Up in Hong Kong as China Business Overshadows Politics,” Reuters, June 4, 2021; Alexandra Stevenson, “Hong Kong Courts theRich as China Tightens Its Grip,” New York Times, April 7, 2021.
181. Stephen Morris, “HSBC Relocates Top Leadership from London to Hong
Kong,” Financial Times, April 14, 2021.

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182. Mercedes Ruehl et al., “Hong Kong Grills Finance Executives on Reasons for
Leaving,” Financial Times, January 27, 2021; Chad Bray, “Hedge Fund Elliott Management to Shift Operations to London and Tokyo as It Closes Its Hong Kong Office,”South China Morning Post, January 20, 2021.
183. Mercedes Ruehl et al., “Hong Kong Grills Finance Executives on Reasons for
Leaving,” Financial Times, January 27, 2021.
184. Mercedes Ruehl et al., “Hong Kong Grills Finance Executives on Reasons for
Leaving,” Financial Times, January 27, 2021.
185. John Lyons and Frances Yoon, “ ‘Do We Need to Be in Hong Kong?’ Global
Companies Are Eying the Exits,” Wall Street Journal, June 7, 2021; Lam Ka-sing,“Relocation of Top Luxury Brands’ Regional Headquarters to China Likely to WeighFurther on Hong Kong Office Rents,” South China Morning Post, January 7, 2021.
186. Theodora Yu, “American Lawyer Is Sentenced to Prison in Hong Kong after
Scuffle with Police Officer,” Washington Post, July 6, 2021.
187. Hong Kong Census and Statistics Department, Table 1: Estimated Total Population as at Mid-2021, August 11, 2021.
188. Michelle Chan, “Hong Kong Population Declines for First Time since 2003,”
Nikkei Asia, February 18, 2021.
189. Michelle Chan, “Hong Kong Population Declines for First Time since 2003,”
Nikkei Asia, February 18, 2021.
190. American Chamber of Commerce in Hong Kong, “2021 Hong Kong Business
Outlook Survey,” January 11, 2021.
191. American Chamber of Commerce in Hong Kong, “2021 Hong Kong Business
Outlook Survey,” January 11, 2021.
192. American Chamber of Commerce in Hong Kong, “Should I Stay or Should I
Go? A Temperature Testing Survey of Expats in Hong Kong,” May 2021.
193. American Chamber of Commerce in Hong Kong, “Should I Stay or Should I
Go? A Temperature Testing Survey of Expats in Hong Kong,” May 2021.
194. Dennis Kwok and Elizabeth Donkervoort, “The Risks for International Business under the Hong Kong National Security Law,” Harvard University Ash Center for Democratic Governance and Innovation, July 2021, 5; Tabby Kinder and Leo
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195. Tabby Kinder and Leo Lewis, “Companies Consider Writing Hong Kong Out
of Legal Contracts,” January 31, 2021.
196. American Chamber of Commerce in Hong Kong, “2021 Hong Kong Business
Outlook Survey,” January 11, 2021.
197. Chris Lau, “National Security Law: Hong Kong Legal Groups Deny City Is
Losing Its Standing as Global Arbitration Hub,” South China Morning Post, February
8, 2021.
198. Hong Kong International Arbitration Centre, “Statistics,” February 9, 2021.
199. Singapore International Arbitration Centre, “2020 Annual Report,” March
31, 2021; Singapore International Arbitration Centre, “2019 Annual Report,” April
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200. Selina Cheng, “Tens of Thousands of Hong Kong Household Living below
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201. Hong Kong Financial Secretary’s Office, Hong Kong’s Recent Economic Situation and Near-Term Outlook, May 31, 2021, iii.
202. Iain Marlow and Felix Tam, “Unused Shots Pile Up as Mistrust Mars Hong
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203. Government of the Hong Kong Special Administrative Region, Hong Kong
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Month,” South China Morning Post, August 6, 2021.
204. Felix Tam and Jinshan Hong, “Hong Kong Won’t Open Up before Vaccination
Hits at Least 80%,” Bloomberg, September 16, 2021.
205. Iain Marlow, “Hong Kong’s ‘Hands are Tied’ on Covid Rules, Top Adviser
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206. Eric Lam, “Hong Kong’s Record Budget Deficit Limits Room for Stimulus,”
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207. Hong Kong Office of the Government Economics, Half-Yearly Economic Report
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208. Hong Kong Office of the Government Economist, Half Yearly Economic Report
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209. Hong Kong Office of the Government Economist, Half Yearly Economic Report
2021, August 2021, 52–67.

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210. Hong Kong Census and Statistics Department, Balance of Payments, Table 44,
September 23, 2021.
211. Alice Shen, “HKMA Chief Plays Down Threat to Currency Peg,” Central Banking, March 16, 2021; Karen Yeung, “Explainer | Hong Kong Dollar Peg: What Is It
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212. Hong Kong Office of the Government Economist, Half Yearly Economic Report
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213. Jinshan Hong and Bruce Einhorn, “Businesses in Hong Kong Slam Tightened
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214. Hong Kong Census and Statistics Department, Table E038: Employed Persons
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215. Hong Kong Tourism Board, Tourism, May 2020.
216. Hong Kong Tourism Board, Monthly Report—Visitor Arrival Statistics: 2021,
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217. Alexandra Stevenson, “Hong Kong Courts the Rich as China Tightens Its
Grip,” New York Times, April 7, 2021.
218. Enoch Yiu, “Hong Kong Rolls Out Red Carpet to Offer City as Asian Family
Offices Hub to Manage the Fortunes and Investments of Wealthy Clans,” South China Morning Post, November 18, 2020.
219. Sidley, “Re-Domiciliation of Foreign Funds to Hong Kong—What It Means and
Why It Matters,” July 8, 2021.
220. JLL, “More Mainland Companies Return to Hong Kong,” August 20, 2020.
221. Bloomberg, “How a Chinese Billionaire Family Is Quietly Expanding Its Empire in Hong Kong,” April 12, 2021; Bloomberg, “Chinese Banks Expand in World’s
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222. Hong Kong Census and Statistics Department, Foreign-Affiliated Companies
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223. China National People’s Congress, Implementation Rules for Article 43 of the
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224. Facebook Transparency Center, “Hong Kong.”
225. Facebook Transparency Center, “Hong Kong.”
226. Selina Cheng, “Google Handed User Data to Hong Kong Authorities despite
Pledge after Security Law Was Enacted,” Hong Kong Free Press, September 11, 2021.
227. Selina Cheng, “Google Handed User Data to Hong Kong Authorities despite
Pledge after Security Law Was Enacted,” Hong Kong Free Press, September 11, 2021.
228. Selina Cheng, “Hong Kong Gov’t Made 1,400 Requests for User Data fromApple, Google, Facebook and Twitter in Year before Security Law,” Hong Kong Free
Press, May 8, 2021.
229. U.S. Department of State, Risks and Considerations for Businesses Operatingin Hong Kong, July 16, 2021, 4.
230. Radio Television Hong Kong, “Hong Kong Alliance: Regarding the Police Order
to Remove [Content] from the Website and Designated Electronic Platforms Tonightat 10:00 P.M.” (支聯會: 按警方要求今晚10時移除網站及指定電子平台), September 16,
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231. Angeli Datt, oral testimony for U.S.-China Economic and Security Review
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232. Cate Cadell, “Apple Says It Is Removing VPN Services from China App Store,”
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233. Timothy B. Lee, “Hong Kong Downloads of Signal Surge as Residents Fear
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234. Hong Kong Office of the Privacy Commissioner for Personal Data, “Legislative
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235. Hong Kong Office of the Privacy Commissioner for Personal Data, “Legislative
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236. Hong Kong Office of the Privacy Commissioner for Personal Data, “Legislative
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237. Hong Kong Office of the Privacy Commissioner for Personal Data, “Legislative
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238. Anna Gamvros, “Proposed Amendments to the Personal Data (Privacy) Ordinance to Combat Doxxing Acts,” Norton Rose Fulbright, June 3, 2021.

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239. Hong Kong Constitutional and Mainland Affairs Bureau, Legislative Council
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240. Hong Kong Office of the Privacy Commissioner for Personal Data, “Legislative
Council Panel on Constitutional Affairs Proposed Amendments to the Personal Data
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241. Angeli Datt, written testimony for U.S.-China Economic and Security Review
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242. Asia Internet Coalition, “Subject: Industry Response on the Proposed Amendments to Hong Kong’s Personal Data (Privacy) Ordinance and Request for Virtual
Meeting with PCPD,” June 25, 2021.
243. Denise Tsang, “Fears over Hong Kong Anti-Doxxing Legislation Will Be Proven False, Carrie Lam Assures US Tech Giants, Just as with National Security Law,”South China Morning Post, July 6, 2021; Newley Purnell, “Facebook, Twitter, Google
Threaten to Quit Hong Kong over Proposed Data Laws,” Wall Street Journal, July
5, 2021.
244. Masha Borak, “Doxxing Has Become a Powerful Weapon in the Hong Kong
Protests,” South China Morning Post, October 10, 2019.
245. Ministry of Foreign Affairs of the People’s Republic of China, Foreign Ministry
Spokesperson Zhao Lijian’s Regular Press Conference on June 8, 2021, June 8, 2021.
246. Narayanan Somasundaram, “China Anti-Sanctions Law to Put Squeeze on
Foreign Companies,” Nikkei Asia, June 11, 2021.
247. Jeff Pao, “China’s Anti-Sanctions Law Puts Hong Kong on Edge,” Asia Times,
June 11, 2021.
248. Julian Ku (@julianku), “The other thing the new law does is prohibit any
companies operating in China from complying with EU or US sanctions and expose them to civil lawsuits for damages caused by such compliance. E.g. the XPCC
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249. Elaine Yu, “China Delays Anti-Sanctions Law for Hong Kong,” Wall Street
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250. Reuters, “Hong Kong Leader Says Beijing Has No Timetable for Anti-Foreign
Sanctions Law,” October 4, 2021.
251. Iain Marlow and Stephen Engle, “Top Hong Kong Adviser ‘Pretty Sure’ Anti-Sanctions Law is Coming,” Bloomberg, October 7, 2021.
252. U.S. Department of State, Risks and Considerations for Businesses Operatingin Hong Kong, July 16, 2021.
253. Legislative Council Panel on Financial Affairs, “Protection of Personal Information on the Companies Register,” LC Paper No. CB(1)737/20–21(07), April 9, 2021.
254. Primrose Riordan et al., “Hong Kong Set to Allow Corporate Directors to Obscure Their Identity,” Financial Times, March 30, 2021.
255. Selina Cheng, “Hong Kong Set to Block Public from Accessing Full Info on
Company Directors as Critics Fear Increase in Fraud,” Hong Kong Free Press, June18, 2021.
256. Scott Murdoch, “HK Bankers and Lawyers Win Right to Apply for Access to
Corporate Registry,” Reuters, June 12, 2021; Financial Services and the Treasury Bureau, Responding to Public Concerns—Improvement Measures for the New Inspection
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257. Gordon Jones, “Open Access to Company Registry Information Serves the
Public Interest, Outweighing Privacy Concerns,” South China Morning Post, April
29, 2021.
258. Selina Cheng, “Privacy Watchdog Says It Has No Data on Complaints Relating to Public Registers, as Hong Kong Blocks Some Company Record Info,” Hong
Kong Free Press, March 31, 2021.
259. Reuters, “Hong Kong Proposes Restrictions on Public Access to Company
Data,” January 9, 2013.
260. Reuters, “Hong Kong Proposes Restrictions on Public Access to Company
Data,” January 9, 2013.
261. Eric Cheung, “A Hong Kong Journalist Is on Trial for Using a Public Database,” Rest of World, March 23, 2021.
262. Kathleen Magramo et al., “Proposal to Restrict Access to Information in Hong
Kong Company Registry Sets Alarm Bells Ringing for Journalist Groups,” South China Morning Post, March 30, 2021.
263. Suzanne Nossel, “Killing Hong Kong’s Free Press Will Harm Its Economy,”
Foreign Policy, May 3, 2021.
264. Jane Li, “China’s Diverting IPO Windfalls from US to Hong Kong,” Quartz,
July 16, 2021; Enoch Yiu, “Shenzhen Exchange’s Role in Greater Bay Area Vital as488
It Remains the Go-To Listing Hub for Start-Ups, SMEs, Adviser Says,” South China
Morning Post, May 13, 2021.
265. Jing Yang and Xie Yu, “Hong Kong ‘Homecoming Listings’ Are All the Rage,
but New York Is Still the Life of the Party,” Wall Street Journal, March 26, 2021.
266. Jeanny Yu and Julia Fioretti, “China’s Tech Crackdown Is Cooling Hong
Kong’s IPO Market,” Bloomberg, June 5, 2021.
267. Jeanny Yu and Julia Fioretti, “China’s Tech Crackdown Is Cooling Hong
Kong’s IPO Market,” Bloomberg, June 5, 2021.
268. Jiayue Huang, “Hong Kong to Shorten IPO Settlement Process to Align Morewith Global Practice,” S&P Global, July 6, 2021.
269. Hong Kong Exchanges and Clearing Ltd., “HKEX to Introduce FINI, Modernising Hong Kong’s IPO Settlement Process,” July 6, 2021; Jiayue Huang, “HongKong to Shorten IPO Settlement Process to Align More with Global Practice,” S&P
Global, July 6, 2021.
270. Yen Nee Lee, “Hong Kong Is Considering ‘Dual-Class’ Share Listings for NonTech Firms, Says Official,” CNBC, March 30, 2021.
271. Enoch Yiu, “Bond Connect: Is the Southbound Link the Game-Changing Bonanza that Banks and Investors Have Been Waiting For?” South China Morning Post,
September 17, 2021; Jon Watkins, “Southbound Trading under Bond Connect to Go
Live in One Week’s Time,” The Trade, September 17, 2021.
272. Georgina Lee, “Asset Managers, Brokers Gear Up for Launch of China’s
Southbound Bond Connect,” South China Morning Post, May 7, 2021.
273. Georgina Lee, “Asset Managers, Brokers Gear Up for Launch of China’s
Southbound Bond Connect,” South China Morning Post, May 7, 2021.
274. Hong Kong Monetary Authority, “Hong Kong as an International Financial
Center - Facts over Myths,” February 8, 2021.
275. Hong Kong Monetary Authority, “Hong Kong as an International Financial
Center - Facts over Myths,” February 8, 2021.
276. Hong Kong Exchanges and Clearing, “2021 Interim Results Presentation,”
August 11, 2021.
277. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 LongTerm Goals, March 12, 2021; BNP Paribas, “China’s Vast Ambition for the Greater
Bay Area,” February 10, 2021.
278. Hong Kong’s Constitutional and Mainland Affairs Bureau, Overview, 2020.
279. Hong Kong’s Constitutional and Mainland Affairs Bureau, Overview, 2020;
Xinhua, “Xinhua Insight: Greater Bay Area New Highlight in China’s Economy,”
March 26, 2017.
280. Wen Simin, “China Sets Up Special Fund to Invest in Greater Bay Area Projects,” Caixin Global, April 22, 2021; Ernst & Young, “How Is the Yangtze River Delta
Driving China’s Economic Development,” April 21, 2020.
281. Wen Simin, “China Sets Up Special Fund to Invest in Greater Bay Area Projects,” Caixin Global, April 22, 2021.
282. People’s Republic of China, 14th Five-Year Plan and Outline of 2035 LongTerm Goals, March 12, 2021.
283. American Chamber of Commerce in Hong Kong, “2021 Hong Kong Business
Outlook,” January 11, 2021.
284. Clare Jim, “For China’s Property Developers, Hong Kong Is Becoming Shenzhen’s Backyard,” Reuters, April 25, 2021.
285. Clare Jim, “For China’s Property Developers, Hong Kong Is Becoming Shenzhen’s Backyard,” Reuters, April 25, 2021.
286. Pearl Liu, “Shenzhen Property: How Home Prices in the Chinese Tech HubCompare to Hong Kong’s,” South China Morning Post, April 11, 2021.
287. Paul Chan, Private Wealth Management Association Annual Wealth Management Summit, Hong Kong, October 6, 2021; Kiuyan Wong and Denise Wee, “China
Wealth Connect with Hong Kong to Kick Off Next Month,” Bloomberg, September
10, 2021.
288. Enoch Yiu, “Explainer | Wealth Management Connect: Here’s What You Needto Know about the Scheme that Excites Your Bankers,” South China Morning Post,
May 13, 2021.
289. BNP Paribas, “China’s Vast Ambition for the Greater Bay Area,” February
10, 2021; KPMG, “Greater Bay Area Update,” Tech and Innovation GBA Newsletter,February 2021.
290. Alfred Liu, “Hong Kong Insurance Sales to Mainland Chinese Clients Drop
18% on Escalating Protests,” Insurance Journal, December 2, 2019; Cissy Zhou andAmanda Lee, “China’s Middle Class Still Seeking Protection in Hong Kong’s Insurance Market despite Forex Crackdown,” South China Morning Post, April 11, 2019.

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291. Enoch Yiu, “ ‘Insurance Connect’ Will Be Next Big Step for Greater Bay Area,
with Two Services Centres Expected to Be Set Up by End of Year,” South China
Morning Post, July 24, 2020.
292. Hong Kong Trade Development Council, “Cross-Boundary Connectivity Bolsters Insurance Industry in Greater Bay Area,” October 9, 2020.
293. Georgina Lee and Enoch Yiu, “China Turns to Private Insurers to Help Unlock US$15.3 Trillion of Savings and Avert a Crisis in State Pension System,” South
China Morning Post, May 19, 2021.
294. Enoch Yiu, “ ‘Insurance Connect’ Will Be Next Big Step for Greater Bay Area,
with Two Services Centres Expected to Be Set Up by End of Year,” South China
Morning Post, July 24, 2020.
295. Martin Chorzempa, written testimony for U.S.-China Economic and Security
Review Commission, An Assessment of the CCP’s Economic Ambitions, Plans, andMetrics of Success, April 15, 2021, 11–13.
296. Chen Jia, “PBOC to Promote Further Cross-Border Use of RMB,” China Daily
HK, August 17, 2020.
297. Frank Tang, “China Digital Currency: Hong Kong, Shenzhen Proposed as ‘Expressway’ for Cross-Border Financial Innovation,” June 1, 2021.
298. Frank Tang, “China Digital Currency: Hong Kong, Shenzhen Proposed as ‘Expressway’ for Cross-Border Financial Innovation,” June 1, 2021.
299. Martin Chorzempa, written testimony for U.S.-China Economic and Security
Review Commission, An Assessment of the CCP’s Economic Ambitions, Plans, andMetrics of Success, April 15, 2021, 10–12.
300. Bloomberg, “Macau Moves Step Closer to Digital Currency in Threat to Casinos,” April 14, 2021; Bloomberg, “Macau Casinos End Worst Year on Record as Gaming Revenue Sinks 79 Per Cent, Outlook Remains Bleak,” January 1, 2021.
301. Alvin Chen, “HKMA Delves Deeper into Digital Currency,” Standard, June
9, 2021.
302. Alvin Chen, “HKMA Delves Deeper into Digital Currency,” Standard, June
9, 2021.
303. Neal Kimberly, “Could a Digital Hong Kong Dollar Undermine the Local
Banking Sector? HKMA Must Take Note,” South China Morning Post, June 15, 2021
304. Neal Kimberly, “Could a Digital Hong Kong Dollar Undermine the Local
Banking Sector? HKMA Must Take Note,” South China Morning Post, June 15, 2021.
305. Hong Kong Census and Statistics Department, Table 133: Number of Regional
Headquarters in Hong Kong by Country/Territory Where the Parent Company Was
Located, December 2020.
306. Thomas Kellogg, “China’s Dissidents Can’t Leave,” Foreign Policy, July 23,
2019.
307. Angeli Datt, oral testimony for U.S.-China Economic and Security Review
Commission, Hearing on U.S.-China Relations in 2021: Emerging Risks, September
8, 2021; U.S. Department of State, 2021 Hong Kong Policy Act Report, March 31, 2021.

COMPREHENSIVE LIST OF
THE COMMISSION’S RECOMMENDATIONS
Chapter 1: U.S.-China Global Competition
Section 1: The Chinese Communist Party’s Ambitions andChallenges at Its Centennial
The Commission recommends:
1. Congress hold hearings including Administration witnesses to
explore the advisability of forming an economic defense coalition with allies and partners. The object of such a coalition
would be to provide mutual support in the event of economic
coercion by the People’s Republic of China (PRC) against a coalition member. Such support could include:• Commitments not to seek, at the expense of the coerced party,
market share created by China’s action;• Formal complaints to the World Trade Organization (WTO);• Assistance to the coerced party to reduce its incentive to comply with Chinese demands; and• Imposition of retaliatory measures against China in supportof the coerced party.
2. Congress direct U.S. Customs and Border Protection to initiate
action to impose a region-wide Withhold Release Order on products originating from Xinjiang, China. In addition, Congressshould require the U.S. Department of Homeland Security toprovide a comprehensive list of technologies needed and an outline of the resources required to enforce the Withhold Release
Order and address other instances of China’s use of forced labor.
Section 2: China’s Influence in Latin America and the
Caribbean
The Commission recommends:
3. Congress recognize that Chinese economic, diplomatic, and security initiatives in Latin America and the Caribbean are robust and growing and demand a comprehensive response. Steps
Congress should consider include:• Strengthening U.S. competitiveness in building out Latin American and Caribbean infrastructure through the expansion of funding mechanisms, including but not limited
to low-interest loans from U.S. lending institutions to U.S.
companies willing to invest in targeted critical infrastructure projects in high-priority Latin American and Caribbean
countries;
(491)

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• Supporting the deployment of novel coronavirus (COVID-19)
vaccines in Latin American and Caribbean countries, including by requiring a public report issued by the U.S. Department of State every six months outlining vaccine deployment
to countries in the region; and• Expanding educational exchanges between the United Statesand Latin America and the Caribbean, including by expanding partnership agreements between U.S. universities andhigher education institutions in Latin American and Caribbean countries.
4. Congress support Latin American and Caribbean countries inthe establishment of inbound foreign investment review processes for sectors critical to national security and economic security by doing the following:• Expanding the support given by the U.S. government togovernments of U.S. allied and partner countries to establish inbound foreign investment review processes similar to
those of the Committee on Foreign Investment in the UnitedStates (CFIUS) established in the Foreign Investment Risk
Review Modernization Act within Title XVII of the National
Defense Authorization Act for Fiscal Year 2019. Support forthese governments will expand upon existing information exchange processes to include provision of technical assistanceand personnel training.
• Requiring the U.S. Department of State, in conjunction
with CFIUS, to provide an annual report to Congress forthree consecutive years after enactment of this provision.
The report shall outline the progress and outcomes of its
engagement with Latin American and Caribbean countries
to establish their own inbound foreign investment review
processes.
5. Congress require the director of national intelligence, in conjunction with the U.S. Department of State and U.S. Department of Defense, to produce an unclassified report, including aclassified annex, documenting Chinese investment in port infrastructure in the Western Hemisphere and detailing any known
Chinese interest in establishing a military presence at or nearthese ports. The report should include an assessment of China’s current and potential future ability to leverage commercial
ports for military purposes and the implications for the UnitedStates.
6. Congress enact legislation directing the U.S. Development Finance Corporation, U.S. Agency for International Development,
U.S. Trade and Development Agency, Millennium Challenge Corporation, and other executive agencies responsible for disbursing foreign aid and development assistance to require within
all aid-related applications mandatory disclosures on debt theapplicant may owe to Chinese entities, including loan amounts,
duration, rates, and contractual provisions.
7. Congress enact legislation requiring the U.S. government authorities identified in the Maritime Security and Fisheries

493
Enforcement (SAFE) Act within section 3544 of the National
Defense Authorization Act for Fiscal Year 2020 to create a partnership with coastal Latin American states, similar to the Oceania Maritime Security Initiative and the Africa Maritime Law
Enforcement Partnership. This partnership would assist coastal Latin American states in maritime domain awareness, witha particular focus on increasing partner countries’ capacity tocombat illegal, unreported, and unregulated fishing by Chinese
vessels in the region.
Chapter 2: U.S.-China Economic and Trade Relations
Section 2: The Chinese Communist Party’s Economic andTechnological Ambitions: Synthetic Biology, New Mobility,
Cloud Computing, and Digital Currency
The Commission recommends:
8. Congress direct the U.S. Department of Energy, in coordination
with the National Institute of Standards and Technology andother relevant agencies, to produce a report and research plan
outlining a project for the collection and sequencing of nonhuman genomic data, analogous to the Human Genome Project.
Such a plan shall include:• A description of the types of nonhuman genomic data to becollected and sequenced;• An explanation of research value and commercial applications from collecting and sequencing such data;• The designation of an existing Department of Energy National Laboratory to coordinate the project and award grants to
U.S. universities and private companies in furtherance of the
project’s goals;• A description of ethical considerations and processes forstakeholder engagement; and• Articulation of the National Institute of Standards and Technology’s role to:○ Codify technical standards related to the project;○ Share and protect data collected during the project; and○ Engage with the public and international partners on the
project’s findings.
9. Congress direct the National Institute of Standards and Technology, in coordination with the National Institutes of Health,
the U.S. Patent and Trade Office, the Department of Energy, andthe Department of State, to establish a model framework for theprotection, collection, and commercialization of nonhuman genomic data. The framework should seek to establish principles
on intellectual property rights for the countries of origin of the
genomic data. This framework should also be used in international outreach regarding protection of national biotechnology
assets and Chinese predatory collection of data.

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10. Congress request a report from the Administration regarding
data servicing operations owned by Chinese firms. Such a report shall include:• Whether such firms are operating in the United States, whatlaws and regulations may apply to such operations and services, and what cloud computing services are offered or provided to U.S. persons;• Whether Chinese cloud computing providers are engaged inany joint ventures or servicing arrangements with U.S. firms
and the nature of such operations;• Whether consumers of these services have access to prominently identified information regarding the ownership of suchcloud computing services;• Whether U.S. firms can operate freely in the People’s Republic of China (PRC) and what, if any, restrictions might apply
to their services and operations;• Where Chinese-owned firms may be providing equipment
or services for the provision of cloud computing support inthird-country markets and whether the market share of Chinese-owned firms in those markets may limit, in any way, theability of U.S.-owned firms to operate independently of suchoperations; and• What support the Chinese government may be providing tocloud computing firms in terms of equipment and services
that may act as a subsidy for such operations.
11. Congress consider legislation requiring that the U.S. Departmentof Transportation, in consultation with the U.S. Departmentsof Commerce, Energy, and Defense, and law enforcement authorities, develop regulations limiting access for Chinese-owned
firms developing autonomous vehicle capabilities to protect U.S.
national and economic security interests. In preparing such regulations, the authorities should consider the extent to which the
Chinese government limits access of U.S. firms for similar uses.
Specific attention should be given to data collection activities
that may advance the interests of the Chinese military or intelligence agencies. In addition, such legislation shall address any
need to protect the data utilized and collected by autonomousvehicles produced and/or serviced by Chinese-owned firms.
12. The committees of relevant jurisdiction in the House and Senate investigate and hold hearings with a view toward considering legislation on the operations of China’s Blockchain-Based
Service Network, with particular attention to its operationsin the United States and participation of U.S. companies inbuilding out the network. Such investigation should look at thegoals of the network in developing blockchain infrastructure
and whether the involvement of the Chinese government andChinese state-owned entities may put at risk any U.S. economic
and national security interests.
13. Congress consider legislation to create the authority to screen
the offshoring of critical supply chains and production capabil-

495
ities to the PRC to protect U.S. national and economic security
interests and to define the scope of such supply chains and production capabilities. This would include screening related outbound investment by U.S. entities. Such legislation would direct
the secretaries of defense and commerce, along with the U.S.
Trade Representative, to develop procedures to evaluate existing and proposed supply relationships with the PRC and identify whether critical U.S. interests are being adversely affected,
including the loss of domestic production capacity and capabilities. The legislation would authorize the president to take appropriate action, including prohibiting supply relationships or
certain transactions to protect U.S. national security.
Section 3: The Chinese Government’s Evolving Control of the
Nonstate Sector
The Commission recommends:
14. Congress direct the U.S. Securities and Exchange Commission
to require that publicly traded U.S. companies with facilities
in China report on an annual basis whether there is a Chinese Communist Party (CCP) committee in their operations andsummarize the actions and corporate decisions in which suchcommittees may have participated.
15. Congress direct the Bureau of Economic Analysis at the U.S.
Department of Commerce to amend its surveys of U.S. multinational enterprise activity in China to report on the presence
and actions of CCP committees in the foreign affiliates of U.S.
firms operating in China.
Section 4: U.S.-China Financial Connectivity and Risks to
U.S. National Security
The Commission recommends:
16. Congress consider comprehensive legislation to ensure Chinese
entities sanctioned under one U.S. authority be automaticallysanctioned under other authorities unless a waiver is grantedby the president or the authority applying the initial sanction.
This legislation should rationalize existing U.S. sanctions targeting adversarial Chinese entities to ensure, for example, Chinese firms placed on the Entity List and/or Military End User
List of the U.S. Department of Commerce are also placed on the
Non-Specially Designated Nationals (SDN) Chinese Military-Industrial Complex (NS-CMIC) Companies List and vice versa.
17. Congress enact legislation expanding the jurisdiction of existing
U.S. investment restrictions targeting Chinese entities placedon the NS-CMIC Companies List as well as the scope of entities to be targeted by such restrictions. Such provisions should
include:• Expanding the prohibitions relating to transactions and supporting work by U.S. persons in NS-CMIC securities covered
by Executive Order 14032 to include the execution, support,
or servicing of transactions by U.S. persons in any market orfor any other person, including both U.S. and non-U.S. persons; and496• Providing additional resources to ensure that a more comprehensive list of entities engaged in supporting the Chinese
military-industrial complex be published and that subsidiaries supporting such entities be included on the list. In identifying entities that should be evaluated for inclusion in suchdesignations, authorities should include companies designated by Chinese securities issuing and trading entities as supporting the military-industrial complex.
18. Congress pass legislation that defines categories of Chinese persons, Chinese entities, and Chinese Communist Party (CCP)related persons and entities subject to full blocking sanctions
and inclusion on the U.S. Department of the Treasury’s SDN
list due to actions that harm the vital national interest or thenational security of the United States or that constitute grosshuman rights violations.
19. Congress consider comprehensive legislation to address risks to
U.S. investors and U.S. interests from investments in Chineseequity, debt, and derivative instruments by:• Prospectively prohibiting investment in Variable Interest Entities (VIEs) linked to Chinese entities.
• Absent prohibition, ensuring that the risks of investments in
VIEs linked to Chinese entities are more prominently identified for investors, including that the VIE structure is illegal
under Chinese law, and that taxpayer subsidies do not support investments in such entities. Provisions that should beconsidered in support of this goal include:○ Requiring prominent identification of the potential highrisk for investments in VIEs linked to Chinese companiesby: Identifying VIEs linked to Chinese companies as such intheir stock trading symbols on U.S. exchanges.
 Requiring that broker-dealers provide risk warning labels on the potential lack of legal recourse for investors
for their investments in VIEs linked to Chinese entities.
○ Prohibiting preferential federal tax treatment on losses andgains on investments in VIEs linked to Chinese entities
made after the passage of appropriate statutory provisions.
• Directing the U.S. Securities and Exchange Commission(SEC) as part of its evaluation of potential guidance on reporting on environmental, social, and governance matters by
publicly traded companies to require reporting of:○ Sourcing and due diligence activities of such companies involving supply chains that are directly or indirectly linked
to products and services utilizing forced labor from Xinjiang.
○ Transactions with companies that have been placed on the
Department of Commerce’s Entity List or those designatedby Treasury as Chinese Military-Industrial Complex Companies.

497• Requiring index providers that include within their indicessecurities issued on mainland Chinese exchanges or the Hong
Kong Stock Exchange, securities of China-headquarteredcompanies listed on U.S. exchanges through a VIE, or derivative instruments of either of the preceding types of securities,
be subject to regulation by the SEC.
20. Congress ensure the effective implementation of the Export
Control Reform Act of 2018 and the Foreign Investment Risk
Review Modernization Act of 2018 by enacting legislation that:• Creates a Technology Transfer Review Group (TTRG) within the Executive Office of the President responsible for identifying emerging and foundational technologies. The TTRG
should be chaired by the secretary of defense and include thedirector of the Office of Science and Technology Policy alongwith Cabinet-level secretaries or their designees from the U.S.
Departments of Commerce, Energy, and Homeland Security.
• Authorizes the TTRG to direct the Department of Commerce’s
Bureau of Industry and Security to implement export controls following the identification of these technologies.
• Authorizes and requires the TTRG to oversee multilateralengagement related to export controls, foreign investment
screening, and regulations over technology transfer by relevant agencies to ensure that such engagement does not undermine U.S. national and economic security interests.
• Require that additional resources be provided to improve andexpand end-user verification of export controls. Export licenses to the following entities should receive strict scrutiny:
end-users identified as Chinese Communist Military Companies per section 1237 of the National Defense Authorization
Act for Fiscal Year 1999, those identified as contributors to
China’s military-civilian fusion activities per section 1260H of
the National Defense Authorization Act for Fiscal Year 2021,
entities with direct and formal ties to the CCP or Chinese
government, and entities identified by the U.S. Trade Representative, U.S. Department of Justice, and Federal Bureau of
Investigation as being linked to efforts to steal or coerce thetransfer of U.S. intellectual property. The inability to identify
end-user facilities and, if identified, the lack of adequate andtimely access to these facilities should strongly inform investigating officials and licensing officials.
• Require that the TTRG engage with the Department of Justice, the Department of Commerce’s Bureau of Industry andSecurity, and other relevant agencies to align “deemed export”
controls with engagement on knowledge transfer and expert
recruitment strategies such as the 1,000 Talents Program aswell as investigations of the CCP’s United Front Work Department and other entities and programs of the CCP designed to acquire U.S. technology and capabilities.

498
21. Congress mandate from Treasury an annual update of the accurate U.S. portfolio investment position in China since 2008,
including money routed through offshore centers, such as the
Cayman Islands. This should include exposure for:• Individual Chinese sectors;• U.S. institution types, such as state pension funds;• Sanctioned Chinese entities (Entity List, NS-CMIC List, andothers);• Individual Chinese recipients who receive more than a minimum amount, such as $100 million; and• Individual U.S. investors with more than a minimum share of
the total, such as 2 percent.
Chapter 3: U.S.-China Security, Politics, and Foreign Affairs
Section 2: China’s Nuclear Forces: Moving beyond a Minimal
Deterrent
The Commission recommends:
22. Congress direct the Administration to conduct an interagency
review of any Chinese universities that maintain research ortraining arrangements with China’s nuclear weapons research
institutes, such as the Chinese Academy of Engineering Physics
and the Northwest Institute of Nuclear Technology. The review
should be led by the U.S. Department of Energy and include
the U.S. Departments of Commerce, Treasury, and Defense; theIntelligence Community; and other federal departments andagencies as appropriate. The review would:• Assess the impact of such cooperation on China’s nuclear
weapons programs and capabilities;• Assess whether current U.S. export controls adequately address risks from the transfer and exchange of informationand technologies with applications to nuclear research, particularly by researchers and departments in relevant academic
disciplines at U.S. universities to these Chinese universities;• Identify Chinese universities and research institutes thatshould be added to the Entity List, based on the risks posedby their cooperation with the Chinese Academy of Engineering Physics, Northwest Institute of Nuclear Technology, andother Chinese institutions involved in nuclear weapons development, as appropriate;• Identify Chinese universities and research institutes thatmerit a presumption of denial for all export licenses involving
items covered by the Export Administration Regulations; and• Develop and maintain a list of all academic partnerships infields with applications to nuclear weapons development entered into between Chinese universities and U.S. universities
that receive federal funding for the purpose of determining
whether these activities are subject to export controls.

499
23. Congress prevent the erosion of U.S. strategic nuclear superiority and respond to China’s qualitative and quantitative theater
nuclear advantages by directing the Administration to continue
implementation of the Obama-Trump Program of Record for nuclear modernization.
24. Congress enact legislation creating an independent bipartisancommission, similar to the Quadrennial Defense Review commissions authorized in the past, to assess the Nuclear Posture
Review and advise Congress about whether the current U.S.
nuclear posture is sufficient to maintain deterrence against the
expanding Chinese and Russian nuclear forces. The Commission should:• Determine how Russian and Chinese nuclear capabilities
have changed between 2010 and 2022;• Evaluate whether the current number of U.S.-deployed strategic weapons is sufficient to deter both Russia and China
over the next 20 years; and• Identify any further changes required to U.S. force posture,
doctrine, and missile defense.
25. Congress authorize funding for a comprehensive diplomatic
strategy on nuclear deterrence and arms control. This comprehensive program would include:• Intelligence diplomacy with key allies and partners in the
Indo-Pacific and in Europe to inform them of developments
in China’s nuclear forces;• Dialogue to convince these allies and partners to pressure
Beijing diplomatically to enter into arms control talks andto explore these partners’ willingness to host U.S. intermediate-range forces and other U.S. assets; and• Continued efforts to engage both Russia and China in trilateral arms control talks, including by continuing efforts with
Russia to persuade China to enter into arms control discussions.
Chapter 4: A Dangerous Period for Cross-Strait Deterrence:
Chinese Military Capabilities and Decision-Making for a
War over Taiwan
The Commission recommends:
26. Congress enhance Taiwan’s ability to purchase U.S. defense articles and accelerate the process for their sale and delivery to
Taiwan by:• Authorizing and appropriating on a multiyear basis Foreign
Military Financing Program funds for Taiwan to purchasedefense articles from the United States and allowing Taiwan
to use Foreign Military Financing funds to purchase arms
through direct commercial contracts;• Amending the Foreign Assistance Act to make Taiwan eligible
to receive priority delivery of U.S. excess defense articles; and500• Directing the Administration to use the Special Defense Acquisition Fund to reduce defense procurement lead times forarms sales to Taiwan by pre-stocking defense articles needed
to maintain cross-Strait deterrence.
27. Congress take urgent measures to strengthen the credibility of
U.S. military deterrence in the near term and to maintain theability of the United States to uphold its obligations establishedin the Taiwan Relations Act to resist any resort to force thatwould jeopardize the security of Taiwan, including:• Authorizing and funding the deployment of large numbers ofantiship cruise and ballistic missiles in the Indo-Pacific;• Authorizing and funding the requests of U.S. Indo-PacificCommand (INDOPACOM) for better and more survivable intelligence, surveillance, and reconnaissance in the East andSouth China Seas;• Authorizing and funding the requests of INDOPACOM for
hardening U.S. bases in the region, including robust missile
defense;• Authorizing and funding the stockpiling of large numbers of
precision munitions in the Indo-Pacific; and• Authorizing and funding programs that enable U.S. forces tocontinue operations in the event central command and control is disrupted.
Chapter 5: Hong Kong’s Government Embraces
Authoritarianism
The Commission recommends:
28. Congress amend the Hong Kong Autonomy Act to add to thecontents of the annual report required by the act a determination of whether the Beijing-controlled Government of Hong
Kong has violated freedom of emigration from Hong Kong. The
report should assess whether the Government of Hong Konghas:
• Denied Hong Kong residents’ right or opportunity to emigrate;• Imposed more than a nominal tax on emigration or on thevisas or other documents required for emigration, for any
purpose or cause whatsoever; or• Made emigration contingent on receiving official approvalthat is not practicably possible to obtain or is otherwise obstructed by authorities.
29. Congress amend section 421 of the U.S.-China Relations Act
of 2000 to require the U.S. Trade Representative to include anassessment of Hong Kong’s treatment as a separate customs
territory in its annual report on China’s compliance with commitments made in connection with its accession to the World
Trade Organization (WTO). This additional section of the report
should consider:

501• Hong Kong’s compliance to its commitments under the WTO;
• Whether mainland Chinese entities operating in Hong Kong
are using the Special Administrative Region’s status as atransshipment hub to circumvent U.S. duties on China;• Whether Hong Kong “possesses full autonomy in the conductof its external commercial relations” and if the United Statesshould continue to recognize Hong Kong’s rights as a separate customs territory under the WTO pursuant to section
201 of the U.S.-Hong Kong Policy Act of 1992; and• Whether the United States should apply tariffs and all othertrade treatment to Hong Kong equivalent to that of the People’s Republic of China (PRC). The U.S. Trade Representative
should consult the secretary of state’s determination of Hong
Kong’s autonomy when making this recommendation to thepresident.
30. Congress, in consideration of the plight of prodemocracy activists from the Hong Kong Special Administrative Region, should
encourage the secretary of homeland security to exercise theirauthority under the Immigration and Nationality Act on thebasis of both a “compelling emergency” and “urgent humanitarian reason[s]” to parole into the United States aliens who areresidents of Hong Kong and who are applying for admission to
the United States.
31. Congress require the U.S. Department of Justice and the U.S.
Department of Commerce to collect information from U.S. companies operating in Hong Kong concerning requests from theGovernment of Hong Kong for content takedowns, access todata, and law enforcement assistance. The departments shallreport their findings to Congress every 180 days specifying:• The number of requests fulfilled and by which companies;• Where such requests involved user data; and• Which local laws the requests invoked.
32. Congress direct the Department of Justice to require media outlets operating in the United States that are majority owned by
the Government of the PRC or the Government of Hong Kongto register under the Foreign Agents Registration Act. Congressshould also direct the Department of State to determine whether such outlets qualify as a foreign mission of the PRC.

502

ADDITIONAL VIEWS OF COMMISSIONERJEFFREY FIEDLERJOINED BY COMMISSIONERMICHAEL R. WESSELThe Trump Administration in its waning weeks hurriedly restricted U.S. investment in some Chinese military-related and surveillance companies. The Biden Administration rationalized the process
and dropped some companies and added others. Thus, certain outbound investment was declared to endanger U.S. national security.
Up to this point government policy had focused primarily on thedangers of trade and inbound Chinese investment.
Recognition that U.S. investment banks and institutional investors were endangering national security by investing in Chinese
military-related and surveillance companies is a major step forward.
These “sophisticated investors” cannot credibly claim they did notknow, for instance, that AVIC Shenyang Aircraft Company is a primary producer of Chinese fighter jets, including its stealth aircraft.
Among U.S. investors with a history of investment in the company are Blackrock, Charles Schwab Investment Management, Dimensional Fund Advisors, Goldman Sachs, J.P. Morgan Asset Management, Lazard Asset Management, Northern Trust, State Street
Global Advisors, TIAA-CREF, and Vanguard.
Some argue these investments were not “illegal.” Until now, thatwas certainly true. One might be excused for thinking that a basic
responsibility of American citizenship ought to be not to do anything
to endanger U.S. troops. These investors handle trillions of dollars of
U.S. workers pension funds and 401K accounts. Most workers haveno idea where their retirement savings are invested. Public employee funds, though, fit into the category of “sophisticated investors”
and should have done their due diligence on these investments.
China has been labeled by the U.S. government as a “strategiccompetitor” but is also being treated as a “potential adversary.”
This Annual Report presents a lengthy treatment about a potential
conflict between the United States and China over Taiwan. It also
highlights the potential for conflict through miscalculation in theSouth China Sea and raises concerns about China’s nuclear weapons strategy. Our defense spending is increasingly focused on China
as a threat. All of this makes restrictions on investments in Chinese
military-related companies more important.
The Biden Administration Executive Order prohibits investment
in only 24 publicly traded Chinese companies. Many more should
be on the list. Why they are not is only known to the Departmentof Treasury, the agency primarily responsible for developing the listin the Executive Order Annex. Part of the problem may be that
Treasury is viewing Chinese public companies through the lens of
the U.S. corporate system rather than the hybrid authoritarian state
capitalism that exists in China. It largely ignores the military-civil
fusion concept that is a key factor in the success of China’s rapid
military modernization. The downgrading of the role of the Department of Defense in the process may also be a factor.

503
As a methodology for adding military-related companies to the
Executive Order, Treasury should look at the holdings of the overtwo dozen defense, military, and national security related Exchange
Traded Funds (ETFs) that exist in China. These contain at least
300 publicly traded companies that Chinese investment managers
self-define as involved in these sectors and likely are not the fulluniverse of companies of concern. The companies represent differinglevels of risk to U.S. national security, but risk nonetheless.
In these ETFs one finds, for example, North Industries Group Red
Arrow Co., Ltd which lists on the Shenzhen Stock Exchange. A description of its business in a U.S. investment information service
states: “The company offers caliber shells, rockets, missiles, submunitions, super hard materials, aircraft parts, anti-terrorism and anti-riot products . . . .” It is owned 17.96% by China North Industries
Group Corporation (NORINCO) and 12.62% by North Industries
Group Investment Management Company Limited, the former ofwhich is listed on the Executive Order Annex. The next largest investor (a Chinese company) holds 4.9%. If one thinks that because
NORINCO entities own less than 50% of the outstanding shares
they are not in a control position, then one doesn’t understand how
the Chinese corporate system works. The Vanguard Group andFranklin Resources have invested in Red Arrow.
Another example of a company missing from the Executive Order
Annex but found in military-related ETFs is North Electro-Optic
Co., Ltd, also traded on the Shenzhen Stock Exchange and owned
36.28% by NORINCO and 22.98% by North Industries Group Investment Management. North Electro-Optic “researches, develops,
produces and sells optical weapons and equipment in China andinternationally.” The Vanguard Group owns shares in the company.
That these and many other companies were missed by the Department of Treasury is baffling. This year’s report recommends
that Congress address this issue.
The Biden Administration Executive Order contains a major
loophole that Congress should close. It is to be found in the Department of Treasury Frequently Asked Questions 902 issued onJune 3, 2021 along with the updated and revised Executive Order:“U.S. persons are not prohibited from providing investment advisory,investment management, or similar services to a non-U.S. person,
including a foreign entity or foreign fund, in connection with the
non-U.S. person’s purchase or sale of a covered security, provided
that the underlying purchase or sale would not otherwise violate
E.O. 13959, as amended. For example, a U.S. individual acting as
the fund manager for a non-U.S. investment fund, or a U.S. entitythat is the investment adviser or investment manager for a non-U.S.
investment fund, is not prohibited from advising on, authorizing, directing, or approving purchases or sales of covered securities by the
non-U.S. investment fund, provided that the underlying purchase orsale would not otherwise violate E.O. 13959, as amended (e.g., neither the purchase nor sale of the covered security is for the ultimate
benefit of a U.S. person, the purchase or sale is not a willful attempt
to evade the prohibitions of E.O. 13959, as amended, etc.) . . .”In plain language, U.S. investment banks and institutional investors can still buy, sell and profit off of Chinese military-related

504
companies as long as they are not doing so in the United Statesand only involve non-U.S. citizens. If we are really interested in protecting U.S. national security rather than simply appearing to, thisloophole should be closed as the Commission recommends.

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ADDITIONAL VIEWS OF COMMISSIONERSROY D. KAMPHAUSEN, DEREK SCISSORS, AND
ROBIN CLEVELAND
We share the unanimous view of this year’s Annual Report thatcompetition with China will be a defining characteristic of America’s
strategic environment for years to come. Following the conclusionsof the 2020 Report, we concur that the People’s Republic of China(PRC) has been engaged in one form or another of this competition
with the United States since the founding of the PRC. Today, thestakes are much higher because China’s capabilities are so muchgreater.
There is no single policy solution that will win the day. Rather,
this competition will be a generation-long effort, won on the basisof steady decision making and enduring fortitude in the face of PRC
aggression and pressure.
If the U.S. is to wage competition successfully, using all the tools
available will advance and secure a more competitive America. Thisapproach is variously referred to as a “whole of government” effort,
or one which employs all the elements of national power—diplomatic, informational, military and economic.
To be concluded, sustained and successful, trade agreements must
serve more than global interests. They must work for the domestic
economies they represent. In recent years, negotiating good deals
that serve domestic constituencies has proven difficult, in the process eroding public confidence in the value of trade agreements.
The perspective we have had a series of “bad” deals has evolved
into opposition to any multilateral or bilateral trade agreements. A
key factor in increased opposition to trade agreements is linked tothe original deal the U.S. made with China. Despite initial expectations and benefits, China’s accession to the WTO has harmed the
U.S. in multiple ways. Giving up on trade agreements altogether in
response would be allowing China to harm the U.S. once again.
This year’s Annual Report does not mention trade agreements.
Failure to raise the topic of trade agreements, within the context ofstrategic competition with China, overlooks or disregards a key tool
available to the country and the Congress.
Recently, both China and Taiwan have applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP) negotiated amongst some of America’s most important economic and security partners including Japan, Canada, and Mexico.
The fact that the PRC has applied for membership to the CPTPP
likely underscores the CCP’s understanding about the comprehensive nature of strategic competition.
The failure to hold China accountable in the WTO for its original and ongoing commitments along with the problems of the 2015
Trans-Pacific Partnership underscore the challenges to any future
trade negotiations.
Thus, we are not making a case for the U.S. to apply to the CPTPP.
We are encouraging recognition of trade tools and negotiation of bilateral and multilateral trade agreements as an imperative serving
our national security and economic interests. The Commission’s silence this year on trade agreements reflects general concerns about

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prior ineffective policies and mistakes. To abandon the tool altogether going forward would be an even more costly mistake. To prevailin America’s strategic competition with China requires the Administration and Congress join in this understanding and pursue a more
active role in global trade.

APPENDIX I
CHARTERThe Commission was created on October 30, 2000, by the Floyd
D. Spence National Defense Authorization Act of 2001, Pub. L. No.
106–398 (codified at 22 U.S.C. § 7002), as amended by:• The Treasury and General Government Appropriations Act,
2002, Pub. L. No. 107–67 (Nov. 12, 2001) (regarding employment status of staff and changing annual report due date fromMarch to June);• The Consolidated Appropriations Resolution, 2003, Pub. L. No.
108–7 (Feb. 20, 2003) (regarding Commission name change,
terms of Commissioners, and responsibilities of the Commission);• The Science, State, Justice, Commerce, and Related Agencies
Appropriations Act, 2006, Pub. L. No. 109–108 (Nov. 22, 2005)(regarding responsibilities of the Commission and applicabilityof FACA);• The Consolidated Appropriations Act, 2008, Pub. L. No. 110–161 (Dec. 26, 2007) (regarding submission of accounting reports,
printing and binding, compensation for the executive director,
changing annual report due date from June to December, andtravel by members of the Commission and its staff);• The Carl Levin and Howard P. ‘‘Buck’’ McKeon National Defense
Authorization Act for Fiscal Year 2015, Pub. L. No. 113–291(Dec. 19, 2014) (regarding responsibilities of the Commission).
22 U.S.C. § 7002. United States-China Economic and Security
Review Commission(a) Purposes
The purposes of this section are as follows:(1) To establish the United States-China Economic and Security
Review Commission to review the national security implications oftrade and economic ties between the United States and the People’s
Republic of China.
(2) To facilitate the assumption by the United States-China Economic and Security Review Commission of its duties regarding thereview referred to in paragraph (1) by providing for the transfer tothat Commission of staff, materials, and infrastructure (including
leased premises) of the Trade Deficit Review Commission that areappropriate for the review upon the submittal of the final report of
the Trade Deficit Review Commission.
(b) Establishment of United States-China Economic and Security
Review Commission
(507)

508
(1) In general
There is hereby established a commission to be known as theUnited States-China Economic and Security Review Commission (inthis section referred to as the “Commission”).
(2) Purpose
The purpose of the Commission is to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States andthe People’s Republic of China.
(3) Membership
The Commission shall be composed of 12 members, who shallbe appointed in the same manner provided for the appointment ofmembers of the Trade Deficit Review Commission under section
127(c)(3) of the Trade Deficit Review Commission Act (19 U.S.C.
2213 note), except that—(A) appointment of members by the Speaker of the House of Representatives shall be made after consultation with the chairman of
the Committee on Armed Services of the House of Representatives,in addition to consultation with the chairman of the Committee onWays and Means of the House of Representatives provided for underclause (iii) of subparagraph (A) of that section;(B) appointment of members by the President pro tempore of the
Senate upon the recommendation of the majority leader of the Senate shall be made after consultation with the chairman of the Committee on Armed Services of the Senate, in addition to consultation
with the chairman of the Committee on Finance of the Senate provided for under clause (i) of that subparagraph;(C) appointment of members by the President pro tempore of
the Senate upon the recommendation of the minority leader of the
Senate shall be made after consultation with the ranking minority member of the Committee on Armed Services of the Senate, in
addition to consultation with the ranking minority member of theCommittee on Finance of the Senate provided for under clause (ii)of that subparagraph;(D) appointment of members by the minority leader of the Houseof Representatives shall be made after consultation with the ranking minority member of the Committee on Armed Services of theHouse of Representatives, in addition to consultation with the ranking minority member of the Committee on Ways and Means of theHouse of Representatives provided for under clause (iv) of that subparagraph;(E) persons appointed to the Commission shall have expertise innational security matters and United States-China relations, in addition to the expertise provided for under subparagraph (B)(i)(I) of
that section;(F) each appointing authority referred to under subparagraphs(A) through (D) of this paragraph shall—(i) appoint 3 members to the Commission;(ii) make the appointments on a staggered term basis, such that—(I) 1 appointment shall be for a term expiring on December 31,
2003;(II) 1 appointment shall be for a term expiring on December 31,
2004; and

509(III) 1 appointment shall be for a term expiring on December 31,
2005;(iii) make all subsequent appointments on an approximate 2-year
term basis to expire on December 31 of the applicable year; and(iv) make appointments not later than 30 days after the date on
which each new Congress convenes;(G) members of the Commission may be reappointed for additional terms of service as members of the Commission; and(H) members of the Trade Deficit Review Commission as of October 30, 2000, shall serve as members of the Commission until suchtime as members are first appointed to the Commission under thisparagraph.
(4) Retention of support
The Commission shall retain and make use of such staff, materials, and infrastructure (including leased premises) of the Trade
Deficit Review Commission as the Commission determines, in the
judgment of the members of the Commission, are required to facilitate the ready commencement of activities of the Commission undersubsection (c) or to carry out such activities after the commencement of such activities.
(5) Chairman and Vice Chairman
The members of the Commission shall select a Chairman and Vice
Chairman of the Commission from among the members of the Commission.
(6) Meetings(A) Meetings
The Commission shall meet at the call of the Chairman of theCommission.
(B) Quorum
A majority of the members of the Commission shall constitute a
quorum for the transaction of business of the Commission.
(7) Voting
Each member of the Commission shall be entitled to one vote,which shall be equal to the vote of every other member of the Commission.
(c) Duties(1) Annual report
Not later than December 1 each year (beginning in 2002), theCommission shall submit to Congress a report, in both unclassified
and classified form, regarding the national security implications andimpact of the bilateral trade and economic relationship between the
United States and the People’s Republic of China. The report shall
include a full analysis, along with conclusions and recommendations
for legislative and administrative actions, if any, of the national security implications for the United States of the trade and current
balances with the People’s Republic of China in goods and services,financial transactions, and technology transfers. The Commission
shall also take into account patterns of trade and transfers throughthird countries to the extent practicable.
(2) Contents of report
Each report under paragraph (1) shall include, at a minimum, afull discussion of the following:510(A) The role of the People’s Republic of China in the proliferationof weapons of mass destruction and other weapon systems (including systems and technologies of a dual use nature), including actions
the United States might take to encourage the People’s Republic ofChina to cease such practices.
(B) The qualitative and quantitative nature of the transfer ofUnited States production activities to the People’s Republic of China, including the relocation of manufacturing, advanced technology
and intellectual property, and research and development facilities,
the impact of such transfers on the national security of the UnitedStates (including the dependence of the national security industrial
base of the United States on imports from China), the economic security of the United States, and employment in the United States,
and the adequacy of United States export control laws in relation to
the People’s Republic of China.
(C) The effects of the need for energy and natural resources in
the People’s Republic of China on the foreign and military policies of
the People’s Republic of China, the impact of the large and growing
economy of the People’s Republic of China on world energy and natural resource supplies, prices, and the environment, and the role theUnited States can play (including through joint research and development efforts and technological assistance) in influencing the energy and natural resource policies of the People’s Republic of China.
(D) Foreign investment by the United States in the People’s Republic of China and by the People’s Republic of China in the UnitedStates, including an assessment of its economic and security implications, the challenges to market access confronting potential United States investment in the People’s Republic of China, and foreign
activities by financial institutions in the People’s Republic of China.
(E) The military plans, strategy and doctrine of the People’s Republic of China, the structure and organization of the People’s Republic of China military, the decision-making process of the People’s
Republic of China military, the interaction between the civilian andmilitary leadership in the People’s Republic of China, the development and promotion process for leaders in the People’s Republic ofChina military, deployments of the People’s Republic of China military, resources available to the People’s Republic of China military(including the development and execution of budgets and the allocation of funds), force modernization objectives and trends for the
People’s Republic of China military, and the implications of suchobjectives and trends for the national security of the United States.
(F) The strategic economic and security implications of the cybercapabilities and operations of the People’s Republic of China.
(G) The national budget, fiscal policy, monetary policy, capital controls, and currency management practices of the People’s Republic ofChina, their impact on internal stability in the People’s Republic ofChina, and their implications for the United States.
(H) The drivers, nature, and implications of the growing economic, technological, political, cultural, people-to-people, and security relations of the People’s Republic of China’s with other countries, regions, and international and regional entities (including multilateralorganizations), including the relationship among the United States,
Taiwan, and the People’s Republic of China.

511(I) The compliance of the People’s Republic of China with its
commitments to the World Trade Organization, other multilateralcommitments, bilateral agreements signed with the United States,
commitments made to bilateral science and technology programs,
and any other commitments and agreements strategic to the United States (including agreements on intellectual property rights andprison labor imports), and United States enforcement policies withrespect to such agreements.
(J) The implications of restrictions on speech and access to information in the People’s Republic of China for its relations with
the United States in economic and security policy, as well as any
potential impact of media control by the People’s Republic of China
on United States economic interests.
(K) The safety of food, drug, and other products imported from
China, the measures used by the People’s Republic of China Government and the United States Government to monitor and enforce
product safety, and the role the United States can play (including
through technical assistance) to improve product safety in the People’s Republic of China.
(3) Recommendations of report
Each report under paragraph (1) shall also include recommendations for action by Congress or the President, or both, including specific recommendations for the United States to invoke Article XXI(relating to security exceptions) of the General Agreement on Tariffs
and Trade 1994 with respect to the People’s Republic of China, as
a result of any adverse impact on the national security interests of
the United States.
(d) Hearings(1) In general
The Commission or, at its direction, any panel or member of theCommission, may for the purpose of carrying out the provisions of
this section, hold hearings, sit and act at times and places, taketestimony, receive evidence, and administer oaths to the extent that
the Commission or any panel or member considers advisable.
(2) Information
The Commission may secure directly from the Department of
Defense, the Central Intelligence Agency, and any other Federal
department or agency information that the Commission considers
necessary to enable the Commission to carry out its duties under
this section, except the provision of intelligence information to theCommission shall be made with due regard for the protection fromunauthorized disclosure of classified information relating to sensitive intelligence sources and methods or other exceptionally sensitive matters, under procedures approved by the Director of Central
Intelligence.
(3) Security
The Office of Senate Security shall—(A) provide classified storage and meeting and hearing spaces,
when necessary, for the Commission; and(B) assist members and staff of the Commission in obtaining security clearances.
(4) Security clearances

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All members of the Commission and appropriate staff shall besworn and hold appropriate security clearances.
(e) Commission personnel matters(1) Compensation of members
Members of the Commission shall be compensated in the samemanner provided for the compensation of members of the Trade Deficit Review Commission under section 127(g)(1) and section 127(g)(6)of the Trade Deficit Review Commission Act (19 U.S.C. 2213 note).
(2) Travel expenses
Travel expenses of the Commission shall be allowed in the samemanner provided for the allowance of the travel expenses of theTrade Deficit Review Commission under section 127(g)(2) of theTrade Deficit Review Commission Act.
(3) Staff
An executive director and other additional personnel for the Commission shall be appointed, compensated, and terminated in thesame manner provided for the appointment, compensation, and termination of the executive director and other personnel of the Trade
Deficit Review Commission under section 127(g)(3) and section
127(g)(6) of the Trade Deficit Review Commission Act. The executive director and any personnel who are employees of the UnitedStates-China Economic and Security Review Commission shall be
employees under section 2105 of title 5 for purposes of chapters 63,
81, 83, 84, 85, 87, 89, and 90 of that title. [Amended by P.L. 111–117
to apply section 308(e) of the United States China Relations Act of2000 (22 U.S.C. 6918(e)) (relating to the treatment of employees as
Congressional employees) to the Commission in the same manneras such section applies to the Congressional-Executive Commission
on the People’s Republic of China.](4) Detail of government employees
Federal Government employees may be detailed to the Commission in the same manner provided for the detail of Federal Government employees to the Trade Deficit Review Commission under
section 127(g)(4) of the Trade Deficit Review Commission Act.
(5) Foreign travel for official purposes
Foreign travel for official purposes by members and staff of theCommission may be authorized by either the Chairman or the Vice
Chairman of the Commission.
(6) Procurement of temporary and intermittent services
The Chairman of the Commission may procure temporary andintermittent services for the Commission in the same manner provided for the procurement of temporary and intermittent services
for the Trade Deficit Review Commission under section 127(g)(5) of
the Trade Deficit Review Commission Act.
(f) Authorization of appropriations(1) In general
There is authorized to be appropriated to the Commission for fiscal year 2001, and for each fiscal year thereafter, such sums as may
be necessary to enable the Commission to carry out its functions
under this section.

513(2) Availability
Amounts appropriated to the Commission shall remain available
until expended.
(g) Applicability of FACA
The provisions of the Federal Advisory Committee Act (5 U.S.C.
App.) shall apply to the activities of the Commission.
(h) Effective dateThis section shall take effect on the first day of the 107th Congress.
(Pub. L. 106–398, § 1 [[div. A], title XII, § 1238], Oct. 30, 2000, 114
Stat. 1654 , 1654A–334; Pub. L. 107–67, title VI, §§ 645(a), 648, Nov.
12, 2001, 115 Stat. 556; Pub. L. 108–7, div. P, § 2(b)(1), (c)(1), Feb.
20, 2003, 117 Stat. 552; Pub. L. 109–108, title VI, § 635(b), Nov. 22,
2005, 119 Stat. 2347; Pub. L. 110–161, div. J, title I, Dec. 26, 2007,
121 Stat. 2285; Pub. L. 113–291, div. A, title XII, § 1259B(a), Dec. 19,
2014, 128 Stat. 3578.)
Amendments
2014—Subsec. (c)(2). Pub. L. 113–291 added subpars. (A) to (K)and struck out former subpars. (A) to (J) which described required
contents of report.
2007—Subsec. (c)(1). Pub. L. 110–161 substituted “December” for“June”.
2005—Subsec. (g). Pub. L. 109–108 amended heading and text ofsubsec. (g) generally. Prior to amendment, text read as follows: “Theprovisions of the Federal Advisory Committee Act (5 U.S.C. App.)shall not apply to the Commission.”
2003—Pub. L. 108–7, § 2(b)(1)(A), inserted “Economic and” before“Security” in section catchline.
Subsec. (a)(1), (2). Pub. L. 108–7, § 2(b)(1)(B), inserted “Economicand” before “Security”.
Subsec. (b). Pub. L. 108–7, § 2(b)(1)(C)(i), inserted “Economic and”
before “Security” in heading.
Subsec. (b)(1). Pub. L. 108–7, § 2(b)(1)(C)(ii), inserted “Economicand” before “Security”.
Subsec. (b)(3). Pub. L. 108–7, § 2(b)(1)(C)(iii)(I), which directed theamendment of introductory provisions by inserting “Economic and”
before “Security”, could not be executed because “Security” does notappear.
Subsec. (b)(3)(F). Pub. L. 108–7, § 2(c)(1), added subpar. (F) andstruck out former subpar. (F) which read as follows: “members shallbe appointed to the Commission not later than 30 days after thedate on which each new Congress convenes;”.
Subsec. (b)(3)(H), (4), (e)(1), (2). Pub. L. 108–7, § 2(b)(1)(C)(iii)(II),(iv), (D)(i), (ii), which directed insertion of “Economic and” before“Security”, could not be executed because “Security” does not appear.
Subsec. (e)(3). Pub. L. 108–7, § 2(b)(1)(D)(iii)(II), inserted “Economic and” before “Security” in second sentence.
Pub. L. 108–7, § 2(b)(1)(D)(iii)(I), which directed the amendment of
first sentence by inserting “Economic and” before “Security”, could
not be executed because “Security” does not appear.

514
Subsec. (e)(4), (6). Pub. L. 108–7, § 2(b)(1)(D)(iv), (v), which directed the amendment of pars. (4) and (6) by inserting “Economic and”
before “Security”, could not be executed because “Security” does notappear.
2001—Subsec. (c)(1). Pub. L. 107–67, § 648, substituted “June” for“March”.
Subsec. (e)(3). Pub. L. 107–67, § 645(a), inserted at end “The executive director and any personnel who are employees of the UnitedStates-China Security Review Commission shall be employees under section 2105 of title 5 for purposes of chapters 63, 81, 83, 84, 85,
87, 89, and 90 of that title.”

APPENDIX IIBACKGROUND OF COMMISSIONERS
Carolyn Bartholomew, Chairman
Chairman Carolyn Bartholomew was reappointed to the Commission by House Speaker Nancy Pelosi for a two-year term expiringon December 31, 2021. She previously served as the Commission’s
Chairman for four report cycles and served as Vice Chairman for
six report cycles.
Chairman Bartholomew has worked at senior levels in the U.S.
Congress, serving as a long-time counsel, legislative director, andchief of staff to now House Speaker Nancy Pelosi. She was a professional staff member on the House Permanent Select Committee onIntelligence and also served as a legislative assistant to then U.S.
Representative Bill Richardson.
In these positions, Chairman Bartholomew was integrally involved
in developing U.S. policies on international affairs and security matters. She has particular expertise in U.S.-China relations, including issues related to trade, human rights, and the proliferation of
weapons of mass destruction. Chairman Bartholomew led efforts inthe establishment and funding of global AIDS programs and thepromotion of human rights and democratization in countries aroundthe world. She was a member of the first Presidential Delegation
to Africa to Investigate the Impact of HIV/AIDS on Children anda member of the Council on Foreign Relations’ Congressional Staff
Roundtable on Asian Political and Security Issues.
In addition to U.S.-China relations, her areas of expertise include
terrorism, trade, human rights, U.S. foreign assistance programs,
appropriations, and international environmental issues. She has
been a consultant to non-profit organizations and serves on theboard of Radio Free Asia and the Committee for Freedom in HongKong. From 2007 to 2020 she was a director of the Kaiser Aluminum Corporation.
Chairman Bartholomew received a Bachelor of Arts degree fromthe University of Minnesota, a Master of Arts in Anthropology fromDuke University, and a Juris Doctorate from Georgetown University
Law Center. She is a member of the State Bar of California.
Robin Cleveland, PhD, Vice Chairman
Vice Chairman Robin Cleveland was reappointed by Senate Republican Leader Mitch McConnell for a two-year term expiring December 31, 2022. After three decades of government service, Vice
Chairman Cleveland received her PhD in Counseling and is now inprivate practice. Previously, she served as the Executive Director of
the Office of Student Life at the Graduate School of Education and
Human Development at The George Washington University. Vice
(515)

516
Chairman Cleveland worked for U.S. Senator Mitch McConnell in a
number of positions in his personal office, on the Senate Select Committee on Intelligence, the Senate Foreign Relations Committee, andthe Senate Appropriations Committee. In addition, Vice Chairman
Cleveland served as the Counselor to the President of the World
Bank, and as the Associate Director of the Office of Management
and Budget in the Executive Office of the President. During her
tenure serving President Bush, Vice Chairman Cleveland co-led theinteragency effort to develop and implement two Presidential initiatives: the Millennium Challenge Corporation and the President’s
Emergency Plan for AIDS Relief. These efforts reflect her commitment to link policy, performance, and resource management.
Vice Chairman Cleveland graduated from Wesleyan University
with honors and received her Masters and PhD in Counseling fromThe George Washington University.
Bob Borochoff
Commissioner Bob Borochoff is a successful Texas businessman
and community/political leader with over four decades of creating,operating and consulting with small businesses. As Chairman and
CEO of The Borochoff Group, Inc., he has owned and managed
restaurants, special events and catering ventures providing outstanding food, entertainment and logistical arrangements for major events. The Borochoff Group provides a myriad of services forthe restaurant industry, including real estate consulting, marketing,strategy development, concept design, management and operational
services. Borochoff serves as a Commissioner on the Texas FinanceCommission, which oversees and coordinates the three government
departments responsible for the state’s financial services industry,including banking, savings and loans, and consumer credit. He isa member of the Board of Directors of the Greater Houston Partnership, currently serves on the Public Policy Steering Committee,
and for ten years was a member of the Executive Committee forone of the nation’s largest Chambers of Commerce. He is an emeritus member of the Board of the National Restaurant Association,
having served 37 years in its Leadership. His volunteer community
service also includes serving as a past Vice-Chairman of the Mental Health Mental Retardation Authority of Harris County, Texas.
He and his wife, Jane, have three children and reside in Houston,
Texas. Commissioner Borochoff was appointed by House Republican
Leader Kevin McCarthy for a term expiring December 31, 2021.
Jeffrey Fiedler
Commissioner Jeffrey Fiedler was reappointed to the Commission
by House Democratic Leader Nancy Pelosi for a term expiring December 31, 2022. He is the retired National Strategic Retail Director for United Food and Commercial Workers International Union.
Before that he was Assistant to the General President, and Director,
Special Projects and Initiatives, for the International Union of Operating Engineers. Previously, he was President of Research Associates of America (RAA) and the elected president of the Food andAllied Service Trades Department, AFL–CIO (‘‘FAST’’). This constitutional department of the AFL–CIO represented ten unions with

517
a membership of 3.5 million in the United States and Canada. The
focus of RAA, like FAST before it, was organizing and bargaining
research for workers and their unions.
He served as a member of the AFL–CIO Executive Council committees on International Affairs, Immigration, Organizing, and Strategic Approaches. He also served on the board of directors of theConsumer Federation of America and is a member of the Council
on Foreign Relations. In 1992, Mr. Fiedler co-founded the Laogai
Research Foundation (LRF), an organization devoted to studying theforced labor camp system in China. When the foundation’s Executive Director, Harry Wu, was detained in China in 1995, Mr. Fiedler
coordinated the campaign to win his release. He no longer serves as
director of the LRF.
Mr. Fiedler has testified on behalf of the AFL–CIO before the Senate Foreign Relations Committee and the House International Affairs Committee and its various subcommittees, as well as the Trade
Subcommittee of the House Ways and Means Committee concerning
China policy. He attended three of the American Assembly conferences on China sponsored by Columbia University and has participated in a Council on Foreign Relations task force and study groupon China. He has been interviewed on CBS, NBC, ABC, CNN, and
CNBC on China policy, international trade issues, human rights,
and child labor.
A Vietnam veteran, he served with the U.S. Army in Hue in 1967–
1968. He received his BA in Political Science from Southern Illinois
University. He is married with two adult children and resides in
California.
Kimberly T. Glas
Commissioner Glas was appointed by Senate Majority Leader
Chuck Schumer for a term expiring December 31, 2022. She joined
the National Council of Textile Organizations (NCTO) in May 2019as President and CEO. She has more than 20 years of experience ingovernment policy development and advocacy. Her multi-faceted career includes spearheading manufacturing and trade policy efforts on
Capitol Hill, serving as a key leader on behalf of the textile, consumer
goods, and building material industries in the Obama Administration,and leading a non-profit organization working to advance critical policies to grow quality, U.S. jobs in the clean energy economy.
Most recently she served as Executive Director of the BlueGreen
Alliance, a non-profit partnership of labor unions and environmentalorganizations. In that capacity, she led an organization that works
to advance policies to help achieve a stronger economy and a moresustainable future at the intersection of energy, the environment
and trade.
Before leading the BlueGreen Alliance, Commissioner Glas served
as the Deputy Assistant Secretary for Textiles, Consumer Goods,
and Materials at the U.S. Department of Commerce. In that role, she
worked to improve the domestic and international competitivenessof the broad product range of U.S. industries. She also served as
the chairman for the Committee for the Implementation of Textile
Agreements, which supervises the negotiation and implementationof textile and apparel agreements.

518
Commissioner Glas served for a decade on Capitol Hill working
extensively on manufacturing, trade, and economic policy issues forCongressman Michael H. Michaud from Maine and Congressman
John J. LaFalce from New York. As Deputy Chief of Staff and Legislative Director for Congressman Michaud, she led efforts to establish the House Trade Working Group, a key coalition of Membersof Congress that works extensively on trade policy and domestic
competitiveness issues to this day.
Ms. Glas earned a B.A. in History and graduated summa cum
laude from the State University of New York at Geneseo.
The Honorable Carte P. Goodwin
Senator Carte P. Goodwin was appointed to the Commission by
Senate Democratic Leader Chuck Schumer for a two-year term expiring on December 31, 2021.
He is an attorney with the law firm of Frost Brown Todd, LLC
where he serves as the Member-in-Charge of its Charleston office,vice chair of the Appellate Practice Group, and a member of CivicPoint, the firm’s government affairs subsidiary. Goodwin’s practiceincludes litigation and appellate advocacy, and advising clients on
government relations, regulatory matters and commercial transactions. Goodwin recently completed his term as President of the West
Virginia Bar Association and has served as Chair of the West Virginia Bar’s Appellate Committee since 2018.
In July of 2010, West Virginia Governor Joe Manchin III appointed Goodwin to the United States Senate to fill the vacancy causedby the passing of Senator Robert C. Byrd, where he served untila special election was held to fill the remainder of Senator Byrd’s
unexpired term.
From 2005 to 2009, Goodwin served four years as General Counsel to Governor Manchin, during which time he also chaired theGovernor’s Advisory Committee on Judicial Nominations. In addition, Goodwin chaired the West Virginia School Building Authority and served as a member of the State Consolidated Public Retirement Board. Following his return to private practice in 2009,
Goodwin was appointed to chair the Independent Commission on
Judicial Reform, along with former Supreme Court Justice Sandra
Day O’Connor, which was tasked with evaluating the need for broadsystemic reform to West Virginia’s judicial system.
Goodwin also previously worked as a law clerk for the Honorable
Robert B. King of the United States Court of Appeals for the Fourth
Circuit. A native of Mt. Alto, West Virginia, Goodwin received his
Bachelor of Arts degree in Philosophy from Marietta College in Marietta, Ohio, in 1996 and received his Doctor of Law degree from theEmory University School of Law, graduating Order of the Coif in
1999.
Goodwin currently resides in Charleston, West Virginia, with hiswife, Rochelle; son, Wesley Patrick; and daughter, Anna Vail.
Roy D. Kamphausen
Commissioner Roy Kamphausen was appointed by Senate Republican Leader Mitch McConnell for a two-year term expiring December 31, 2021. He is President of The National Bureau of Asian519
Research (NBR). He is the author, contributing author, or co-editorof numerous publications, including chapters in NBR’s Strategic
Asia series; the Carlisle People’s Liberation Army Conference series
and its most recent volume, The People of the PLA, 2.0 (2021); andthe IP Commission’s Report on the Theft of American Intellectual
Property (2013, 2017, 2019). His areas of expertise include China’s
People’s Liberation Army, U.S.-China defense relations, East Asian
security issues, innovation, and intellectual property protection. He
has presented on these topics throughout the United States, Asia,
and Europe to government and corporate decision-makers. Mr. Kamphausen is frequently cited in U.S. and international media, including CNN, the Financial Times, Foreign Policy, National Public Radio, Newsweek, and the New York Times.
Mr. Kamphausen is a senior adviser on East Asia for the University of Connecticut’s Office of Global Affairs. He has previously
served as an adjunct associate professor at Columbia University’s
School of International and Public Affairs. He lectures regularly at
leading U.S. military institutions, including the U.S. Military Academy (West Point) and the U.S. Army War College. Mr. Kamphausen
regularly briefs members of Congress and advises the U.S. Department of Defense.
Prior to joining NBR, Mr. Kamphausen served as a career U.S.
Army officer. A China foreign area officer, his career included assignments as China policy director in the Office of the Secretaryof Defense, China strategist for the chairman of the Joint Chiefs ofStaff, and a military attaché at the U.S. Embassy in Beijing.
Mr. Kamphausen holds a BA in Political Science from Wheaton
College and an MA in International Affairs from Columbia University. He studied Chinese at both the Defense Language Institute andBeijing’s Capital Normal University. He is a member of the National
Committee on U.S.-China Relations.
Derek Scissors
Commissioner Scissors is a resident scholar at the American
Enterprise Institute (AEI), where he focuses on the Chinese andIndian economies and on U.S. economic relations with Asia. He isconcurrently chief economist of the China Beige Book. Dr. Scissors
is the author of the China Global Investment Tracker. Starting inlate 2008, he authored a series of papers that chronicled the endof pro-market Chinese reform and predicted economic stagnationin China as a result. He has also written multiple papers on thebest course for Indian economic development. Before joining AEI, Dr.
Scissors was a senior research fellow in the Asian Studies Centerat the Heritage Foundation and an adjunct professor of economics
at George Washington University. He has worked for London-basedIntelligence Research Ltd., taught economics at Lingnan University
in Hong Kong, and briefly served as an action officer in international economics and energy for the U.S. Department of Defense. Dr.
Scissors has a bachelor’s degree from the University of Michigan,a master’s degree from the University of Chicago, and a doctorate
from Stanford University.
Commissioner Scissors was appointed by House Republican Leader Kevin McCarthy for a term expiring December 31, 2022.

520
The Honorable James M. Talent
Senator Jim Talent was appointed by Senate Republican Leader
Mitch McConnell for a two-year term expiring December 31, 2021.
Senator Jim Talent is a national security leader who specializes inissues related to the Department of Defense. He has been active in
Missouri and national public policy for over 25 years.
Senator Talent’s public service began in 1984, when at the age of
28 he was elected to the Missouri House of Representatives where
he served eight years, the last four as the Republican leader in the
Missouri House.
In 1992, he was elected to the first of four terms in the U.S.
House of Representatives where he represented Missouri’s Second
Congressional District. During his eight years in the U.S. House ofRepresentatives, Talent co-authored the historic welfare reform bill,championed national security issues on the House Armed Services
Committee, and enacted legislation to help revitalize distressedneighborhoods, both urban and rural. He was the Chairman of theHouse Small Business Committee from 1997–2001, where he worked
on regulatory reform issues and on legislation to lower health carecosts for small business people and their employees. Under Senator
Talent’s leadership, the Small Business Committee became one of
the most prolific and bipartisan in the House of Representatives,
passing numerous bills without a single dissenting vote.
In 2002, Missourians elected Talent to serve in the United States
Senate where he worked with Republicans and Democrats to enact critical legislation for Missouri. He served on the Senate Armed Services,
Energy and Natural Resources, and Agriculture Committees. Working
with Oregon Democrat Ron Wyden, Senator Talent was successful insecuring critical funding through construction bonding in the highway
bill. He and Senator Dianne Feinstein (D-CA) succeeded in passing themost comprehensive anti-methamphetamine bill ever enacted into law.
Senator Talent was a leader on energy issues and was instrumental in
the passage of the renewable fuel standard.
After leaving the Senate in 2007, Senator Talent joined the Heritage
Foundation as a Distinguished Fellow specializing in military affairs
and conservative solutions to poverty. In 2008, he served as Vice Chairman of the Commission on Prevention of Weapons of Mass Destruction
Proliferation and Terrorism. In 2010, he served on the independent
panel that reviewed the Quadrennial Defense Review of the Department of Defense. He also served on the independent panel that reviewed the Quadrennial Defense Review of 2014. He also has been amember of the executive panel advising the Chief of Naval Operations
and served on the Defense Policy Board in the years 2017–2020.
Since he left the Senate, Senator Talent has been associated with
the Heritage Foundation, the American Enterprise Institute, andthe Bipartisan Policy Center. He is currently the Chairman of the
National Leadership Council for the Reagan Institute.
Michael R. Wessel
Commissioner Michael R. Wessel, an original member of the
U.S.-China Economic and Security Review Commission, was reappointed by House Democratic Leader Nancy Pelosi for a term expiring on December 31, 2022.

521
Commissioner Wessel served on the staff of former House Democratic Leader Richard Gephardt for more than two decades, leaving his position as general counsel in March 1998. In addition,
Commissioner Wessel was Congressman Gephardt’s chief policy
advisor, strategist, and negotiator. He was responsible for the development, coordination, management, and implementation of the
Democratic leader’s overall policy and political objectives, withspecific responsibility for international trade, finance, economics,
labor, and taxation.
During his more than 20 years on Capitol Hill, Commissioner Wessel served in a number of positions. As Congressman Gephardt’s principal Ways and Means aide, he developed and implemented numerous tax and trade policy initiatives. He participatedin the enactment of every major trade policy initiative from 1978
until his departure in 1998. In the late 1980s, he was the executive
director of the House Trade and Competitiveness Task Force, where
he was responsible for the Democrats’ trade and competitivenessagenda as well as overall coordination of the Omnibus Trade andCompetitiveness Act of 1988. He currently serves as staff liaison to
the Labor Advisory Committee to the USTR and Secretary of Labor.
Commissioner Wessel was intimately involved in the developmentof comprehensive tax reform legislation in the early 1980s and every
major tax bill during his tenure. Beginning in 1989, he became theprincipal advisor to the Democratic leadership on economic policy matters and served as tax policy coordinator to the 1990 budget summit.
In 1988, he served as national issues director for Congressman Gephardt’s presidential campaign. During the 1992 presidential campaign, he assisted the Clinton presidential campaign on a broad range
of issues and served as a senior policy advisor to the Clinton Transition
Office. In 2004, he was a senior policy advisor to the Gephardt for President Campaign and later co-chaired the Trade Policy Group for the
Kerry presidential campaign. In 2008, he was publicly identified as atrade and economic policy advisor to the Obama presidential campaign
and advised the Clinton campaign in 2016.
He has coauthored a number of articles with Congressman Gephardt and a book, An Even Better Place: America in the 21st Century. Commissioner Wessel served as a member of the U.S. Trade
Deficit Review Commission in 1999–2000, a congressionally createdcommission charged with studying the nature, causes, and consequences of the U.S. merchandise trade and current account deficits.
Today, Commissioner Wessel is President of The Wessel Group
Incorporated, a public affairs consulting firm offering expertise ingovernment, politics, and international affairs. Commissioner Wessel holds a Bachelor of Arts and a Juris Doctorate from The George
Washington University. He is a member of the Bars of the Districtof Columbia and of Pennsylvania and is a member of the Council
on Foreign Relations. He and his wife Andrea have four children.
Alex Wong
Commissioner Wong is a senior fellow at the Hudson Institute.
His research spans U.S. national security policy and foreign affairs,with a particular focus on U.S. strategy in the Indo-Pacific region
and the future of the Korean Peninsula.

522
Mr. Wong most recently served as the Deputy Special Representative for North Korea and the Deputy Assistant Secretary for North
Korea at the U.S. Department of State. In that position, he was theNo. 2 negotiator in denuclearization talks with North Korea andguided the U.S.-led international pressure campaign.
Previously, Mr. Wong led the State Department’s efforts to implement the Free and Open Indo-Pacific Strategy as the Deputy
Assistant Secretary for Regional and Security Affairs in the State
Department’s East Asia bureau. In 2020, Mr. Wong was unanimously approved by the Senate Foreign Relations Committee to be theU.S. Ambassador for Special Political Affairs at the United Nations,a position in which he would have represented the United States on
all matters before the UN Security Council.
Prior to his most recent stint at the State Department, Mr. Wong
was the Foreign Policy Advisor and General Counsel to Senator Tom
Cotton (R-AR) and the Foreign and Legal Policy Director for the
Romney-Ryan 2012 presidential campaign.
Mr. Wong is a licensed attorney, spent years counseling Fortune
100 clients on international trade and governmental investigations
matters, and began his legal career as a clerk for the honorable
Janice Rogers Brown of the United States Court of Appeals for theDistrict of Columbia Circuit.
Mr. Wong graduated summa cum laude from the University ofPennsylvania and received his J.D. with high honors from Harvard
Law School where he was the Managing Editor of the Harvard Law
Review and an editor of the Harvard International Law Journal.
Commissioner Wong was appointed by House Republican Leader
Kevin McCarthy for a term expiring December 31, 2021.
Daniel W. Peck, Executive Director
Mr. Peck leads the Commission’s full-time professional staff. He is
responsible for execution of the Commission’s annual hearing cycleand development and publication of the Annual Report to Congress,
as well as staff development and overseeing all other activities of
the Commission.
Mr. Peck has previously served in senior policy positions at the
Office of the Secretary of Defense (OSD) and the American Institutein Taiwan (AIT) Washington Office. His 22 years of service in the
U.S. Army include 12 years as a Foreign Area Officer (FAO) focusedon China and the Asia-Pacific, with tours as a military attaché atthe U.S. Embassy in Beijing, as a senior military analyst at the
Defense Intelligence Agency, and as a visiting scholar at Beijing’s
Capital Normal University. His military service includes two combat
tours in Afghanistan, operational deployments to Kuwait and Bosnia, and service in Korea and China.

APPENDIX III
PUBLIC HEARINGS OF THE COMMISSION
Full transcripts and written testimonies are available online at
the Commission’s website: www.uscc.gov.
January 28, 2021: Public Hearing on“U.S.-China Relations at the Chinese Communist Party’s
Centennial”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman (Hearing Co-Chair); Bob Borochoff; Robin Cleveland, Vice Chairman; Hon.
Carte P. Goodwin; Roy D. Kamphausen (Hearing Co-Chair); Hon.
James M. Talent; Michael R. Wessel.
Witnesses: Robert Sutter, George Washington University; Mary
Lovely, Syracuse University; Zack Cooper, American Enterprise Institute and Alliance for Securing Democracy; Sheena Chestnut Greitens, University of Texas at Austin; Yuen Yuen Ang, University ofMichigan; M. Taylor Fravel, Massachusetts Institute of Technology;
Jacqueline Deal, Long Term Strategy Group; Daniel Rosen, Rhodium Group; Peter Jennings, Australian Strategic Policy Institute.
February 18, 2021: Public Hearing on“Deterring the PRC’s Aggression toward Taiwan”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman; Bob
Borochoff; Robin Cleveland, Vice Chairman; Jeffrey Fiedler; Hon.
Carte P. Goodwin (Hearing Co-Chair); Roy D. Kamphausen; Derek
Scissors; Hon. James M. Talent (Hearing Co-Chair); Michael R. Wessel; Alex Wong.
Witnesses: Lonnie Henley, Defense Intelligence Agency (retired)and George Washington University; Fiona Cunningham, George
Washington University; Michael Hunzeker, George Mason University; Oriana Skylar Mastro, Stanford University and American Enterprise Institute; Kharis Templeman, Stanford University; Mark
Cozad, RAND Corporation; Thomas Shugart, Center for a New
American Society; Bonny Lin, RAND Corporation; David Keegan,
Johns Hopkins University School of Advanced International Studies; Shelley Rigger,* Davidson College.

* Did not appear in person but submitted material for the record.

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March 19, 2021: Public Hearing on“U.S. Investment in China’s Capital Markets and MilitaryIndustrial Complex”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman; Bob Borochoff (Hearing Co-Chair); Robin Cleveland, Vice Chairman; Jeffrey
Fiedler (Hearing Co-Chair); Hon. Carte P. Goodwin; Roy D. Kamphausen; Derek Scissors; Hon. James M. Talent; Michael R. Wessel;
Alex Wong.
Witnesses: Tamar Groswald Ozery, Harvard Law School; Meg
Rithmire, Harvard Business School; Zachary Arnold, Center for Security and Emerging Technology; Anne Stevenson-Yang, J Capital
Research; Johannes Petry, SCRIPTS Cluster of Excellence and Centre for the Study of Globalization and Regionalization; Teresa Kong,
Matthews Asia; Adam Lysenko, Strider Technologies; Jason Arterburn, C4ADS; Nathan Picarsic, Horizon Advisory and Foundation
for Defense of Democracies; Emily Weinstein, Center for Security
and Emerging Technology; Nazak Nikakhtar, Wiley Rein LLP andformerly U.S. Department of Commerce, International Trade Administration; Perth Tolle, Life + Liberty Indexes; Ryan LaFond, Algert
Global; Christopher Iacovella,* American Securities Association.
April 15, 2021: Public Hearing on“An Assessment of the CCP’s Economic Ambitions, Plans,and Metrics of Success”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman; Bob
Borochoff; Robin Cleveland, Vice Chairman (Hearing Co-Chair); Jeffrey Fiedler; Hon. Carte P. Goodwin; Roy D. Kamphausen; Derek
Scissors; Hon. James M. Talent; Michael R. Wessel (Hearing CoChair); Alex Wong.
Witnesses: Matt Pottinger, Hoover Institution; Miles Yu, Hudson
Institute and Hoover Institution; Loren Brandt, University of Toronto; Jude Blanchette, Center for Strategic and International Studies;
Ling Chen, Johns Hopkins University School of Advanced International Studies; Nigel Cory, Information Technology and Innovation
Foundation; Jason Kelly, Ginkgo Bioworks; Joanna Moody, Massachusetts Institute of Technology; Martin Chorzempa, Peterson Institute for International Economics; Yaya Fanusie, Center for a New
American Security; Samantha Hoffman, Australian Strategic Policy
Institute.
May 20, 2021: Public Hearing on“China in Latin America and the Caribbean”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman (Hearing Co-Chair); Bob Borochoff; Robin Cleveland, Vice Chairman; Jeffrey Fiedler; Kimberly T. Glas; Hon. Carte P. Goodwin; Roy D. Kamphausen; Derek Scissors (Hearing Co-Chair); Hon. James M. Talent;
Michael R. Wessel, Alex Wong.
* Did not appear in person but submitted material for the record.

525
Witnesses: R. Evan Ellis, U.S. Army War College; Margaret Myers, Inter-American Dialogue; Ryan Berg, Center for Strategic andInternational Studies; Rebecca Ray, Boston University Global Development Policy Center; Mitch Hayes, The China Signal and Mundo;
Francisco Urdinez, Pontificia Universidad Católica de Chile; Cynthia Watson, National War College; Thiago de Aragão, Arko Advice
and Center for Strategic and International Studies; Rasheed Griffith, Tokamak Labs and China in the Caribbean podcast; Luis Rubio, México Evalúa; Oliver Della Costa Stuenkel, Fundação Getulio
Vargas and Carnegie Endowment for International Peace.
June 10, 2021: Public Hearing on“China’s Nuclear Forces”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman; Bob
Borochoff; Robin Cleveland, Vice Chairman; Jeffrey Fiedler (Hearing
Co-Chair); Kimberly T. Glas; Roy D. Kamphausen; Derek Scissors;
Hon. James M. Talent; Michael R. Wessel, Alex Wong (Hearing CoChair).
Witnesses: Hans Kristensen, Federation of American Scientists;
Phillip Saunders, National Defense University; Mark Hibbs, Carnegie Endowment for International Peace; Christopher Twomey, Naval Postgraduate School; David Logan, Princeton University; Caitlin
Talmadge, Georgetown University; Brad Roberts, Lawrence Livermore National Laboratory; Abraham Denmark, Woodrow Wilson International Center for Scholars; Valerie Lincy, Wisconsin Project on
Nuclear Arms Control.
September 8, 2021: Public Hearing on“U.S.-China Relations in 2021: Emerging Risks”
Washington, DC
Commissioners present: Carolyn Bartholomew, Chairman; Bob
Borochoff; Robin Cleveland, Vice Chairman (Hearing Co-Chair); Jeffrey Fiedler; Kimberly T. Glas (Hearing Co-Chair); Hon. Carte P.
Goodwin; Roy D. Kamphausen; Derek Scissors; Hon. James M. Talent; Michael R. Wessel; Alex Wong.
Witnesses: Michael Davis, Woodrow Wilson International Center
for Scholars; Angeli Datt, Freedom House; Samuel Chu, Hong Kong
Democracy Council; Maureen Thorson, Wiley Rein LLP; Dan Harris, Harris Bricken; Rebecca Fair, Thresher; Shaswat Das, King &Spalding; Jeremy Pelter, U.S. Department of Commerce, Bureau ofIndustry and Security; Kevin Wolf, Akin Gump; Giovanna Cinelli,George Mason University; David Hanke, George Mason University.

APPENDIX IIIA
LIST OF WITNESSES TESTIFYING BEFORETHE COMMISSION
2021 Hearings
Full transcripts and written testimonies are available online at
the Commission’s website: www.uscc.gov.
Alphabetical Listing of Witnesses Testifying before theCommission
Witness Name

Witness Affiliation

Commission
Hearing

Ang, Yuen Yuen

University of Michigan

January 28, 2021

de Aragão, Thiago

Arko Advice and Center for Strategic and International Studies

May 20, 2021

Arnold, Zachary

Center for Security and Emerging
Technology

March 19, 2021

Arterburn, Jason

C4ADS

March 19, 2021

Berg, Ryan

Center for Strategic and International Studies

May 20, 2021

Blanchette, Jude

Center for Strategic and International Studies

April 15, 2021

Brandt, Loren

University of Toronto

April 15, 2021

Chen, Ling

Johns Hopkins University School of
Advanced International Studies

April 15, 2021

Chorzempa, MartinPeterson Institute for International
Economics

April 15, 2021

Chu, SamuelHong Kong Democracy Council

September 8, 2021

Cinelli, Giovanna

George Mason University

September 8, 2021

Cooper, Zack

American Enterprise Institute andAlliance for Securing Democracy

January 28, 2021

Cory, Nigel

Information Technology and Innovation Foundation

April 15, 2021

Cozad, MarkRAND Corporation

February 18, 2021

Cunningham, Fiona

George Washington University

February 18, 2021

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Alphabetical Listing of Witnesses Testifying before theCommission—Continued
Witness Name

Witness Affiliation

Commission
HearingDas, Shaswat

King & Spalding

September 8, 2021

Datt, Angeli

Freedom House

September 8, 2021

Davis, Michael

Woodrow Wilson International
Center for Scholars

September 8, 2021

Deal, Jacqueline

Long Term Strategy Group

January 28, 2021

Denmark, Abraham

Woodrow Wilson International
Center for Scholars

June 10, 2021

Ellis, R. Evan

U.S. Army War College

May 20, 2021

Fair, Rebecca

Thresher

September 8, 2021

Fanusie, Yaya

Center for a New American Security

April 15, 2021

Fravel, M. Taylor

Massachusetts Institute of Technology

January 28, 2021

Greitens, Sheena
Chestnut

University of Texas at Austin

January 28, 2021

Griffith, Rasheed

Tokamak Labs and China in the
Caribbean podcast

May 20, 2021

Hanke, David

George Mason University

September 8, 2021

Harris, Dan

Harris Bricken

September 8, 2021

Hayes, Mitch

The China Signal and Mundo

May 20, 2021

Henley, Lonnie

Defense Intelligence Agency (retired) and George Washington
University

February 18, 2021

Hibbs, Mark

Carnegie Endowment for International Peace

June 10, 2021

Hoffman, Samantha

Australian Strategic Policy Institute

April 15, 2021

Hunzeker, Michael

George Mason University

February 18, 2021

Iacovella, Christopher *American Securities Association

March 19, 2021

Jennings, Peter

Australian Strategic Policy Institute

January 28, 2021

Keegan, DavidJohns Hopkins University School of
Advanced International Studies

February 18, 2021

Kelly, Jason

Ginkgo Bioworks

April 15, 2021

Kong, Teresa

Matthews Asia

March 19, 2021

Kristensen, Hans

Federation of American Scientists

June 10, 2021

LaFond, Ryan

Algert Global

March 19, 2021

* Did not attend in person but submitted material for the record.

529
Alphabetical Listing of Witnesses Testifying before theCommission—Continued
Witness Name

Witness Affiliation

Commission
Hearing

Lin, BonnyRAND Corporation

February 18, 2021

Lincy, Valerie

Wisconsin Project on Nuclear Arms
ControlJune 10, 2021

Logan, David

Princeton University

June 10, 2021

Lovely, Mary

Syracuse University

January 28, 2021

Lysenko, Adam

Strider Technologies

March 19, 2021

Mastro, Oriana Skylar

Stanford University and American
Enterprise InstituteFebruary 18, 2021

Moody, Joanna

Massachusetts Institute of Technology

April 15, 2021

Myers, MargaretInter-American Dialogue

May 20, 2021

Nikakhtar, Nazak

Wiley Rein LLP and formerly U.S.
Department of Commerce, International Trade Administration

March 19, 2021

Ozery, Tamar Groswald Harvard Law School

March 19, 2021

Pelter, Jeremy

U.S. Department of Commerce, Bureau of Industry and Security

September 8, 2021

Petry, Johannes

SCRIPTS Cluster of Excellence andCentre for the Study of Globalization and Regionalization

March 19, 2021

Picarsic, Nathan

Horizon Advisory and Foundation
for Defense of Democracies

March 19, 2021

Pottinger, Matt

Hoover Institution

April 15, 2021

Ray, Rebecca

Boston University Global Development Policy CenterMay 20, 2021

Rigger, Shelley *Davidson College

February 18, 2021

Rithmire, Meg

Harvard Business School

March 19, 2021

Roberts, Brad

Lawrence Livermore National
Laboratory

June 10, 2021

Rosen, Daniel

Rhodium Group

January 28, 2021

Rubio, Luis

México Evalúa

May 20, 2021

Saunders, Phillip

National Defense University

June 10, 2021

Shugart, Thomas

Center for a New American Security

February 18, 2021

Stevenson-Yang, Anne

J Capital Research

March 19, 2021

* Did not attend in person but submitted material for the record.

530
Alphabetical Listing of Witnesses Testifying before theCommission—Continued
Commission
Hearing

Witness Name

Witness Affiliation

Stuenkel, Oliver Della
Costa

Fundação Getulio Vargas and Carn- May 20, 2021
egie Endowment for International Peace

Sutter, Robert

George Washington University

January 28, 2021

Talmadge, Caitlin

Georgetown University

June 10, 2021

Templeman, Kharis

Stanford University

February 18, 2021

Thorson, Maureen

Wiley Rein LLP

September 8, 2021

Tolle, Perth

Life + Liberty Indexes

March 19, 2021

Twomey, Christopher

Naval Postgraduate School

June 10, 2021

Urdinez, Francisco

Pontificia Universidad Católica deChile

May 20, 2021

Watson, Cynthia

National War College

May 20, 2021

Weinstein, Emily

Center for Security and Emerging
Technology

March 19, 2021

Wolf, Kevin

Akin Gump

September 8, 2021

Yu, Miles

Hudson Institute and Hoover
Institution

April 15, 2021

APPENDIX IV
LIST OF RESEARCH MATERIAL
Contracted and Staff Research Reports
Released in Support of the 2021 Annual Report
Disclaimer
The reports in this section were prepared at the request of theCommission to supports its deliberations. They have been posted
to the Commission’s website in order to promote greater public
understanding of the issues addressed by the Commission in its
ongoing assessment of U.S.-China economic relations and theirimplications for U.S. national security, as mandated by Public
Law No. 106–398, and amended by Public Laws No. 107–67, No.
108–7, No. 109–108, No. 110–161, and No. 113–291. The postingof these reports to the Commission’s website does not imply an
endorsement by the Commission or any individual Commissionerof the views or conclusions expressed therein.
Contracted Reports
China’s Corporate Social Credit System: Context, Competition,
Technology and Geopolitics
Prepared for the Commission by Kendra Schaefer
Trivium China
December 2020
https://www.uscc.gov/research/chinas-corporate-social-credit-systemcontext-competition-technology-and-geopolitics
Two Markets, Two Resources: Documenting China’s
Engagement in Africa
Prepared for the Commission by Emily de La Bruyère and Nathan
Picarsic
Horizon Advisory
November 2020
https://www.uscc.gov/research/two-m arkets-two-resourcesdocumenting-chinas-engagement-africa
Staff Research Reports, Issue Briefs, and Backgrounders
Illicit Fentanyl from China: An Evolving Global Operation
Written by Congressional Fellow Lauren Greenwood and former
Congressional Fellow Kevin Fashola
August 2021
https://www.uscc.gov/research/illicit-fentanyl-china-evolving-globaloperation
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China-Iran Relations: A Limited but Enduring StrategicPartnership
Written by former Policy Analyst Will Green and Policy Analyst
Taylore RothJune 2021
https://www.uscc.gov/research/china-iran-relations-limitedenduring-strategic-partnership
Unfinished Business: Export Control and Foreign Investment
Reforms
Written by Policy Analyst Emma Rafaelof
June 2021
https://www.uscc.gov/research/unfinished-business-export-controland-foreign-investment-reforms
Chinese Companies Listed on Major U.S. Stock Exchanges
May 2021
https://www.uscc.gov/research/chinese-companies-listed-major-usstock-exchanges
Timeline of Executive Actions on China (2017–2021)
April 2021
ht tps://www.u scc.gov/res earch/tim elin e- e x ecutive- a cti on schina-2017-2021
China’s Healthcare System: Addressing Capacity Shortfalls
before and after COVID-19
Written by Policy Analyst Leyton Nelson
March 2021
https://www.uscc.gov/research/chinas-healthcare-system-addressingcapacity-shortfalls-and-after-covid-19
The Shanghai Cooperation Organization: A Testbed for
Chinese Power Projection
Written by former Policy Analysts Matthew Southerland and Will
Green, and Policy Analyst Sierra Janik
November 2020
https://www.uscc.gov/research/shanghai-cooperation-organizationtestbed-chinese-power-projection
Economics and Trade Bulletins
Every month the Commission publishes an Economics and Trade
Bulletin written by the Economics and Trade Staff. The Bulletinsare accessible on the Commission’s website at: https://www.uscc.
gov/trade-bulletins.

APPENDIX V
CONFLICT OF INTEREST AND LOBBYINGDISCLOSURE REPORTING
The Commission seeks to hold itself to the highest standards oftransparency in carrying out its mission. In accordance with its
policy for avoiding conflicts of interest, Commissioners who believe
they have an actual or perceived conflict of interest must recuse
themselves from the source or subject matter of the conflict. There
were no recusals by Commissioners from any portions of the 2021
Report cycle.
Lobbying disclosure reports filed by any Commissioners who engage in “lobbying activities” as defined by the Lobbying Disclosure
Act in connection with their outside employment activities may beaccessed via public databases maintained by the House (https://lobbyingdisclosure.house.gov/) and Senate (https://lda.senate.gov/
system/public/).

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APPENDIX VI
ACRONYMS AND ABBREVIATIONSAIAmCham
Ant
ASEAN
ATP
AUKUS
AV
AVIC
BIS
BRI
BSN
CAC
CAI
CASIC
CCMC
CCP
CCTV
CETC
CFA
CFIUS
CHIPS
CMC
CMIC
CNIPA
COVID-19
CPTPP
CSCS
Didi
DOD
ECRA
EEZ
EO
ETF
EU
FDI
FINI

artificial intelligence
American Chamber of Commerce
Ant Financial
Association of Southeast Asian Nations
advanced technology products
Australia, the United Kingdom, and the UnitedStatesautonomous vehicle
Aviation Industry Corporation of China
Bureau of Industry and Security (U.S. Departmentof Commerce)
Belt and Road Initiative
Blockchain-Based Service Network
Cyberspace Administration of China
Comprehensive Agreement on Investment
China Aerospace Science Industry Group
Corporation
Communist Chinese Military Company
Chinese Communist Party
China Central Television
China Electronics Technology Group Corporation
Court of Final Appeal
Committee on Foreign Investment in the UnitedStatesClearing House Interbank Payments System
Central Military Commission
Chinese Military-Industrial Complex
China National Intellectual Property
Administrationnovel coronavirus
Comprehensive and Progressive Agreement forTrans-Pacific Partnershipcorporate social credit system
Didi Chuxing
U.S. Department of Defense
Export Control Reform Act
exclusive economic zone
executive orderexchange-traded fundEuropean Union
foreign direct investment
Fast Interface for New Issuance
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FIRRMA

Foreign Investment Risk Review Modernization
Act
FYP
five-year planGDPgross domestic product
GDPR
General Data Protection Regulation
HKD
Hong Kong dollar
HKEX
Hong Kong Stock Exchange
HKMA
Hong Kong Monetary Authority
HKPF
Hong Kong Police ForceHKSAR
Hong Kong Special Administrative Region
ICBM
intercontinental ballistic missile
ICT
information and communications technology
IEEPA
International Emergency Economic Powers Act
IFI
international financial institution
IMF
International Monetary Fund
INDOPACOM Indo-Pacific Command
INF
Intermediate-Range Nuclear Forces
IPO
initial public offering
IRBM
intermediate-range ballistic missile
ISO
International Organization for Standardization
ISR
intelligence, surveillance, and reconnaissance
ITU
International Telecommunication Union
IUU
illegal, unreported, and unregulated
LegCo
Legislative Council (Hong Kong)
LGFV
local government finance vehicle
M&A
mergers and acquisitions
MaaS
mobility-as-a-service
MIRV
multiple independently targetable reentry vehicle
MRBM
medium-range ballistic missile
NC3
nuclear command, control, and communications
NDAA
National Defense Authorization Act
NEV
new energy vehicleNGOnongovernmental organization
nm
nautical mile
NPC
National People’s Congress
NS-CMIC
Non-Specially Designated Nationals Chinese
Military-Industrial Complex
ODC
Overall Defense Concept
OFAC
Office of Foreign Assets Control (U.S. Departmentof the Treasury)
PBOC
People’s Bank of China
PCPD
Privacy Commissioner for Personal Data
PLA
People’s Liberation Army
PPE
personal protective equipment
PRC
People’s Republic of China
QFII
Qualified Foreign Institutional Investor
Quad
Quadrilateral Security Dialogue
R&D
research and development
RCEP
Regional Comprehensive Economic Partnership
RMB
renminbi
ROROroll-on/roll-off
RTHK
Radio Television Hong Kong
SAM
surface-to-air missile

537
SAMR
SAR
SARS-CoV-2
SDN
SEC
SFC
SLBM
SME
SOE
SSBN
TRA
TSMC
TTRG
UAE
UK
UN
USD
VC
VIE
WHO
WMD
WTO

State Administration for Market Regulation(China)special administrative region
severe acute respiratory syndrome coronavirus
2, the virus that causes the novel coronavirus(COVID-19) disease
Specially Designated National
U.S. Securities and Exchange Commission
Securities and Futures Commission of Hong Kong
submarine-launched ballistic missile
small- and medium-sized enterprisestate-owned enterpriseballistic missile submarine
Taiwan Relations Act
Taiwan Semiconductor Manufacturing Company
Technology Transfer Review Group
United Arab Emirates
United Kingdom
United Nations
U.S. dollar
venture capitalvariable interest entity
World Health Organization
weapons of mass destruction
World Trade Organization

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2021 COMMISSION STAFF
Daniel W. Peck, Executive Director
Daniel Blaugher, Research Assistant, Economics and Trade
Jameson Cunningham, Director, Congressional Affairs and Communications
Alexis Dale-Huang, Research Assistant, Security and Foreign Affairs
Christopher P. Fioravante, Director of Operations and Administration
Benjamin B. Frohman, Director, Security and Foreign Affairs
Lauren Greenwood, Congressional Fellow
Charles Horne, Director, Economics and Trade
Sierra Janik, Policy Analyst, Security and Foreign Affairs
Anastasya Lloyd-Damnjanovic, Director of Research and Policy Analyst, Security
and Foreign Affairs
Kaj Malden, Policy Analyst, Economics and Trade
Diana Moyseowicz, Operations Support Specialist
Leyton Nelson, Policy Analyst, Economics and Trade
Emma Rafaelof, Policy Analyst, Economics and Trade
Taylore Roth, Policy Analyst, Economics and Trade
J. Kirt Smith, Policy Analyst, Security and Foreign Affairs
Howard Wang, Policy Analyst, Security and Foreign Affairs

ACKNOWLEDGEMENTS
The Commission would like to express its deep appreciation to those who testified
as expert witnesses, the researchers and analysts who prepared papers under contract, and the representatives from the executive branch and others who briefed theCommissioners on a wide array of economic and security issues. All of these efforts
informed the Commission and the public debates on issues vital to ongoing U.S.-China relations.
The Commissioners are deeply grateful to the service and expertise of the staff
who develop materials for our hearings, research papers, and annual report. Each
person brings a unique perspective, expertise, and dedication to the Commission andcountry, which every Commissioner has benefited from as we seek to understand U.S.
relations with China. We are also grateful to the congressional and administrative
teams, which offer experienced and capable support ensuring the Commission’s hearings, congressional engagement, and daily operations run smoothly.
Finally, the Commissioners express their thanks to former staff members Alexander Bowe, Kendra Brock, Erik Castillo, Lauren Costello, Kevin Fashola, and Will
Green. The Commissioners are especially grateful to Nargiza Salidjanova for her
many years of service (2005–2021) and her exceptional leadership of the Economics
and Trade team (2015–2021).